Public Storage 2026 Q3 Earnings Call

As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Jed Reagan, VP of Investor Relations and Strategic Partnerships.

Thank you, operator. Hello, everyone, and thank you for joining us for our third quarter 2026 earnings call. I'm 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, October 27, 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, financial supplement, 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 2 questions.

However, if you have additional questions, please feel free to jump back into the queue. With that, I'll turn the call over to Tom Boyle.

Good morning, everyone, and thank you for joining us. I'll frame my comments today around 4 points. First, operating fundamentals exceeded our expectations in the quarter, giving us confidence to raise our outlook for the year. Second, PS Next continues to strengthen customer experience and improve how we run the business, including continued investment in digital and AI capabilities. Third, the closings of NSA and Public Storage Canada were important milestones for our value creation engine. Our focus has turned to integration, execution, and positioning these assets for stronger contribution in 2027 and beyond. Fourth, in a higher rate environment, our balance sheet, capital allocation capability, and data science tools are strategic advantages that allow us to invest with discipline and speed. Let me begin with operating fundamentals.

The third quarter results were better than expected, supporting our increased outlook and strengthening our confidence in the trajectory of the business as we move towards 2027. That confidence does not reflect a major change in the macro environment. Demand remains uneven, but we are seeing better customer retention, stronger new customer pricing, and a more favorable supply backdrop as new construction slows. Our retention progress reflects a stronger culture of customer obsession. During my property visit this quarter, I saw a cultural change moving. It's simple things. At one visit, a property manager ran to a customer to help them download our app so that they could open the gate from their phone. But those simple things are showing up in our improving survey results and operating metrics. The combination of improved retention and moderating supply is creating a better operating setup.

New customer pricing improved year over year for the second consecutive quarter. Occupancy remained ahead of the prior year, and same-store revenue accelerated sequentially from the second quarter to the third quarter by 110 basis points into positive territory. As we exit 2026, confidence is building that we're moving from stabilization to gradual recovery. Let me turn to PS Next. PS Next remains central to how we intend to win. It brings together customer experience, pricing, operating efficiency, and digital capability in one integrated platform. Nearly 90% of customer interactions are digital, and roughly three-quarters of customers complete their lease digitally today. That's an important foundation as AI changes how customers discover businesses, compare options, and engage with brands. Last quarter, I spoke about Ellie, our AI-powered virtual agent. Ellie has now handled more than 300,000 customer interactions, and that capability continues to expand.

It can improve the customer experience while allowing our teams to focus on the interactions where personal assistance makes the greatest difference. We also expect customers will increasingly interact with Public Storage, not only directly, but through AI agents as well, whether that is Meta's Muse, Grok Bot, Dots, or other emerging interfaces, we are tuning our digital and AI platforms to make sure the experience is seamless either way. The key point here is that AI does not change the fundamental demand for storage. Storage remains need-based, local, and physical. What AI changes is how customers discover, evaluate, and interact with operators. In that environment, Public Storage is well-positioned because of our scale, our digital foundation, our brand, and our customer experience. Turning to NSA and Public Storage Canada, the closing of NSA was a major milestone in the quarter.

We moved the portfolio onto Public Storage systems immediately after closing in July, allowing us to move quickly from transaction execution to integration. During one visit at a transitioning store in the quarter, I saw the look on both the teammate and the customer's face when the teammate was able to immediately address a rent concern with our WebChamps system in place. A simple and quick resolution of a customer concern. The resolution was seamlessly real-time supported by our data science engines. Rebranding is underway, with approximately a third of the portfolio expected to be fully rebranded by year-end. We're encouraged by the early results in the wholly owned portfolio, including strong move-in volumes and incremental capital opportunities, including potential expansions. Tenant and property cleanup work is underway at the stores, creating some near-term noise, including elevated bad debt and repair and maintenance activity.

But this work is critical to position the portfolio for improved revenue, margins, and operating performance over time. As the assets season on our PS Next platform, we see meaningful opportunities to improve the customer experience, increase utilization, address offline units, and deploy high-return capital. Our conviction in the long-term opportunity has increased as we operate the portfolio. We were also excited to reunite the Public Storage Canada team and portfolio with Public Storage following the September closing of that transaction. This is a high-quality, Public Storage-branded portfolio in an under-penetrated market with meaningful long-term potential. Systems integration is expected next month, ahead of the original schedule. We are setting both portfolios up for 2027 and beyond for revenue upside, expense synergies, margin expansion, and a strong long-term value creation. My fourth point is capital allocation and external growth. Interest rates have moved higher.

Higher rates create challenges, but they also create opportunity. When financing costs remain elevated, asset values and seller expectations adjust over time. Our balance sheet and financial flexibility are meaningful advantages in that environment. We are also becoming faster and more precise across our capital allocation tools. Our work in sourcing AI-informed underwriting and approval processes is cutting deal timelines in half and allowing teams to act more effectively at the micro-market level. Capabilities we are building internally, as well as through our partnership with Welltower, are also helping us identify and prioritize attractive markets by harnessing the deep consumer databases that Welltower has built over a decade and combining it with the power of Public Storage's vast operating data. The largest transaction in the quarter was an off-market $150 million portfolio acquisition in desirable coastal locations from a family exiting the business.

This deal has a mid-six going-in cap rate and illustrates the opportunity created by generational transitions, the value of off-market sourcing, and the importance of speed and certainty of execution. Our development pipeline has grown year to date to nearly $800 million at quarter end. Higher construction and also financing costs have made development more difficult across the industry. But we continue to leverage our platform advantages to find attractive micro markets in a less competitive environment. Really across acquisitions, development, expansions, lending, and third-party management, we continue to see opportunity in all elements of our value creation engine. As we enter the fourth quarter, our focus is increasingly shifting towards 2027. The building blocks for 2027 and beyond are increasingly clear. We are seeing better operating momentum in the core business. We are strengthening customer experience and retention. We are advancing PS Next in building new digital and AI capabilities.

We have closed two major transactions and are now focused on integration. We are preparing to deploy capital into 2027 with more precision, faster timelines, and better data. And we are doing all of this with a strong balance sheet, an aligned leadership team, and an own it culture that is gaining momentum across the organization. These blocks are coming together to position Public Storage for stronger per share earnings growth in future years. With that, let me turn it over to Joe.

Thank you, Tom, and good morning, everyone. As Tom mentioned, we are raising guidance across all key metrics for the second time this year, reflecting continued robust operating momentum. In addition, we completed NSA and Public Storage Canada and continue to find accretive deals across all our value creation avenues, funding over $12 billion year to date in activity at attractive locked-in cost. Now, digging into our third quarter results. Core FFO for the quarter was $4.34 per share, up 0.7% year-over-year. Growth in same-store NOI and accretive external growth activity more than offset higher financing costs and G&A. Same-store revenue and NOI each grew 0.5% in the quarter. More importantly, forward-looking indicators strengthened.

Average move-in rents improved a positive 9%, our strongest level since 2Q of 2022, and move-in rates are up 28% from the fourth quarter of 2025, well ahead of historical trends and a clear indication that the business is moving beyond the last few years of stabilization. Existing customers also continue to perform well and respond to our improving customer experience, as reflected in lower churn and higher occupancy. Market conditions remain mixed by geography. Although utilization across the industry remains strong, as storage continues to provide an affordable space alternative to housing. New supply continues to pressure certain Sun Belt markets, but that supply is declining and should support a recovery there over time. In many coastal and Midwest markets, where supply levels are lower, we are seeing more normalized revenue growth in the 2%-4% range, with further improvement likely as supply declines.