管理層發言
Greetings and welcome to Public Storage Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brandon Tyler Reagan. Thank you. You may begin.
Thank you, operator. Hello, everyone, and thank you for joining us for our second quarter 2026 earnings call. I am here with Tom Boyle and Joe Fisher. Before we begin, we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, 07/30/2026, and we assume no obligation to update, revise, or supplement statements that become untrue because of subsequent events. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, supplemental report, SEC reports and an audio replay of this conference call at our Investor Relations website investors.publicstorage.com. We ask that you initially limit yourself to two questions. However, if you have additional questions, please feel free to jump back into the queue. With that, I will turn the call over to Tom Boyle.
Morning, everyone, and thank you for joining us. Our second quarter marked the start of our new era at Public Storage, what we call PS4.0. This new era is characterized by greater energy, urgency, and a sharper focus on building the capabilities that will drive stronger per share performance over time. My four key points today cover initiatives coming together as building blocks from here. First, we recently closed the NSA transaction, marking the first major milestone of our value creation engine. Second, Public Storage Canada is a strong strategic addition to the portfolio, and an attractive entry point into an underpenetrated market with meaningful room for future growth. Third, the PSNext operating platform continues to improve with improving leading indicators in the business and new capabilities that are helping us better serve customers. And fourth, our Own It culture is gaining momentum across the organization with strong engagement from our team and real urgency around the opportunity ahead. Let me start first with our recently closed NSA transaction. Closing this transaction last week is a major milestone for Public Storage and a clear example of PS4.0 in action. As we have discussed, this is not just about getting bigger. It is about strengthening our platform, deepening our portfolio, expanding our opportunity set, and driving differentiated per share earnings into the future. A tremendous amount of integration planning went into this closing, and that preparation paid off. We transitioned the 1.1 thousand store and 575 thousand unit portfolio onto Public Storage systems overnight and began operating activities immediately upon close. That is exactly the start we wanted. We welcomed over 1.3 thousand new Public Storage teammates and got busy. With our website and digital presence online that morning, the team completed over 1.5 thousand reservations, switched over 265 thousand autopay accounts, began collecting rents, and started rebranding with temporary signage on the first day. This early execution is important, but it is also just the beginning. The real value creation is ahead of us as we apply PSNext across the portfolio, rebrand the assets, and execute against the operating and capital opportunities we have identified. We are more confident in the achievement of the operating targets with our new unified team driving results from here across customer experience and revenue, operating efficiencies, pet insurance, and G&A. On the capital front, integration planning has also surfaced additional expansion opportunities that will add to value creation over time. And, yes, lots of orange paint is on its way to a location near you. Thank you to the NSA team for the professionalism, focus, and partnership they brought throughout this process. And thank you to our Public Storage teammates for their leadership. Getting to this point took a significant cross-functional effort, many long days, nights, and weekends, and the strong collaboration between the two organizations is a big reason the transition is off to a solid start. Second, let me turn north to Public Storage Canada. We announced the acquisition of Public Storage Canada in June. We will reunite Public Storage with a portfolio that was operated under common ownership until the late 1990s and has since been owned and operated independently by the Hughes family. This high-quality PS-branded portfolio is the third largest in Canada and sits in desirable infill locations across top metros with concentrations in Toronto and Vancouver. The portfolio demographics are strong with trade area populations averaging nearly 250 thousand people and average household incomes approaching $100 thousand. The market is significantly underserved with per capita supply of 2.5, significantly lower than the U.S., and there is meaningful embedded upside in the assets that gives us a compelling opportunity to create value over time with our PSNext operating platform. The transaction also reflects disciplined capital allocation. It was acquired off market pursuant to an existing ROFO/ROFR structure with the Hughes family. In addition to being accretive to long-term portfolio NOI, IRR, and FFO growth, it creates the ability to finance a portion of the NSA acquisition with lower-cost Canadian debt. It is the second transaction this year funded with Public Storage OP units, creating another win opportunity. So when I step back, I see Public Storage Canada as both a strong addition to the portfolio and an important platform for growth in the future. Third, our PSNext operating platform. Our full team is zeroed in on improving customer experience leading to improved fundamentals and on building the platform for the future. The leading indicators of the business have turned and our outlook from here is improving, which Joe will cover in more detail shortly. Our customer focus is translating into better execution, improving customer sentiment year to date, 80% lower move-out activity in the quarter, and better-than-expected occupancy and move-in rent performance, both ahead of prior year. We continue to see favorable trends in our coastal and Midwestern markets, and improving trends in key Sunbelt markets. We are seeing sequential improvement with development activity slowing across markets, paired with steady demand. We have confidence in demand growth over the medium term with demographic tailwinds as millennial and Gen Z customers age into our core customer usage years. In L.A. County, performance will accelerate from here into 2027 with the expiration of pricing restrictions there from the Board of Supervisors. Technology remains a critical differentiator for our customers. Nearly 90% of customers interact with us digitally at some point in the rental journey, 75% complete their lease fully digitally, and our app has been downloaded over seven million times. That improves the customer experience and helps us run the business more efficiently. It provides industry-leading datasets for use across the organization including capital allocation, data science, and machine learning initiatives. We are also investing in what is next for customer interaction. One example is Ellie, our AI-powered customer service agent, which has already handled more than 90 thousand customer interactions in recent months and continues to improve with every conversation. Ellie does not just answer questions; she resolves customer needs using our proprietary data and AI models. We are embracing these new capabilities across PSNext to drive a better customer experience, a better employee experience, and stronger financial results, and we are excited to bring NSA and Canadian properties onto that platform to drive value creation. Now let's move to my fourth point, the Own It culture. We launched our Own It culture earlier this year with a combination of customer obsession, new talent and perspectives alongside strong in-place teams, empowerment with accountability, and new incentives to drive alignment. The goal is a culture with more energy, more urgency, and stronger accountability for execution. We recently moved into our new headquarters in Frisco, Texas and I can feel the energy in the environment. We are also looking forward to our Southern California team moving into new office space in months ahead. Last week, we welcomed approximately 1.3 thousand new teammates through the NSA transaction in a new office in Denver. We are excited to have them with us, and we are bringing them into the Public Storage culture in a way that is clearly aligned and performance oriented. As we said before, strategy only creates value if the organization is aligned behind it. That alignment is getting stronger. The energy I am feeling is translating into urgency, and what we are building is a culture grounded in accountability, speed, and execution. We see a meaningful opportunity ahead; our goal is to make sure the organization is ready to move with discipline and intensity as that opportunity unfolds. So to sum up, the company is putting more of the earnings growth building blocks in place at the same time than at any point in recent years. We closed NSA and have begun the value creation work. We announced Public Storage Canada, which spans our platform into an underpenetrated market with room for future growth. We remain active on acquisitions with new data science tools and faster execution. We continue to grow the development pipeline, are expanding the lending platform, and are improving the growth profile of our third-party management business. At the same time, PSNext is strengthening how we operate the core business, improving customer experience, brand, pricing, and efficiency. And as Joe will cover, the financial setup also improves from here with contributions from non-same-store growth, ancillary businesses, a future tailwind from L.A. restrictions rolling off, and a more favorable financing profile supporting earnings power over time. These building blocks are for the future based on execution from here. While that execution will cover several years, the direction is clear. Our operating trends are improving, our growth levers are expanding, and the building blocks we are putting in place today position Public Storage for stronger growth in the second half and into the next several years. With that, let me turn it over to Joe.
Thank you, Tom, and good morning, everyone. The topics I will cover today include our second quarter results, a summary of recent transactions, and a balance sheet and capital markets update. Before I dive in, several key highlights from the quarter include: number one, continued momentum in operations including occupancy, churn, and move-in rates; number two, an across-the-board guidance raise; number three, two major value-creation engine transactions; and fourthly, approximately $12 billion in capital markets activity completed or committed year to date. Moving to results. Core FFO in the quarter was $4.17 per share, which was down year over year as we have previously communicated, with a sequential decrease from first quarter driven by higher financing costs and G&A. Same store revenue and NOI growth in the quarter were -0.6% and -2.2%, respectively, both ahead of internal expectations. On a forward-looking basis, core metrics were strong versus expectations. Average move-in rents turned positive at +1.6%, the first time since 2021 that both new move-in rates and occupancy were up on a year-over-year basis. Move-in rates in 2Q were up 18% since April 2025, better than historical trends and a clear sign that we are moving past the last few years of stabilization. Occupancy of 92.5% was positive year over year by +0.2%. Lastly, our existing customers continue to perform well, as demonstrated by a material reduction in churn. Expense growth was +4.4% for the quarter, with pressure in property taxes and marketing offset by savings in payroll and our machine learning-based staffing model. The property tax increase was primarily timing, with Q1 2026 having benefited from earlier-than-expected appeals wins on a year-over-year basis and thus an offset in 2Q26. Outside of the same-store pool, NOI growth of 22% in our non same-store pool and ancillary growth of 15% continued to lift results. Non same-store performance and our external value-creation engine continue to be a substantial and repeatable driver of shareholder value. Turning to 2026 guidance. We are pleased with our year-to-date performance and excited about the underlying momentum we are seeing in the leading indicators and core metrics of our business. We are raising our guidance across all key metrics. Revenue and NOI growth are now forecast at a midpoint to be -0.2% and -1.1%, an improvement of 90 basis points and 110 basis points, respectively. Importantly, while we have previously said that 2Q and 3Q would be the low points for year-over-year same-store revenue growth, our updated guidance implies an improvement from 2Q levels in the second half with the fourth quarter expected to exit the year with positive revenue growth. The key assumptions underlying this guidance increase include improved new move-in rates, at positive low single digits versus prior assumptions of down mid single digits, and an improved occupancy forecast of +30 basis points year over year compared to the prior assumption of flat. This is primarily due to the continued success we are having with our focus on customer experience as demonstrated by increased customer sentiment and decreased churn. Lastly, given the expiration of the state of emergency in L.A. County, we now see a headwind of -50 basis points to same-store revenue growth this year, an improvement of 30 basis points from our original guidance of -80. For core FFO, we are raising forecast to $16.75 to $17.05 with a midpoint of $16.90. This is an increase of 1.4% or $0.22 per share versus our prior forecast. This increase is being driven by the improvement in same-store performance, better interest expense, and continued strong contributions from non-same-store and ancillary, offset slightly by increased G&A. Lastly, we expect financing benefits from our NSA and PS Canada acquisitions to be approximately $0.02 per share positive to core FFO in 2026 versus our prior assumption of neutral. This is a great start out of the gates for these two transactions. Specific to NSA's results, you can see in our supplemental that we provided a number of key disclosure pages historically provided by NSA. For core FFO, NSA achieved $1.14 per share year to date 2026, which is ahead of consensus and annualized would have achieved above the high end of their original guidance range. For NOI, they achieved +2.4% growth year to date, well ahead of their midpoint of flat NOI growth driven by solid occupancy improvements and expense controls. On to transactions. Market activity has picked up in 2026, with roughly steady yields in the low fives and sellers showing a greater willingness to transact. Our expanded team has been busier than ever in 2026, and we have acquired or are under contract for over $450 million year to date. One area of particular focus for the team this year has been recently developed assets, which come with lower occupancy but present higher stabilized yields and returns. While these can be modestly dilutive to near-term FFO, we believe that future upside growth and accretion make them the right long-term investment decisions. We are also speeding up the transaction process. Improved efficiencies in sourcing, data and AI-informed underwriting, and accelerated approvals have improved top-of-funnel to close deal timelines, leading to higher deal flow, faster execution, and a better process for owners looking to sell assets. In addition to the NSA closing on July 22, the other big recent transaction news was the announced acquisition of Public Storage Canada. As previously discussed, the strategic entry into the Canadian market provides exposure to a growing Canadian market with infill high-quality properties, provides significant NOI upside to our PSNext operating platform given 83% occupancy and 65% NOI margins, and will be accretive to our future NOI, cash flow, and IRR outlook. The $1.2 billion transaction will be funded with approximately $900 million of OP units, issued at $321.98 per unit, and approximately $300 million of Canadian-based debt issuance. In addition, the seller will have the opportunity to receive $288 million of OP units priced at $375 per unit and two earn-out tranches over the next five years should certain NOI outperformance thresholds be achieved. As mentioned earlier, the $900 million of Canadian equity exposure as part of this transaction will allow us to finance an equivalent amount of our NSA acquisition in Canadian-raised debt over 100 basis points below the underwritten U.S. levels. We look forward to closing this transaction in the third quarter. On the development and expansion front, our pipeline has grown to $692 million across 47 projects, with stabilized yields targeting 8% and remaining amounts unfunded of $432 million. For our lending business, our platform grew to $173 million outstanding, up $30 million from last quarter at a current rate of approximately 7.6%. And lastly, our third-party management platform welcomed 22 net new properties last quarter, bringing our total to over 460 properties. We see a path to continued growth in all four of these key value-creation drivers. Lastly, our balance sheet remains in excellent position from both a metric and liquidity perspective. We have had a very active and beneficial year in the capital markets with approximately $12 billion of total capital markets activity. We have completed new issuances, created new facilities and programs, placed hedges, opened up a new market in Canada, done multiple OP unit transactions, and issued on our ATM program. These actions have strengthened our industry-best balance sheet, enhanced our liquidity and financial flexibility, and fully funded our accretive external growth. During the quarter and subsequent to quarter end, we announced a total of $5.9 billion of debt capital markets activity, including $1.4 billion in new unsecured issuance, the expansion and extension of our $3 billion revolving line of credit, a newly created $1 billion commercial paper program, and a $500 million delayed draw term loan. The $1.4 billion of new unsecured issuance was done at a weighted average effective rate below 5%, which was partially supported by a $1 billion 10-year treasury hedge put in place earlier this year at 4.3% to help lock in both recent and future issuance cost. We have also entered into forward sale agreements under our ATM program for nearly 800 thousand shares at a price of $326.32 per share which is expected to generate nearly $260 million of future net proceeds. At quarter-end, we had available liquidity of $3.8 billion between our line of credit and cash on hand, plus approximately $600 million of annual free cash flow. Our balance sheet remains one of the strongest in the REIT sector with net debt to EBITDA of 2.9x, net debt plus preferred equity to EBITDA at 4.2x, and debt plus preferred equity to enterprise value in the low 20% range. We are one of only two REITs with A and A2 ratings from S&P and Moody's, further testament to our balance sheet health. In summary, PSNext delivered solid results and an accelerating outlook. Our value-creation engine was on full display. We made material enhancements to our fortress balance sheet and continue to execute across all aspects of our business. We are executing today with an eye toward the future and stacking up multiple drivers of absolute and relative per share earnings growth for years to come. With that, I would like to turn the call back to the operator to open up for Q&A.
分析師問答
Thank you. Thank you. At this time, we will be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. As a reminder, we ask that you please limit yourself to two questions and re-queue if necessary. One moment please while we poll for questions. Our first question comes from Samir Khanal with Bank of America. Your line is now live.
Yes, good afternoon everybody. I guess Joe, maybe to start off on the L.A. front. How quickly can you capture the revenue from L.A.? Maybe just walk us through the math for this year and then into next year as we think about the upside.
Hey, Samir. Good to hear from you. So on L.A., in the state of emergency there, we did have that factored into our original guidance as a minus 80 basis point drag. As I mentioned in the prepared remarks, 30 basis points of that 90 basis point revenue increase in our guidance is going to come from L.A. We are anticipating some ability to start recapturing as of the expiration on July 1. We are going to take a pretty measured and phased approach to that. It is not the idea to go out there and move all customers, either new or existing, back to market rates immediately. But we are going to over time start to recapture that. As a reminder, we lost about 70 basis points of same-store revenue growth in 2025 and another 50 net this year. So that gives you an idea, given the demand and supply environment out there, which remains really robust, what we left on the table from the state of emergency and may be able to recapture in the future.
Okay. And then I guess my second question is on NSA. You mentioned expansion opportunities that you are finding. And again, I know it is early, maybe expand on that and have you identified at this point any sort of incremental revenue or cost synergies beyond sort of the original underwriting? Thanks.
Yeah, Samir, it is Tom. I will cover that. I think as it relates to the capital opportunities, there are really a couple that we have identified that I will share today in collaboration with the NSA team over that integration planning period. The first is expansions that I highlighted. So there is definitely some opportunities for expansions on some of their existing assets and we are excited about that. The development team is spending time there. Joe and I just greenlit an expansion at our most recent investment committee this week, so we're getting moving on those and that value creation will come over the next several years. The second component is more—and this is driven by an ability to spend some R&M dollars and get more units online. So we found about 14 thousand units, and the NSA team pointed those out to us, that we can bring back online which will drive incremental inventory as we move through the second half of 2026. The second part of your question related to overall synergy expectations, I would say our confidence continues to grow. You heard from me just a few moments ago around we were able to get our systems in place overnight, and that enabled us to have our first visibility in terms of the operating situations and then also give our teams the tools—and the unified team moving forward has those tools—to start driving the business. So we have confidence both top line, bottom line, ancillary, and the like from here and we expect to execute on that plan along those same lines of the roadmap that Joe provided back in March but have more confidence in terms of the execution now that we have the visibility and the teams in place.
Thank you. Our next question comes from Michael Goldsmith with UBS. Your line is now live.
Good afternoon. Thanks a lot for taking my questions. One will be more near term, one will be more intermediate to long term. But maybe on the near term, can you provide an update on July and how that is reflected in your guidance where you expect same-store revenue growth to accelerate slightly through the back half?
Yeah. So I will take the first piece of that and then the guidance question Joe can take. We have seen improved core performance as recently highlighted on the call. As we think about move-in rents, for instance, move-in rents were growing 1.6% in the second quarter compared to a decline of -2.4% in the first quarter. Promotions were a little higher in the second quarter but that was really a function of April and a different promotional strategy in the month of April. But if you look at June, for instance, where we had more consistent promotions year over year, move-in rents were up 4%, and the strongest month in the quarter. As it relates to July, trends continued: occupancy was up about 30 basis points year over year, churn continues to be lower, which is a bright spot, and move-in rents again were positive, maintaining the momentum from June. So I think what is driving that is a combination of several things: one, steady demand from the customer base across the country; two, reducing supply as we see new competitive supply entering the market slowing down; and three, some of the customer experience initiatives that we are really driving. Sentiment is up, churn continues to be lower which gives us more pricing power for new customers coming in, and the team in place continues to test and learn and drive the business.
In terms of second half—
It was around expectations for the second half. Embedded in guidance, I do not know if you want to cover that, Tom. But second half trajectory, I think, is a consistent message. We did expect 2Q to be the low point for the year as we faced the toughest comps from a revenue perspective. With the increased momentum that Tom was talking about, it does start to show up a little bit in that year-over-year revenue growth number. Obviously, that is a lagged number that takes in the prior four quarters. But we do expect to go off of that minus 60 basis points in 2Q, see that start to get a little bit better in 3Q, then even turn positive in the fourth quarter. So we have a nice trajectory there. The critical piece is the outlook beyond that and the earning in that we are starting to build with some of the recent momentum: ECRIs continuing to contribute, the existing customer staying with us longer, occupancy coming up a little bit, and that momentum that we are seeing on new move-in rates. We are excited about the momentum in the second half and what that holds for the future.
Got it. And then, as my longer-term question, it sounds like near term you have got a little momentum; things are getting a little bit better, but you have done a lot of things that are setting yourselves up for the intermediate term with the NSA acquisition, PS Canada, acquiring more lease-up, L.A. gets better, you have got development. So is it fair to say the story is now that things are getting a little better in the near term but you are setting yourselves up for a better 2027 and a bigger 2028 or some combination of the out years where all of this is going to come together and drive more powerful growth?
Yeah, Michael. I think you covered that pretty well. What we are building are building blocks. We have more of them in place now than we have in the past and we will continue to do that. We are encouraged by the core trends we are seeing in the business as well.
Thanks. Our next question comes from Nicholas Philip Yulico with Scotiabank. Your line is now live.
Hello. This is Viktor Fediv on with Nick. A question on your move-out rate trajectory. To what extent was the 3.5% year-over-year decline being driven by mix—specifically higher in-place rent and longer-tenured customers remaining in storage and therefore representing a smaller share of move-outs? Or are there also unit size or market-level mix shifts affecting the average rate?
I think it is a combination of a couple things. One, what you highlighted around longer-term tenants continuing to stay with us, which we are seeing in the portfolio and churn is down which is helpful. No question. Second, it is a lagging indicator of where move-in rents were as well. As we move higher here in move-in rents, you would expect to see that decline start to moderate as we move forward from here.
But certainly an additive component in the second quarter. Good. And then as a second question, follow-up on your integration plan: historically NSA has operated with lower churn than Public Storage. As you transition the portfolio into your PSNext platform, do you expect to quickly align NSA with Public Storage's revenue management approach? Or are there any aspects of NSA's pricing strategy that you believe are worth preserving, particularly given differences in customer mix and submarket characteristics?
I think there are two components to that question. First, geographically and from a customer base standpoint there are differences in where churn sits. Second, we are excited to bring those properties into the PSNext operating platform and drive performance, and we think there is opportunity, probably first and foremost around revenue. We think about occupancy as well as rental rate opportunities as we add the properties to our portfolio, rebrand them, and drive performance. A combination of new customer, existing customer, and new marketing opportunities all play a part there. We will take a micro-market approach rather than a single national approach: some submarkets warrant more rate focus, others more occupancy focus depending on local dynamics.
Thank you. Our next question comes from Ronald Kamdem with Morgan Stanley. Your line is now live.
Hey. Great. Just taking a step back and trying to get a better sense of top-of-the-funnel demand and some of the indicators that you are looking at at this point. I think you have talked about the narrative of improving demand and was hoping you could provide more commentary on what you are seeing in the portfolio and by market and specifically the slope of that improvement. Thanks.
Sure. On the demand front, I would characterize demand as pretty steady as we move through this year and certainly feels steadier this year than what we experienced last year, which is encouraging. Some of the use cases we have consistently spoken about, such as existing home sales, have been pretty consistent year over year and we are seeing consistent customer use from that use case. We also continue to see strength from customers who have run out of space at home, which continues to be a higher proportion and is healthy. So no new use cases to highlight, but steady demand. The second component is that about half the portfolio continues to perform very well; those are stronger markets such as Minneapolis, Chicago, San Francisco, Boston, D.C., which are all growing 3% to 5% same-store revenue. We are seeing good trends there. At the same time, Sunbelt markets continue to sequentially improve but have declined overall over the last several years given difficult comps and the new supply delivered in 2021 and 2022. That new supply is being absorbed and we are seeing sequential improvements in many of those markets. So encouraging trends across both sets of markets as it relates to operating fundamentals. Add to that the L.A. component which Joe spoke to, which will be additive to revenue growth as we move into 2027.
Great. And then my second question, just going back to the acquisitions: you have expanded the acquisition team and increased activity. Can you give us a sense of what you are doing differently than in the past to increase acquisition volumes and secure attractive returns?
Yeah. There are a couple things to highlight. One, we have significant capital resources year-in and year-out, which gives us an ability to be active and to compound our per share earnings growth opportunity. Second, the operating platform gives us an ability to earn more cash flow from those assets as we put them on the platform. We have been investing in the team and in tools to drive more activity and precision, shrinking deal timelines with a real micro-market targeting focus, which has resulted in attractive activity year to date. About $450 million of acquisitions year to date, about 70% of that is off-market, and a meaningful portion of that is lease up. Given our confidence in the operating platform, we are not shying away from lease up, which is additive to future earnings growth. On the development side, we increased the size of the pipeline this quarter and continue to target micro-markets around the country with the national platform. It is a multi-pronged approach to capital deployment and I have challenged the team to continue to be active and find those opportunities.
Thank you. Our next question comes from Spenser Bowes Glimcher with Green Street Advisors. Your line is now live.
Good morning and thanks for taking my questions. There was broader commentary towards the latter half of last year signaling that Sunbelt markets were reaching an inflection point. Looking at your disclosures, I see Tampa down 10% on NOI, Miami down 3%, Atlanta down 6%. Can you walk us through what you are seeing in these markets and why they are continuing to lag?
Sure. I hit the big picture earlier around tough comps and new supply. Tampa is in that camp; Tampa also had a benefit several years ago from some storm activity which led to increased customer demand that we are now lapping. Sequentially we have seen improvement in most Sunbelt markets, though maybe not in Tampa. That improvement has been driven by absorption of new supply and steady demand. The trends are uneven month to month but the direction is clear. Some Texas markets, Orlando, Atlanta, Charlotte are working through similar characteristics—sequential improvement is occurring, but we are not expecting those markets to improve dramatically overnight. We still expect those markets to be negative for 2026 as we finish the year and head into 2027, but the direction is clear and the sequential improvement is occurring.
Great. Thanks for the color. As another follow-up, you achieved positive move-in rate growth of 1.6%. Has this led to any changes in your ECRI program?
It is a consistent strategy year over year. As move-in rents move higher, that reduces the replacement cost component of our modeling and optimization, which should lead to stronger ECRI contributions over time. Obviously 1.6% growth in the quarter is modest, but as we see that move higher over time, it will be additive to the ECRI program.
Our next question comes from Juan Carlos Sanabria with BMO Capital Markets. Your line is now live.
Hi. Thanks for the time. Curious on the acceleration assumed in same-store revenue in the back half and turning positive in the fourth quarter. Would that hold if it were not for the sunsetting of the L.A. rent restrictions? If we strip out L.A., would you still expect positive same-store revenue in the fourth quarter?
Hey Juan, it would be pretty close. L.A., with the acceleration there and the easier comps facing now with revenue momentum post July 1, will get to positive year-over-year revenue growth potentially in the fourth quarter. So it is helpful to the portfolio but not the sole driver. We have a big component of the portfolio in Midwest and coastal markets that are performing well and continue to put up 2%, 3%, and 4% revenue growth. You have that contribution plus the shift in momentum in the Sunbelt where second derivatives get better. The Sunbelt as a whole probably will not be back to positive in the fourth quarter, but it is moving in the right direction. So L.A. is additive but not the only piece.
Great. And then on the churn decline and focus on customer service: with analytics and data you are running, what has been most effective in increasing length of stay or limiting churn? What are the key things in customers' minds that are improving?
There are a few things. From a strategic standpoint, it has been a big focus area. If I had to pick one thing, it would be listening to our customers. We have put in new survey programs. We used to get 2 to 3 thousand surveys a month; now we are getting more like 90 thousand surveys a month, and that will grow with the NSA portfolio coming on. Listening to customers and getting that feedback enables the team to resolve concerns and provide a better customer experience at the property level. The focus is around a reliable customer experience, and when issues come up we can resolve them faster than we did last year. That is driving improved customer sentiment scores within those surveys.
Thank you. Our next question comes from Ravi Vijay Vaidya with Mizuho. Your line is now live.
Hi there. Thank you for taking my question. Can you discuss the decision to raise equity here? You have ample leverage capacity and over $600 million in free cash flow. Why raise now? And how do you think about your various capital sources?
Hey Ravi. We are fortunate in terms of various capital sources: excess free cash flow, balance sheet capacity, top credit ratings, and the ability to borrow at relatively low cost. We looked at the ATM as another arrow in the quiver to keep the flywheel going. If you think about the costs we are raising at combined with leverage, our cost of capital is about 5%. We are deploying into lease-up assets that have yields below that and are slightly dilutive near term, but we expect them to stabilize into the high sixes/low sevens over time. Relative to cost of equity, we are putting on the board over 100 basis points of incremental spread and therefore compounding earnings per share. The sizing was moderate and we had identified uses including acquisition momentum and increased development lending.
Got it. Just one more: the move-in rates turned positive for the first time since Q3 2022. Were there particular markets that drove this and which markets still have difficulty with pricing power?
I would not highlight one particular market; improvement has been broad-based. Stronger markets leading the way on move-in rate growth include Los Angeles, San Francisco, Philadelphia, Boston, and Minneapolis—many of the coastal and Midwest markets. Some Sunbelt markets remain down year over year as they work through new supply delivered in prior years. Sequential improvement is occurring in many Sunbelt markets, but several are still down year over year at this point.
Thank you. Our next question comes from Brad Heffern with RBC Capital Markets. Your line is now live.
Yes. Hey, everybody. On L.A., I am wondering how you think about the extent to which the lack of ECRIs distorted the market. Presumably tenants stayed longer and occupancy was higher because of the lack of ECRIs. Do you think we will see a period of elevated turnover that potentially offsets some of the benefit of ECRIs coming back? Or is that not meaningful in your mind?
On net, being able to charge market rents is positive to overall revenue. You are likely to see a little bit of a shift—some occupancy give-up and some rate gain. Occupancy remains very healthy in L.A. We are not expecting a material shift, but when prior state of emergencies have rolled off you are likely to see a little occupancy give-up and the flip side is more rate and a more balanced growth profile between rate and occupancy.
Okay. Thanks. And then Joe, on the guidance you called out the two cents of benefit from the deals. I think that is really attributable to PS Canada. Is there any net impact on the guide specifically from NSA being added? The original guidance assumed neutral, just checking if anything has changed.
Hey Brad. No change on that front. Our original communications were that both NSA and PS Canada would be neutral to the earnings profile this year, although we expect material lift in future years. The only adjustment we made related to the two transactions is the two cents for the back half of the year. That is because we financed NSA and underwrote NSA in USD financing. With the PS Canada equity being issued, we can swap some of the NSA debt into Canadian financing at 100 basis points better rate, which will pick up on a run-rate basis maybe four or five pennies going forward. We are only one weekend into NSA and have not closed PS Canada yet, so that is the only change to note.
Thanks. Our next question comes from Michael Anderson Griffin with Evercore. Your line is now live.
Great. Thanks. Maybe just on the same-store expense guide for the year: the revised midpoint implies about 3.5% growth in the back half of the year. I know you walked through some of the puts and takes with property taxes in the second quarter, but anything else we should be cognizant of? Are there rollout expenses associated with PSNext that might pressure expenses in the near term? How should we think about this?
A couple of things. From a broader context, an expense growth guide up to 2.5% still sub-inflationary is a good outcome for the team, especially after 2% last year. The increase to the mid-threes back half is primarily driven by both the labor side within direct expenses as well as labor in indirect, much of which is related to incentive compensation. When we rolled out PS4.0, a big focus was alignment and putting additional incentives on the table down to property managers and up through the organization. The second quarter reflected some of that with increased cost, and we are flowing that through the rest of the year. Cadence-wise, third quarter is probably our toughest expense comp for the year, so you will see 3Q come in a bit higher and then revert lower in the fourth quarter.
Thanks, Joe. And maybe one more: international opportunities—Australia gets mentioned sometimes—how do you view expansion opportunities internationally versus domestically? Canada seems favorable. Would you want to bolster the Canada deal before expanding further internationally?
The U.S. market remains the deepest pool of opportunity and the core of our focus, given the scale and our operating platform. That will always be the bread and butter for capital allocation. That said, international markets like Canada—and potentially Australia—are interesting. Canada fits the bill as we add Toronto, Vancouver and other Canadian markets to our investable set. Australia—Sydney, Melbourne, Brisbane—also presents attractive fundamentals. We look for platforms in those markets where we can buy existing portfolios and drive operating performance. Canada certainly fits that bill and we are excited to add that platform this year.
Our next question comes from Caitlin Burrows with Goldman Sachs. Your line is now live.
Hi there. One quick question. You mentioned demand has been steady but also expressed confidence in demand growth as millennials and Gen Z age into core usage years. Could you talk about this more? Have you started to see it from this group and do you have any stats on average age of your customer?
Great question. Millennials are our largest cohort of customers today and they are using storage with a higher propensity than prior generations at the same age; Gen Z is following suit. We are encouraged by their activity as they age into our core usage years and view it as a multi-decade tailwind. It also informs how we think about customer experience and why we are leaning into digital and AI-focused experiences in addition to strong on-store service. We are seeing it today in the fundamentals: we are moving from stabilization toward recovery with leading indicators like occupancy and move-in rents both positive year over year for the first time since 2021. That demonstrates steady demand and the demographic tailwind.
Our next question comes from Brendan James Lynch with Barclays. Your line is now live.
Great. Thanks for taking my questions. You mentioned survey participation increased to 90 thousand from a few thousand a couple years ago. How are you achieving such a high response rate? Is there an incentive?
We are not incentivizing participation. We get a lot of customer visits at the property and more customers are willing to share feedback. The shift is that we have enabled more opportunities for them to share that feedback and we are listening and responding at the property manager and district manager levels. That approach has driven stronger participation and better customer sentiment.
Okay. And Joe, you mentioned savings in payroll from your machine learning-based staffing models. What does that entail and what is the magnitude?
That has been in process for three to four years. We study dynamics at every property—customer traffic flows, asset attributes, risk factors, seasonality, student components—and determine what is needed from a staffing perspective. From start to today we are down over 30 plus percent from an hours perspective while giving individuals in the field a more fulfilling job and increasing pay for that role. So it's not just cutting hours; it is adjusting responsibilities and improving the job. This year, we were down about -1.8% in the quarter and 1.2% for the year. We would have expected a little more but the offset is the new incentives we rolled out. We expect more efficiency gains as we continue to improve service and cost structure.
Our next question comes from Todd Michael Thomas with KeyBanc Capital Markets. Your line is now live.
Yes, hi thanks. On the increase in deal flow for recently developed assets that might have lower initial yields: how big of an opportunity is this for the company? Is there a threshold on how much lease-up or development product you are willing to add? How are you balancing near-term dilution versus the longer-term growth opportunity?
We look at both existing highly occupied assets and lease-up opportunities. We target micro-markets where demand and supply dynamics are favorable, and we have confidence in our operating ability to drive lease-up and stabilization once these assets are on our platform. Near-term dilution is a consideration, but the long-term returns and accretion make these investments attractive. We will continue to be active in lease-up when it fits the portfolio and we have conviction in the market-level dynamics.
Okay, helpful. And then you talked about growing the lending platform and third-party management—can you speak to the opportunity to accelerate those parts of the business? Should we expect a more rapid acceleration or a steady ramp?
We see accelerated growth in the near term across lending, development, and third-party management. From a lending perspective, the platform grew to $173 million outstanding and we expect lending activity to continue to accelerate through the rest of the year. Lending provides immediate yield and creates opportunities for third-party management relationships and potential future acquisitions. Third-party management is off a relatively low base but momentum is strong: we added 22 net properties last quarter and now have over 460 properties on the platform. We expect continued growth and profitability from these avenues.
Our next question comes from Eric Wolfe with Citi. Your line is now live.
Hey there. I will jump in. I guess for NSA, I understand you are guiding toward core FFO neutral for the year. Are there specific financial goals you are trying to achieve over the next one to two quarters? What should we watch for to measure success—occupancy, margin improvement, expense reduction?
A few things. First, we focused on a solid start to the integration, and that is what you have seen operationally: systems in place and teams unified. You will likely see some expense synergies sooner, while revenue is a longer tail but the biggest opportunity as we move forward. We will take a micro-market focus on pricing: in some markets the opportunity is more rate-driven, in others more occupancy-driven depending on submarket dynamics. You should watch for stabilized improvements in both occupancy and rates over time, ancillary contributions such as tenant insurance, and expense efficiencies coming through as integration progresses.
Our next question is from Michael William Mueller with JPMorgan. Your line is now live.
Yes, hi. On move-in rates up 1.6% in Q2 and increasing to 4% in June, was that improvement into June driven more by current-year dynamics as opposed to comps from last year?
Comps are always a component for month-to-month comparisons, but we used a pretty similar pricing and promotion strategy in June compared to last June. So there was nothing unusual from a comp perspective that I would highlight. The momentum into July continued as well. We have seen better months and softer months historically; the confidence we are expressing is around the overall direction, though not every month will be uniformly strong.
Okay. Are you seeing opportunities in Canada already?
We are just getting to the point where we will be closing and integrating the portfolio. Our first focus is integration and building the team to drive performance. As we do that, we will look at capital allocation opportunities alongside it, and you will start to hear from us about international opportunities in Canada over the next several years.
We have reached the end of the question and answer session.
Thanks, operator, and thanks, everybody, for joining today. As Michael characterized it, we have a combination of core leading indicators operationally that we are encouraged by as we move through 2026, and we are putting building blocks in place and have more of them in place today than we have in the past. We are looking forward to providing updates to this group as that execution takes place. Thanks very much for joining.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.