Q2 2025 Extra Space Storage Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Extra Space Storage Inc. Q2 2025 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. If at any time during this call you require immediate assistance, please press star zero for the operator.

This call is being recorded on Thursday, July 31, 2025. I would now like to turn the conference over to Jared Conley, Vice President of Investor Relations. Please go ahead.

Storage is second quarter, 2025 earnings call.

In addition to our press release, we have finished unaudited supplemental financial information on our website.

Please remember the 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 companies businesses

These 4 looking statements are qualified by the cautionary statements. Contained in the company's latest filings with the SEC which we encourage our listeners to review.

Forward-looking statements represent management's estimates as of today. As of July 31, 2025, the company assumes no obligation to revise or update any forward-looking statements due to 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.

Thank you for joining us today.

We had a solid second quarter.

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, 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

During the second quarter, we executed on strategic opportunities across our Diversified platform.

We completed only one acquisition for $12 million, 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 million, at attractive valuations driven by our partners' liquidity needs and favorable partnership terms.

Our Bridge Loan program continued gaining market traction, generating $158 million in new originations.

Simultaneously, our third-party Management program added 93 stores with net. Growth of 74 properties, expanding our managed portfolio to 1,749 stores. Providing more scale and efficiency to our sector leading platform.

Our multi-channel approach combining opportunistic, Acquisitions and capital light activities demonstrates. Our ability to create value and grow a creatively. 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.

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

Well, 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.

We remain focused on balancing pricing and occupancy to maximize Revenue while pursuing strategic growth, that enhances long-term shareholder value.

To the last 34 earnings calls. I've turned this over to Scott, stop. Who is always? Provide balanced accurate transparent and helpful commentary.

Scott has been a great asset to Extra Space Storage and instrumental in reshaping our balance sheet. Most importantly, he has been 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. Jeff has been with the company for 13 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 Khan continued contributions leading our accounting and financing functions.

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 the new customer rate. Growth is improving more gradually from Q1 to Q2 than in the previous three quarters.

However, our flat same store, Revenue was augmented by stronger than expected, and an insurance income and management fee income.

Interest income and interest expense were both greater due to a higher than forecasted. So for Curve,

So as Joe mentioned, while the progress and new customer rate is a little slower than expected. Our operating model continues to generate stable, cash flows and maintain consistent, performance metrics. And our, an ancillary incoming streams are making meaningful contributions to ffo.

Trying to expenses we experienced higher than normal year-over-year increases.

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 2 quarters and our full year outlook anticipates, total expense growth, including property tax growth to normalize 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 4.3 years.

Our measured approach to leverage complemented by our well, structured, debt maturities and diverse funding sources provides us with a St, stability, to pursue strategic opportunities, while effectively managing our position in the current interest rate environment.

Given our inline 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 midpoints

This results in core, ffo guidance of 8.05 to 8.25 cents per share.

For our same store portfolio, we anticipate Revenue growth between negative, half a percent 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 4 and 5%, which as I mentioned, implies expense growth, moderation in the back half of the Year especially with property taxes.

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 continue 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.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question please? Press star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process? Please press star followed by the 2. If you are using a speaker-phone, please lift the handset. Before pressing any Keys 1 moment, please for your first question.

Your first question comes from Michael Goldsmith, which UBS your line is now open.

Good morning. Thanks for taking my question.

So, uh, can you provide an update on how street rates and occupancy have trended into July, and how that compares to June and the second quarter? Thank you.

Michael, from an Oxy perspective, sequentially, I can remain flat. So it continued in July at 94.6%, which year-over-year is a positive delta of about 50 basis points.

Uh, new customer rate improved on a year-over-year basis. It was up a little more than 2%. Um, so seeing positive Trends there and our, um, move in move out Gap. Also, compressed with those rates sticking up, so positive indicators on all fronts in July.

Thanks for that. And then just uh to 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 and feeling that in particular in the, in the fourth quarter is that just a function of, you know, it takes a little bit of, you know, there's only a few percentage points of customers that 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 is there something else that is that makes kind of the fourth quarter when you start to really feel the benefit uh and start to feel things inle. Thanks.

You're you're exactly right Michael that that's spot on all other things equal as 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. It begins to throw flow through to revenue, so it does take time. Um, but it it starts to compound and improve as you get into the

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

Thanks Michael.

Your next question comes from Salut. Meta with Green Street, advisors; your line is now open.

Hi guys. Good morning and thanks for taking my question. Uh, so just looking at the net rental rate growth, you know, seeing a, I believe like close to a percent decrease in overall rental rate. But with moving rates, roughly flat to positive, you know, would I be correct in asserting that net decreased to ecri? Or could this perhaps be attributed from the rent restrictions in La? Um, you know, any color here would be super super helpful.

Yeah, you you are seeing a minor headwind in LA, but I think more, um, than than ECI, it's just a fun, fun function of move outs. You still have a roll down, net rolled down with move outs, um, 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 ECI perspective, really, that's been pretty constant on year-over-year basis.

Thank you.

You bet. Thank you.

Your next question comes from Samir Canal with Bank of America Securities. Your line is now open.

Yes, uh, good afternoon everybody. I guess, George Jeff, you sounded. You 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 want to use the word "softness," but it feels like maybe it's a bit lighter than you expected.

Maybe Josh can just talk or expand on that. I guess what do you think is sort of driving that gradual movement here?

Well, this is Joe. I think there's several things. You know, 1 is just mentioned that the previous question, we turned 5 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. Um,

You know, we also have a roll down, and that, you know, again, takes time to work against that.

But this isn't a month-to-month business, right? This is a long-term business; the trends we're seeing are positive.

Be positive in customer rate for the first time since March 2022 is a meaningful inflection point, and we're looking, you know, we rode down the hill and we're looking forward to riding up the hill now.

Okay. Got it and I guess just because some comments if you can make on on LSI the the impact that that portfolio is having on on same store. Is it in line with your expectation? Has it been below your expectations sort of year to date?

Because I know that portfolio also had, you know, exposure to Florida, right? And maybe that's taking a bit longer to come back to normalization. Maybe talk around. Kind of the LSI portfolio and impact. It's having thanks.

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 over 95% LSI.

We'll add 60 basis points to the same store performance this year. So on, on track, in our respects,

And Samir, I would just add not specific to LSI, but your comment about, you know, the Sun Belt in general. I think, is it is correct that those have been the markets that have been disproportionately impacted by new Supply? They're 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 and and those of our

Pepper markets, but long-term. We're very bullish on the Sun Belt and, in general, on having a highly diversified portfolio with exposure to all of the growth markets throughout the country. So today, there’s a little more of a headwind for us than some of our Mid-Atlantic markets, Chicago, and the Pacific Northwest that are all doing a little better. But over longer periods of time, as Joe alluded to, we have a lot of confidence in our portfolio construct.

Thanks a lot, guys.

Thanks man. Thanks mayor.

Your next question comes from Todd Thomas with KeyBanc Capital Markets. Your line is now open.

Hi, thanks. Um, first question, I just wanted to follow up, um, you know, maybe you can sort of help flush this out a little bit. You know, moving rent, Trends and collected positive in the quarter for the first time in a few years. You mentioned that they improved a little further to 2% in July. Um, I you know, I understand it takes a little time to flow through, but you also gained documents through June you're still at 94.6% in July. Um, so it sort of sounds like, you know, stable to slightly, you know, improving conditions. Um, a little bit through through the, the balance of the, the summer here, can you just sort of help, you know, flush that out a little bit and and maybe, you know, comment on on what you're seeing that that, you know, pointed you to sort of the the comments around conditions being a little bit, um, slower here.

Yeah, I think, I mean, we, we give a range uh, 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 finish 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 of the year to to slightly positive. You know, a modest acceleration in the back half of the year. And then at the high end, that would imply more acceleration. Bottom end, a little bit of deceleration. Um, and, and all of those factors We Believe are are on the table, but all the trends we're seeing right now, uh, are are looking positive 1 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. Um 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. So, while a headwind year-over-year, uh, from a same store Revenue standpoint. Uh, again these are these are actually pens. We we think are positive for the industry.

Bit more inquisitive here.

Yeah, thanks Todd. I don't want to give the impression we're on the sidelines at all. We have an investment team that looks at every deal that's in the market. They look at all the deals that we manage that end up on the market. We almost always get a first shot at those; we underwrite them all and look real hard at it.

But we're not going to execute on deals that are, you know, sub-5 caps stabilizing in the 5s. It just doesn't do any good for our shareholders, for us to do that. So we're going to look at everything. We're going to wait for pricing to get to a level that we feel is accretive. And in the meantime, we're going to use all of our other tools: the bridge loans, you know, restructuring, buying out JV, you know, doing other activities, making new preferred investments, which we did one this year.

To, uh, make creative investments while being prudent allocators of capital.

Okay, thank you.

Your next question comes from Ronald Camden.

Your line is now open.

Hey, just starting with the expenses. I know we talked about property taxes last quarter. Um, you know, obviously, continue to be pretty high over your, uh, now maybe just a little bit more color on your expectation there. And is this just a 2025 thing? And how should we think about that going forward? Thanks.

Yeah, thanks for the question Ron. You're you're exactly right. Uh, certainly High year-over-year, the positive news is we've we've left the comp. So we we took that that pain and that markup uh you know, primarily driven by some of our life storage properties and and in the second half of the year we anticipate that coming down significantly. Um and and in terms of all of our other expense line items, um also expect to see on average as as indicated by our range relative to our first half performance deceleration and expense growth, in the back half of the year.

Great helpful. Uh and then my second question was just going back to the comments about maybe the same store Revenue being a little bit larger than expected. I guess, I I I just love some contacts 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 below sort of average for this environment or maybe your expectations? 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 the customer or the market and everything? Thanks.

Sure. Uh, I

I would say, as Joe alluded to in one of his previous answers, you know, it's not perfectly sequential month by month; we're not managing this month-to-month. Um, but for the quarter, it did come in a little lighter than we would have expected relative to the rate progress we had seen in the previous three quarters. Um, 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, net put us right on target. Um, 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 well as our existing customer behavior, which all, which all look positive.

Yeah, I wouldn't. You know the question around demand.

I think demand is a little harder to measure.

Using our historic tools because of the in 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 the demand in the market is steady, and our systems are able to capture a disproportionate share of that demand, as indicated by our occupancy levels.

And that, that that we the market is not weakening. But if anything

Incrementally improved.

That's really helpful. Thanks so much.

Thanks Ron.

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

Hi, thanks for the time. Um, just curious, if you could talk a little bit about the press and the, um, the loan book, and what you're seeing there. Is there the expectation that you get any repayments? I know there's the, um,

The next point prep that's out there—just curious on any known repayments or how you think that business evolves in the second half and into 2026.

Um, so we’re still seeing good demand for our Bridge Loan product. Uh, we slightly increased.

Our guide as to how many loans we're going to keep on the balance sheet. Part of that is to offset the Smart Stop preferred. We were prepaid in the early part of this quarter.

You know, 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. 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 an imminent payback.

and then um curious how you guys are thinking about dispositions, uh, if there's any pruning being considered with regards to maybe some exposure with life and, um,

And just your, your strategy there.

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 going to spend a couple of years improving the NOI of the properties, getting to know the portfolio. And then after 2 years, we would qualify for a 1031 exchange.

Uh, treatment. And these are the properties we've selected to dispose of to reshape and optimize the portfolio.

Thanks. Any sense of what the dollar size and proceeds could be?

uh,

We'll, we'll have the market tell us what, uh, what the sales price will be.

Fair enough. Thanks Joe.

Sure.

Your next question comes from, Michael Griffith with evercore, your line is now open.

Great, thanks. Um, maybe just starting on on market performance. Just looking at at some of your top markets. I I noticed that NYC and and Chicago were, you know, maybe a little bit lighter at least relative to maybe my expectations. I know 1 quarter doesn't make a trend, but anything to read into here. I mean, I imagine that that these kind of markets, you know, would be expected to be better performers. Obviously relative to the Sun Belt, but still maybe, uh, maybe a little surprised to see them down year-over-year.

So thanks grant for the question from the same store, Revenue standpoint. Um, the modestly negative same store rev in the New York, MSA more of that impact is Northern New Jersey and, uh, Long Island more so than the core Burrows. Um, have have been impacted more by new Supply than or New York itself.

And I'm Chicago on the other hand. Um, we, we actually saw some acceleration, q1 to Q2 in terms of same store, Revenue progress. So, so we're actually happy with Chicago. Um, certainly would like it better and, and More in line with your forecasts if they were higher, but um, we see positive friends in Chicago.

need that housing market to come back for people to kind of sound the the all clear and and get kind of performance and fundamentals accelerating to maybe historical Trends or just how are you thinking about the housing market and the context of of storage demand

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

uh,

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

Great, that's it for me and Jeff congrats on the promotion.

I appreciate it.

Your next question comes from Caitlyn Burroughs with Goldman Sachs, your line is now open.

Hi, this is Jeremy. K on for Caitlyn. Um, I guess now that we're in Peak leasing season, I guess, how is seasonality expectations the last year? And what do you think about for the second half of the year? Thanks?

So uh I I would say in line with our expectations. Um last year we had a more muted uh rental season and and we called for in our guidance something similar. We expected to look pretty similar in 25 that as it did to 24. Um, we maintained higher occupancy throughout the shoulder Seasons than we typically do. And Our Hope was that with that higher occupancy, we the outsized pricing power especially with new customers. We saw that some extent. I, I think we had hoped to see a little bit more, um, but continue to see a marching in the right direction in July. So overall, Jeremy, I'd say in line with our expectation

Got it. Thanks. Um, and I guess just for like the, um, existing customer. Um, how are you seeing their activity? Um, given that there is less. You know, housing turnover, are there. Staying longer is that being able to push ecis more? Um, yeah, anything on that. Be helpful, thanks.

Yeah, great question. So 1 of the strengths of this business is the strength of the existing customer. We are seeing fewer vacates increasing length of stay is Jeff mentioned earlier, bad debt. It's below 2%, very healthy. Customers are accepting ecri at the at the same rate that they have, uh, previously. So there's really no, no sign of weakness or danger with, uh,

Existing customer Behavior.

Thank you.

Thank you.

Your next question comes from Nicholas ulisa Bank. Your line is now open.

Hello, this is sweet on with. And so, you mentioned, uh, the disposition of these 22 LSI assets. Uh, just trying to understand like excluding these assets. What would be the spread between LSI and Legacy? XR rents? I think, in early June, you mentioned around 5 to 6% for the whole portfolio. Did you look at at at the portfolio? Excluding this, uh, this positions

So I have not not done that. I'm 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. And then broadly is it still around 5 to 6% or it's contracted since June, it's still about 5 to 6%.

Got it and then second question will be more more like a broad uh on macro assumptions embedded. In second half 25 Guido you what are the major catalysts to follow? That might lead to exr heating glow or higher end of SSO guidance,

Sure. So it it the given our high occupancy it. 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 uh that flowing through more quickly to

Uh, to our Revenue growth and at the bottom end, probably a deterioration in occupancy, a greater a greater than normal seasonal uh drop off in in occupancy.

Got it. Thank you.

Your next question comes from Eric wolf with City, your line is now open.

This is your cost of capital and other uses of capital today. I think you bought a small amount of stock around 126 earlier this year, but the opportunity went away quickly.

Yeah, that was a an interesting day where we had about a 2-hour window before. Uh, the president announced the pause on tariffs and we got out of our price band. So the board of directors, uh,

you know, approves 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 in the past and we're certainly not afraid to do it in the future.

All right, and then you mentioned the impact of um, AI on search and how maybe that's not going to make sort of these Google Search terms is a, is a good proxy for demand. I guess, do you have a sense for what percentage of your customers are using chat GPT or AI to find the best storage solution. Um, versus like to 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? Uh the pricing just because they can sort of quickly analyze um you know the cheapest option within a within a certain area

Yeah, I I'm gonna apologize. I don't have a lot of good answers about 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, a, uh, AIO at the beginning of it. And now that's over 65%, I think in 6 or 7 months,

Uh, so we're we're trying to understand and um 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.

Eric 1 piece of color that I would add is, while it does definitely create some noise in the data in terms of searches 1 thing that we've noticed, is that a lot of the types of inquiries customers are putting in to um, chat gbt and other AI models are more informational in nature. So if they were wondering what size of a unit to rent, or the benefits of climate controlled versus not Etc, that's a good place to get those common answers, but customers that have the intent to transact.

Still are tending to click through and go and are going to websites. So we've seen while it uh maybe gets a little murkier on just a total traffic from a traffic standpoint that conversion rates for those customers that are clicking to the website have improved increased. So uh again evolving very quickly like Joe mentioned um but something that we're tracking very closely.

Got it. That's helpful. Thank you.

You bet.

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

Hi, guys. Uh, it appears that you are largely done for the year with acquisitions, and you mentioned earlier that pricing is getting tighter. Um, I wanted to ask a bit more about the competitive dynamics. Are there more players coming to markets, and maybe the bid-ask spread is narrowing? I would have thought that...

It would have maybe been more buyers on the sidelines given kind of the uncertainty and fundamentals. So, I just want to hear your thoughts on that.

So, 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, uh,

Uh, under contract, we're still very active at looking at everything underwriting. Everything, we have capital. We have joint venture partners. If opportunities arise, we will execute on them. So 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 and they're still are buyers out there transaction 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 act, good opportunities.

And then also the contribution to ffo for the the remainder of the year. If it's a late, you know, Q3 a Q4 close. It is going to be relatively immaterial on your overall overall ffo for the year. Um, 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 uh, specific identified

Got it. That's helpful, right? I was just comparing what was, you know, done or under contract to your date versus the guidance provided. But the additional color is helpful here. Um, just one more. I understand.

Uh, can you please identify some markets where you're starting to see supply ahead of demand, easing, and thus expect pricing and revenue to improve going forward?

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

Sure, sorry about that. Um, maybe just some markets. We're starting to see supply headwinds ease a bit, and maybe where you expect to see a greater acceleration in the same-store revenues as a result of that.

Yes, thanks for repeating the question. Ravi, um,

It's, in general, the markets that were earlier to the new supply cycle. So, if you examine, I would give examples such as Portland, Seattle, Chicago, and Denver that have seen pressures from new supply ease. Generally speaking, those are also the markets where you've seen revenue pick up earlier. You 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. Um, I think Boston and Washington, DC fit squarely in that category.

Got it. Thanks so much, guys.

Thank you.

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

I appreciate it. Um, maybe could you touch on the 3 pm program? I, it looks like you added 174 net. Um, talk about, you know, where you're seeing the strengths from and are you seeing, um, any, uh, New Opportunities from partners of the the LSI portfolio that maybe give you uh the ability to keep growing. Their

Yeah, thank you for the question. So, we've had 2 fantastic quarters growing our management plus business, our third-party management business. As you mentioned, we've added 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 making bridge loans to those partners as well.

So, uh, 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.

Uh, I would not be surprised if in 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 for the company and not only adds directly.

Management fees and 10 insurance also provide these ancillary benefits and opportunities to purchase, as well as opportunities to make loans.

Appreciate that Joe and I I guess just 1 follow-up. Um, 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, uh, up year-over-year. So just wondering how it's trended. Um, you know, the last couple months given some of the macro uncertainty that's out in the market, uh, you know, for the second half of the Year. Thank you.

Yeah, sure. 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, or people doing multiple searches, and it's not an increase in customers.

uh, so we see a

Of folks, when they do get to the website, which suggests to us that those customers are better educated. They've asked more questions through AI, they know more about what they want, and then when you get to our website, they convert at a higher level.

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

Okay, great. Thank you.

Your next question comes from Michael Muller with JP Morgan. Your line is now open.

Yeah, hi. Um 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? Is if 1 of those categories is clearly ahead of the others in terms of seeing better demand and and for a follow-up when it comes to ECR, ECR, push back. Are you getting more push back from 1 of those categories versus the other as well.

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 balances, and there's the local landscaper who's much more akin to a retail customer. I think you're kind of getting at what my question is. I think it's correct that the big national businesses...

Stay longer.

React better to ECRI and our better overall customers. While maybe some of the small local businesses are not as different as the retail customer.

Got it. Okay, uh, that was that. Thank you.

Thanks Mike.

Your next question comes from Alex Murphy with Drew Securities. Your line is now open.

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 back half of 2025?

You know, I think the main 1 will be on the expense side. Margins were suppressed in the first half of the year because of higher and normal expenses. Um, and as we continue to push on the revenue side, uh, it also gives us an opportunity for additional margin expansion. You know, 1 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 a positive return, we'll keep doing it. 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.

Thank you.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Salil Mehta.

Green Street. Advisors, your line is now open.

Hi, guys, and thanks for taking my second question here. I'd like to just touch a bit more on market reach and performance. You know, it looks like Sunbelt areas, which have been kind of beaten up, look to finally 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?

in terms of,

Absolute performance is indicating those are our topic. 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 absorbed, as well as how quickly or how much additional supply is still to be delivered in those markets.

Apologies for the more theoretical answer, but I think it just depends on the market and the individual dynamics of each market.

Well, this may be obvious for us; these markets are micro markets, you know, much smaller than MSAs. So it can even vary where new supply is being delivered relative to our specific properties.

Thanks for the caller.

Your next question comes from Brendan Lynch with Barkley's. Your line is now open.

Great. Thanks for taking my question, and Jeff, congrats on the new role. Um, thanks for the follow-up about AI. Um,

It's an 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 chat GPT, so I'm sure that will come in the future. But, uh, right right now it's it's uh, almost all our dollars. Go to Google.

Okay great. Thanks for the caller and then Jeff you had mentioned that the shoulder season um in the spring with a bit better uh in terms of occupancy. Uh should we extrapolate anything from that in terms of how the shoulder season might uh play out on in the fall on the other side of the equation? Thanks.

You know, I I think we were more aggressive with new customer rates to maintain that, higher occupancy, uh, our, our models found that to be a better solution for maximizing revenue. And so that's what what we did. Um, and I think we'll, we'll continue to monitor it as we go into the fall. Um, right now, rental volume continues to be healthy been able to maintain our occupancy in, in July.

Um, and I would anticipate that we'll still have, uh,

High occupancy relative to any historical levels.

But the question will be, uh, what the balance is in terms of.

Taking rate versus holding occupancy, which we will 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 real-time feedback as far as what the customer is willing to accept.

Great, thanks for the caller.

You bet. Thanks Brandon.

Your next question comes from Omotayo Ausa with Deutsche Bank. Your line is now open.

Uh, yes, uh, good morning. Uh, Jeff, congrats Scott, you will be missed. Uh, my question is around, you guys are. So 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, when we kind of think about when we kind of start to see, maybe some uh, better earnings growth going forward, I mean, does that have to boil down to speed with just moving up even more aggressively to you know, 10% increases is it is it more of a case of somehow you know move out. Volume kind of slows down giving 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 occur, we can really kind of start seeing it in your bottom line.

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

And with time and time of being TD,

I think timing is TBD.

Fair. I think a good example of that is the question earlier about housing. You know, is it necessary to continue marching in the right direction? Now, when do we accelerate our pace? Absolutely. So I think there's a number of examples like that where the cadence will be dictated by the conditions in the environment.

Thank you.

Hey, Matt. Thanks Sam.

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

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

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating. And as I disconnect your lines, please.

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