Public Storage's Q3 2025: Contradictions Emerge on Occupancy, LA Market, and Acquisition Pipeline

Guidance:

• Raised 2025 outlook: higher same-store revenue, same-store NOI, non-same-store NOI, and core FFO per share (core FFO growth increased ~1% with one quarter left).
• Incremental NOI to stabilization raised to $130M for 2026 and beyond.
• $1.3B+ of wholly owned acquisitions/developments announced YTD and a $650M development pipeline to be delivered over next two years.
• Balance sheet supports continued deployment (net leverage ~4.2x; retained cash flow ~ $650M) to fund portfolio expansion.

Business Commentary:

• Earnings and Outlook:
• Public Storage reported a better-than-expected same store NOI growth, with a 560 basis point acceleration from the previous year's Q3.

• The improved outlook was driven by operational stabilization, lower competition from new supply, and increased acquisition activity, leading to a nearly 1% increase in core FFO per share growth.

• Operating Efficiency and Digital Transformation:

• The company's digital initiatives resulted in 85% of customer interactions and transactions being handled digitally.

• This led to a 30% reduction in labor hours and increased employee engagement, contributing to significant expense reductions and margin improvements.

• Capital Allocation and Acquisition Activity:

• Public Storage announced $1.3 billion in wholly owned acquisitions and developments, with a 650 million development pipeline over the next two years.

• The strategic acceleration in portfolio growth was supported by a strong capital position, leveraging industry relationships and data-driven underwriting.

• Regional Performance and West Coast Demand:

• Markets like Chicago, Minneapolis, Tampa, Honolulu, and the West Coast showed strong revenue growth, ranging from 2% to 4%.
• The positive trends were supported by good demand trends and limited new supply, particularly on the West Coast, which represents a third of Public Storage's NOI.

Sentiment Analysis:

Overall Tone: Positive

• Management said they are "raising our 2025 outlook" based on outperformance in same-store and non-same-store NOI and acquisition volume; core FFO per share was "higher by 2.6%" this quarter and they noted reduced labor hours "by more than 30%" from digital/AI initiatives, signaling operational momentum and confidence.

Q&A:

• Question from Eric Wolf (Citi): As we get closer to year end, could you talk about the process for setting budgets for 2026 (moving rents, occupancy, main variables) and whether recent trends (October/last couple months) suggest stabilization versus a muted rebound?
  Response: They run a continuous, data-driven forecasting process using predictive analytics across functions; they see steady stabilization with improving demand (notably West Coast strength) and declining new supply.

• Question from Michael Griffith (Evercore): Any insight into whether new customer behavior has changed (move-in rents down YoY) and are new move-in trends starting to trough?
  Response: Management emphasized focusing on total revenue (move-ins, volumes, existing-customer behavior and rate) rather than just move-in rents and said move-in activity remains competitive while platform investments are driving revenue.

• Question from Samir Kanali (Bank of America): On Los Angeles price restrictions, what are you hearing on the ground and timing for potential changes; and on expenses, how much runway is there to sustain ~2% expense growth next 12–24 months?
  Response: LA policy timing is out of their control and unclear until early January; expense savings continue via digital initiatives and solar, providing ongoing OpEx improvement runway.

• Question from Caitlin Burrows (Goldman Sachs): How do you expect supply over the next 12 months to compare to the last 12 months and what differentiates Public Storage’s development/stabilization execution?
  Response: They expect supply deliveries to decline through 2026–2027 due to entitlement and cost friction, and Public Storage differentiates via deep market data, underwriting and operational capabilities that drive faster-than-expected lease-ups.

• Question from Ron Camden (Morgan Stanley): Are you seeing signs of slowing top-of-funnel demand (web search or other indicators) that justify the implied Q4 deceleration in guidance?
  Response: Overall demand remains healthy; primary Q4 headwinds are LA rental restrictions and tough property-tax comps rather than a material demand slowdown.

• Question from Ron Camden (Morgan Stanley): With acquisition pace picking up, what types of product are you buying (stabilized vs non-stabilized) and what are cap‑rate/return expectations?
  Response: They are buying a mix of stabilized and non‑stabilized assets off- and on-market, targeting ~5.25% going-in yields that they expect to stabilize toward the ~6% range after operating improvements.

• Question from Eric Lubchow (Wells Fargo): Update on operating trends through October: occupancy, move-in rates, volumes as we enter Q4?
  Response: New-customer activity was down ~9% YoY in Q3 with October a touch better; move-in rates are down ~10–11% while volumes improved, producing occupancy ~40 bps lower YoY and better net revenue outcomes.

• Question from Eric Lubchow (Wells Fargo): Can you update the expected LA rent‑restriction headwind (previously ~100 bps) for Q4 and comment on recent ICE/immigration-related measures?
  Response: LA is tracking better than initial expectations (now expected down ~1–2% for the year vs prior ~-3%), and the recent state-of-emergency developments are expected to have negligible incremental impact in Q4 while price restrictions remain in place.

• Question from Spencer Alloway (Green Street Advisors): How much NOI upside do you underwrite buying mom‑and‑pop assets today and will AI/data increase that upside materially?
  Response: They see roughly a ~10% margin enhancement opportunity on acquired mom‑and‑pop assets via revenue and OpEx improvements and expect continued platform and AI investments to further increase that upside.

• Question from Todd Thomas (KeyBanc Capital Markets): With volumes approaching $1B this year, what’s the outlook for acquisition pace into 2026 and appetite for larger deals?
  Response: Appetite remains strong, the debt/transaction market is improving, the balance sheet is positioned to scale acquisitions and they could pursue materially larger volumes if opportunity set materializes.

• Question from Todd Thomas (KeyBanc Capital Markets): On technology/AI gains and labor efficiencies, is there much more room to run or have you already rung out most savings; what could move margins the most over 3–5 years?
  Response: They believe they have only begun to realize benefits—ongoing investments across revenue management and operations should continue to drive meaningful margin upside over time.

• Question from Juan Santabria (BMO Capital Markets): With LA dragging less than previously expected, are there offsets from West Coast strength in same-store revenues; and what are targeted going-in yields on acquisitions?
  Response: There aren’t direct offsets that eliminate the LA drag but LA occupancy and vacates have improved; targeted going‑in yields are ~5.25% with stabilization toward ~6% after platform integration.

• Question from Michael Goldsmith (UBS): Regarding lease-up acquisitions and the $10M increase in non‑same‑store NOI guidance, does that reflect better performance of existing properties or newly acquired ones?
  Response: The non‑same‑store upgrade reflects both stronger lease‑up performance of recent developments and additional acquisitions closing, with incremental NOI to stabilization raised to $130M for 2026+.

• Question from Michael Goldsmith (UBS): Marketing/promotions are down YoY—why pull back now instead of leaning in to drive top‑of‑funnel demand?
  Response: They use promotions and advertising dynamically as levers to optimize total revenue and are deploying them selectively as part of an overall revenue‑optimization strategy.

• Question from Mike Mueller (JP Morgan): For stronger markets you called out, how do move-in rent comps and existing-customer behavior compare to markets in the South?
  Response: Stronger markets show better move‑in trends and stronger existing‑customer behavior, contributing to steadier revenue growth versus softer roll-ups in other regions.

• Question from Mike Mueller (JP Morgan): Any changes in customer pushback on ECRI or ECRI levels generally?
  Response: No change—existing customers continue to perform well, vacates were down this quarter, and price sensitivity remains consistent with modeling.

• Question from Brandon Lynch (Barclays): On labor reductions and efficiencies, how do you ensure you haven't cut too much (testing/overage/underage controls)?
  Response: They conduct extensive testing, use customer‑service metrics and predictive digital tools to calibrate staffing and report improved employee engagement alongside labor-hour reductions.

• Question from Brandon Lynch (Barclays): Any signs housing-related demand is improving that would help storage demand in 2026?
  Response: Housing is relatively stable and may modestly improve with slightly lower mortgage rates, but they have not yet seen a material shift on the ground.

Contradiction Point 1

Occupancy Trends and Market Stability

It involves differing perspectives on occupancy trends and market stability, which are crucial for understanding the company's operational performance and market positioning.

Can you provide an update on operating trends through October, specifically occupancy and moving rates? - Eric Lubchow(Wells Fargo)

2025Q3: Occupancy closed at a 40 basis point year-over-year decline in September. We've seen a nice stabilization. But we continue to believe that the worst is behind us. - Tom Boyle(CFO)

Are trends in October and the past few months indicating a return to normal run rate growth or entering a stabilization period? - Eric Wolfe(Citigroup Inc., Research Division)

2025Q3: We see steady stabilization. Demand is bouncing off the bottom of '24, and we see new supply coming down due to challenges in development. Some markets are stable but growing at a healthy clip. - H. Boyle(CFO)

Contradiction Point 2

Los Angeles Market Performance

It highlights differing assessments of the Los Angeles market's performance, which is a critical component of the company's overall revenue and growth strategy.

How will LA rent restrictions impact Q4 results? - Eric Luebchow(Wells Fargo Securities, LLC, Research Division)

2025Q3: LA performance better than expected this year. Top to bottom West Coast demand trends are strong, with less new supply. Negligible impact from the recent state of emergency. - H. Boyle(CFO)

What factors should we consider when assessing Q4 guidance due to tougher comps in specific line items? - Michael Griffin(Evercore ISI Institutional Equities, Research Division)

2025Q3: LA is one of the markets where it would be highly unlikely we would be able to raise rents. LA is down in the low 20s. That's, I think, probably one of the most significant impacts that we will have for 2026. - H. Boyle(CFO)

Contradiction Point 3

Occupancy and Customer Demand Trends

It involves differing views on occupancy and customer demand trends across quarters, which are crucial for understanding the company's operational health and future outlook.

Can you provide an update on operating trends through October, particularly occupancy and moving rates? - Eric Lubchow (Wells Fargo)

2025Q3: Occupancy closed at a 40 basis point year-over-year decline. - Tom Boyle(CFO)

What are the July operating trends and year-to-date guidance trends? Is there a deceleration in fundamentals in the back half of the year, and has your stance on storage fundamentals recovery changed? - Michael Griffin (Evercore)

2025Q2: Occupancy has now improved by a total of 70 basis points from its low point in November. - H. Boyle(CFO)

Contradiction Point 4

Acquisition Pipeline and Transaction Market Activity

It highlights differences in the assessment of the acquisition pipeline and transaction market activity, which are critical for understanding the company's growth strategy and capital allocation.

What is the acquisition pace outlook for 2026, and is it a good time to accelerate efforts ahead of a recovery? - Ron Camden (Morgan Stanley)

2025Q3: An improving transaction market this year sets up for more active volumes going forward. Public Storage's appetite is strong, with a well-positioned balance sheet for sizable acquisitions. - Tom Boyle(CFO)

Can you discuss the acquisition pipeline and market activity? Are there incremental acquisitions beyond current targets? - Joseph Russell (Executive)

2025Q2: It's been a little bit slower in that a bit of the more large portfolio transactions are tougher to come by. - Joseph Russell(CEO)

Contradiction Point 5

Storage Demand Trends

It involves the company's assessment of storage demand trends, which directly impacts revenue projections and investor expectations.

How are you thinking about trends in October and the past few months—whether you’re approaching normalcy, or if it’s a stabilization or a muted rebound? - Eric Wolf(Citi)

2025Q3: The company sees steady stabilization with demand bouncing off the bottoms of 2024. - Tom Boyle(CFO)

With fundamentals largely unchanged year-over-year, do you expect the peak leasing season to return? - Salil Mehta(Green Street)

2025Q1: We're not anticipating a return to traditional peak leasing season. We won't see an uptick tied to existing home sales as we did in past years. - Joe Russell(CEO)