Q3 2026 Public Storage Earnings Conference Call - PUBLIC STORAGE

Explicit Guidance:

• FY2026 Core FFO: Raised by $0.10 (0.6%) to a range of $16.90–$17.10 per share (midpoint $17.00), reflecting improved same-store performance and non-same-store/ancillary contributions.
• FY2026 Same-Store Performance: Full-year revenue growth expected at +0.25% and NOI growth at -0.30%, representing an improvement of 45 bps and 85 bps, respectively, from prior guidance.
• FY2026 Move-in Metrics: Guidance assumes low single-digit move-in rate growth and modestly positive year-over-year occupancy.
• FY2026 NSA/Canada Impact: Transactions are guided to have a neutral impact on full-year revenue and NOI (in line with original expectations).
• FY2026 Expenses: Property tax costs expected to run at 3%–4% year-over-year growth. Labor and indirect cost growth targeted to remain below inflation, with total expense growth guided at approximately 2%.

Business-Segment Outlook:

• Core Business (2027+): Expectation of a shift from stabilization to gradual recovery as supply conditions improve; same-store revenue growth in coastal and Midwest markets anticipated to normalize to 2%–4%.
• Los Angeles Market: Projected to add ~100 basis points of incremental revenue growth in 2027–2028 (approx. $35–$40 million upside) as post-emergency restrictions pricing is fully recaptured over a 12–18 month period.
• Sunbelt Markets: Anticipated sequential improvement as new supply delivery declines in 2027; absorption of existing inventory expected to continue, though some submarkets may face short-term pressure.
• NSA Portfolio: Early results show >30% increase in move-in volumes (Aug/Sep 2026) vs. prior year; focus is on bringing 14,000 offline units back online and executing >$100 million in ROI opportunities (expansions, conversions, remixes) over the coming years.
• Public Storage Canada: Systems integration scheduled for next month; portfolio positioned for revenue upside, expense synergies, and margin expansion starting in 2027.
• Ancillary Businesses: Excluding acquisitions, non-same-store NOI grew 22% and ancillary NOI grew 21% in Q3; momentum expected to continue driven by insurance premiums and third-party property management growth (75–100 new properties added YoY).
• Fixed Pricing: Expanding 12-month fixed annual pricing pilot to additional markets beyond NY/CA; current trajectory deemed encouraging, though exact future portfolio penetration rates not yet quantified.

Market and Competitive Outlook:

• Supply Dynamics: New construction slowing; industry supply expected to decline, supporting a recovery in utilization over time.
• Pricing Power: Move-in rents improved +9% YoY in Q3 (strongest since 2Q22); move-in rates up 28% QoQ. Expected to normalize to low single-digits in Q4 and 2027 as volume moderates.
• Competitive Landscape: Higher financing costs and elevated hurdle rates expected to widen the gap between buyer and seller expectations, potentially creating lower basis entry points and higher yielding returns for Public Storage.
• Market Share: AI and digital platforms expected to favor large, sophisticated operators; Public Storage positioned to capture share via seamless interaction with emerging AI agents (e.g., Meta Muse, GrokBots).
• Development: $800 million development pipeline (up YTD); focus on micro-markets with favorable supply/demand; in-place occupancy on recent acquisitions averaging mid-50s, with strong initial lease-up activity.

Macro / Industry Outlook:

• Interest Rates: Higher rates viewed as a driver of asset value resets and seller adjustments, creating acquisition opportunities; financing costs for new development remain elevated.
• Housing Market: No meaningful negative impact expected from high mortgage rates or reduced transaction volumes; storage demand remains distinct, with utilization growing 2–3x faster than population/job growth.
• Regulatory Environment: Monitoring local legislative activity (price caps, disclosure, taxation) but no material near-term financial impact anticipated; continued active participation with industry associations.
• Economic Sentiment: Management views the economy as creating a "better operating setup" due to moderating supply and stronger retention, despite uneven demand.

Strategic Initiatives:

• PS Next Platform: ~90% of customer interactions now digital; AI (Ellie) handled >300,000 interactions; tuning platforms for seamless AI agent integration.
• NSA Integration: Rapid migration to WebChamp and data science engines occurring; ~33% of portfolio rebranded by year-end 2026, with full rebranding targeted for end of year.
• Canada Integration: Systems integration ahead of schedule (next month) to unify the portfolio on the PS Next platform.
• WellPower Partnership: Deploying data science models for faster underwriting (cutting deal timelines by ~50%) and capital allocation optimization; economics factored into guidance.
• Capital Allocation: $12.5 billion+ deployed YTD on leverage-neutral basis; $150 million off-market acquisition (mid-six cap rate) executed in Q3; $800 million development pipeline.
• Digital/AI: Expanding "Orange Shield" network for AI-based physical security to constrain insurance claims; testing fixed-price lease structures to enhance customer clarity.

Risks and Headwinds to Outlook:

• NSA/Canada Integration: Near-term elevated bad debt, repair and maintenance activity, and move-in rate reductions as delinquent tenants are moved out and pricing is reset.
• Supply Pressure: Continued new supply deliveries in select Sunbelt markets may exert downward pressure on move-in rates and occupancy in specific submarkets through 2027.
• Regulatory Uncertainty: Potential for new local price caps or tax measures in municipalities (e.g., post-tropical storm emergency in CA) could impact short-term revenue, though expected to be de minimis.
• Financing Environment: Persistent high rates could delay deal execution or widen buyer-seller valuation gaps, potentially slowing transaction volume.
• Insurance Costs: Softening insurance market may require continued mitigation efforts despite AI-based security initiatives.

Management Tone on the Future:

• Confidence Level: High; expressed strong confidence in "building blocks for 2027 and beyond" and a shift from "stabilization to gradual recovery."
• Guidance Changes: Raised guidance for the second time in 2026, signaling strong operational momentum and confidence in the trajectory.
• Strategic Focus: Emphasis on "own-it culture," digital leadership, and disciplined capital deployment; management views the higher rate environment as a strategic advantage for acquiring assets at attractive valuations.
• Long-Term View: Anticipates stronger per-share earnings growth in future years driven by integration synergies, AI efficiency, and recovery in fundamentals.