Extra Space Storage Q2 2025 Earnings Report

Extra Space Storage EPS Results

• Actual EPS: $2.05
• Consensus EPS: $2.06
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: $2.06

Extra Space Storage Revenue Results

• Actual Revenue: $841.62 million
• Expected Revenue: $719.43 million
• Beat/Miss: Beat by +$122.19 million
• YoY Revenue Growth: +3.80%

Extra Space Storage Announcement Details

• Quarter: Q2 2025
• Date: 7/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 1:00PM ET

Extra Space Storage (NYSE:EXR)., headquartered in Salt Lake City, Utah, is a self-administered and self-managed REIT and a member of the S&P 500. As of December 31, 2023, the Company owned and/or operated 3,714 self-storage stores in 42 states and Washington, D.C. The Company's stores comprise approximately 2.6 million units and approximately 283.0 million square feet of rentable space operating under the Extra Space, Life Storage and Storage Express brands. The Company offers customers a wide selection of conveniently located and secure storage units across the country, including boat storage, RV storage and business storage. It is the largest operator of self-storage properties in the United States.

Extra Space Storage Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Same-store occupancy reached 94.6% (up 60 bps y/y and 120 bps sequentially), and the company achieved positive year-over-year new customer rate growth for the first time since March 2022 despite flat revenue.
• Positive Sentiment: The firm executed a disciplined capital allocation strategy, closing a $12 M acquisition, buying out JV interests in 27 properties for $326 M, originating $158 M in bridge loans, and adding 93 stores (net 74) under third-party management.
• Negative Sentiment: Same-store operating expenses rose 8.6% y/y, driven by outsized property tax increases in legacy markets, with normalization of expense growth expected in H2 2025.
• Neutral Sentiment: Management maintained the midpoint of full-year core FFO guidance at $8.15 per share, narrowed the range to $8.05–$8.25, and set same-store revenue guidance of –0.5% to +1%, targeting Q4 acceleration.
• Positive Sentiment: The balance sheet remains strong, with 89% of debt at fixed rates (including hedges), a weighted average rate of 4.4%, and an average maturity of 4.3 years, supporting strategic flexibility.

Presentation

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Extra Space Storage Inc. Q2 twenty twenty five Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, 07/31/2025.

[Operator]

I would now like to turn the conference over to Jared Conley, Vice President of Investor Relations. Please go ahead.

[Jared Conley, Investor Relations at Extra Space Storage]

Thank you, Joelle, and welcome to Extra Space Storage's second quarter twenty twenty five 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 businesses. These forward looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, SEC, which we encourage our listeners to review.

[Jared Conley, Investor Relations at Extra Space Storage]

Forward looking statements represent management's estimates as of today, 07/31/2025. 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.

[Joseph Margolis, CEO at Extra Space Storage]

Thank you for joining us today. We had a solid second quarter.

[Joseph Margolis, CEO at Extra Space Storage]

Our operational momentum continued with same store occupancy reaching 94.6%, up 60 basis points year over year and 120 basis points sequentially from the first quarter. We were also able to achieve positive year over year rate growth to new customers for the first time since March 2022. We are encouraged by these positive rate trends, even though the progress is developing more gradually than we initially expected, resulting in flat same store revenue growth in the quarter. While incoming customer price sensitivity is still apparent, rate growth is now positive, and we are trending in the right direction. As we look forward, our measured progress, elevated occupancy and the easing of new supply pressure positions us well to capitalize on improving market fundamentals as our team continues to execute efficiently across all operational areas.

[Joseph Margolis, CEO at Extra Space Storage]

During the second quarter, we executed on strategic opportunities across our diversified platform. We completed only one acquisition for $12,000,000 demonstrating our commitment to prudent and disciplined capital allocation in a high priced market. We also bought out two joint venture partners' interests in 27 properties for $326,000,000 at attractive valuations, driven by our partners' liquidity needs and favorable partnership terms. Our bridge loan program continued gaining market traction, generating a 158,000,000 in new originations. Simultaneously, our third party management program added 93 stores with net growth of 74 properties, expanding our managed portfolio to seventeen forty nine stores, providing more scale and efficiency to our sector leading platform.

[Joseph Margolis, CEO at Extra Space Storage]

Our multichannel approach combining opportunistic acquisitions and capital light activities demonstrates our ability to create value and grow accretively regardless of market conditions, positioning us to capitalize on opportunities as they emerge. The self storage sector continues to demonstrate its resilience, and our business model remains strong. Our portfolio's geographic diversification continues to serve us well with growth markets helping to offset softer conditions in regions impacted by new supply or state of emergency restrictions. This balanced market exposure provides protection against localized economic fluctuations. Operationally, our key metrics remain solid.

[Joseph Margolis, CEO at Extra Space Storage]

Our same store occupancy of 94.6% reflects the effectiveness of our customer acquisition systems. New customer rates are showing encouraging trends, though these improvements will take time to fully materialize in our revenue growth. Move out activity and delinquency rates continue to track at normal levels, demonstrating the stability of our customer base during this period of economic uncertainty. Based on these trends and our first half performance, we are maintaining the midpoint of our full year core FFO guidance of $8.15 per share. While near term revenue growth remains muted, our revenue management system, operational discipline and investment strategy position us well to navigate current conditions and capitalize on emerging opportunities.

[Joseph Margolis, CEO at Extra Space Storage]

We remain focused on balancing pricing and occupancy to maximize revenue while pursuing strategic growth that enhances long term shareholder value. I will now turn the time over to our Chief Financial Officer. For the last 34 earnings calls, I've turned this over to Scott Stump, who has always provided balanced, accurate, transparent and helpful commentary. Scott has been a great asset to Extra Space Storage and instrumental in reshaping our balance sheet and most importantly, a great partner to me, and I appreciate all of Scott's contributions. Our new CFO, Jeff Norman, is joining us for the first time as our newly promoted CFO.

[Joseph Margolis, CEO at Extra Space Storage]

Jeff has been with the company for thirteen years and most recently was serving as a senior vice president responsible for our capital markets, treasury, and risk management teams. I look forward to having him as a part of our executive team and his continued contributions leading our accounting and financing functions.

[Jeff Norman, EVP & CFO at Extra Space Storage]

Thanks, Joe, and hello, everyone. Our performance through the first half of the year is in line with our full year estimates. Second quarter same store revenue came in modestly below our internal expectations due to new customer rate growth improving more gradually from Q1 to Q2 than in the previous three quarters.

[Jeff Norman, EVP & CFO at Extra Space Storage]

However, our flat same store revenue was augmented by stronger than expected tenant insurance income and management fee income. Interest income and interest expense were both greater due to a higher than forecasted SOFR curve. So as Joe mentioned, while the progress in new customer rates is a little slower than expected, our operating model continues to generate stable cash flows and maintain consistent performance metrics, and our ancillary incoming streams are making meaningful contributions to FFO. Turning to expenses. We experienced higher than normal year over year increases.

[Jeff Norman, EVP & CFO at Extra Space Storage]

Same store expenses increased by 8.6%, driven by outsized increases in property taxes, specifically in the legacy Life Storage properties located in California, Georgia, Illinois and Texas. Although higher than normal, property taxes were generally in line with internal estimates through the first two quarters, and our full year outlook anticipates total expense growth, including property tax growth, to normalize in the back half of the year. Our balance sheet continues to demonstrate strength and flexibility, with 89% of our debt maintained at fixed rates after including the hedging impact of our variable rate receivables. We've maintained our weighted average interest rate at 4.4 with an average maturity of four point three years. Our measured approach to leverage, complemented by our well structured debt maturities and diverse funding sources, provides us with the stability to pursue strategic opportunities while effectively managing our position in the current interest rate environment.

[Jeff Norman, EVP & CFO at Extra Space Storage]

Given our in line performance in the first half of the year and gradually improving fundamentals, we are tightening our full year core FFO and same store guidance ranges and maintaining our existing midpoint. This results in core FFO guidance of $8.05 to $8.25 per share. For our same store portfolio, we anticipate revenue growth between negative 05% and positive 1% for the full year. Our same store guidance includes potential acceleration in the second half, particularly in the fourth quarter, as improving new customer rates begin to take effect. Operating expenses are projected to grow between 45%, which as I mentioned implies expense growth moderation in the back half of the year, especially with property taxes.

[Jeff Norman, EVP & CFO at Extra Space Storage]

We've updated our interest income and expense projections to account for the current interest rate environment and recent debt activities. Our diversified portfolio, sophisticated operating platform, and strong balance sheet continues to provide a solid foundation as we execute on our strategy through current market conditions, maintaining our focus on long term value creation. With that, operator, let's open it up for questions.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.

[Operator]

Your first question comes from Michael Goldsmith with UBS. Your line is now open.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Good morning. Thanks for taking my question. Can you provide an update on how street rates and occupancy have trended into July and how that compares to to June and and the second quarter?

[Jeff Norman, EVP & CFO at Extra Space Storage]

Thank you. Sure, Michael.

[Jeff Norman, EVP & CFO at Extra Space Storage]

From an occupancy perspective, sequentially, occupancy remained flat. So continuing July at 94.6%, which year over year is a positive delta of about 50 basis points. New customer rate improved on a year over year basis is up a little more than 2%. So seeing positive trends there. And our move in, move out gap also compressed with those rates picking up. So positive indicators on all fronts in July.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Thanks for that. And then just to build on that, right, like, street rates have now turned positive. You know, in the commentary before, you talked about trends accelerating through the year and feeling that, in particular, in the fourth quarter. Is that just a function of it takes a little bit of there's only a few percentage points of customers that turn over every quarter, and so it just takes a little bit of time to start to feel that benefit of the street rate the positive street rate growth, or if there's something else that is that makes kind of the fourth quarter when you start to really feel the benefit and start to feel things in the black. Thanks.

[Jeff Norman, EVP & CFO at Extra Space Storage]

You're you're exactly right, Michael. That that's spot on. All other things equal is we're seeing those positive new customer rates begin to roll through. It just takes time for the snowball to build as you keep adding, you know, more and more sequential quarters of positive rate growth.

[Jeff Norman, EVP & CFO at Extra Space Storage]

It begins to flow through to revenue. So it does take time, but it it starts to compound and improve as you get in fourth quarter.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Thank you very much. Good luck in the back half.

[Joseph Margolis, CEO at Extra Space Storage]

Thanks, Michael.

[Operator]

Your next question comes from Salu Mehta with Green Street Advisors. Your line is now open.

[Salil Mehta, Equity Research Associate at Green Street Advisors, LLC]

Hi, guys. Good morning, and thanks for taking my question. So just looking at the net rental rate growth, you know, seeing, I believe, like, close to a percent decrease in overall rental rate. But with move in rates roughly flat to positive, you know, would I be correct in asserting that net decrease to ECRIs? Or could this perhaps be attributed from the rent restrictions in LA?

[Salil Mehta, Equity Research Associate at Green Street Advisors, LLC]

You know, any color here would be super help super helpful.

[Jeff Norman, EVP & CFO at Extra Space Storage]

Yeah. You you are seeing a minor headwind in LA, but I think more than than eCR, it's just a fun function of move out. You still have a roll down net roll down with move out, which drags on your overall in place rent per square foot. So I I would say that's a more significant driver than any change from an e c r I perspective.

[Jeff Norman, EVP & CFO at Extra Space Storage]

Really, that's been pretty constant on a year over year basis.

[Salil Mehta, Equity Research Associate at Green Street Advisors, LLC]

Thank you.

[Joseph Margolis, CEO at Extra Space Storage]

You bet. Thank you.

[Operator]

Your next question comes from Sameer Panal with Bank of America Securities. Your line is now open.

[Samir Khanal, Director - US REITs at Bank of America]

Yes. Good afternoon, everybody. I guess, George, Jeff, you said, know, in the opening comments, you talked about the progress is being made, but you also said it's sort of gradual and maybe, you know, I don't wanna use the word softness, but it feels like maybe it's a bit lighter than you expected. Maybe, Josh, just talk or expand around that. I guess, what what do you think is sort of driving that that that gradual sort of movement here?

[Joseph Margolis, CEO at Extra Space Storage]

Well, this is so I think there's several things. You know, one is mentioned at the previous question. We turn five or 6% of our customers a month. So it takes time for improvement in rate to to, you know, build up in the in the rent roll and show it. You know, we also have a a roll down, and that's, you know, again, takes time to to work against that.

[Joseph Margolis, CEO at Extra Space Storage]

But this isn't a month to month business. Right? The the this is a long term business. The trends we're seeing are positive. And a b positive in customer rate for the first time since March 2022 is a meaningful inflection point.

[Joseph Margolis, CEO at Extra Space Storage]

And we're look you know, we've we've rolled down the hill, and we're looking forward to riding up the hill now.

[Samir Khanal, Director - US REITs at Bank of America]

Okay. Got it. And I guess just some comments if you can make on on LSI, the the impact that, that portfolio is having on same store? Is it in line with your expectation?

[Samir Khanal, Director - US REITs at Bank of America]

Has it been below your expectations sort of year to date? Because I know that portfolio also had exposure to Florida, right? And then maybe that's taken a bit longer to come back to normalization. Maybe talk around kind of the LSI portfolio and the impact it's having. Thanks.

[Joseph Margolis, CEO at Extra Space Storage]

No. So the LSI portfolio is performing as expected. Rates are improving faster than the extra space rates, but that's what we expected. We believe the additions to the same store pool, which is, you know, over 95% LSI will add 60 basis points to same store performance this year. So on track in all respects.

[Jeff Norman, EVP & CFO at Extra Space Storage]

And Sameer, I'll just add, not specific to LSI, but your comment about the Sunbelt in general, I think is correct that those have been the markets that have been disproportionately impacted by new supply. They're also a little bit of victims of tough comps after multiple years of really strong NOI growth, and now they're taking a little bit of a breather in in those tougher markets. But long term, we're very bullish on the Sunbelt. And in general on having a highly diversified portfolio of exposure to to all of the growth markets throughout the country. So today, a little more of a headwind for us than some of our Mid Atlantic markets, Chicago, Pacific Northwest, they're all doing a little better.

[Jeff Norman, EVP & CFO at Extra Space Storage]

But over longer periods of time, as Joe alluded to, we have a lot of confidence in our portfolio construct.

[Samir Khanal, Director - US REITs at Bank of America]

Thanks a lot, guys. Thanks, sir.

[Joseph Margolis, CEO at Extra Space Storage]

Thanks, sir.

[Operator]

Your next question comes from Todd Thomas with KeyBanc Capital Markets. First

[Todd Thomas, MD & Equity Research Analyst at KeyBanc Capital Markets]

question, I just wanted to follow-up Maybe you can sort of help flush this out a little bit. Moving rent trends inflected positive in the quarter for the first time in a few years. You mentioned that they improved a little further to 2% in July. I understand it takes a little time to flow through, but you also gained occupancy through June. You're still at 94.6% in July.

[Todd Thomas, MD & Equity Research Analyst at KeyBanc Capital Markets]

So it sort of sounds like, you know, stable to slightly, you know, improving conditions a little bit through the balance of summer here. Can you just sort of help flesh that out a little bit and maybe comment on what you're seeing that pointed you to sort of the comments around conditions being a little bit slower here?

[Jeff Norman, EVP & CFO at Extra Space Storage]

Yeah. I think I mean, we we give a range for same store revenue growth, and and there's assumptions all throughout that range. So I'll you know, speaking to the midpoint based where we finished the first half and if you were to solve the midpoint, it it suggests or implies relative flat performance year over year in the back half of year to to slightly positive, you know, a modest acceleration in the back half of the year.

[Jeff Norman, EVP & CFO at Extra Space Storage]

And then at the high end, that would imply more acceleration, bottom end, a little bit of deceleration. And and all of those factors, we believe, are are on the table, but all the trends we're seeing right now are are looking positive. One thing that's probably worth mentioning, Todd, in terms of just trying to square up the numbers, our actual net rental income was positive 20 basis points in the quarter, and then that was partially offset by our other income line items, which include bad debt and administrative fees. Administrative fees are a little lower year over year because rental volume is a little lower year over year because our occupancy is so high. And bad debt is a or excuse me, late fees are a little lower because bad debt is lower, which indicates a healthy in place customer.

[Jeff Norman, EVP & CFO at Extra Space Storage]

So while a headwind year over year from a same store revenue standpoint, again, these are these are actually trends we we think are positive for the industry.

[Todd Thomas, MD & Equity Research Analyst at KeyBanc Capital Markets]

Okay. That's helpful. And then, Joe, you commented on being prudent with regards to acquisitions. It sounds like you're on the sidelines a little bit until pricing adjusts.

[Todd Thomas, MD & Equity Research Analyst at KeyBanc Capital Markets]

I'm just curious if you can elaborate a little bit on pricing and that comment, sort of what kind of pricing adjustments you would like to see before growing a bit more acquisitive here.

[Joseph Margolis, CEO at Extra Space Storage]

Yes. Thanks, Todd. I don't want to give the impression we're on the sidelines at all. We have investment team that looks at every deal that's in the market, looks at all the deals that we manage that end up on the market.

[Joseph Margolis, CEO at Extra Space Storage]

We almost always get a first shot at those. We underwrite them all. We look real hard at it. But we're not gonna execute on deals that are, you know, sub five cap stabilizing in the fives. It just doesn't do any good for our shareholders for us to do that.

[Joseph Margolis, CEO at Extra Space Storage]

So we're gonna look at everything. We're gonna wait for pricing, get to a level that we feel is accretive. And in the meantime, we're gonna use all of our other tools, be it bridge loans, you know, restructuring, buying out JV, you know, doing other activities, making new preferred investments, which we did one this year to make accretive investments while being prudent allocators of capital. Thanks, Doug.

[Operator]

Your next question comes from Ronald Camden. Your line is now open.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Hey. Just starting with the expenses. I I know we talked about property taxes last quarter. Obviously, you continue to be pretty high year over year. Now maybe just a little bit more color on your expectation there?

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

And is this just the 2025 thing? And how should we think about that going forward?

[Jeff Norman, EVP & CFO at Extra Space Storage]

Yeah. Thanks for the question, Ron. You're you're exactly right.

[Jeff Norman, EVP & CFO at Extra Space Storage]

Certainly high year over year. The positive news is we've we've lapped the comp. So we we took that that pain in that markup, you know, primarily driven by some of our light storage properties. And and in the second half of the year, we anticipate that coming down significantly. And and in terms of all of our other expense line items, also expect to see on average, as indicated by our range relative to our first half performance, deceleration in expense growth in the back half of the year.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Great. Helpful. And then my second question was just going back to the comments about maybe the same store revenue being a little bit lighter than expected. I guess I just love some context in terms of just the top of the funnel demand and your expectations. Like, is it does it mean that the market is maybe performing a below sort of average for this environment?

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Or maybe the expectation was that you'd have a faster recovery that didn't happen? Just just trying to get a sense of, you know, what happened versus your expectations and what does that mean in terms of the health of that, the customer, the market and everything? Thanks.

[Jeff Norman, EVP & CFO at Extra Space Storage]

Sure. I would say, as Joe alluded to in one of his previous answers, it's not perfectly sequential month by month.

[Jeff Norman, EVP & CFO at Extra Space Storage]

We're not managing this month to month. But for the quarter, it did come in a little lighter than we would have expected relative to the rate progress we have seen in the previous three quarters. So a little lighter on the same store revenue side than we expected, a little better in some of the ancillary income streams, which net net put us right on target. As far as how we then view that as it pertains to the health of the industry, I think we're more focused on forward indicators such as rental volume, new customer rates, as long as our existing customer behavior, which all which all look positive.

[Joseph Margolis, CEO at Extra Space Storage]

Yeah.

[Joseph Margolis, CEO at Extra Space Storage]

I wouldn't you know, the the question around demand, I think demand is a little harder to measure using our historic tools because of the introduction of AI to search, which makes it harder to measure, you know, Google search terms and things like that. So our belief and experience is that demand is steady, that there is demand in the market, that our systems are able to cap capture a disproportionate share of that as indicated by our occupancy levels, and that that that we the market is not weakening but if anything incrementally improve.

[Jeff Norman, EVP & CFO at Extra Space Storage]

And, Rod, I think then when you layer on a a a gradually improving new supply outlook, that also gives us confidence that we'll continue to pick up pricing power. And you see that at the market level. You can see the improvement and the rebound happening in the markets less impacted by new supply.

[Jeff Norman, EVP & CFO at Extra Space Storage]

And and then in some of the markets where new supply is more prevalent, it's gonna take a little more time.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

That's really helpful. Thanks so much.

[Joseph Margolis, CEO at Extra Space Storage]

Thanks, Ron.

[Operator]

Your next question comes from Juan Sanabria with BMO Capital Markets. Your line is now open.

[Juan Sanabria, Managing Director at BMO Capital Markets]

Hi. Thanks for the time. Just curious if you could talk a little bit about the prefs in the the loan book and what you're seeing there. And is there the expectation that you get any repayments? I know there's the next point process out there.

[Juan Sanabria, Managing Director at BMO Capital Markets]

Just just curious on on any known repayments or or how you think that business evolves in the '26.

[Joseph Margolis, CEO at Extra Space Storage]

So we're still seeing good demand for our bridge loan product. We slightly increased our guide as to how many loans we're gonna keep on the balance sheet. Part of that is to offset the SmartStop preferred we were prepaid in the early part of this quarter. Now we have great flexibility to allocate capital to that program by holding or selling a notes, which allows us to react to other opportunities and, you know, redirect capital in that way.

[Joseph Margolis, CEO at Extra Space Storage]

I think the balances will be about what they are now, plus or minus, going forward, perhaps with a different mix of a's and b's inside that balance. But it's a a a good good healthy program that is a very helpful tool for us, particularly in this market environment. We have not been notified by any of our other preferred holders of a of a imminent pay payback.

[Juan Sanabria, Managing Director at BMO Capital Markets]

Thank you. And then curious how you guys are thinking about dispositions, if there's any pruning being considered with regards to maybe some some exposure and what's life and just your your strategy there.

[Joseph Margolis, CEO at Extra Space Storage]

Yeah. So you might be asking because you saw we just put a 22 store portfolio on the market for sale. These are all former LSI properties. When we merged with LSI, we said we were gonna spend a couple years improving the NOI of the properties, getting to know the portfolio. And then after two years, we would qualify for ten thirty one tax ten thirty one exchange treatment.

[Joseph Margolis, CEO at Extra Space Storage]

And these are the properties we've selected to dispose off to to reshape and optimize the portfolio.

[Juan Sanabria, Managing Director at BMO Capital Markets]

Like, the refund of what the the dollar side of the proceeds could be?

[Joseph Margolis, CEO at Extra Space Storage]

I we'll we'll have the market tell us what the what the sales price will be.

[Juan Sanabria, Managing Director at BMO Capital Markets]

Fair enough. Thanks, Joe.

[Joseph Margolis, CEO at Extra Space Storage]

Sure.

[Operator]

Your next question comes from Michael Griffith with Evercore. Your line is now open.

[Michael Griffin, Director at Evercore]

Great. Thanks. Maybe just starting on market performance. Just looking at some of your top markets, I noticed that NYC and Chicago were maybe a little bit lighter, at least relative to maybe my expectations. I know one quarter doesn't make a trend, but anything to read into here?

[Michael Griffin, Director at Evercore]

I mean I imagine that these kind of markets would be expected to be better performers, obviously, relative to the Sunbelt, but still maybe a little surprised to see them down year over year.

[Jeff Norman, EVP & CFO at Extra Space Storage]

So thanks, Greg, for the question. From a same store revenue standpoint, saw modestly negative same store rev in the New York MSA. More of that impact is Northern New Jersey and Long Island, more so than the core boroughs have been impacted more by new supplies than for New York itself. And on Chicago, on the other hand, we we actually saw some acceleration q one to q two in terms of same store revenue progress.

[Jeff Norman, EVP & CFO at Extra Space Storage]

So so we're actually happy with Chicago. Certainly, we'd like to be better and more in line with your forecast if they were higher, but we see positive trends in Chicago.

[Michael Griffin, Director at Evercore]

Thanks, Jeff. That's helpful context. And then maybe just more broad based question around demand and future fundamental performance.

[Michael Griffin, Director at Evercore]

I know we're still in this period of higher mortgage rates, lower housing velocity. I mean, Joe, it seems like to you, it's more a supply question of when fundamentals inflect. But do you really need that housing market to come back for people to kind of sound the all clear and get kind of performance and fundamentals accelerating to maybe historical trends? Or just just how are you thinking about the housing market in the context of of storage demand?

[Joseph Margolis, CEO at Extra Space Storage]

So I don't think we need the housing market to come back to experience a recovery.

[Joseph Margolis, CEO at Extra Space Storage]

I think it would be helpful. I think the slope will be better if we have a strong housing market. But, you know, there's plenty of demand out there. We're starting to reacquire pricing power. I think we're on, you know, I think we're on the other side of the the trough.

[Joseph Margolis, CEO at Extra Space Storage]

But clearly, a housing a strong housing market is better than a weak housing market, but not necessary.

[Michael Griffin, Director at Evercore]

Great. That's it for me. And, Jeff, congrats on the promotion.

[Joseph Margolis, CEO at Extra Space Storage]

I appreciate it.

[Operator]

Your next question comes from Caitlin Burrows with Goldman Sachs. Your line is now open.

[Jeremy Kuhl, Vice President at Goldman Sachs]

Hi. This is Jeremy Keel on for Caitlin. I guess now that we're in peak leasing season, I guess, how is seasonality expectations for last year, and what do you think about for the second half of the year? Thanks.

[Jeff Norman, EVP & CFO at Extra Space Storage]

So I I would say in line with our expectations. Last year, we had a more muted rental season, and we called for in our guidance something similar. We expected it to look pretty similar in '25 as it did to '24. We maintained higher occupancy throughout the shoulder seasons than we typically do, And our hope was that with that higher occupancy, we'd be outsized pricing power, especially with new customers. We saw it to some extent.

[Jeff Norman, EVP & CFO at Extra Space Storage]

I I think we, you know, hope to see a little bit more, but continue to see a marching in the right direction in July. So overall, Jeremy, I'd say in line with our expectation.

[Jeremy Kuhl, Vice President at Goldman Sachs]

Got it. Thanks. And I guess just for, like, the existing customer, how are you seeing their activity given that there's less, you know, housing turnover? Are they staying longer? Is that being able to push ECRIs more? Yes, anything on that would be helpful. Yes.

[Joseph Margolis, CEO at Extra Space Storage]

Great question. So one of the strengths of this business is the strength of the existing customer. We are seeing fewer vacates, increasing length of stay. As Jeff mentioned earlier, bad debt is below 2%, very healthy. Customers are accepting ECRI at the same rate that they have previously.

[Joseph Margolis, CEO at Extra Space Storage]

So there's really no sign of weakness or danger with existing customer behavior. Thank you. Thank you.

[Operator]

Next question comes from Nicholas Yulico with Scotiabank. Your line is now open.

[Analyst]

Hello. This is Peter Feyto on with Nikulico. And so you mentioned the the disposition of these 22 LSI assets. Just trying to understand, excluding these assets, what could be the spread between LSI and Legacy EXR Rent? I think in early June, you mentioned around five to 6% for the whole portfolio. Did you look at at portfolio excluding these dispositions?

[Joseph Margolis, CEO at Extra Space Storage]

So I have not not done that. I've not done that analysis excluding these these assets. So we we could probably do that and and get back to you, but I don't have that number.

[Analyst]

And then broadly, is it still around five to 6% or it's it's contracted since June?

[Jeff Norman, EVP & CFO at Extra Space Storage]

It's still about five to 6%.

[Analyst]

Got it. And then second question would be more more like a broad on macro assumptions embedded in second half twenty five guidance. And from your point of view, what are the major catalyst to follow that might lead to your car hitting lower or higher end of FFO guidance?

[Jeff Norman, EVP & CFO at Extra Space Storage]

Sure.

[Jeff Norman, EVP & CFO at Extra Space Storage]

So at the given our high occupancy, it's it's hard to imagine that becoming an an incremental driver from here to contribute to additional revenue growth acceleration. So I think your key driver at the high end would be stronger new customer rates and that's going through more quickly to to our revenue growth. And the bottom end, probably a deterioration in occupancy, greater greater than normal seasonal drop off in in occupancy.

[Analyst]

Got it. Thank you.

[Operator]

Your next question comes from Eric Wolf with Citi. Your line is now open.

[Eric Wolfe, Director at Citi]

Hey, guys. There's been a good amount of volatility in stock recently. Can you just remind us how you look at buybacks versus your cost of capital? I know you've used capital today. I think you bought a small amount of stock around $1.26 earlier this year, but the opportunity went away quickly.

[Joseph Margolis, CEO at Extra Space Storage]

Yeah. That was an interesting day where we had about a two hour window before the president announced the pause on tariffs, and we got out of our price band. So the board of directors, you know, accrues a certain band of of pricing in which we'll use use capital to repurchase our stock. And as you point out, it's a capital allocation decision, and we've done it in the past, and we're certainly not afraid to do it in the future.

[Eric Wolfe, Director at Citi]

Alright. And then you mentioned the impact of AI on search and how maybe that's not gonna make sort of these Google search terms and says the the good proxy for demand. I guess, you have a sense for what percentage of your customers are using ChatGPG or AI to find the best storage solution versus, like, say, this time last year or a couple years ago? And do you think that makes customers a bit more sensitive on the front end to pricing just because they can sort of quickly analyze, you know, the cheapest option within a within a certain area?

[Joseph Margolis, CEO at Extra Space Storage]

Yeah. I I'm gonna apologize.

[Joseph Margolis, CEO at Extra Space Storage]

I don't have a lot of good answers around this. This is changing so quickly, and we have a lot of people who are a lot smarter than me spending a lot of time trying to figure it out. I mean, in the beginning of the year, 15% of searches came up with a AIO at the beginning of it, and now that's over 65%, I think, in six or seven months. So we're we're trying to understand and take advantage of the changes that are going on in the search landscape, but I do have confidence in our our team and our ability to be out in front in this.

[Jeff Norman, EVP & CFO at Extra Space Storage]

Eric, one piece of color that I would add is while it does definitely create some noise in the data in terms of searches, one thing that we've noticed is that a lot of the types of inquiries customers are putting into, chat, DVT, and other AI models are more informational in nature.

[Jeff Norman, EVP & CFO at Extra Space Storage]

So if they were wondering what size of a unit to rent or the benefits of climate controlled versus not, etcetera, that's a good place to get those common answers. But customers have the intent to transact, still are tending to click through and go and are going to websites. So we've seen well, it maybe gets a little murkier on just a total traffic from a traffic standpoint, the conversion rate for those customers that are clicking to the website have improved and increased. So, again, evolving very quickly, like Joe mentioned, but something that we're tracking very closely.

[Eric Wolfe, Director at Citi]

Got it. That's helpful. Thank you.

[Joseph Margolis, CEO at Extra Space Storage]

You bet.

[Operator]

Your next question comes from Ravi Vaidya with Mizuho. Your line is now open.

[Ravi Vaidya, Vice President at Mizuho Financial Group]

Hi, guys. It appears that you guys are largely done for the year with acquisitions, and you mentioned earlier that pricing is getting tighter. I wanted to ask a bit more about the competitive dynamics. Are there more players coming to markets than maybe the bid ask spread narrowing? I would have thought that it would have maybe been more buyers in the sidelines given kind of the uncertainty in fundamentals. Just wanna hear your thoughts on that.

[Joseph Margolis, CEO at Extra Space Storage]

Well, I'm sorry if I gave the impression that we're done with acquisitions. Maybe you're referencing our guidance versus what we have we have under contract. We're still very active at looking at everything, underwriting everything. We have capital.

[Joseph Margolis, CEO at Extra Space Storage]

We have joint venture partners. If opportunities arise, we will execute on them. So we're we're not sending the investment team home for vacation for the rest of the year. That being said, I would have thought cap rates would have moved more than they have given interest rates and and other factors. And they haven't.

[Joseph Margolis, CEO at Extra Space Storage]

And there still are buyers out there transacting at what we consider to be high prices. And as long as that continues, we'll we'll continue to remain disciplined. But in in no way are we not in a position or not willing to execute on good good opportunities.

[Jeff Norman, EVP & CFO at Extra Space Storage]

And, Ravi, I'd just add, as we think of guidance, some of the reasons for not necessarily plugging in a lot of additional volume that hasn't been identified at this point of the year. It does take some time between negotiating and contracting deal and closing.

[Jeff Norman, EVP & CFO at Extra Space Storage]

And and then also the contribution to FFO for the the remainder of the year, if it's a late, you know, q three or q four close, it is gonna be relatively immaterial on your overall overall FFO for the year. So so from our perspective, it doesn't make sense to speculate too much on volume. We'd rather plug it in once we we have something specific identified.

[Ravi Vaidya, Vice President at Mizuho Financial Group]

Got it. That's helpful.

[Ravi Vaidya, Vice President at Mizuho Financial Group]

Right. I I was just comparing what was, you know, John or your contact you today versus versus the guidance provided, but that additional color is is helpful here. And just one more.

[Joseph Margolis, CEO at Extra Space Storage]

I I understand.

[Ravi Vaidya, Vice President at Mizuho Financial Group]

Can you please identify some markets where you're starting to see supply headwinds ease and thus expect pricing and sales to revenue to improve on out?

[Joseph Margolis, CEO at Extra Space Storage]

I I apologize, Ravi. Our phone cut out just a little bit there. Can you say that again? I I caught the part about markets.

[Ravi Vaidya, Vice President at Mizuho Financial Group]

But Sure.

[Ravi Vaidya, Vice President at Mizuho Financial Group]

Sorry about that. Maybe just the markets where you're starting to see supply headwinds ease a bit and maybe where you expect to see a greater acceleration in same store revenue as a result of that?

[Jeff Norman, EVP & CFO at Extra Space Storage]

Yes. Thanks for repeating the question, Ravi. It's in general, the markets that were earlier to the new supply cycle.

[Jeff Norman, EVP & CFO at Extra Space Storage]

So a few examples I would give are Portland, Seattle, Chicago, Denver. They have seen pressures from new supply ease. And generally speaking, those are also in the markets where you've seen revenue pick up earlier. We also have certain markets that I think we would classify as having been pretty steady throughout the cycle that didn't see as much new supply, and it's just been a little more stable in Boston and Washington DC that squarely in in that category.

[Ravi Vaidya, Vice President at Mizuho Financial Group]

Got it. Thanks so much, guys. Thank you.

[Operator]

Your next question comes from Eric Lachow with Wells Fargo. Your line is now open.

[Eric Luebchow, Director - Senior Equity Analyst at Wells Fargo Securities]

I appreciate it. Maybe you could you touched on the 3PM program. I it looks like you added a 174 net. Talk about, you know, where you're seeing strength from, and are you seeing any new opportunities from partners of the the LSI portfolio that maybe give you the ability to keep growing there?

[Joseph Margolis, CEO at Extra Space Storage]

Yes.

[Joseph Margolis, CEO at Extra Space Storage]

Thank you for the question. So we've had two fantastic quarters growing our management plus business our third party management business. As you mentioned, we've added a 174 stores net this year. And some of that is from new partners that we were introduced to through the LSI merger. It's been one of the benefits of the merger as well as bridge loans, making bridge loans to those partners as well.

[Joseph Margolis, CEO at Extra Space Storage]

So it's been it's been a great six months of the year. I think it's largely due to a difficult operating environment where private operators come to the realization or their equity partners do or their lenders do that they need professional management. They need the best operator in the business managing their stores. I would not be surprised if the second half of the year we grow, we continue to grow, but grow at a slower pace as the transaction market is picking up, and we probably will see some exits from the portfolio. But I think this is a great growth area from the company for the company and not only adds directly management fees and tenant insurance, but also provides these an ancillary benefits of opportunities to purchase and opportunities to make loans.

[Eric Luebchow, Director - Senior Equity Analyst at Wells Fargo Securities]

Appreciate that, Joe. And I I guess just one follow-up. I apologize if I missed it, but I think you had talked about top of funnel demand measured by search on your last call being up year over year. So just wondering how it's trended the last couple of months given some of the macro uncertainties that's on the market for the second half of the year.

[Joseph Margolis, CEO at Extra Space Storage]

Yeah.

[Joseph Margolis, CEO at Extra Space Storage]

Sure. So so if you look at top of funnel by generic Google search terms, it remains elevated compared to prior years. But we believe some of this elevation, and we don't know how much, is due to AI search. People doing multiple searches, and it's not an increase in customers. So we see a increase in generic search terms.

[Joseph Margolis, CEO at Extra Space Storage]

We don't see a proportional increase at of people coming to our website. But as Jeff mentioned, we see a higher conversion rate of folks when they do get to the website, which tells us which suggests to us that those customers are better educated. They've asked more questions through AI. They know more what they want. And then when you get to our website, they convert at a higher level.

[Joseph Margolis, CEO at Extra Space Storage]

That's kind of our early observations in a changing environment.

[Eric Luebchow, Director - Senior Equity Analyst at Wells Fargo Securities]

K. Great. Thank you.

[Joseph Margolis, CEO at Extra Space Storage]

Yep.

[Operator]

Your next question comes from Michael Mueller with JPMorgan. Your line is now open.

[Michael Mueller, Equity Analyst at JP Morgan]

Yeah. Hi. I know it's not black and white in terms of what's a consumer versus a business user. But do you have a sense if if one of those categories is clearly ahead of the others in terms of seeing better demand? And for a follow-up, when it comes to ECRI pushback, are you getting more pushback from one of those categories versus the other as well?

[Joseph Margolis, CEO at Extra Space Storage]

So it's a hard question to answer because the business consumer is not a monolithic entity. Right? There's national pharmaceutical chains with big balance sheet, and there's the local landscaper who's much more akin to a retail customer. I think your you you kind of responded question, I think, is correct. It's the big national businesses stay longer, react better to ECRI, and are better overall customers, while maybe some of the small local businesses are not as different as the retail customer.

[Michael Mueller, Equity Analyst at JP Morgan]

Got it. Okay. That was it.

[Joseph Margolis, CEO at Extra Space Storage]

Thank you.

[Operator]

Thanks, Mike. Your next question comes from Alex Murphy with Truist Securities. Your line is now open.

[Alex Murphy, REIT Equity Research Associate at Truist Securities]

Hi. Thank you for taking my question. Given that same store revenue was flat and NOI declined by around 3%, Are there any specific levers management is considering to improve property level margins going into the 2025?

[Jeff Norman, EVP & CFO at Extra Space Storage]

I think the main one will be on the expense side. Margins were suppressed in the first half of the year because of higher than normal expenses.

[Jeff Norman, EVP & CFO at Extra Space Storage]

And as we continue to push on the revenue side, it also gives us an opportunity for additional margin expansion. You know, one example would be our marketing spend. We get a higher return on that spend. It's something that we can can measure and and see the returns on it. And as as we can deploy those marketing dollars and we're seeing the product return, we'll keep doing it.

[Jeff Norman, EVP & CFO at Extra Space Storage]

So there are different levers you can pull in terms of marketing, discounting, pricing, and and we're always evaluating all of the levers to try to maximize revenue.

[Alex Murphy, REIT Equity Research Associate at Truist Securities]

Thank you.

[Operator]

Your next question comes from Salil Mehta with Green Street Advisors. Your line is now open.

[Salil Mehta, Equity Research Associate at Green Street Advisors, LLC]

Hi, guys, and thanks for taking my second question here. I'd like to just touch a bit more on market and region performance. You know, it looks like Sunbelt areas, which have been kind of beaten up, they look to finally turn be turning the corner and achieving some sort of stabilization. Does this ring true? And what are you guys expecting from markets in this region in the future?

[Jeff Norman, EVP & CFO at Extra Space Storage]

In terms of absolute performance, as you're indicating, those are our tepid mark tougher markets. From a sequential improvement standpoint, I think it's going to be a market by market situation. And I think it's highly tied to new supply and the rate at which supply has been delivered is, of course, as well as how quickly or how much additional supply is still to be delivered in those markets. So apologies for the more theoretical answer, but I think it depends on the market and and the individual dynamics of each market. And while this may be obvious for us, these markets are micro markets, you know, much smaller than MSAs.

[Jeff Norman, EVP & CFO at Extra Space Storage]

So it can even vary where new supply is being delivered relative to our specific properties.

[Salil Mehta, Equity Research Associate at Green Street Advisors, LLC]

Thanks for the color.

[Operator]

Your next question comes from Brendan Lynch with Barclays. Your line is now open.

[Brendan Lynch, Director at Barclays Capital]

Great. Thanks for taking my question. And Jeff, congrats on the new role. Thanks for the about AI. You know, it's come up a few times on the call.

[Brendan Lynch, Director at Barclays Capital]

In the past, obviously, Google took the majority of your marketing spending. Can you just talk about how you might be distributing some of that marketing spending between ChatGPT and Rock and any other AI models that might be out there?

[Joseph Margolis, CEO at Extra Space Storage]

It's a easy answer today, but maybe not tomorrow. So so far, the companies have not tried to monetize their AI platforms. So we spend zero on it, but I I know it wasn't free to build that GPT, so I'm sure that will come in the future.

[Joseph Margolis, CEO at Extra Space Storage]

But right right now, it's it's almost all our dollars go to Google.

[Brendan Lynch, Director at Barclays Capital]

Okay. Great. Thanks for the color. And then, Jeff, you had mentioned that the shoulder season in the spring was a bit better in terms of occupancy.

[Brendan Lynch, Director at Barclays Capital]

Should we extrapolate anything from that in terms of how the shoulder season might play out in the fall on the other side

[Jeff Norman, EVP & CFO at Extra Space Storage]

I think we were more aggressive with new customer rates to maintain that higher occupancy. Our models found that to be a better solution for maximizing revenue, and so that's what what we did. And I think we'll we'll continue to monitor it as we go into the fall. Right now, rental volume continues to be healthy.

[Jeff Norman, EVP & CFO at Extra Space Storage]

We've been able to maintain our occupancy in in July. And and I would anticipate that we'll still have high occupancy relative to any historical levels, but the question will be what the balance is in terms of taking rate versus holding occupancy, which we'll we'll continue to evaluate as we go. And that's really one of the significant advantages of having such a large portfolio. We can test these things in relatively short periods of time and get get real time feedback as far as what the customer is is willing to accept.

[Brendan Lynch, Director at Barclays Capital]

Great. Thanks for the color.

[Operator]

Your next question comes from Omotayo Okusanya with Deutsche Bank.

[Tayo Okusanya, Initiation of Coverage - US REITs at Deutsche Bank]

Jeff, congrats. Scott, you will be missed. My question is around you guys have talked you talked about kind of fundamentals stabilizing even, you know, some operating metrics are inflecting positively, but it takes some time to actually hit the bottom line. And so I guess when we well, we're trying to think about when we kind of start to see maybe some better earnings growth going forward. I mean, does that have to boil down to street rates that you can drop even more aggressively to, you know, 10% increases?

[Tayo Okusanya, Initiation of Coverage - US REITs at Deutsche Bank]

Is is it more of a case of somehow, you know, move out volume kind of slows down given the negative mark to market associated with it right now? Just just trying to get a sense of when some other stabilization or inflection can we can really kind of start seeing it in your bottom line.

[Joseph Margolis, CEO at Extra Space Storage]

I mean, I think there's a lot of factors that could help us, know, including improvement in rate, which we're starting to see, moderation of vacates, improving length of stay, expiration of state some states of emergencies. Those things will all all help us improve the slope of the recovery.

[Tayo Okusanya, Initiation of Coverage - US REITs at Deutsche Bank]

What's timing kind of being TBD?

[Joseph Margolis, CEO at Extra Space Storage]

I think timing is TBD.

[Tayo Okusanya, Initiation of Coverage - US REITs at Deutsche Bank]

Fair enough.

[Jeff Norman, EVP & CFO at Extra Space Storage]

I think a good example, Kyle, of that is the the question earlier about housing. You know? Is it necessary to continue marching the right direction? No. Would accelerate our pace?

[Tayo Okusanya, Initiation of Coverage - US REITs at Deutsche Bank]

Absolutely.

[Jeff Norman, EVP & CFO at Extra Space Storage]

So I think there's a number of examples like that where the cadence will dictate in by the conditions in the environment.

[Tayo Okusanya, Initiation of Coverage - US REITs at Deutsche Bank]

Thank you. You bet.

[Joseph Margolis, CEO at Extra Space Storage]

Thanks, Kyle.

[Operator]

There are no further questions at this time. I will now turn the call over to Joe Margokis, CEO, for closing remarks.

[Joseph Margolis, CEO at Extra Space Storage]

Thank you. Thank you, everyone, for your time and interest in Extra Space Storage. I was surprised by the reaction to our release and want to make sure that I emphasize the strength of the company. We have very high occupancy. We have turned to positive year over year revenue growth.

[Joseph Margolis, CEO at Extra Space Storage]

Our ancillary businesses are growing at a very fast pace. We have a platform that is poised and able to take advantage of any opportunity that goes forward. We've maintained our guidance, and we're looking forward to the rest of the year and 2026 for better things to come. Thank you again for your time.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Participants

Executives

• Jared Conley, Investor Relations
• Joseph Margolis, CEO
• Jeff Norman, EVP & CFO

Analysts

• Michael Goldsmith, US REITs Analyst at UBS Group
• Salil Mehta, Equity Research Associate at Green Street Advisors, LLC
• Samir Khanal, Director - US REITs at Bank of America
• Todd Thomas, MD & Equity Research Analyst at KeyBanc Capital Markets
• Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley
• Juan Sanabria, Managing Director at BMO Capital Markets
• Michael Griffin, Director at Evercore
• Jeremy Kuhl, Vice President at Goldman Sachs
• Analyst
• Eric Wolfe, Director at Citi
• Ravi Vaidya, Vice President at Mizuho Financial Group
• Eric Luebchow, Director - Senior Equity Analyst at Wells Fargo Securities
• Michael Mueller, Equity Analyst at JP Morgan
• Alex Murphy, REIT Equity Research Associate at Truist Securities
• Brendan Lynch, Director at Barclays Capital
• Tayo Okusanya, Initiation of Coverage - US REITs at Deutsche Bank