Extra Space Storage Stock

Hello, everyone. Thank you for joining us, and welcome to the Extra Space Storage Inc. Q2 2026 Earnings Conference Call. [Operator Instructions]. I will now hand the conference over to Jared Conley, VP of Investor Relations. Jared, please go ahead.

Thank you, Connor. Welcome to Extra Space Storage's second quarter 2026 earnings call. In addition to our press release, we have furnished unaudited supplemental financial information on our website. Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filing with the SEC, which we encourage our listeners to review. Forward-looking statements represent management's estimates as of today, July 29, 2026. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call.

I would like to now turn the call over to Joe Margolis, Chief Executive Officer.

Thank you, Jared, and thank you, everyone, for joining today's call. In addition to our CFO, Jeff Norman, I am joined today by our President, Noah Springer.

I am pleased to report a strong second quarter for Extra Space Storage. We delivered core FFO per share of $2.15, representing a 4.9% year-over-year growth, a result that reflects both the quality of our platform and the improving operating environment. Our same-store revenue grew by 2.4% in the second quarter exceeding our internal projections and accelerating from the first quarter.

Occupancy ended the quarter at 94.2% as our systems effectively balanced rate and occupancy to optimize revenue across the portfolio. The pricing power we have been building over the past several quarters is now clearly flowing through our results. And with same-store expenses declining modestly year-over-year, same-store NOI also accelerated, demonstrating the leverage in our operating model. We are seeing broad-based improvement across many of our markets, supported by steady customer demand, strong retention of existing customers and gradually moderating new supply. While new customers still exhibit some price sensitivity, we continue to capture a disproportionate share of the market, due to our best-in-class digital marketing, pricing and operating systems.

The rate gains we established throughout 2025 and into 2026 are now embedded in our revenue base, and we're encouraged by the momentum heading into the second half of the year. Our company built around operational depth, cutting-edge technology, financial flexibility and diversified growth channels is well positioned to continue to outperform the industry.

With that, I'll turn it over to our President, Noah Springer to discuss our external growth initiatives.

Thank you, Joe. Our external growth platform continued to perform well across multiple channels in the second quarter. In the acquisition market, we are both disciplined and active. We closed 18 stores for $91 million, almost all of which were off-market transactions. Our scale, reputation and long-standing relationships give us broad access to deal flow, and we're seeing many opportunities. That said, asset pricing remains elevated, and we're maintaining our underwriting standards and staying disciplined with a focus on long-term accretion rather than chasing volume. We have significant growth capital to be opportunistic and we will continue to use our balance sheet and joint venture structures as part of our external growth strategy.

We take pride in being strong capital allocators, and we will remain focused on opportunities that enhance portfolio quality and generate accretive returns for our shareholders. Our bridge loan program had another strong quarter. We originated $141 million in new loans and ended the quarter with approximately $1.5 billion in outstanding balances. The bridge loan program creates value on multiple levels. This program generates attractive interest income in addition to earning management fees and tenant insurance. Finally, the program creates a natural pipeline for future acquisitions as we continue to consolidate our fragmented industry.

Third-party management also delivers similar benefits. We added 67 stores during the quarter with net growth of 48 stores, bringing our year-to-date net growth to 108 stores and our total managed portfolio to 1,964 stores at quarter end. The steady demand for our management reflects what owners experience firsthand. Our platform consistently drives superior property performance through operational expertise, sophisticated revenue management and technology infrastructure that scales across more than 4,400 stores.

Now I'll turn it over to our CFO, Jeff Norman.

Thank you, Joe and Noah. Our FFO growth of 4.9% exceeded our internal forecast and was driven primarily by store-level performance. Year-over-year same-store revenue growth accelerated 70 basis points from the first quarter to 2.4%. Same-store NOI accelerated 230 basis points increased 3.5% year-over-year. Same-store expenses decreased modestly year-over-year with all major categories at or better than our internal expectations. Our discipline translated directly into accelerated NOI growth. Our ancillary businesses also contributed to our FFO out-performance. Net tenant insurance income exceeded our forecast due to stronger penetration and lower claims volume.

Interest income was also ahead of estimates due to modestly higher interest rates and higher than modeled loan retention. Our low leverage balance sheet remains strong with significant access to capital. At the end of June, we priced a $550 million bond offering at 4.9%, which settled the first week of July. Proceeds from the offering were used to pay off our first bond maturity on July 1. Today, we have roughly $2 billion available on our revolving lines of credit, net of amounts held available as a backstop for our commercial paper program, which gives us significant flexibility to move quickly on investment opportunities.

Shifting to guidance. Last night, we raised our full year 2026 FFO outlook. Our core FFO is now expected in the range of $8.25 to $8.40 per share. We raised same-store revenue growth guidance 100 basis points to a range of 1% to 2%. We also raised our same-store NOI guidance 200 basis points to a range of positive 0.5% to 2.5%. We refined our Los Angeles price restriction assumption, and our updated guidance reflects approximately 20 basis points to 30 basis points of headwind for the full year compared to our initial estimate of 40 basis points.

In summary, we are having a solid summer leasing season. Same-store NOI and core FFO are both ahead of expectations, our balance sheet is strong and prepared for additional future growth, and we continue to benefit from having the strongest team, portfolio and platform in the industry, which all have contributed to our results.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question is from the line of Michael Goldsmith with UBS.

The same-store revenue growth in the first half of 2% is equal to the high-end of your updated 2026 guidance and implying a deceleration in the back half. So one, what would drive a deceleration in the back half? And then two, did you change any of your assumptions for the back half outside of updating for L.A.?

Yes. Thanks, Mike. You're spot on that depending on where you are in the range, the high end it implies that same-store revenue growth is similar to that of what we experienced in the first half of the year and that at the low-end of the range, it implies some deceleration, and a couple of factors play into that.

The first is, as we move deeper into the year, we do experience more difficult comps, so we're mindful of that. And second, while we haven't seen any change in customer health, be it existing customers or new customers, they are all performing consistently as they have been throughout the year. We're not unaware of the headlines and some of the macro risks related to the customer out there. We read a lot about consumer confidence being low, about there being pressure from inflation and other macro forces. And we feel like those risks are appropriate to factor into the range. All of that said, we factored those into our original range and didn't feel those specifically in the first 2 quarters. And so far, I've really not felt them in July. July was quite similar to June. So to the extent that those don't materialize, it presents an opportunity with the guidance, but we think the prudence is reasonable given those macro factors.

Got it. And then since you brought it up, can you give us an update on what you're seeing so far in July? And it sounds like it's been pretty similar to June, but I would love to get your thoughts on the metrics.

Sure, Michael. This is Joe. July was a good month for us. Just as a comparison, in June, we were slightly ahead in rate year-over-year but had -- we're slightly behind in occupancy. And in July, the system flipped that. We're now slightly ahead in occupancy and slightly behind in rate. And this is a great example, I think, of our systems using different levers to optimize performance over the long term. And the net result of that is, so far, through however many days, we are slightly ahead of our budget in July. So we're having a good month.

The next question is from Michael Griffin with Evercore.

John, I know you touched on this a little bit in your prepared remarks, but I'm just curious if you can expand on the customer demand side of the equation. Has top of funnel improved at all? Has the pie expanded? Or are you still just sort of impeding against the same customer base? And as you look at this inflection and acceleration of same-store fundamentals, is it mostly driven by a moderating supply picture? Or is there anything from sort of organic customer demand that you're seeing that gets you incrementally more positive?

Yes. Our view is that customer demand is steady. We haven't seen any pickup in the housing market. We don't see any indications through our various channels that there's more customers out there. But our systems are able to not only capture more than our share of customers. We've had the highest occupancy at the highest rates in the industry for many, many, many quarters and years now. But we're also capturing better quality customers through some of our channel pricing and other strategies. So I think the short answer is demand is steady, performance is improving because of the continued reduction in supply and our systems are optimizing what's available in the market.

That's certainly some helpful context. Maybe one next for Noah on the transaction market. Can you just give us a sense of whether it was the deals you closed this quarter, sort of how we should think about those on either a cap rate or an un-levered IRR basis? And then talk a little bit about the competition that you're seeing, the interest from private capital just as it relates to kind of institutional self-storage quality product?

Sure, Griffin. Thanks for the question. What we're seeing is the market out there continues to be a little expensive and where cap rates are coming in on the broker deals tends to push us towards our proprietary pipelines that we have. So we continue to close deals that are relationship deals, that are managed deals and that are joint ventures and bridge loans. We tend to go to those because as those deals come up and they're ready for us to harvest, they end up being great deals for us and for our partners, kind of the whole idea of all of those pipelines that we have.

Quite a few of the stores. In fact, the majority of the stores that we closed this quarter were from a relationship deal that we had, and we're happy with that and happy that with the accretion that we got from those stores, and we'll continue to look towards that as the market tends to be a little more expensive than we want to do on the brokerage side.

The next question is from Todd Thomas with KeyBanc Capital Markets.

I wanted to ask, so Joe, you talked about the July trends and mentioned that the comps get a bit more difficult in the second half. Do you see potential for move-in rents to move ahead year-over-year again in the back half of the year? And you sort of mentioned the combination of slightly higher occupancy and the slightly lower move-in rents in July, the combination of that, you're still tracking ahead of plan. But is that an environment longer term in which revenue growth can continue to improve generally from these levels?

Sure. There's a lot of factors that can lead to revenue growth. I mean, as you pointed out, rate and occupancy are two of the most important ones. But there's others such as ECRI, unit mix optimization, other tools we have to have positive revenue growth.

Okay. And then I wanted to also ask about the New York City settlement. I was just curious if there are any implications or any additional considerations from that suit? Or is that in the rearview mirror at this point?

And then can you also comment separately on the licensing and registration requirements for operators in New York City. Curious to get your view around the impact that has on the industry, whether you think it could ultimately sort of strengthen the competitive positioning for some larger, well-capitalized players or whether that's sort of a net negative potentially? Just curious to get your thoughts on that.

Sure. So just to set the table what we're talking about, we -- there was a claim made against us by New York City based on 117 complaints they got over 3 years. We had 130,000 customers over those 3 years, and we continue to vigorously dispute those claims. We do not agree with them at all. But that being said, we were forced with the choice of entering a lengthy litigation process in New York City or settling this case for $1.7 million and putting it behind us, and we felt the best thing for our shareholders was to take out the uncertainty and put this behind us. So we have settled the case, there's no repercussions or reverberations that we see or have felt elsewhere in the country or in New York, this is -- this matter is now behind us.

With respect to the second part of your question, all self-storage operators in New York City will be required to have a license on, I think August 24 of this year. We are prepared to file the papers, pay the very modest fee and get licensed. And in connection with that license, there will be a series of requirements of how you have to operate. We're still -- we the industry are still waiting to see the final list of requirements that will come with that. And I guess all I could say is, one, they'll apply to everyone. So it'll be an even playing field. And two, we will comply with the law.

The next question is from Brendan Lynch with Barclays.

Jeff, just wanted to follow up on your commentary about macro risk and consumer confidence. It sounds like you're being a little bit conservative in guidance because of the potential for those risks to emerge. So the question is, in the past, when we have had situations where the macro environment did deteriorate or consumer confidence starts to wane, how quickly did you see that in actual customer behavior? And how quickly did it impact the same-store NOI results?

Good question, Brendan. And I hate to give you a mushy answer, but it depends. As we've looked at different types of economic stress and different types of cycles, they haven't all performed the same. But in general, we've seen demand hold pretty steady and in some cases, even accelerate through some of those types of environments because life transitions give rise to storage and sometimes economic strain can cause more life transition. So from a demand standpoint, it's generally been steady to even accelerated.

On the other hand, you may also deal with vacates. And we have not seen elevated vacate activity in our stores. In fact, our length of stay continues to elongate as we think of our in-place customers on a year-over-year basis it's about 1.5 months longer than it was last year. So we haven't seen it yet, but as you see all these headlines out there as you look at what the consumer is facing, we certainly think it's a reasonable risk to be mindful of. But to your point, we have not felt that in our customer behavior year-to-date, and so if that continues to be the case, then that assumption would potentially prove conservative.

Great. That's helpful. And maybe just to follow up on that. In terms of length of stay, that's certainly an improvement. I think we've seen some other improvements in customer quality in terms of churn and lower bad debt, higher occupancy in the off-season. How much further do you think you can go in terms of improving the average customer's behavior in the portfolio and to kind of just maintaining that customer relationship for a longer time to benefit from their stay in your facilities?

Yes. That's a very good question, but also a hard one to answer. I don't know if we have like a goal for length of stay or any of these other metrics. But our scale and the amount of data we have, allows us to continually test ways to optimize performance. How do we get a better customer? How do we keep them longer? What -- just all kinds of different metrics. So I can say with confidence, we continually try to improve across all of these metrics, we have been improving. We have a good track record, but I don't know how far we have to go.

Your next question is from Ronald Kamdem from Morgan Stanley.

Just two quick ones. Just staying on the expense side. really looks like outside of property taxes, most of the line items was down, driving that sort of negative growth. Just thinking sort of long term about what more opportunities do you have on the expense savings side? And is there a scenario where expense growth could be lower than inflation?

Yes. Thanks for the question, Ron. We're really pleased with what we've seen on the expense side this year, and how we've been able to continue to leverage our scale to become more efficient. And I know you mentioned long term, I'll start with the year. As you look at the run rates we've had year-to-date in the first half and what we're guiding to for the full year, it implies that we stay in those sub-inflationary ranges, which we view as a real positive, especially in the face of some of the less controllable line items like property taxes, as you mentioned.

Long term, while we won't guide or forecast into future years, I think that advantage, that scale advantage, the efficiencies that it drive will continue to be an operational advantage for fresher space. So I anticipate that we can continue to leverage those opportunities. One specific one maybe that I'll call out is on the insurance expense line item, we have a midyear renewal, which we've completed that was very favorable. It was only applicable for the month of June within the second quarter, and you can see the positive impact at that negative year-over-year change in our premiums [ add ] and that will continue to flow through through the rest of this year and into '27. So several reasons to be optimistic on the expense side looking forward.

Great. And then my second question was just on the -- back to the external growth. Obviously, the acquisition guidance went up. I guess I'd just love to hear what you're seeing in the market in terms of cap rates in terms of expected IRRs and so forth? And I think historically, you've talked about just pricing really not making a lot of sense for you guys to be really sort of aggressive and so forth. Just curious if that's still the thought and how you guys go about it?

Yes. We're looking at our underwriting discipline and continue to stay very disciplined in that, while asset pricing remains elevated. When we say that, I would say in anywhere from A to C markets, you're probably somewhere from the high 4s to the high 5s, if you want to look between those markets. So where we look at that, we're going to continue to harvest deals from our proprietary pipelines where it makes sense for us and where we continue to have deals that are accretive to us over our cost of capital.

The next question is from Samir Khanal from Bank of America.

Jeff, sorry if I missed this, but on the move-in rates, I know you excluded L.A., but just curious where would that have been, if L.A. was included? And just to confirm, would that have much of a benefit for you in 2Q?

Thanks for the question, Samir. We recognize that that number is one that is viewed not only to model our actual performance, but as a proxy for overall new customer health for our portfolio and across the industry, to include L.A County, which is artificially regulated, it doesn't make a lot of sense from our perspective, because you're going to be comparing apples and oranges a little bit, especially as you think back to your comp period last year when those restrictions were in place.

So I won't provide a full portfolio number, but I can tell you that internally, we think of it the same way. We are not using that data. We're focused on it [ stands ] Los Angeles County because that's really the best proxy for what we're seeing across the portfolio.

Okay. And then, I guess, Joe, certainly positive comments around the supply side of things. Maybe elaborate kind of which markets are seeing less supply given that demand is steady here?

I think you're seeing lower supply in almost all markets. Now that doesn't mean that when -- there's still storage being delivered. And in that micro market, right, when we talk about self-storage markets, we're talking about very, very small areas, that's bad for that market and negative. But when we talk about MSAs and large markets, I think you're seeing a decline in deliveries in almost all MSAs.

The next question is from Jack Armstrong with Wells Fargo.

Can you characterize your ability to push ECRIs in the back half, [indiscernible] following a couple of quarters of lower churn and extended length of stay?

You're a little garbled in the question. It might be a systems problem. Do you mind repeating the question?

Yes. Sorry. And hopefully, this is a little clear. Can you characterize your ability to push ECRIs in the back half?

So I think the question is about ECRI, pushing ECRIs in the back half of the year. So we take a longer view on ECRIs and don't try to maximize in any 1 quarter or 2 quarters because customers are extraordinarily sticky. And when we test different ECRI levels, it's really hard to -- we don't see increased move-outs even with increase in ECRI. But that being fair, we need to have a long-term fair, sustainable program and that's what we see instead of maximizing ECRI.

Okay. That's helpful. And how should we be thinking about the growth in the bridge loan business going forward? Is $1.5 billion where you're comfortable keeping that book? Or do you plan to grow further from here?

Yes, the $1.5 billion, I think, is a good number for us. I think we'll continue to see it there. If we want to flex up or down, we can always sell the As -- as or hold the As a little bit longer. But where we are currently, I think that's a good spot for us.

Next question is from the line of Eric Wolfe with Citi.

This is Nick Jospeh here with Eric. In the release, Joe, in your quote, you mentioned that you're never satisfied. I was wondering if there's any meaning or anything you're trying to convey with that quote kind of on the go forward in terms of any changes either technology or M&A or kind of broader thoughts on the business to keep driving the results?

Yes. Thanks for the question. I think what's important to understand about Extra Space is we're constantly trying to sharpen our tools. We're constantly innovating. We're using our data and technology to test. And it's really a lot of small games. We're getting a little bit better at this, a little bit better at that, not in any way, announcing brand-new extra space or any big changes, but certainly want to give the impression that we're never satisfied with our systems and our technology stack and our processes, and we're always trying to get a little bit better. And I think it shows up in the results.

This is Eric. I had a bit of a specific question, but you talked in the beginning about the acceleration you saw in the first half on same-store revenue, obviously got into a deceleration in the back half. But I guess given the boost from L.A., is it not possible that we see a third quarter sort of acceleration from the second quarter? And maybe if you could just share for the back half of the year, how much L.A. should boost same-store revenue growth just in the back half?

So at the beginning of the year, we estimated that the restrictions in L.A. if they were in place for a full year would provide a 40 basis point headwind. So right around midyear, they were lifted but we don't get the whole benefit from that exactly on the day they are lifted. So now we're estimating it's a 20 basis point to 30 basis point headwind as oppose to a 40 basis point headwind. So some help, but not very significant.

Okay. And so I guess the other part really was just on third quarter. Like I know everyone always tries to set of things to be outperformed, but is there sort of a path like either in occupancy or ECRIs, everyone just pays attention to moving rates, where sort of same-store revenue could accelerate in the third quarter? Or is that just sort of an unlikely thing to happen?

Yes. Good question, Eric, and I appreciate the way you asked. And I think there is perhaps too much focus singularly on new customer rate is the only driver of revenue. And as we've talked about on the call, there's multiple other levers in short. There is always an opportunity to continue to accelerate revenue. We haven't necessarily guided to that, but it is certainly possible.

The next question is from Brad Heffern with RBC.

You talked in the past about how the last few peak seasons have been sort of truncated and the explanation has generally been the lack of housing mobility. I'm curious, did you see any difference in the shape of the curve or the strength of the peak this year?

Good question, Brad. And no, I would say no different than what we've seen in the last couple of years in a row and very much in line with our expectations. We guided to modeled and assumed that we would have no material catalyst from a demand standpoint through the summer leasing season. And I think it's played out in line with that expectation.

Okay. Got it. And then the recent [ move-in ] rates in occupancy, it sounds like the combination has been pretty flat in June and July. I think the traditional wisdom is that you see the same-store revenue converge with move-in rates on maybe a 12- or 18-month lag. I'm wondering, do you think like this increase that we've seen in the mid-2s on same-store revenue is just because you had those high move-in rates last year and that it's more inclined to go back to flat just based on where the leading-edge move-in rates are? Or am I thinking about that wrong? I know there's tons of things that affect revenue besides move-in rates, but just all else being equal.

I think your thesis is correct that if you look at new customer rates in prior periods, they roll into the rent roll, and that gives you a sense for future revenue growth. It is only one component. And as we spoke earlier on this call, there's other components that could provide positive revenue growth in future periods, even if you have several periods of flat rate growth.

The next question is from Viktor Fediv from Scotiabank.

I wanted to follow up on the move-out trends because it appears that the low housing mobility environment is actually becoming a benefit rather than a headwind. This customer stickiness, longer lengths of stay and muted move-outs more than offsetting weaker moving activity. So how sustainable do you believe this dynamic is? And what specific actions are you taking to maintain these strong retention levels, particularly given that some of peers are having lower occupancy levels, so they may be more inclined to compete aggressively on price?

So I agree with your point that the reduction in move-in customers from peak up low 60s to about 55% now has largely been replaced by customers who tell us they're storing because they lack space for their goods. And the expected length of stay of those customers is at least twice as long as the move-in customers. So that is the the benefit of the downturn in moving of the slowness in the housing market.

And second part of the question, what are we doing? Well, you need to provide an excellent customer experience at the store. Our customer satisfaction rates are in the low 90% Important part of that is having a manager there to make sure the store is clean and have a relationship with the tenant and address their concerns. And when the tenant gets a rate increase notice, our store managers and call center agents are empowered within certain bounds to address any concerns a customer have, and we end up with about 16% of our customers who get rate increases, getting some level of relief and staying in the store through that. So that helps us retain customers.

And sorry I'm going to repeat myself, I think it all falls under providing a good experience for the customer and making them want to stay and not seek there. Most of our customers, 76% of our customers when they leave, it's because they don't need storage anymore. And it's really hard to save those customers, if they don't need the product anymore. But the other ones, we can focus on providing a good experience to.

Makes sense. And then the second question. So which markets actually contributed most to the Q2 out-performance versus your initial expectations heading in the 2026?

Yes. Viktor, sorry for what will sound like a vague answer, it really was across the board. We saw general out-performance and some of the stronger markets in terms of total same-store revenue growth also add the strongest outperformance. So as you think of some of the Midwest markets, D.C., Boston, Chicago, Richmond, Virginia, San Diego, California, across the board. We had a number of markets outperformed.

The next question is from Michael Mueller of JPMorgan.

I guess, Joe, given your comments about focusing just on move-in rates, do you think you have the mathematical ability to kind of get back to a 3% same-store revenue number without a substantial lift in street rates in a flat occupancy world?

To get to 3% without improvement in occupancy or rate, I think, would be difficult.

Do you have a sense as to, I guess, how much of a lift we need to see in street rates to kind of get you back to that level?

I think there's a lot of variables and to say, to plug in one piece of the formula is difficult without knowing what the others are.

So I feel like I've given you an unsatisfactory answer. We believe if supply continues to decrease. And we don't have any significant change in customer that risks of which Jeff outlined. We think we can get back to kind of historical levels of revenue growth between 3% and 4%. I don't know that time period our guidance doesn't suggest it's going to happen this year. But we're certainly in the recovery stage of the storage cycle, and I would expect that's where we end up.

The next question is from Juan Sanabria of Bank of Montreal.

Just a question with regards to kind of the slope of same-store revenue expected in the second half. Should we be thinking with an eye towards the exit run rate or how you'd start 2027, that you're -- that the rate -- that the growth in same-store revenues is getting smaller because of the comps or that's not necessarily how we should be thinking about it? Any comments on the slope or the exit run rate would be extremely helpful.

Yes. I apologize for being repetitive, one, it will depend where you are within the range, right? If at the high end of the range, you would imply a flat slope into 2027, at the bottom end of the range, it would imply some deceleration into next year. And if we outperform our range altogether, that would imply acceleration into 2027. So we will stick to 2026 for now and let you all forecast 2027 and beyond, but we agree that the slope heading into it will largely impact performance in 2027.

I guess another way to ask it, are the comps tougher in the fourth quarter than the third quarter because of move-in rates last year? Or just if you could remind us on how we should think about that?

Yes. The comps do become more difficult, whether it's in [indiscernible] of new customer move-in rate or even just revenue altogether. We started to accelerate revenue beginning in the fourth quarter last year. So yes, the comp does become more difficult.

Great. And then just my final question. Have you guys leaned on ECRI either cadence or percent increases in any noticeable or material way. If ECRI has grown this year and the contribution to same-store revenue versus last year versus initial [indiscernible] or expectations?

No. absent some testing we're doing, there's been no change in our ECRI policy.

Yes. And Juan, this is getting really on the margins, but the only one that I'd point out is with our original guide assumed full year restrictions in Los Angeles County, with that being lifted on the margins a little better in the back half of the year.

The next question is from Spenser Glimcher of Green Street.

Just one on the regulation front for me. How dependent is EXR's revenue management system on consumer-specific data versus broader market level inputs? And how concerned are you, if at all, that additional legislation regarding surveillance pricing might impede rate algorithms?

Yes, not concerned. Our algorithms are focused on historical data. We have for how a certain market and store performs, vacates rentals, demand at different times of the year and not any individual customer data or observations.

The next question is from Omotayo Okusanya of Deutsche Bank.

Congrats on a solid quarter. In terms of just this recovery story that I think we're all kind of looking forward to. Curious if you could share any thoughts of July, beginning of 3Q and kind of some of the other trends you're seeing, whether [indiscernible] still kind of seeing occupancy holding up, whether you're still kind of seeing improvement in street rates. Just any commentary you can at least just make to kind of the start of the third quarter?

It's Jeff. As we mentioned earlier in the call, it looks a lot like June from a performance standpoint. I think Joe outlined a little bit that we've swapped a little bit of occupancy for a little bit of rate on the margins. And so far, with a few days left in the month, we're on pace to basically outperform our revenue expectations. So it continues to be favorable in July and looks a lot like the second quarter.

Got you. On the third-party asset management side, again, increasing store count, but you guys slightly reduced guidance management fees? Is anything changing there? Is the economics of the third-party assets management changing from your contracts? Just curious any thoughts there.

Thanks, Tayo. No big change at all. In fact, with this business, there's ups and downs where portfolios sell and portfolios come in. At the beginning of July, there was a portfolio that sold not concerning to us. We continue to add properties. We're over 100 properties net so far this year. And the benefit of this program is that there's a lot of owners and owners have less than 2 stores on average per owner. And so most of the time, if anybody adds or leaves, it's one season two that we had or that disappeared. But there is one that we had go beginning in July, and we'll continue to add and continue to feel very strong about the program. No material change whatsoever.

The next question is from Ravi Vaidya from Mizuho.

I hope you all are doing well. Can you describe the operational inflection and momentum that you're seeing in some of your Sunbelt markets? How have the street rates been trending? And where do you think same-store revenue for these markets could increase to absent a substantial demand recovery relative to the rest of the portfolio?

So we are seeing improvement in some Sunbelt markets, Austin, Dallas, Miami all turned positive in new customer moving rates on a year-over-year basis, all improving markets, but not all markets. Houston, Tampa, still Phoenix still difficult markets for us. But that's not at all surprising. We don't expect the Sunbelt all to act the same. We don't expect markets within the Sunbelt all to act the same. And it is one of the reasons that our portfolio is designed to be broadly diversified across mostly primary and secondary growth markets, because we know markets don't act the same, at the same time and the more diversification we can get, the more we smooth out our return here.

And Ravi, if I could just add a thought there. I think that's one thing that makes us even more excited about our performance this year in general is relative to the market. We're a little overweight the Sunbelt, and despite the drag from those markets that haven't had a stronger performance, we still had pretty significant same-store revenue acceleration. And at some point the markets will continue to flip and accelerate and I think give another leg to that growth.

There are no further questions at this time. I'll now turn the call back to Joe Margolis, CEO, for closing remarks.

Great. Thank you, everyone, for your interest in our company. Our team is happy to report very solid results and the ability to raise guidance. These results stem from success across all aspects of the platform. Our stores are outperforming expectations. Our expense control is very positive, both at store level at the G&A level. And we're getting solid contributions from our ancillary businesses. So we're encouraged on where we are in the cycle and confident that we have the machine to optimize results going forward. Thank you, and look forward to talking to you next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to Extra Space Storage Inc. Q1 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Jared Conley, Vice President of Investor Relations. Please go ahead.

Thanks, Karen. Welcome to Extra Space Storage's First Quarter 2026 Earnings Call. In addition to our press release, we have furnished unaudited supplemental financial information on our website.

Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review. Forward-looking statements represent management's estimates as of today, April 29, 2026. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call.

I would like to now turn the time over to Joe Margolis, Chief Executive Officer.

Thanks, Jared, and thank you, everyone, for joining today's call. We are pleased to report first quarter core FFO of $2.04 per share, up 2% year-over-year. Our solid performance demonstrates the strength and resilience of our diversified portfolio and best-in-class platform as we navigate an improving operating environment. Operationally, we delivered positive same-store revenue growth of 1.7%, which exceeded our internal projections. We ended the quarter with same-store occupancy at 93% compared to 93.2% in the prior year, with the year-over-year occupancy delta improving 50 basis points since year-end.

We did this while continuing to achieve positive rate growth to new customers during the quarter, and our systems continue to optimize for total revenue with no preference for move-in rate or occupancy. We are seeing encouraging broad-based revenue improvement across our markets, driven primarily by declining new supply. The sequential new customer rate gains we have been achieving over recent quarters are now translating into revenue growth. These positive operating trends position us well as we enter the leasing season.

Our diversified external growth platform continues to be effective across multiple channels. We continue to review a high volume of acquisition opportunities while maintaining a disciplined approach given current asset pricing relative to our cost of capital. We are projecting $200 million in total acquisitions for 2026, under the assumption that we will close materially more in total transactions, primarily in asset-light joint venture structures. Our bridge loan program continues to perform well, maintaining an average balance of approximately $1.5 billion in Q1 2026. This program not only generates attractive interest income, but also serves to expand our management business and provides an opportunity for future acquisitions.

Our third-party management platform added 84 stores in the quarter with net growth of 60 stores, bringing our total managed portfolio to 1,916 stores. The consistent demand for our management services demonstrates the value we deliver through superior property performance, operational expertise and our data and technology platforms. Overall, we are encouraged by our first quarter performance. The sequential improvement across our portfolio gives us confidence in our ability to capitalize on continued supply moderation and strengthening fundamentals as we progress through 2026.

I will now turn the time over to our CFO, Jeff Norman.

Thanks, Joe, and hello, everyone. As Joe mentioned, we are off to a good start in 2026, and we are especially pleased with our store-level operating performance. Same-store revenue accelerated 130 basis points from 0.4% in the fourth quarter of 2025 to 1.7% in the first quarter of 2026, and same-store NOI growth improved 110 basis points from 0.1% to 1.2%.

We are seeing the benefit of multiple quarters of positive new customer rate growth begin to flow through to revenue growth, and our pricing models continue to utilize rate, occupancy and marketing spend to drive total revenue. We also had solid expense control, with all categories in line with our estimates, outside of utilities and repairs and maintenance, which ran higher than expected primarily due to snow removal and other weather-related items. Excluding the above budgeted portion of weather-related expenditures, total year-over-year expense growth would have been 1.5%.

Our ancillary businesses also delivered strong performance during the quarter. Management fee and other income grew over 9% year-over-year, reflecting our expanding third-party management platform. Net tenant insurance growth was over 5%, and our bridge loan program produced steady fee and interest income. All components of our diversified revenue model are performing well and contributing to our overall results. Our balance sheet remains in excellent shape, with 83% of our total debt at fixed interest rates, a figure that increases to 93% on an effective basis when accounting for our variable rate loan receivables. Our weighted average interest rate stands at 4.3%, and we currently have approximately $2 billion in capacity on our revolving lines of credit, providing us with strong liquidity and plenty of growth capital.

We are maintaining our full year 2026 core FFO guidance range of $8.05 to $8.35 per share, as well as our same-store performance outlook. While our Q1 performance exceeded internal expectations and we're encouraged by the sequential improvements we're observing, we believe maintaining our current guidance range appropriately balances the positive momentum we're experiencing with the uncertainties that remain in the broader macroeconomic environment. We will revisit our annual guidance with our second quarter earnings after the leasing season has played out.

In summary, we're encouraged by the acceleration in same-store NOI and the strong performance across all parts of our business, driving positive core FFO growth. The combination of our operational strength, talented team and diversified growth platform gives us confidence in our ability to continue delivering long-term shareholder value through 2026 and beyond.

With that, operator, let's go ahead and open it up for questions.

[Operator Instructions] Your first question comes from the line of Michael Goldsmith with UBS.

First question, positive move-in rates over the past year seemed to carry the same-store revenue growth to a much higher level in the first quarter with the same-store revenue growth of 1.7%. Now that move-in rates are moderating, should that weigh on same-store revenue growth for the balance of the year? And is that reflected in your same-store revenue growth guidance that implies moderation from here? Just trying to understand the impact of street rates flowing through the algorithm. And does that imply a decel later in the year?

Yes. Thanks for the question, Michael. No, not necessarily. So while same-store -- or excuse me, new customer rates are an important part to driving same-store revenue growth, obviously, all the other revenue levers are also important. So we did see new customer rate growth moderate from 5% to 6% in January and February to, call it, a little over 1% in March. And then that averages for the quarter at about 2.5% because of the higher volume that you see from a rental standpoint in March.

But over that same period of time, particularly in March, we actually picked up occupancy. And as we've always said, we're much more focused on just driving revenue and not focusing on any particular lever. While we're on the topic, I should probably also mention, you probably noticed we converted that metric from reporting new customer rates on a per unit basis to a per square foot basis. While similar, they aren't exactly apples-to-apples, and that reduces the number by about 100 basis points. So on a like-for-like basis, move-in rates would have averaged about 3.5% for the quarter. On a per square foot basis, it was closer to 2.5%.

Got it. And while we're on this topic, Jeff, do you mind providing an update on what you've seen -- we're almost done with April now, but what you've seen so far in April from a street rate occupancy perspective?

Yes, continuation of what we saw in March largely where we continue to see improvement in occupancy from both a sequential standpoint and a year-over-year standpoint where that continues to tighten. And then a new customer base from a new customer rate standpoint, modestly positive.

And continuing to be ahead of budget.

Yes. Yes.

Your next question comes from the line of Samir Khanal with BofA Securities.

I guess, Joe, maybe to start off, how would you characterize sort of top of funnel demand today? Maybe compare that to last year. And at this time, as we start the leasing season, curious on your thoughts.

I think demand is steady, if I had to characterize it. I don't think we've seen any material improvement or any material degradation in demand. Our systems, our platform, our customer acquisition abilities allow us to capture more than our share of demand that's in the market. So we continue to be the highest occupied of any of our peers at the highest rates. And that's a good spot for us to be in.

And maybe as a follow-up on the other side of it, I mean, it certainly feels like commentary is more of optimism. Is that primarily from sort of the lower supply you're seeing? Maybe expand on that, please?

Yes. That's a good follow-up. So yes, the demand being steady, the -- correlated to that is we are seeing improvement in the supply situation. And many of the markets that were particularly impacted by supply in the Sunbelt, we are starting to see improvement in those markets. So that's very encouraging for us, particularly because we have disproportionate exposure to the Sunbelt, which we believe long term is a positive. That's where the growth is going to be in our country. But in the recent past has been a headwind for us.

Your next question comes from the line of Brendan Lynch with Barclays.

Maybe you could give us some high-level thoughts on the competitive impact to the market from PSA and NSA being combined?

Well, I mean, we compete with all of those stores now. So we'll continue to compete with them in the future. I think PSA is a very good operator, and I'm confident those stores will do better under one unified platform than the system NSA was pursuing. So we'll continue to compete with them. They've been a good competitor in the past. They'll be a good competitor to us in the future. And it's one reason we never stop trying to get better, never stop trying to sharpen our tools because we know we have good competitors who are doing the same.

And then maybe just on the volume of transactions and your expectations for an improvement there or growth there. Can you talk about how seller expectations have changed, if at all, or if there's something else that's driving the increase in volume that you anticipate going forward?

So it's a really good question. I would tell -- I mean, there is activity in the market. There are things being sold. I would tell you, the last 2 material transactions we saw priced at -- on our numbers, sub-5 initial cap rates without enough growth to make them interesting in the future. And that's pretty aggressive. And I think capital buyers in the market are seeing that we're in the beginning of this recovery cycle and are underwriting that into their numbers. So we have a fairly modest acquisition guidance for this year on a net basis, on an EXR dollar basis. Well, as I said in my remarks, I think we'll close a lot of deals, but many in joint venture structures to make them accretive to our shareholders.

But I'll also tell you that we've had a lot of years where we've put out an acquisition number, and we end up finding interesting off-market typically things to do. And we're very active and we have a lot of relationships, and we can be creative and innovative. And I know the team is anxious to try to do that again this year.

Your next question comes from the line of Ravi Vaidya with Mizuho.

I wanted to dig a little bit more at the same-store revenue range. You had a strong first quarter, exceeding the top end of the range. Can you walk us with the upside and downside scenario for the full year? And maybe some color on how you expect the cadence of this will continue throughout '26?

So from a -- first of all, I appreciate the question, Ravi. And it makes sense. Given where we ended the first quarter relative to our stated same-store revenue range, it makes sense. I think probably the point I want to make most clear is our lack of adjusting guidance isn't a call from our perspective on expected performance for Q2 through Q4. I think we view it more from the standpoint of it's early in the year. We haven't completed our busy leasing season. And combining that with some of the macro factors that are in the background, it seems to make sense to wait 1 more quarter, see how the leasing season plays out and make those adjustments at that time.

All of that said from a guidance -- cadence standpoint, so far throughout the year, we've continued to see revenue outperform our internal expectations, and it has accelerated. And we -- but we do know we have harder comps as we move deeper into the year. So if we combine all of those factors, very optimistic about where we stand today versus our stated range, and we'll look to update it in -- after the second quarter.

I'd just like to add that Jeff appropriately points to the risks associated with macro factors, higher gas prices, inflation, consumer confidence. We haven't seen any of that flow through to our business yet. Customer behavior is unchanged. Customers are still accepting ECRI at the same level they have in the past. Bad debt is down actually to 1.5%. Vacates remain muted compared to historical numbers. And we see this across all different demographic markets. So that's very positive for us. So our caution isn't because of anything that we've actually seen. It's more of an unknown, and we just feel it's prudent to wait for the leasing season in another quarter before we revisit guidance.

Your next question comes from the line of Eric Wolfe with Citi.

Can you just talk about the reason for the change in the definition of move-in rate growth? And what explains the delta between the 2.4% you reported? And I think you said mid-3s on the other definition?

Yes, you're exactly right. Thanks, Eric. The reason for the change was really just market feedback. We had heard that from both buy-side and sell-side analysts, I think, for consistency with disclosures from other peers and wanted to accommodate that request. And in terms of why the delta between the 2 approaches, what it comes down to is volumes, rental activity between larger and smaller units and pricing power within those units. So on the margin, saw stronger pricing power in some of the larger units within the quarter, creating the delta.

Got it. And you mentioned that I think across both definitions, the rent growth came down a bit in March and April. Can you talk about whether that was just from sort of tougher comps or something changed in the environment? I know you're always trying to optimize for the best revenue growth. So I guess I'm asking why the system determined that sort of lower asking rent growth was the best revenue maximizing decision at that time.

Yes, I think it's possible that it's a few of the factors you mentioned combined. So certainly are lapping harder comps, so those continue to become more difficult throughout the year. And I think the model is always evaluating price elasticity and seeing where is the optimal balance for total revenue. So in March, we did see it lean a little more into occupancy and take more occupancy, closing that gap on a year-over-year basis. And as we've always said, we're happy with either as long as we feel like we're getting the right revenue outcome. And based on the results, we're really pleased with how it's gone through the first quarter.

Your next question comes from the line of Nicholas Yulico with Scotiabank.

This is Viktor Fediv on with Nick. I have a question on your bridge loan book. So you originated only $5.5 million this quarter. Last year, it was more than $50 million in Q1. So what was the driver behind that slowdown on a year-over-year basis? Was it just the slower activity or interest rates not attractive for you?

So I don't think this program, just like our acquisition program is going to produce steady volume quarter after quarter. There will be some volumes that are higher and there are some volumes that are lower -- some quarters, excuse me, that have higher volume and some quarters that have lower volume. So we did have a quiet quarter in terms of originations. We did have a good quarter though with respect to approvals for future loans.

Overall, I think the business is a little slower due to transaction activity and lesser development, right? A portion of our loans are for newly delivered properties. And as the number of those goes down, the number of lending opportunities goes down with it. There's also more competitive lenders, right? There's others who kind of followed us into this business. But overall, we're comfortable and happy with our volume and our ability to make loans and continue with this program.

Got it. And then as a follow-up. So given that your loan book serves as a potential acquisition pipeline, so out of your $200 million kind of guidance for this year, how much do you expect to get through this [ funnel ]? And how does the pricing differ from what's kind of available on the market otherwise?

So we don't assume we'll buy anything out of the loan program. That would be additional volume that we could get. And our pricing discipline is the same regardless of how the acquisition comes to us from the management business, from a joint venture, from the bridge loan program are on the market, we still want to make accretive transactions given our cost of capital or structure the acquisition such that we can make it accretive.

And while we don't specifically model or guide towards a specific volume of acquisitions through the bridge loan program, our experience has been that those opportunities end up coming to fruition. Historically, we've purchased about 25% of the underlying collateral of loans that we've originated. And I don't see any reason that we wouldn't continue to see quite a few acquisition opportunities from that program. So we don't model it, but to Joe's point, I think we'll see our fair share.

Your next question comes from the line of Juan Sanabria with BMO Capital Markets.

Just hoping, Joe or Jeff, if you could talk a little bit about the length of stay and how that's trending, typically talk about over 12 and 24 months? And if you've seen any change in vacates or churn? And if ECRIs have played any part in that?

So we'll answer it in reverse order. So as you know, we do monitor real carefully, our ECRI-induced churn, and we haven't seen any change in that level of churn. So that program still seems to be working as designed, and customer behavior has not changed with respond to that.

With respect to length of stay, current tenants over 12 months is about 64% of our tenants. And that's 167 basis point improvement from prior year, year ago March. Current tenants over 24 months is about 46%, and that's a 190 basis point improvement from a year ago. So tenants are staying longer. Our systems continue to do a better and better job targeting and attracting tenants who are more likely to stay longer. And it's a great benefit to the business, particularly where we have steady -- kind of steady and price-sensitive demand.

And Juan, I would add, you mentioned churn. Churn was really flat for the quarter. So rental and vacate volume on a year-over-year basis Q1 '25 compared to Q1 '26 is basically flat. And that's comping almost all-time lows. So churn is still relatively muted compared to average historical number.

Thanks for that context. And just on the third-party management, maybe just following up on the bridge loan question. Have you seen any impacts from new entrants, either REITs or some of the larger privates looking at managing assets themselves either on their own behalf or for third parties in terms of squeezing fees or margins or anything of that for that third-party management business?

We really haven't. I mean, one, we're not changing our pricing at all. We are the highest priced option in the market because we produce the best results and have the best platform and provide the best service. So our growth in this, another 60 net in this quarter is much faster than any of our competitors. And to us, it's the market speaking. The market is choosing the best platform even if they have to pay more for us. So we have not seen any impact on our business from new entrants.

Your next question comes from the line of Michael Griffin with Evercore ISI.

Maybe circling back on your points earlier, Joe, around revenue optimization, and I realize you're not going to give us the secret sauce. But as you think about the interplay between rate and occupancy, I mean, what are the signals that you're looking at, that the team is looking at to say, "Hey, now is a good time to push rate over occupancy?" You've highlighted a number of times about how highly occupied the portfolio is. If you have a market to say hits 95% occupancy as an example, are you really going to try to push there? Or how should we think about the puts and takes between the interplay of those two?

So the way you asked the question makes it seem like Jeff and I and a bunch of the other folks on the team sit around the table and say, "Let's get 50 basis points more occupancy." It really doesn't work that way. We have several proprietary algorithms that were built with our extensive data set that price every unit type in every building every night. So we'll look at the 5x5s on Main Street in Philadelphia and look at historical vacates and many dozens of factors and decide for that unit price, that unit type, it's going to drop price because that's how it can maximize -- get the right number of rentals to maximize occupancy. And that happens for 2.8 million units every night. And that rolls up into something where we say the system is leaning a little bit more towards occupancy.

But that doesn't mean that's the case with every unit type, every building, every market. Now while that's going on, we do have data scientists looking at it and kind of checking it and making sure that there's nothing new in the environment that the algorithm doesn't know that we need to take a second look at or test. But that's the level of human involvement, not making individual decisions about rate or occupancy.

And Griff, maybe I would just tack on to that. And with our scale and as the tools continue to get better, you can see that data in much shorter time periods to make those decisions, and the system can recalibrate faster than it ever has before as the data and tools improve, which is a significant advantage for the large operators.

I certainly appreciate the helpful context there. Maybe next, just on the same-store expense growth and the cadence. It seemed like the quarter was pretty down the fairway relative to the guide. But Jeff, as I'm thinking about it, I know there were probably some more elevated operating expenses in the middle part of last year, call it 2Q, 3Q. So can you maybe walk us through or if you can give us some color on expectations of cadence? Is it easier comps in the second and third quarter? Just how should we think about sort of same-store expenses on a quarterly basis for the balance of the year?

Yes. I think it's more of a first half, second half comp differential. So first half, you had easier comps with property taxes in particular being the real standout. And we'll lap that in the back half of the year and have more difficult comps, but still anticipate similar performance. As you mentioned, relative to the guide, we're well within it. Outside a couple of those weather-related exceptions that I mentioned, all of our expenses came in really right in line with what we expected.

Maybe one specific call out, Griff, that would be helpful just because it's a little larger in magnitude and timing based is our insurance expense, which in Q1 was over 10%. We renew our insurance policies in the end of May. And all of the feedback we're getting so far, we're actively negotiating that renewal right now is that it's a favorable environment for insureds. And we expect that to come in relatively flat, if not better. So we were optimistic that we also have some opportunity with insurance, which was already factored into our guidance. We figured that would be the case.

Your next question comes from the line of Ronald Kamdem with Morgan Stanley.

Great. Just 2 quick ones. Staying with expenses. I know philosophically, you guys have had a little bit of a different view in terms of the -- sort of the service associates that are in the stores and the ability to sort of optimize the revenue with that person there. But I guess my question is just as you're thinking about the next couple of years, is there more opportunity to take expenses out of the structure? Or is it pretty much as optimized as you can get?

I think there's always opportunities to take expenses out of the structure. And I think there's several factors that will lead us to that. One is growth in densification. As we get more stores in a market, it becomes more efficient, and we can run those stores with fewer people and supervisory people, right? If a district manager has to fly to 3 different markets, he can cover fewer stores than if all of these markets are in 1 store and he can drive to them, he or she can drive to them. So that growth is one.

Second is AI. And certainly, we're looking at lots and lots of opportunities for reporting and analysis and audit and all sorts of different things that we can get more efficient through using AI tools. And then third is customer preference. Right now, we like to have managers in the stores more than our competitors because the customers want that. 39% of our customers end up signing a lease by choice, sitting across the table from a store manager. 28% to 30% of those have never interacted with us on the web or on the phone. And they all have phones, they all have computers. They could call the call center. They can do a transaction totally online. They're choosing to come to the store for a reason. They want to see the 5x5. They want to see how clean it is. They don't understand how to get into the gate, et cetera.

So as long as the customers want that, we'll provide it. But we also know that when you look at the demographics, the younger customers want that much less than the older customers. So as our customer base ages, we imagine that demand by customers will get fewer and fewer. And at that point, we will need fewer and fewer people on site. So yes, sorry for the long answer. But yes, there's always opportunities to continue to gain expense efficiencies. But at a high-margin business, we will always keep an eye on the revenue line item and make sure that nothing we're doing on the expense line item is going to damage the revenue line item because that is of much more importance.

Great. That's really helpful. And then my second question, if I may, is just on the revenue line item when you sort of talked about the algorithm that's pricing 2.8 million units sort of every night. If you think about sort of the -- with AI coming in, the amount of data on the customer is only going to go up exponentially. I guess I'd love to hear some thoughts on how you integrate that new wave of data on the customer? And how does that sort of plug into this algorithm to maybe even make it more efficient?

So our algorithms have had what we used to call machine learning in them for a long time. So I guess that's a form of artificial intelligence. And I wish I knew the answer to your question. I think there's lots and lots of opportunities. And the biggest challenge with implementing AI is triaging the opportunities, understanding them and then implementing them in an effective and safe manner.

And luckily, we have a lot of smart people here who are focused on that. I don't have to be the expert on that because it's -- there's not one clear road map. And I think we and other large companies have the ability, technology, resources to focus on that and effectively implement AI in our pricing models and in lots of other areas of our business. And I think it's just going to increase the kind of gap between the large and small companies and how they can operate their businesses.

Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

In terms of the first quarter outperformance relative to your budget, which you mentioned has carried into April, the same-store revenue growth and the improvement you saw was relatively broad-based across the portfolio. Where did you see the wins or the outperformance? Is there anything specific that you can point to that resulted in the better results in the quarter?

Yes. So some of your stronger markets, Todd, you can see in the results include Chicago, Washington, D.C., a lot of the Midwest and coastal markets. And as we've talked about for a long time, the strongest correlation seems to be new supply. Places where there was less pressure from supply earlier are the areas where we got pricing power earliest, which is now flowing through to revenue.

And then you've seen some of that pricing benefits starting to roll through to other stores. So I think Joe mentioned earlier in the call that in some of our Sunbelt markets where we had experienced a lot of headwinds from a new customer rate standpoint in '24 or '25, where we're starting to get a little more traction as well. So no specific tailwind that I'd say is driving outside of improvement in fundamentals driven by supply.

Okay. And then, yes, I guess following up a little bit. My second question was about the Sunbelt. I'm just curious, do you think the Sunbelt is sort of out of the woods here? There were some of the largest sequential moves in the quarter were in some of the Texas markets, Atlanta, Phoenix. I mean, do you see those trends continuing in the near term? And then I know that you've integrated the Life Storage portfolio now for a couple of years, but are you seeing any greater momentum in that portfolio now that the conditions are starting to recover?

So the Sunbelt doesn't operate as one market. It's hard for us to say the Sunbelt is doing this, the Sunbelt is doing that. And we are big believers in diversification, and the markets act differently, and we want to have exposure to lots and lots of good growth markets. There are some Sunbelt markets that performance has significantly improved. Atlanta, Austin, Dallas, Miami, Phoenix are some examples of those. Southwest, Florida, Tampa, still facing some headwinds and some difficulties. Houston is another one I'd put. So we are seeing recovery in many markets, but not in all markets. The LSI stores, to the extent that they were disproportionately in the Sunbelt are having that experience. But overall, their performance is akin to Extra Space stores now.

And Todd, you asked, are they -- are those markets out of the woods, so to speak. I think we continue to still see a relatively price-sensitive new customers. So it's not like we are able to push double-digit new customer rate growth across the board. And as Joe mentioned earlier, you see that down to the property type, unit type where different products moving better and then that rolls up into markets and eventually the whole portfolio. So it's pretty granular. I think we'll need to keep working through supply in some of those markets. But directionally, it's certainly improving.

Your next question comes from the line of Salil Mehta with Green Street Advisors.

I'd just like to touch quickly back on move-in rates here. But you've been able to achieve a positive move-in rate growth for consecutive quarters now, which is great. But I guess the question I have here is, how sustainable or how far can we expect this positive pricing momentum to continue without the lack of the housing market recovery? Is the positive momentum that we're seeing for the last 2 quarters is more of a function of easier comps?

But I think easier comps are a factor. But I also think with steady demand and reduced supply is another factor, right? So it's kind of 2 sides of the coin, right, if demand stays the same, but if supply reduces, that's positive for us.

And Salil, I think I'd add that with our original guide, we did not factor in an improvement in the broader housing market to achieve our range. So our assumption coming into it was a relatively flat housing market to what we've seen year-over-year. And if we were to see some acceleration from the housing market, that certainly would be a tailwind for us and could accelerate the recovery. I think absent that, we'll still see a recovery. It just -- it's probably a little flatter slope.

Great. And just another follow-up here on the housing market. Nationwide, the country is definitely still struggling, but are you guys perhaps looking at any market specifically that are, for us, recovering better than average or could be better positioned when home sales eventually or hopefully rebound?

Yes, it's a difficult analysis. And when you say looking, I assume you mean from an acquisition standpoint. We found it's really hard to target acquisitions to say we would love to be in Seattle, right? So we think we're underexposed in Seattle. But we find when we go and identify stores in Seattle and cold call the owners, they put prices on the table that are pretty aggressive. So we need to be a little more reactive to what's on the market as opposed to targeting markets. We've tried that in the past and have not had a lot of success.

Your next question comes from the line of Caitlin Burrows with Goldman Sachs.

We've talked a lot about the impact that supply can have, and it seems like it's coming down. So that's good. I guess, can you give any insight on what you're seeing across the industry on new starts and the current expectation of how kind of supply will compare in '26 for '25, but then maybe visibility on those starts and what it could mean for '27?

Yes, sure. I think we have really good visibility, maybe better than anyone else, primarily through our third-party management business because we get an extraordinary number of inquiries from people saying, "We want you to manage this development, would you take a look at it for us?" And many, many of those end up not happening, but we do get a sense for the volume of that and whether it's increasing or decreasing, it is decreasing, and what the deals look like.

We also look at Yardi data, right? Yardi, I think, produces good data. They -- their data says that national starts are going to reduce from 2.8% to 2.3% of total stock between '25 and '26. Another data point we use is number of our same-store square footage that is having a new competitor delivered in its trade area. And that, in '21, '22, '23, it was in the high 20%, 84% over those 3 years. It went down to 13% in '24, 8% in '25, and we think it will be 6% in '26. So clearly, new supply is not going to 0, but it's clearly moving in the right direction, and we're feeling the effects of that.

And pointing out the obvious, but with the lease-up time since we can't pre-lease these properties, this is generally on a rolling 3- or 4-year basis. And so every year that you tack on, another one of these single-digit delivery years using the numbers that Joe provided versus 2023, that was well into 20s, there's a material benefit from that.

Got it. And then I think on the previous question, you were just talking about the acquisition environment and that if you seek somebody out, maybe then the pricing is too high. So I guess could you talk a little bit about what you're seeing come to market? Is there anything on the portfolio side? And I know you said that you mentioned that you might do more on JVs versus 100% ownership. But yes, what kind of opportunities you're seeing?

There are opportunities on the market. I think I referenced earlier in the call, the last 2 sizable opportunity [ graded ] numbers that were initial yields of sub-5 and didn't have sufficient growth in them to get to numbers we would consider accretive in a reasonable period of time. Most deals we're seeing in the 5s somewhere on initial yield. And I know initial yield is not really the most important factor, but it's a good comparative we can all talk to.

So again, I'm sorry to repeat myself. We're really allergic to growing for growth's sake. When we invest our shareholders' dollars, we want that to be an accretive strategic transaction. And if we can't do that, we are willing to be patient.

Your next question comes from the line of Eric Luebchow with Wells Fargo.

Just one on capital allocation. So Joe, you're just talking about how acquisition cap rates are still pretty aggressive from what you've seen. So does it change at all, your strategy to consider maybe more potential asset sales or potentially buying back even more stock as opposed to going after deals?

Yes. So asset sales for us is more an effort to improve the portfolio to sell assets that either want to reduce our market exposure or we don't think have growth rate -- future growth rates that are attractive to the portfolio or maybe require a bunch of capital that we don't think we'll get a return on. And so we're typically selling those at cap rates appropriate for the properties that are at the bottom of our portfolio. And it typically is short-term dilutive, depending on what we use the money for, I guess, if we put in bridge loans or value adds, it's not.

So it -- we wouldn't accelerate that as a source of capital. Stock repurchase as a use of capital is not something we're allergic to at all. We bought about $140 million worth of our shares in the fourth quarter at a little bit below $130. We continued that into the very early part of January and bought this quarter, $1 million or $1.5 million, something like that, of stock. The stock price then got volatile. It went up. We stopped buying and it went back down to the level we were buying at. But at that period, we felt we had material nonpublic information. So we didn't feel it was appropriate or fair to buy stock in the market while we possess such information. So we didn't continue that program. But that's not to say in the future, if that's -- if the stock reaches a point that we feel it's an attractive and good use of capital, we absolutely will use that tool.

Okay. Great. And just a quick question on L.A. I think you were targeting a 40 basis point headwind from the rent restrictions. Just wanted to confirm that's still what you're expecting that's in line with your initial guide? And when that restriction is ultimately lifted, I think how quickly do you think you can get rates back to market?

Yes, we do expect a 40 basis point headwind assuming that the state of emergency is in play for the entire year. When this -- unfortunately, since COVID, we've had lots of experience with states of emergency and them getting lifted and what the appropriate strategy is after that. And when that happens, we'll get the right people around a table and look at the facts and situation as it is then and make a decision on what the appropriate strategy is.

Your next question comes from the line of Michael Mueller with JPMorgan.

Just one question here. There's been a lot of volatility over the past 5 to 7 years. So I'm curious, what do you think is a normal level of same-store revenue growth in a normal environment?

Yes, it's a great question, Mike. It certainly has been an unusual handful of years with the highest of highs, and then some periods that were relatively flat same-store revenue growth. If you look long term, it would be in the 4s range. That includes a few periods post the financial crisis where development was very suppressed for a long time and we were taking a lot of rate and occupancy in times. So maybe that's a little higher than the sustainable long-term average, but we certainly would target it being something above inflationary over time. And it's been relatively steady throughout that 20-plus year look as we've been a publicly traded company. Outside of the COVID years, there's not been a huge amount of volatility.

Your next question comes from the line of Eric Wolfe with Citi.

Thanks for taking the follow-up, and sorry if I missed it. But on L.A., I know you said a moment ago that you still expect a 40 bps dilution, if you will. But I guess if you look at the fourth quarter, you're like negative 1-ish, now you're positive 1. I guess, what caused the sort of jump between the fourth quarter and the first quarter? And I guess, given your comments, like, I guess you would expect it to come back down for the rest of the year, like what would cause that?

So the 40 basis points is a reference to the state of emergency in L.A. County. And our reported results have to do with the L.A. MSA. We have 122 stores in L.A. MSA, and 73 of those are in L.A. County. So our performance is driven largely by the stores outside of L.A. County, where we're restricted with what we can do with rates.

And that kind of speaks to the acceleration that you're mentioning, Eric, being driven by those non-L.A. County properties. One observation that maybe is interesting is while we haven't seen rate growth at the same level in those L.A. County stores given the restrictions, we have seen occupancy build in L.A. County. It's approximately 96% already, and we haven't even started the leasing season. So I think it shows the impact of those artificially suppressed market rates, which has also reduced churn in those properties since they're priced well below market.

So that headwind from the L.A. County properties will continue and increase throughout the year and the longer this remains in place. But fortunately, the properties throughout the rest of the MSA, as Joe mentioned, are performing really well and ahead of expectations, frankly.

We have reached the end of the Q&A session. I will now turn the call back to Joe Margolis, CEO, for closing remarks.

Great. Thank you. Thank you, everyone, for your time and your interest in Extra Space. Great questions, good conversation. As we said, we're very encouraged as the first 4 months of this year, we're running at a schedule, and the systems are working, and we're optimizing our performance. So we look forward to speaking with you after the second quarter. Thank you very much.

That concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us and welcome to the Extra Space Storage Inc. Q4 2025 and Year-end Earnings Call. [Operator Instructions]

I will now hand the call over to Jared Conley, VP of Investor Relations. Please go ahead.

Thank you, Mirium. Welcome to Extra Space Storage's Fourth Quarter 2025 Earnings Call. In addition to our press release, we have furnished unaudited supplemental financial information on our website. Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act.

Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review.

Forward-looking statements represent management's estimates as of today, February 20, 2026. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call.

I would now like to turn the call over to Joe Margolis, Chief Executive Officer.

Thank you, Jared, and thank you, everyone, for joining today's call. We delivered positive core FFO in the fourth quarter of 2.5% and full year core FFO growth of 1.1% despite challenging but improving operating and supply environments.

Operationally, we continued to experience the trend of increasing new customer move-in rates while maintaining strong occupancy levels. In fact, in the fourth quarter, 16 of our top 20 markets experienced positive year-over-year move-in rates to new customers and sequential improvement in revenue growth, contributing to same-store revenue growth returning to positive 0.4% in the quarter. Only 2 of our top 20 markets reached this metric in the fourth quarter of 2024.

In the quarter, we also deployed capital strategically in a number of our investment and external growth channels. First, we took advantage of an opportunity to repurchase approximately $141 million of our common shares at an average price of around $129.

Second, we closed on 27 operating stores for $305 million, bringing our full year total to 69 stores for $826 million.

Third, we executed several high-value JV-related transactions, acquiring 7 stores for $107 million gross while selling our interest in 9 JV properties and unlocking a $37 million promote.

Fourth, we originated $80 million in bridge loans growing the portfolio to approximately $1.5 billion at year-end. And finally, we added 78 third-party managed stores with net growth of 45 stores in the quarter. For the full year, we added 379 stores and 281 net new stores to the program, bringing our total managed portfolio to 1,856 stores.

Our diversified external growth platform continues to provide us with opportunities across various channels which we believe gives us an external growth advantage over all other industry participants. Overall, it was another solid year for Extra Space Storage.

We generated positive same-store revenue and FFO growth, and our external growth platform is firing on all cylinders. While only incremental, we are pleased to see progress in most of our markets as they absorb the new supply that was delivered in the last few years.

We feel better with regard to our positioning going into 2026 than we did heading into 2025. And in our ability to gradually accelerate performance as fundamentals continue to improve through 2026.

I will now turn the time over to Jeff Norman.

Thanks, Joe, and hello, everyone. As Joe mentioned, we are pleased with the sequential improvement we've experienced in new customer rate growth, as well as seeing acceleration in our same-store revenue growth.

We were also pleased to see improvement in our same-store operating expenses, which increased only 1.1% with several notable drivers. Property taxes declined 3.4% due to the expected normalization of prior year increases and property operating expenses, including utilities were down over 5%. These savings were partially offset by higher health care costs and elevated marketing expense.

Our decision to invest more in marketing has been instrumental in driving our stronger move-in rates and positions us for revenue growth as we move through 2026. The net result was same-store NOI growth of 0.1% for the quarter. Our low leverage balance sheet remains strong with 93% of our total debt at fixed rates, net of loan receivables and a weighted average interest rate of 4.3%.

Our commercial paper program launched in December of 2024 saved us over $3 million in incremental interest expense during 2025 and has been another useful tool to optimize our cash management and reduce our cost of capital.

We have only one material debt maturity in 2026 and a balanced maturity schedule over the next decade. Our flexible and conservative balance sheet provides us access to many types of capital and we have plenty of dry powder to efficiently execute on our growth strategy.

In last night's earnings release, we provided our 2026 outlook. Our guidance reflects our current visibility and represents a slow and steady recovery in storage fundamentals. We have not assumed any specific catalysts that could materially accelerate storage demand or any material positive or negative changes in the economy.

Specifically, we have not assumed a meaningful improvement in the housing market nor a change to current pricing restrictions in Los Angeles County. With these factors in mind, our 2026 same-store revenue guidance is negative 0.5% to positive 1.5%. Our expense growth range is 2% to 3.5%, reflecting disciplined cost management while maintaining strategic investments in our people, our properties and our platform that drive long-term revenue growth.

This results in same-store NOI of negative 2.25% to positive 1.25%. Our core FFO range for 2026 is $8.05 and to $8.35 per share, approximately flat on a year-over-year basis at the midpoint. Our guidance assumes that average bridge loan balances remain generally flat as compared to 2025.

It also assumes that most of our 2026 acquisitions will be completed in joint venture structures. In summary, we are encouraged by our positive momentum in new customer move-in rates and same-store revenue. While it takes time for rate improvements to flow through our rent roll, our stable occupancy and strong customer acquisition platform position us well to capitalize on demand as market fundamentals continue to improve in 2026. The combination of our operational strength, talented team and diversified growth platform gives us confidence that we can continue to deliver long-term value for our shareholders through 2026 and beyond.

With that, Miriam, let's open it up for questions.

[Operator Instructions] Your first question comes from the line of Michael Goldsmith of UBS.

First question just on the same-store revenue guidance. You did 0.4% same-store revenue growth in the fourth quarter, the midpoint of the guidance calls for things to remain the same in 2026 at 0.5%. So recognizing that you've now had the benefit of street rates being positive and that's starting to flow through. I guess I would have expected it to be a little bit higher. So can you kind of walk through kind of like what's the read on how we should interpret the midpoint of the guidance kind of expecting trends to remain kind of flat with where they currently are and if there's any sort of seasonal cadence associated with that, that would be helpful.

Sure, Michael. Thanks for the question. You're right that at the midpoint, it really implies generally flat same-store revenue growth as compared to our exit in the fourth quarter of 2025. As always, we provide a range, recognizing a number of factors that have evolved throughout the year.

And to your point, at the higher end of our range, that would imply continued acceleration in 2026. And at the low end, some deceleration, generally flat at the midpoint, as I mentioned. And based on the trends we're seeing today with steady occupancy improving and steady new customer rate growth and a gradual year-over-year compression of the roll down between move-out and move-in customers, it's setting itself up to provide a better fundamental outlook than we saw last year. All that said, the range does capture a number of potential outcomes, which include both acceleration or deceleration depending where you are in that range.

And maybe sticking with the trends you're seeing today. Can you kind of give us an update with how street rate has trended through January and into February and just to see if anything has changed in terms of the demand environment or the existing customer into the new year, that would be helpful.

Sure. So for the first 45 days of the year, we continue to see the trends we saw in the fourth quarter. Mid-February occupancy is 92.5%. It's about 40 bps down year-over-year, and rates to new customers are sort of up slightly over 6%. So all the positive signals continue.

Good luck in 2026.

Thank you.

Your next question comes from the line of Samir Khanal of BofA Securities.

Jeff, maybe sticking to guidance here. On the expense side, it's that 2% to 3.5%. You go back last year and even the prior years, it's been higher. So I guess what gives you the confidence to kind of come out with that sort of lower range this time of the year.

Yes. Thanks, Samir. The biggest needle mover as we compare it to 2025 is property taxes. As you know, for the first half of '25, we had outsized property tax increases that impacted our full year number with that being the biggest driver of the expenses. We saw that normalize in Q3 and improve further in Q4, and we expect that to be at a more inflationary type rate in 2026. That's the biggest factor.

Insurance, which is running a little hot in Q3 and Q4. We have a midyear renewal. All indications are that the market is favorable, and we would expect that to improve materially in the second half of the year.

And then most of the other line items, we've done a good job of containing and finding additional efficiencies and think those will be low single digits, if not better. So without getting to specific guidance line item by line item gives you some of the big building blocks.

Got it. And the other line item that sort of stuck out was the acquisition volume guidance. I know you talked about dry powder, you talked about external growth, but that level is lower than what you were guiding to last year. Maybe provide more color on that and kind of broadly what you're seeing kind of on the transaction side.

Sure. So we expect in 2026 that most of our acquisitions will be done in a joint venture format where we put in a minority of the capital. So $200 million of our capital may represent a much larger number of gross acquisition. And that's because given where returns are in the market for deals, we would likely not be interested in many of them wholly owned on balance sheet, where if we do them in a joint venture structure, we can enhance the returns so they become accretive to our shareholders.

I'd also say its guidance number, and we have plenty of capital sources of capital that if there are other opportunities, we will execute them and increase our guidance [indiscernible] we have for the last 2 years.

Your next question comes from the line of Brendan Lynch of Barclays.

Joe, you started by saying that street rates are turning positive in 16 of 20 markets that's certainly attractive progress there. But on the same-store NOI front, it looks like a lot of -- about half of your markets are still in negative territory.

How should we think about the transition of those kind of street rates improving and that finally flowing through down to same-store NOI and more markets converting to positive in the next couple of quarters?

Yes. I think it's a good question, and you kind of hinted at the answer. It does take time for new rates to flow into the rent roll. We only churn 5%, maybe 5% to 6% of our customers a month. So it's really a forward indicator and not something that has immediate impact on our results.

And Brendan, from an NOI standpoint, property taxes in a lot of those markets that you're seeing in the 2025 numbers were a pretty significant factor. And with that being more muted and we expect to be more muted in '26, that's another positive driver as we think of how that flows through to NOI, but we don't anticipate the same headwind in some of those markets with outsized property tax growth.

Great. That's helpful. And maybe another follow-up on the expense front. Jeff, you called out health care costs being a factor in the fourth quarter. We've heard a lot of your peers suggest the same. What is your expectation for that line item going forward in 2026?

Yes. There still will be pressure on the health care side. That is a headwind that I think all companies are facing. On the other hand, we continue to find efficiencies in general payroll and staffing, which mutes it to some extent. So I won't provide specific numbers in terms of our budget. But overall, the total payroll line item is within our general expectation for expenses as a whole, driven by savings on the payroll side.

Next question comes from Salil Mehta of Green Street Advisors.

Just a quick one here to start off. Regarding California, I think it was the Senate Bill 709 that went into effect earlier this year. Have you guys been able to see any, I guess, tangible changes in customer behavior or patterns as a result of, I guess, the forced extra disclosure that was mandated.

So our disclosure pre legislation was as robust as what they're requiring. Now they want it in a different spot in the lease and a specific font and color. None of that made any difference. We had very robust disclosure before the bill and now everybody has the similar disclosure kind of more of a level playing field, and we haven't seen any effect on our leasing activity in California.

Awesome. That's great to hear. And I guess a slight pivot here as a follow-up. You guys mentioned that the guidance is not factoring in any housing market recovery or any improvements in the macroeconomic environment. But I guess more broadly speaking, what are like the top, I guess, macroeconomic drivers outside of home sales that you guys view could help provide a catalyst for the storage industry? Are you guys tracking anything specific, both on a market or a national level? Any color here would be super helpful.

So a couple of factors that we think are very important. One is job growth. Job growth is highly correlated to self-storage performance, and it's one of the reasons that even though in 2025, our exposure to Sunbelt markets was a headwind that we believe are kind of proportional overexposure compared to our peers to the Sunbelt is going to be a benefit to us because in the future, we do believe that's where there will be outsized job growth.

And then the other most important factor is, of course, supply, and we see not that supply is going to 0. I don't think it will ever go to 0, new supply, but we do see a continued incremental reduction in new stores getting delivered.

Your next question comes from Michael Griffin of Evercore.

Maybe to start, Joe, just on the interplay between rate and occupancy. I realize you guys are solving for revenue maximization. But just given that you've run at, call it, a higher elevated occupancy compared to the industry group, and it seems to be some pretty constructive commentary on the new customer rate growth side. Does it now feel like the right time to lean more into pricing? Or how should we think about the push and pull between rate and occupancy to drive revenue this year?

So I don't think you can think about it as we're leaning into occupancy or we're leading into rate. Our algorithms price, every unit type in every building, every night. And we'll make those decisions as to whether to use your words, they want to lean a little bit into rate more or whether they want to pull back to encourage more rentals on a unit type by unit type basis in every single building. So I can't tell you that Jeff and I sit around the table and say, let's lean into rate, lean into occupancy. It's just not the way it works.

Certainly, that's some helpful context. And then maybe just next, I know there was an earlier question just on the regulatory landscape. But there was some news out a couple of weeks ago just related to stuff going on in New York. I realize there's probably only so much you can say. But maybe from a broader perspective, is kind of the regulatory onus more of a focus, a potential headwind as it relates to jurisdictions and municipalities, whether it's on capping rate increases or what have you this year? And how do you think Extra Space is positioned to sort of maybe address some of the concerns out there as it relates to potential regulatory environment?

Sure. Good question. So with respect to New York, we were served with the complaint filed by the New York City Department of Consumer and Worker Protection. We disagree with the allegations in the complaint. To give you context, the complaint cites 117 consumer complaints over a 3-year period having to do with our 60 properties in New York City.

So we have well over 100,000 customers in that time frame. So 0.1% of our customers issued a complaint to the city. We will defend ourselves vigorously. And because it's active litigation, I really can't say anymore.

With respect to the broader question about regulatory patterns, we certainly have seen post-COVID an increase in regulation and proposed or attempted regulation of the self-storage industry. There's been a few jurisdictions that have proposed price caps, as you suggest, but none of those have been implemented, and I think that's a difficult piece of legislation to get passed.

I think what's more common is disclosure legislation that's been successful in many states. And as I said earlier, in many ways, we welcome that because we believe our disclosure is very robust, best-in-class. And to the extent certain disclosure has to be codified that everyone has to do it, that could be a good thing for us.

Your next question comes from Eric Wolfe of Citi. Please go ahead.

As far as your same-store revenue guidance, I know you just try to maximize your same-store revenue, and you're not going to guide the specifics on occupancy versus rate because it's the combination of the two. But as part of your guidance, you seem to at least be assuming that this current trend of 6% move-in rate growth comes down materially. I think that sort of has to be the case to get to your guidance.

First, is that the right conclusion that you're assuming that, that move-in rate growth comes down? And then second, what would cause that? Is the comps getting more difficult, demand indicators just sort of flattish? Like what would actually cause that?

Yes, Eric. Thanks for the question. As you acknowledge in your question, we don't assume that all factors remain equal. So as you talk through it, of course, increases and decreases in occupancy, increases and decreases rates are all factors. But in your scenario, referring to rates specifically, if we were to try to isolate that, certainly, lapping comps does become more difficult as you move particularly in the back half of the year.

So I mean that would be a reasonable assumption. But as Joe led with, we are okay if we're driving revenue growth through any of those levers. So we do provide the range partially to recognize each of those factors and that some could be stronger or weaker.

We're also mindful of the fact that you have a headwind of approximately 40 basis points from pricing restrictions in Los Angeles County. So those are all things that we're thinking through as we come up with our range.

Got it. And that 40 basis points on L.A., is that like a dilution like what it would be doing versus what it will actually do? And maybe you could just share what your actual forecast is for L.A. in terms of sort of actual same-store revenue. So when you're forecasting it for 2026, like what's the number that you expected to end up at for the year?

No. Thanks for the question. We don't guide at the market level or disclose that at the market level. But you're right that, that is dilution versus what we would have expected growth to be in those markets absent those restrictions.

Your next question comes from the line of Ravi Vaidya of Mizuho.

Can you offer color on your discounting strategy and the broader promotional environment in 4Q? And what do you have embedded in the guide from a discounting and promotional standpoint?

So our discounting strategy is channel-based, based on testing and research we've done for a number of years. So online, we sell them off for discounts, discounts being 1 month free or $1 for the first month because all of our data is very clear that customers, long-term customers seeking storage on the web do not respond well to that.

We do selectively offer discounts in the stores, depending on unit type occupancy and other factors, and we'll continue to do so. I do not envision any change in our discounting strategy until the data tells us there's a reason [ commitment ].

Got it. That's really helpful. Just one more here. Can you describe how your team is using AI or any Agentic technologies and maybe how that's an opportunity to lower marketing expense or any other operating expenses?

Sure. So we kind of think about AI in 2 big buckets: external use of AI and internal use of AI. And externally, AI's influence on traditional search is real and rapidly changing. We're staying very close to it. So far, the factors, the metrics that make us and other large companies successful in the SEO landscape are the same -- seem to be the same factors and metrics that make a company successful in the Google AIO or ChatGPT landscape. So this is something that we and the other large companies, frankly, have the expertise, technology focused resources to stay close to.

And I think it's going to be a factor that continues to provide advantages to large companies and differentiates us from most of the industry and allows us to continue to consolidate the industry. On the internal side, I mean we've had machine learning in our pricing models, as I referenced earlier for years and years and years, also being used in help with marketing spend, software development, certain areas of the call center.

We can see it in the future helping us at the help desk, contact management operations. So lots and lots of use cases. We formed an internal platform team to help us make sure that we step into this in a prudent manner. And also kind of vet and triage the dozens and dozens of potential opportunities that are coming up. So we think it's going to be a big part of our operations, our technology stack in the future and we think it will [indiscernible].

Your next question comes from Todd Thomas of KeyBanc Capital Markets.

I just wanted to first follow up on the revenue growth forecast and some of the comments made earlier. Is the base case for guidance at the midpoint, is that currently sort of assuming a stronger first half and a moderating growth rate in the second half of the year as the comps get a little bit more difficult. Is that sort of the right way to think about it based on your comments?

Good question, Todd. As you can tell by the full range, the growth is still pretty flat, right? High end of 1.5% seasonality may impact that 10 to 20 basis points to either direction as you move throughout the range -- or throughout the year, excuse me. But that might be as much of a factor as the previous year's comp is anything.

So I wouldn't read into that too much. I would look at it more as gradual slow and steady growth, but to your point, recognizing that you lap more challenging comps [ before you get into ] the year.

Okay. And then, Joe, you mentioned job growth as an important factor for demand. You talked about Sunbelt job growth being a favorable long-term factor. New York, Southern California, Miami, San Francisco, they've been some of the higher performer markets. I realize some of that's Sunbelt, but they've been sort of some of the higher performer markets. It seems with sequential revenue growth really leading the way. .

Do you expect to see those markets continue to perform or outperform in 2026? Or do you think that you'll see some of the other Sunbelt markets really take the lead next year? Or is it just more of a gradual recovery process for some of the other markets?

I think it's more of a gradual recovery process. I think the correlation between market performance in 2025, in particular, has to do with supply, right? The thing that muted Sunbelt market performance, many Sunbelt market performance was oversupply. And many of the markets that you mentioned did not have that factor. .

So one thing we know, looking back at kind of long-term trends market by market is market performance is cyclical. It's really difficult to find correlations between markets. Therefore, our strategy of having a broadly diversified portfolio with exposure to as many growth markets as we can.

And one factor is how has the market done in the last 2 years, right? Atlanta has been a difficult market because we had several years of double-digit revenue growth. So now it's on the other side of that -- so markets will cycle between overperformance and underperformance and having a broadly diversified portfolio can somewhat smooth out that return series.

Your next question comes from the line of Viktor Fediv of Scotiabank.

I have a question regarding your ECRI strategy. So you previously mentioned that your ability to drive increases is somewhat limited until street rates start to increase. So what is the average magnitude of increases sent to customers today versus this time last year? And what is your kind of base case assumption for ECRI contribution to same-store revenue growth in 2026? And how does it compare to 2025?

So Viktor, we don't disclose specifics around the program. We view that as a competitive advantage and part of our overall revenue strategy, but we don't see it changing materially on a year-over-year basis. So at the portfolio level, contribution should be generally similar with the one caveat being Los Angeles County.

Got it. And then can you provide some additional details on the 26 properties that you sold during the quarter? So probably some details on pricing and the bidding process overall. And are you largely done with your kind of overall portfolio optimization or you may consider to sell something as well in 2026 and '27?

I think we'll sell a small number of properties every year as we seek to optimize the portfolio and get -- improve our market exposure dynamics. We had a greater number of sales in 2025, largely because of the 22 former Life Storage assets that we sold and that was part of the original plan when we merged with Life Storage.

We wanted with certain select assets to improve the NOI, improve the asset, get beyond the 2-year period and sell them because we didn't think they had the growth characteristics that were attractive to us. They required capital that we didn't think we could get a return on or for market positioning reasoning.

So we put that portfolio on the market. We got bids. We executed the sale at a market cap rate for the quality of assets that they were. And they weren't the best assets in our portfolio. And we successfully reinvested the capital, right? We bought stock. We made bridge loans, and we did over $300 million worth of portfolio acquisitions in the fourth quarter. I can't give particular cap rate or pricing because of our arrangement with the seller, but it was a market transaction.

Your next question comes from the line of Caitlin Burrows of Goldman Sachs.

You mentioned that you expect continued incremental reduction in new stores getting built. So wondering if you can give more details on your supply expectations, which markets are more versus less exposed and also which data or source informs that view?

So we start with Yardi, which is a national database and might have a little different opinion. We take that data and we apply it only to the markets that we're active in, right? So we don't care what's getting built in North Dakota, for example, and then we use other data that we have through our people on the ground, our investments team, our management team.

And when we look at that stores that we expect to be delivered in 2026 in our same-store markets, it's an incremental step down, a very modest step down, but a step down. I'd also say that when you look -- Yardi does a great job. We think they're the best data source in the industry. I'm not criticizing Yardi, but I think it's hard for them when projects get canceled for them to take it off of their list. They're sometimes behind on taking stores off their list that are -- that don't go forward.

And we've seen historically the amount of stores being delivered is always somewhat less than what was predicted. So we think that the situation will get incrementally better and the markets are the same markets, right? It's the Sunbelt markets that have a lot of this built Northern New Jersey, Las Vegas, Phoenix, and Atlanta, I guess that's the Sunbelt market. So they're not going to automatically get where there's no supply, but it will be incrementally better over time.

Got it. Okay. And then also on your comments that you feel better going into '26 than '25, I'm guessing that incremental improvement to supply is part of it. But I guess, is there anything else you can comment on what's driving that? And is there a certain line item in your guidance that reflects that confidence because it looks like the full year '25 same-store revenue and same-store NOI results are within the '26 guidance range. So just wondering if that improved feeling is reflected in guidance or not necessarily?

So I think the biggest difference between going into '25 and going into '26 is going into '25, we were still experiencing every month negative new rates to customers. And now we've turned that corner for a number of months, and that pattern has certainly established itself. So that and the supply situation has certainly helped us feel better going into 2026.

With respect to our guidance, we've gotten a lot of questions about that. It's really hard prior to the leasing season to be fully optimistic and fully bake these trends into your guidance, right? We've had 2 years where we did not have the leasing season that we expected. And until we get to that point where we know what the leasing season is going to be like, we're going to remain somewhat cautious.

[Operator Instructions] Your next question comes from the line of Ronald Kamdem of Morgan Stanley.

Just two quick ones. One is on the -- just on the operating platform. I think you guys have taken the philosophy that having people at the stores and sort of managing assets, sort of managing sales, I should say, is going to sort of bear fruit.

So I guess, one, I just want to hear a little bit more about how you guys think about the potential to replace people in the long-term role in the platform? And, two, any other sort of big changes that you're thinking through about on the platform to be able to reaccelerate growth?

So our philosophy is that we want to let the customer choose how to do business with us. And the customer can't choose how to do business with us if we close certain channels to them. So right now, we allow the customer to interact with us online at the call center or at the store. And 31% of our leases are from customers who walk into the store and have not interacted with us online or on the phone. So if we take those people out of the store, those customers all have a cell phone, they all have a computer. They all could choose to interact with us that way but they want to go to the store for a reason.

And if they get to the store and there's no one there, maybe they'll scan the QR code, maybe they'll go online or maybe they'll go across the street to the competitor and you don't need to lose too many rentals in a high-margin business where your expense savings is overshadowed by the loss of revenue.

So as long as the customers are telling us they want to talk to a store manager, right? 31% of our tenants walk into the store. 5% of our tenants start online, reserve a unit but will not sign a lease until they go to the store, see the unit and talk to the store manager. 8% call the call center, make a reservation, but will not sign a lease until they go to a store and sign -- talk to a store manager. So the store manager is a very, very important part of our process.

In addition, the store manager helps keep the store clean, helps prevent break-ins, helps prevent people from living there, helps prevent the mattress from being left in the drive aisle. The asset is taken care better when there's a human being there.

And one reason our management business is growing much faster than competitors who don't use store managers is because people want -- they want store managers in their valuable assets. So we believe this very strongly. It's why we have a higher occupancy rate, I believe, at higher rents than our competitors.

That being said, there are ways to find efficiencies and we are looking and testing for different ways to reduce the number of hours. But I don't -- until the customers tell us they only want to interact digitally, I don't foresee a future where we have no store managers.

Super helpful. I want to come back to the operating expense question because it was sort of lower than we anticipated as well. I think you hit on the insurance and maybe you sort of talked about property taxes as well. But maybe can you talk through sort of marketing spend and some of the other line items that's getting you to that guidance?

Thanks, Ron. I think you hit 2 of the biggest ones in terms of primary drivers of growth in 2026, at least as we anticipated in our guidance. And then marketing is the, I would say, the variable expense. And as we've talked about before, we really view that as a revenue driver. So it's a line item that we're happy to pull back on if we're not getting the returns we want and still see healthy transaction volume.

On the other hand, it's one that we're also happy to lean into and spend more because it's a pretty direct return that we can calculate. So I would say that, that's probably your risk factor, Ron, to the positive and to the negative is marketing expense. And then on the margins, property taxes just because of the magnitude of the total expense load that they contribute. The rest, Ron, I would say would be definitely inflationary, sorry about that.

Your final question comes from Michael Mueller of JPMorgan.

It's [ Danila ] here. On the bridge loans, it looks like you guys have gone through the majority of your backlog of bridge loans considering the balance expected to be generally flat in '26. Should we expect the balance to decline beyond '26? Or do you have meaningful activity there to keep it consistent?

Yes. Thank you for the question. We are intentionally guiding to maintaining relatively flat balances. That's not necessarily because there's a lack of volume to keep originating loans, but we have a really flexible structure where we can choose how much of the loan to retain.

So if we see higher volume, we can sell more of our mortgage notes and just retain the higher-yielding mezzanine piece or we can retain both. So we're confident we can retain those balances at this level based on the origination activity we've seen.

We've also seen that a lot of these loans or borrowers exercise extensions, we see that oftentimes at or before maturity, we are buying these assets, so it serves as an acquisition pipeline for us. So we're happy to participate in the industry in any way we can to partner with other storage participants. And this is just another good tool that helps bring in management, it sources future acquisitions and provide a solid return along the way.

There are no further questions at this time. I will now turn the call over to Joe Margolis, Chief Executive Officer, for closing remarks.

Thank you all for the questions. Good conversation. We appreciate your interest in Extra Space and look forward to reporting to you throughout the year, how we do on our guidance. Thank you, and have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to the Extra Space Storage Inc. Q3 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on October 30, 2025.

And I would now like to turn the conference over to Mr. Jared Conley. Thank you. Please go ahead.

Thank you, and welcome to Extra Space Storage's Third Quarter 2025 Earnings Call. In addition to our press release, we have furnished unaudited supplemental financial information on our website. Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review.

Forward-looking statements represent management's estimates as of today, October 30, 2025. The company assumes no obligation to revise or update any forward-looking statements because of the changing market conditions or other circumstances after the date of this conference call.

I would now like to turn the call over to Joe Margolis, Chief Executive Officer.

Thank you, Jared. Good morning, everyone, and thank you for joining us today. Extra Space delivered solid results in the third quarter with core FFO of $2.08 per share, meeting our internal expectations and demonstrating our ability to generate consistent earnings through our diversified platform. Same-store occupancy at quarter end was 93.7% and averaged 94.1% during the quarter, a 30 basis point improvement year-over-year. Last quarter, we reported that our high occupancy allowed us to begin pushing new customer rates, which inflected positive for the first time in 3 years. This trend continued and accelerated in the third quarter as we achieved new customer rate growth of over 3% year-over-year net of discounts.

While new customer rates continue to improve, same-store revenue prior to other income was flat and slightly below our internal projections. This was partially due to strategic discounts, which were offered in the quarter focused on long-term revenue optimization. Excluding the impact of discounts, same-store new customer rate growth was approximately 6%. While these initiatives created a short-term headwind in the quarter and for the year, we view them as an investment for future revenue growth and still believe we are well positioned for accelerating revenue going forward.

We have also been active in our diversified external growth channels. We have been able to complete and secure strategic off-market transactions through deep industry relationships at attractive going in and long-term yields. I am particularly excited about the $244 million purchase of a 24-property portfolio in Utah, Arizona and Nevada, which is the primary driver of our increased acquisition guidance to $900 million. A portion of this acquisition closed earlier this week, with the rest to close shortly when we complete the assumption of the sellers below-market secured loans.

The acquisition will be primarily capitalized by the disposition of 25 assets, 22 of which are former Life Storage properties and which should close late this year, or early in 2026. The stabilized yields of the newly acquired stores will be greater than those of the disposed assets and those assets are of higher quality and in markets which provide better diversification and future opportunities for growth.

Additionally, our bridge loan program delivered strong performance with $123 million in originations during the quarter, and we strategically sold $71 million in mortgage loans. This program continues to provide interest income, attract customers to our management platform and serves as an acquisition pipeline as we deepen our relationships with key industry partners.

Finally, our third-party management platform expanded by an additional 95 stores during the quarter with net growth of 62 stores. Year-to-date, we have added over 300 stores, which brings our total managed portfolio to 1,811 stores. This multichannel approach to prudent growth allows us to create value across market cycles, whether through direct ownership, joint venture partnerships, lending activities, management services or other creative structures.

Our ability to deploy capital efficiently across these complementary strategies positions us to capitalize on market conditions regardless of the external environment. As a result, we are raising our full year Core FFO guidance per share at the midpoint, reflecting our confidence in our operational execution and gradually improving storage fundamentals. While we expect same-store revenue to remain relatively flat for 2025, we have driven outsized growth in our other revenue streams, which are bridging the gap until the positive trend in new customer rates translates into revenue acceleration.

I will now like to turn the time over to Jeff Norman.

Thank you, Joe, and hello, everybody. As Joe mentioned, our third quarter Core FFO was in line with our internal expectations at $2.08 per share. Same-store revenue declined 0.2% year-over-year, which was slightly below our internal forecast. While the improvement in new customer rates is taking time to translate into revenue growth, we are encouraged by the sustained positive rate trend we achieved during the third quarter. While many operators continue to see year-over-year rate and occupancy declines, we have been able to increase rate growth sequentially every month since May due to our strong acquisition -- customer acquisition platform and proprietary pricing systems. We are also encouraged that our other income streams outperformed expectations and helped offset the same-store NOI headwinds.

Tenant insurance and management fee income were both stronger than anticipated, demonstrating the value of our diversified revenue model. As expected, property taxes normalized in the quarter, returning to a growth rate of 1.6%, and we expect taxes to be low again in the fourth quarter. That said, same-store expenses were still above our internal estimates driven by repairs and maintenance and marketing expense. We view marketing expense as a revenue driver and continue to see strong returns from our marketing dollars. Like discounts, marketing spend causes a short-term drag from an expense standpoint. However, we made this strategic decision to increase marketing spend to enhance long-term revenue growth.

Our balance sheet remains exceptionally strong, providing significant financial flexibility to execute on strategic opportunities. We maintain a conservative capital structure with 95% of our interest rates being fixed, net of our bridge loan receivables.

During the quarter, we recast our credit facility and added $1 billion in capacity to our revolving line of credit. Through the recast, we also reduced our revolving and term interest rate spreads by 10 basis points. We also executed an $800 million bond offering at a rate of less than 5% which completed our 10-year debt maturity ladder.

We are raising our full year Core FFO guidance to a range of $8.12, $8.20 per share based on our year-to-date performance and updated fourth quarter outlook. For same-store revenue, we are adjusting our forecast to a range of negative 25 basis points, a positive 25 basis points growth for the full year, acknowledging that the positive impact from improving customer rates has not driven acceleration early enough in the year to reach the high end of our previous range.

We are raising our same-store expense growth guidance to 4.5% to 5% due to our decision to invest in marketing to drive long-term revenue growth, while other expense categories will continue to normalize moving forward. Our updated guidance also incorporates higher interest income projections based on the strong performance of our Bridge Loan program, higher tenant insurance and management fees, and lower G&A as we continue optimizing operational efficiency across the platform.

The self-storage sector continues to demonstrate its resilience with our business model proving its strength as market fundamentals gradually improve. Our geographically diversified portfolio of over 4,200 stores across 43 states provides significant protection against localized economic fluctuations. Our scale and data give us a significant operational advantage over other industry participants and our high occupancy and positive rate momentum all position us well as we close out the year and head into 2026.

With that, operator, let's open it up for questions.

[Operator Instructions] And your first question comes from the line of Michael Goldsmith from UBS.

First question, you're starting to see new customer rate growth, and it's well up above over last year. But I guess, like how long does that take to flow through the whole algorithm to start to benefit same-store revenue growth? Trying to understand kind of when we should start to see this drive that improved second derivative of same-store revenue growth?

Thanks for the question, Michael. In terms of specific timing, it depends, as you can imagine, on churn and other factors. So I'm not able to pinpoint a time when you see that inflect specifically into revenue growth. But what we can tell you is we're encouraged to see that go from slightly positive rates in May to then over 1% in June, over 2% in July, 3% to 4% in August. So 3% for the quarter net of discounts is an encouraging trend for us. As we extend that into October, it's over 5% net of promotions. So we continue to see that accelerating trend as we get into '26, we'll guide and give a little more detail about how that translates into revenue, but the trend is encouraging.

Got it. And my follow-up question. It sounds like you've been using discounts and promotions to drive -- to drive customers to the channel. Has that continued into October? And is the plan to continue to lean on that in the fourth quarter?

We -- in the past several years have not used discounts as a tool very much. And that's why historically, we've given one number for new customer rate growth because there really was almost no difference between the new customer rate growth before and after discounts. In the quarter, we've tried an effort -- continual effort that we always do to optimize long-term revenue. We tried some different discounting strategies, particularly in states with states of emergency to try to maximize performance in those states. And it's proven to be a short-term headwind, although we believe long-term value creation. So that's why we're now kind of giving 2 new customer rate numbers, gross and net of discounts, because there is a more meaningful difference between there and we want to be fully transparent. And how long and in what fashion we continue, will depend on the results of the testing.

And your next question comes from the line of Jeff Spector from BofA.

Great. I appreciate the details so far. Joe, maybe can you discuss a little bit more on your comment regarding the short-term headwind. Just to confirm, was there anything specific you can cite, whether it was a particular region, EXR legacy versus LSI? Is there anything that helps you or investors understand like what exactly happened? Maybe that was a bit worse than expected? And so we know it's -- you'll consider, I guess, next year in the guidance.

Yes. So I would say our efforts -- our new efforts with discounting, we're focused first on states of emergency, so think Los Angeles and some other states and then also some randomized stores to produce a good data set, if that's helpful.

And Jeff, if I understood the spirit of your question, I think you're wondering is this sort of a permanent change versus something temporary? I'd view it as more temporary. We leaned into it in this quarter and the headwind is felt primarily in the quarter.

Okay. And just to confirm, you're seeing normal seasonal patterns? It has nothing to do with seasonality?

Correct. October has continued to play out pretty similar to September. So we've mentioned we've actually accelerated rates further, still have healthy occupancy. It's 93.4% today. So continues to be a positive trend to October.

And your next question comes from the line of Caitlin Burrows from Goldman Sachs.

The prepared remarks talked about the $244 million portfolio acquisition. Wondering if you could give any detail on the initial and stabilized yields and how long you expect it will take to reach the stabilized yield and kind of what that upside is driven by?

Sure. Happy to, Caitlin. So the portfolio is a mix of stabilized assets and their stabilized assets are 78% occupied. So we're happy to get our hands on them and prove the performance to our standards. But they're stabilized stores and then the balance of the stores are in different stages of lease-up, kind of from very beginning to close to completion of lease-up. So the yield is a blend of different types of stores. That being said, the leverage deal, we're assuming $50 million of debt at 3.4%. The leverage yield is about 4.5% in year one and gets to the mid-7s by the end of or into year 3.

Got it. Okay. And then wondering if you guys could talk about what you've seen recently on the reasons for storage use and if there's been any changes?

No real changes that we've talked about for the last several quarters. When we look at moving customers, in the third quarter we were at about 58%. That's up from mid-50s in the first and second quarter, but that's a seasonal increase. More people move in the third quarter than early in the year. So I don't think it's an indication of any significant improvement in the housing market.

Just as a data point, the peak was the third quarter of '21 at 63%. So third quarter of '25, we're at 58%. So you see the decline in the for-sale housing market there. That's been partially picking up that lack of demand has been partially taken up by customers who cite laptop space as a reason you're storing and they stay about twice as long. Their average stays about 15 months versus 7.5 months for the moving customers. So no real change in that dynamic.

And your next question comes from the line of Ronald Kamdem from Morgan Stanley.

Just 2 quick ones. Just the corollary to sort of a discount conversation being increased, should we take that as also sort of implying that maybe the marketing spend on sort of the web and all that is maybe incrementally less efficient as it was in the past? I guess the question is, has anything sort of changed in terms of those dollars online being spent and the return you're getting on those?

That's a really good question. So we view marketing spend as an investment, and we test every dollar we spend has to have a certain ROI or we're not going to spend it. And we haven't seen any decline in that ROI. So we don't -- we wouldn't tell you that our marketing spend is any less efficient. And I think you can see the benefit of that spend in the rate growth that we experienced. So I mean to answer your question without all the excess words is, no, there's not been any diminution in the effectiveness [indiscernible].

Helpful. And then my follow-up is just on the expense side. Obviously, property taxes, it is what it is, but this year seems to be a little bit sort of outsized, right? You guys are running over 6% year-to-date on all expenses here. Just any sort of comments as you're sort of flipping over the next couple of years. Is there an opportunity for even more expense savings and outside of property tax essentially?

Sure. Let me just give some high-level comments on that, and then we can get into specific line items. We're in a very high-margin business. And we want to make sure that we invest in the properties in a way that maximizes long-term revenue. So that means we want to invest in [indiscernible] to keep the properties up and of the condition that we want them to be because we know in the long term that chicken comes home to root.

And similarly, we want to invest in our people because we know that through testing and data, when you take customer -- take store managers out of stores, it hurts you on the revenue side, it hurts you on the safety side, it hurts you on the catastrophic events side and hurts you on the [indiscernible] side. So we're going to try to be as efficient as we can without impacting the long-term value of our stores.

And we just talked about marketing. It's the same way we look at it as an investment that has a return. And frankly, when we've had over 300 people choose us to manage their properties even though we're more expensive. We know that our view of how to take care of scores and people is agreed to by most of the marketplace. So that's our general philosophy. We want to be as efficient as we can. We want -- we don't want to spend money we don't have to. But we're going to take the long-term view and make sure we protect our revenue stream.

And Ron, maybe to hit a couple of the specifics around some of the expense line items. You mentioned property taxes. Last call, we talked about how it was a bit of the tale of 2 halves with -- or excuse me, with property tax expense. We have lapped that comp. So you saw that drop significantly in the third quarter. As a reminder, a lot of that first half was driven by [indiscernible] increases at the legacy Life Storage stores that mark-to-market has taken place. So is at 1.6% in the quarter, we expect it to be low again in the fourth quarter.

And then as we look at a few of the other line items, we know payroll and benefits stands out as being outsized relative to our norms. A lot of that's a comp from last year. If you look at the 9 months number, it's sub-3%. And that's more in line where we'd expect it to be the full year closer to that 3% inflationary level. And then Joe touched on our approach to marketing and R&M, we view those more as investments, and we'll make those investments as needed knowing that there's a long-term return.

And your next question comes from the line of Todd Thomas from KeyBanc Capital Markets.

I wanted to go back to the discounting strategy. Two questions. First, what exactly was the catalyst for offering these strategic discounts? And then second, you mentioned that this was tested or rolled out in some markets like L.A., where there are some state of emergencies, but it was -- it seems like it was a drag on customer rate growth to the tune of about 300 basis points or half of the gross increase that you achieved. You talked about October, but are you expecting both net and gross customer rate growth to continue increasing moving forward?

So I'll start by saying we are always trying new pricing offerings and strategies based on the amount of data we have, the amount of stores we have, the amount of testing we can do. So this isn't out of line with what other things we've done in the past to try to improve long-term performance, right? We're not running this company for the third quarter of 2025. We're trying to maximize long-term revenue.

Todd, maybe to hit the second half of your question, we won't get ahead of ourselves in terms of forecasting rate growth because we're more focused just on revenue growth overall, and we're open to using any of the levers as needed. That said, based on what we've seen sequentially since May and into October, that the increase in pricing power has been a trend.

Okay. But in terms of the impact that the discounts had on overall portfolio rate growth in the quarter or move-in rent growth in the quarter, what percent of the portfolio had you rolled out or were you testing this discounting strategy on? Just trying to get a sense of what the magnitude of these discounts were like and potentially, assuming you're pleased with the results, and you roll this out more broadly across the portfolio? Just trying to get a sense for the magnitude of these discounts.

Yes. Good question, Todd. I think we're electing to share a lot of detail about the specifics of the test because, frankly, we view this as a competitive advantage. But in terms of trying to help quantify the magnitude maybe another way, you talked about gross rent growth to new customers of about 6% in the quarter and the net number being closer to 3%. For October, that has tightened significantly. So it's gross improvement of a little over 6%, net improvement of a little over 5%. So I guess, it gives you a feel of sort of the more temporary nature of some of the testing and it being less of a drag thus far into the fourth quarter.

Todd, I also want to be clear. We're not saying that the sole reason we made a change to our revenue guidance was this discounting strategy. It's certainly a factor. But I'll also say that it has been a little slower than we expected for the new rates to roll into the rental, right? That's nothing -- that's not something we can predict perfectly. We do know it will happen over time, but it's hard to predict exactly when and how quickly that happens. So I just want to be clear on that.

And your next question comes from the line of Eric Wolfe from Citi.

If I look at the last couple of years, you've had moving rents down double digits at times, obviously improved a lot lately. But if I look at the times when moving rents were down the most, your revenue per occupied foot wasn't down nearly as much or I think it was generally kind of just been flattish, right, over the last couple of years. So I guess I'm trying to understand, as move-in rents recover, why wouldn't the contribution from ECRIs come down, right? As the contribution went up over the last couple of years as you discounted more -- as you discount less, why wouldn't that contribution from the ECRIs just come down?

Yes, it's a great question, Eric. If you think through just the way that as we pull these levers and as rates flow into and out of the portfolio, it's a gradual process. So the same way of after 3 years of negative rates, we were still able to maintain relatively flat revenue growth by using all of our levers, it takes some time coming out as well and for that to inflect and reaccelerate on the other end.

Specific to ECRI, generally, our approach has been very similar on a year-over-year basis. There's no meaningful difference with perhaps the small exception being that we are following and abiding by state of emergency reductions in some states that put a little bit of a cap or a little bit of a headwind on a year-over-year basis [indiscernible]. So maybe modestly less contribution. But outside of that, it's generally similar.

Yes. I would just add, importantly, that customers are accepting ECRI at the same rate as they have in the past. We don't see any greater reaction in terms of move out from customers.

Got it. So the move-in rents not flowing through as quickly to the rent roll really isn't a function of ECRI specifically and that contribution starting to come down. I guess the question is what is -- what is causing that? Like -- and maybe just like some math probably like it's tough to solve, but like what would make the contribution from move-in rents be a bit less than expected?

Yes. The primary driver in the third quarter was slower churn. You'll notice that both our rentals and vacates were lower. So it's just a little slower churn than we had modeled.

And your next question comes from the line of Michael Griffin from Evercore ISI.

Maybe to follow up on Wolf's question there. I'm just curious, Joe, if you can give us a sense of -- and I realize you're not going to give '26 guidance, but where those move-in rates need to go before you start to adjust your ECRI program, right?

I understand that you all solve to maximize revenue, but it seems to me that as these move-in rents remain lower, you're going to have to make up for it on the ECRI upside. So at what point, not to say that we reach an equilibrium, but that this regime of higher ECRIs to solve for revenue comes down somewhat?

Yes. I look at it a little differently, right? Street rates, new customer rates are going up and that gives us more headroom to increase ECRIs to existing customers, right? We don't want to move existing customers up too far over Street rate. it provides somewhat of a cap, a guide for us. And as Street rate goes up, that puts more and more of our customers into the eligible pool to receive an ECRI. So one of the challenges over the past several years is as Street rates decline, more and more of our customers were in the group that were ineligible for ECR and now as that switches that pattern should change.

I appreciate the color there. And then maybe just on the acquisition opportunity set. I mean it seems like there are more transactions coming back into the market, you seem pretty constructive on this deal, the part of it is closed and part you're expecting to close by year-end. But maybe give us a sense of the opportunity set within the transaction market? Or buyers and sellers more willing to come together on price? Is it interest rate stability? Like I guess, what's the catalyst for maybe an incrementally positive outlook as it relates to acquisitions?

So I'm not overly positive on the open market. I don't see cap rates at a level that given our cost of capital it's attractive for us to be the high bidder in a competitive bid. And we've seen lots of deals that we've managed, where we had first and sometimes last shot that we let them go because we want to be disciplined and adhere to our cost of capital metrics. But what I am encouraged and positive about in the future is our continued ability to create accretive deals through our relationships like the one we just discussed through our joint venture partners, which we've done several of which were at very high yields this year.

We have another one of those under discussion and through being creative, and the vast industry relationships we have, right? Having over 1,800 properties we manage, gives us an awful lot of relationships that allow us to do transactions others can't.

Yes. And Griffin, I'd just add, being involved in the industry in all these ways, it allows us to hang around the hoop. Oftentimes, these acquisitions really are triggered by a life event for the seller or maybe a debt maturity or something else where it's not really a market function that's pushing them to sell it. It's more of an event, and we want to be close by when those events happen and have for [indiscernible].

I mean another example is our Bridge Loan program where to date, we bought 22% by dollar volume of the collateral we've lent against. So that provides somewhat of a proprietary acquisition pipeline for us too.

And your next question comes from the line of Juan Sanabria from BMO Capital Markets.

If I'm beating a dead horse here, but on the discounting, I guess a 2-part question. What's the strategy behind using it more aggressively in some of the rent restriction areas like L.A.? And then in October, you mentioned the gross versus net delta shrunk. So does that mean you're not discounting as much as you did in the third quarter? Or just why is that discount narrowing in October?

So we're always looking for ways to maximize revenue -- long-term revenue while complying with law and substituting discounts for ECRIs is an effort to do that. And our use of the tool and how it evolves as we learn more, will change over time. And that's one reason you see a difference in October or we'll see a difference in October.

Sorry. And then just on the dispositions, you noted that there's a big kind of portfolio that you've put out there for [indiscernible]. Just curious if you could share any feedback [indiscernible] in the market for those assets, you mentioned that on the acquisition side, cap rates are necessarily super attractive. So it probably means good, big demand on those life assets. Any color would be appreciated there.

Yes. We'll provide more color when they close, but we had bidders, we've selected a buyer, we're going through the process. I mean, I think it's very important for us as a company every year to look at our portfolio and due to market concentrations or individual asset growth or capital requirements, try to consistently improve the portfolio by doing some dispositions. And we're a little heavy historically this year because we're 2 years out from the Life merger, and we want -- we have some Life assets that we want to dispose of. But I think we'll sell assets every year and just try to recycle the money into better long-term assets.

Not to be greedy, but one very quick follow-up on the occupancy. I think you said October was 93.4%. Just what's the year-over-year delta on that?

So the year-over-year delta is about negative 40 basis points, Juan. And I would look at that much more as a result of last year's comp. If you look at our same-store occupancy September to October in 2024, it actually accelerated, part of that was related to the Life Storage assets. That's about the time we unified everything under the Extra Space brand. We got aggressive with pricing and took a lot of occupancy at those stores. So if you look at the sequential progress, 93.7% at the end of September, 93.4% in October, pretty similar to what we've experienced historically.

And your next question comes from the line of Ravi Vaidya from Mizuho.

I wanted to ask for the bridge lending book. How do you expect the lower rate environment impact the growth of this part of your business? Do you expect maybe that some operators might take more traditional financing options? And would a greater proportion of the [indiscernible] lending turn into acquisitions from here on out?

So I think a lower rate -- a lower rate environment will affect the bridge lending program if it loosens up the acquisition market. Many of our new bridge lending customers, who are folks who if they could get the price they have in their head would sell the asset but they can't get in the market today. So they're looking for a bridge solution to get them to a future date when they could sell. So I think there's some countercyclicality between the acquisition market and the bridge lending business, and that's fine, right? That's one of the reasons we have all these different growth channels because in any one year, one could grow more than the other, and we just -- we want to be doing what's right, given current -- what's best for our shareholders given current market and economic conditions.

Yes. And one thought, Ravi, that I'd add to that as well, as we've talked about, we originate these loans in a mortgage mezzanine structure. And as interest rate spreads as a whole tighten, the required spread of our A-note buyers also tightened. So in terms of kind of the relative spread that we can bring in, we have some flexibility there, especially to the extent that we're holding mezz notes to optimize those yields.

And your next question comes from the line of Nicholas Yulico from Scotiabank.

I'm trying to just piece together this quarter versus last quarter, some of the comments on occupancy and pricing. Last quarter, you guys felt good about occupancy. You felt good about pricing. You hit an ending occupancy number, which was the highest you had in several years. And then for whatever reason, then this quarter, feel like you were pushing pricing and then you didn't get what you wanted. You had some discounts you offered. And so I guess, you did that in relation to -- I don't know if [indiscernible] is about occupancy or move-in volume coming into the front door. Is that the right way to look at this?

Yes. I respectfully think it's not. I think that we don't solve for occupancy. We don't get worked up if occupancy is 20 or 30 basis higher or lower. We don't sell for rate either. We sell for long-term revenue and in some instances, if that's going to be a little higher rate and lower occupancy or a little lower rate and higher occupancy, we're ambivalent. We just want the highest long-term revenue. And the discounting strategy was not a reaction to any type of occupancy number. It was more thinking about we see more and more of these state of emergencies, how can we change our pricing structure to maximize revenue as these things come up across the country?

Okay. I guess the issue here is that it kind of feels like you guys have higher occupancy than the industry. And you can see it in various ways, but presumably, you guys took some market share over the last couple of years as you went to this discounted pricing on the front-end strategy. And I'm just wondering if the issue here now is that the rest of the industry just doesn't have as high occupancy. So if you guys are trying to push rate, has -- you got to deal with the rest of the industry and what they're going to do. And so I'm just wondering if that is something that played out this quarter, again, where you guys seem like you're going to be in a little bit better positioned to be pushing rate than the industry and then you hit a wall and the problem is that the rest of the industry isn't in a same sort of starting point as you guys right now in occupancy?

Yes, I appreciate the question, Nick. I would say, I don't think we've hit a wall, right? We continue to see rates accelerate through the quarter and beyond and continue to be pleased with the occupancy level. I think this is a fragmented enough industry that while we kind of think of the industry as maybe being the large public operators, and we're comparing and contrasting 10 basis points here and there.

I think holistically, we look at this as we've had negative rates as an industry for a long time. That -- despite that, we've been able to maintain flattish revenue growth for the last couple of years. And now as new supply moderates and as we maintain those high occupancy levels, we've been able to push rate and we keep seeing it going.

As Joe mentioned, we're always testing things and -- and the beauty of it is we have a large enough portfolio, we don't really have to guess. We can run tests and see what the winning strategies are and what is resulting in stronger revenue outcome. So I think we're pretty comfortable -- the data is telling us how to maximize revenue.

I mean it's easier to push rates when you have higher occupancies. And as long as our customer acquisition platform can fill the funnel, which they can, we'll do much better with rates at higher occupancy than lower occupancy.

And your next question comes from the line of Spenser Glimcher from Green Street.

Just going back to the dispositions. Is there anything you can share on the 24 assets being sold just in terms of geography or rent levels just relative to the portfolio average? And as you continue to [indiscernible] the portfolio, as you mentioned, are there many more life assets that you would say, fit the disposition criteria, perhaps due to a lack of market concentration, just not being as efficient to operate?

So the existing portfolio has a concentration in Florida and the Gulf Coast. And I would say there are -- there certainly are more life storage assets, but there's not. I think this is the big chunk. I don't think we'll do another 22 property portfolio.

Okay. And anything you can share on how those assets rent levels compare to the portfolio average?

They're lower.

Okay. And then just maybe the second question here. Can you just remind us what your on-site personnel looks like today just for your properties? And then as well as regional managers? How many assets are these employees overseeing on average? And are you comfortable with this head count for the near term?

So we're at about 1.4 full-time employees per store. It obviously varies, 100,000 square feet in Manhattan is going to be staffed more heavily than 45,000 square feet outside of Lexington, Kentucky. We're continuing to use technology to -- and testing to try to get more efficient, right? And some of it is when you have a cluster of stores, how can you staff efficiently without having every store staffed at a full-time basis? And other testing -- that frankly isn't unique in the industry. I think everyone is doing it.

But at the end of the day, we want to meet the customer how the customer wants to meet us. And 30% -- a little more than 30% of the customers still walk into the store, wanting to talk to a store manager. They all have phones. They all have computers. They can do a full transaction with us if they choose online. But they choose to go to the store for a reason. They want to see how clean it is. They don't really know what a 10x10 is. They have some questions on the store.

And if you take the store manager out and force them to choose to scan the QR code or force them to call up someone on the phone, some of them will do that, but some of them will turn around and go across the street to a competitor. So as long as we have customers who are choosing to walk into the store, we will make sure we have a store manager there. Because if we cut expenses by 15% and lose one rental a month, at our average rate that's negative 2.5% NOI experience. So we're going to protect that revenue line item very carefully while still being smart on the expense side.

And your next question comes from the line of Michael Mueller from JPMorgan.

Just a general question here on acquisitions. Just curious, when you buy something that's not stabilized or actually something that has stabilized even, how much can you typically raise the going in yield just from taking the assets, putting them on the platform and kind of getting the expense efficiencies? And I'm just thinking about that, like what's the low-hanging fruit in terms of going from an initial yield up to a stabilized yield that obviously has some additional revenue impact in it?

Yes. So it's a really good question and it varies widely. So if we're buying a store that's already on our management platform, either because it's -- we have a bridge loan on it or it's our management platform, then we've already optimized NOI. And it's much more of a [indiscernible] purchase, and we'll try to do a lot of those with joint venture partners to enhance the yield.

If we're buying something that's managed by a third-party operator, it varies widely because the quality of the third-party operators vary widely. Some are very good and some are not as good. But it's not uncommon for us to see 150 basis points or more increase in NOI once we can get it on our platform.

And your next question comes from the line of Omotayo Okusanya from Deutsche Bank.

The repairs and maintenance during the quarter and the elevation in that number, was that -- is that like a broad-based R&M across the entire portfolio? Was it more concentrated on the LSI portfolio because there was kind of maybe some deferred maintenance still associated with that portfolio? And how do you just kind of think about kind of going forward outlook for R&M?

Yes. Thanks for the question. Yes, some of that outsized growth is driven specifically by the legacy LSI properties. And again, we expect that to normalize. We had some catch up to do on those properties, but just started seeing that normalize. And -- but -- all in all, as Joe had mentioned, we want to take care of their properties. So in general, we're going to make sure that we're doing whatever we need to do to protect those assets. But yes, a little bit of an outsized contribution from the Life stores.

That's helpful. And then on the Bridge Loan program side of things, could you just kind of talk a little bit about kind of what you're still seeing out their -- ability to kind of put money to work and kind of -- what kind of yields?

So we had a very active year last year, I think we did $880 million of originations. And a lot of that was new development stores that needed to pay off their construction loan and want to bridge to stabilization. That business has gone fairly quiet as the amount of new stores being delivered is going down, which is overall a good thing. That's been replaced somewhat by folks who need to buy out an equity partner because things are going slower than usual or wanted to sell, as I said earlier, and can't.

So we've done, through 3 quarters, a little over $330 million worth of originations. So we're on a good pace for that. The pricing of loans we have on our books, the A notes averaged about 7.6%. The mezzanine notes are about 11.3%. So over time, we would like to keep our on balance sheet balances fairly steady. It will go up and down slightly quarter-to-quarter, but change the mix to have more B notes and fewer A notes on balance sheet.

There are no further questions at this time. I will now hand the call back to Mr. Joe Margolis for any closing remarks.

Great. Thank you very much. Thank you, everyone, for your time and interest in Extra Space. I just want to reiterate that we're positive about the future. Our rate trends are positive and improving every quarter. Supply continues to go down. Our ancillary businesses are growing and help bridge the gap while we -- well, the time it takes for these new higher rates to flow through the rent roll take time. So we're really encouraged about going into 2026 and are excited for better things tomorrow.

Thank you again for your interest.

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.