Extra Space Storage Inc. (EXR) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the Extra Space Storage Inc. Q2 2026 Earnings Conference Call. [Operator Instructions]. I will now hand the conference over to Jared Conley, VP of Investor Relations. Jared, please go ahead.

Thank you, Connor. Welcome to Extra Space Storage's second quarter 2026 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 business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filing with the SEC, which we encourage our listeners to review. Forward-looking statements represent management's estimates as of today, July 29, 2026. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call. I would like to now turn the call over to Joe Margolis, Chief Executive Officer.

Thank you, Jared, and thank you, everyone, for joining today's call. In addition to our CFO, Jeff Norman, I am joined today by our President, Noah Springer. I am pleased to report a strong second quarter for Extra Space Storage. We delivered core FFO per share of $2.15, representing a 4.9% year-over-year growth, a result that reflects both the quality of our platform and the improving operating environment. Our same-store revenue grew by 2.4% in the second quarter exceeding our internal projections and accelerating from the first quarter. Occupancy ended the quarter at 94.2% as our systems effectively balanced rate and occupancy to optimize revenue across the portfolio. The pricing power we have been building over the past several quarters is now clearly flowing through our results. And with same-store expenses declining modestly year-over-year, same-store NOI also accelerated, demonstrating the leverage in our operating model. We are seeing broad-based improvement across many of our markets, supported by steady customer demand, strong retention of existing customers and gradually moderating new supply. While new customers still exhibit some price sensitivity, we continue to capture a disproportionate share of the market, due to our best-in-class digital marketing, pricing and operating systems. The rate gains we established throughout 2025 and into 2026 are now embedded in our revenue base, and we're encouraged by the momentum heading into the second half of the year. Our company built around operational depth, cutting-edge technology, financial flexibility and diversified growth channels is well positioned to continue to outperform the industry. With that, I'll turn it over to our President, Noah Springer to discuss our external growth initiatives.

Thank you, Joe. Our external growth platform continued to perform well across multiple channels in the second quarter. In the acquisition market, we are both disciplined and active. We closed 18 stores for $91 million, almost all of which were off-market transactions. Our scale, reputation and long-standing relationships give us broad access to deal flow, and we're seeing many opportunities. That said, asset pricing remains elevated, and we're maintaining our underwriting standards and staying disciplined with a focus on long-term accretion rather than chasing volume. We have significant growth capital to be opportunistic and we will continue to use our balance sheet and joint venture structures as part of our external growth strategy. We take pride in being strong capital allocators, and we will remain focused on opportunities that enhance portfolio quality and generate accretive returns for our shareholders. Our bridge loan program had another strong quarter. We originated $141 million in new loans and ended the quarter with approximately $1.5 billion in outstanding balances. The bridge loan program creates value on multiple levels. This program generates attractive interest income in addition to earning management fees and tenant insurance. Finally, the program creates a natural pipeline for future acquisitions as we continue to consolidate our fragmented industry. Third-party management also delivers similar benefits. We added 67 stores during the quarter with net growth of 48 stores, bringing our year-to-date net growth to 108 stores and our total managed portfolio to 1,964 stores at quarter end. The steady demand for our management reflects what owners experience firsthand. Our platform consistently drives superior property performance through operational expertise, sophisticated revenue management and technology infrastructure that scales across more than 4,400 stores. Now I'll turn it over to our CFO, Jeff Norman.

Thank you, Joe and Noah. Our FFO growth of 4.9% exceeded our internal forecast and was driven primarily by store-level performance. Year-over-year same-store revenue growth accelerated 70 basis points from the first quarter to 2.4%. Same-store NOI accelerated 230 basis points increased 3.5% year-over-year. Same-store expenses decreased modestly year-over-year with all major categories at or better than our internal expectations. Our discipline translated directly into accelerated NOI growth. Our ancillary businesses also contributed to our FFO out-performance. Net tenant insurance income exceeded our forecast due to stronger penetration and lower claims volume. Interest income was also ahead of estimates due to modestly higher interest rates and higher than modeled loan retention. Our low leverage balance sheet remains strong with significant access to capital. At the end of June, we priced a $550 million bond offering at 4.9%, which settled the first week of July. Proceeds from the offering were used to pay off our first bond maturity on July 1. Today, we have roughly $2 billion available on our revolving lines of credit, net of amounts held available as a backstop for our commercial paper program, which gives us significant flexibility to move quickly on investment opportunities. Shifting to guidance. Last night, we raised our full year 2026 FFO outlook. Our core FFO is now expected in the range of $8.25 to $8.40 per share. We raised same-store revenue growth guidance 100 basis points to a range of 1% to 2%. We also raised our same-store NOI guidance 200 basis points to a range of positive 0.5% to 2.5%. We refined our Los Angeles price restriction assumption, and our updated guidance reflects approximately 20 basis points to 30 basis points of headwind for the full year compared to our initial estimate of 40 basis points. In summary, we are having a solid summer leasing season. Same-store NOI and core FFO are both ahead of expectations, our balance sheet is strong and prepared for additional future growth, and we continue to benefit from having the strongest team, portfolio and platform in the industry, which all have contributed to our results. With that, operator, please open the line for questions.

[Operator Instructions] Your first question is from the line of Michael Goldsmith with UBS.

The same-store revenue growth in the first half of 2% is equal to the high-end of your updated 2026 guidance and implying a deceleration in the back half. So one, what would drive a deceleration in the back half? And then two, did you change any of your assumptions for the back half outside of updating for L.A.?

Yes. Thanks, Mike. You're spot on that depending on where you are in the range, the high end it implies that same-store revenue growth is similar to that of what we experienced in the first half of the year and that at the low-end of the range, it implies some deceleration, and a couple of factors play into that. The first is, as we move deeper into the year, we do experience more difficult comps, so we're mindful of that. And second, while we haven't seen any change in customer health, be it existing customers or new customers, they are all performing consistently as they have been throughout the year. We're not unaware of the headlines and some of the macro risks related to the customer out there. We read a lot about consumer confidence being low, about there being pressure from inflation and other macro forces. And we feel like those risks are appropriate to factor into the range. All of that said, we factored those into our original range and didn't feel those specifically in the first 2 quarters. And so far, I've really not felt them in July. July was quite similar to June. So to the extent that those don't materialize, it presents an opportunity with the guidance, but we think the prudence is reasonable given those macro factors.

Got it. And then since you brought it up, can you give us an update on what you're seeing so far in July? And it sounds like it's been pretty similar to June, but I would love to get your thoughts on the metrics.

Sure, Michael. This is Joe. July was a good month for us. Just as a comparison, in June, we were slightly ahead in rate year-over-year but had -- we're slightly behind in occupancy. And in July, the system flipped that. We're now slightly ahead in occupancy and slightly behind in rate. And this is a great example, I think, of our systems using different levers to optimize performance over the long term. And the net result of that is, so far, through however many days, we are slightly ahead of our budget in July. So we're having a good month.

The next question is from Michael Griffin with Evercore.

John, I know you touched on this a little bit in your prepared remarks, but I'm just curious if you can expand on the customer demand side of the equation. Has top of funnel improved at all? Has the pie expanded? Or are you still just sort of impeding against the same customer base? And as you look at this inflection and acceleration of same-store fundamentals, is it mostly driven by a moderating supply picture? Or is there anything from sort of organic customer demand that you're seeing that gets you incrementally more positive?

Yes. Our view is that customer demand is steady. We haven't seen any pickup in the housing market. We don't see any indications through our various channels that there's more customers out there. But our systems are able to not only capture more than our share of customers. We've had the highest occupancy at the highest rates in the industry for many, many, many quarters and years now. But we're also capturing better quality customers through some of our channel pricing and other strategies. So I think the short answer is demand is steady, performance is improving because of the continued reduction in supply and our systems are optimizing what's available in the market.

That's certainly some helpful context. Maybe one next for Noah on the transaction market. Can you just give us a sense of whether it was the deals you closed this quarter, sort of how we should think about those on either a cap rate or an un-levered IRR basis? And then talk a little bit about the competition that you're seeing, the interest from private capital just as it relates to kind of institutional self-storage quality product?

Sure, Griffin. Thanks for the question. What we're seeing is the market out there continues to be a little expensive and where cap rates are coming in on the broker deals tends to push us towards our proprietary pipelines that we have. So we continue to close deals that are relationship deals, that are managed deals and that are joint ventures and bridge loans. We tend to go to those because as those deals come up and they're ready for us to harvest, they end up being great deals for us and for our partners, kind of the whole idea of all of those pipelines that we have. Quite a few of the stores. In fact, the majority of the stores that we closed this quarter were from a relationship deal that we had, and we're happy with that and happy that with the accretion that we got from those stores, and we'll continue to look towards that as the market tends to be a little more expensive than we want to do on the brokerage side.

The next question is from Todd Thomas with KeyBanc Capital Markets.

I wanted to ask, so Joe, you talked about the July trends and mentioned that the comps get a bit more difficult in the second half. Do you see potential for move-in rents to move ahead year-over-year again in the back half of the year? And you sort of mentioned the combination of slightly higher occupancy and the slightly lower move-in rents in July, the combination of that, you're still tracking ahead of plan. But is that an environment longer term in which revenue growth can continue to improve generally from these levels?

Sure. There's a lot of factors that can lead to revenue growth. I mean, as you pointed out, rate and occupancy are two of the most important ones. But there's others such as ECRI, unit mix optimization, other tools we have to have positive revenue growth.

Okay. And then I wanted to also ask about the New York City settlement. I was just curious if there are any implications or any additional considerations from that suit? Or is that in the rearview mirror at this point? And then can you also comment separately on the licensing and registration requirements for operators in New York City. Curious to get your view around the impact that has on the industry, whether you think it could ultimately sort of strengthen the competitive positioning for some larger, well-capitalized players or whether that's sort of a net negative potentially? Just curious to get your thoughts on that.

Sure. So just to set the table what we're talking about, we -- there was a claim made against us by New York City based on 117 complaints they got over 3 years. We had 130,000 customers over those 3 years, and we continue to vigorously dispute those claims. We do not agree with them at all. But that being said, we were forced with the choice of entering a lengthy litigation process in New York City or settling this case for $1.7 million and putting it behind us, and we felt the best thing for our shareholders was to take out the uncertainty and put this behind us. So we have settled the case, there's no repercussions or reverberations that we see or have felt elsewhere in the country or in New York, this is -- this matter is now behind us. With respect to the second part of your question, all self-storage operators in New York City will be required to have a license on, I think August 24 of this year. We are prepared to file the papers, pay the very modest fee and get licensed. And in connection with that license, there will be a series of requirements of how you have to operate. We're still -- we the industry are still waiting to see the final list of requirements that will come with that. And I guess all I could say is, one, they'll apply to everyone. So it'll be an even playing field. And two, we will comply with the law.

The next question is from Brendan Lynch with Barclays.

Jeff, just wanted to follow up on your commentary about macro risk and consumer confidence. It sounds like you're being a little bit conservative in guidance because of the potential for those risks to emerge. So the question is, in the past, when we have had situations where the macro environment did deteriorate or consumer confidence starts to wane, how quickly did you see that in actual customer behavior? And how quickly did it impact the same-store NOI results?

Good question, Brendan. And I hate to give you a mushy answer, but it depends. As we've looked at different types of economic stress and different types of cycles, they haven't all performed the same. But in general, we've seen demand hold pretty steady and in some cases, even accelerate through some of those types of environments because life transitions give rise to storage and sometimes economic strain can cause more life transition. So from a demand standpoint, it's generally been steady to even accelerated. On the other hand, you may also deal with vacates. And we have not seen elevated vacate activity in our stores. In fact, our length of stay continues to elongate as we think of our in-place customers on a year-over-year basis it's about 1.5 months longer than it was last year. So we haven't seen it yet, but as you see all these headlines out there as you look at what the consumer is facing, we certainly think it's a reasonable risk to be mindful of. But to your point, we have not felt that in our customer behavior year-to-date, and so if that continues to be the case, then that assumption would potentially prove conservative.

Great. That's helpful. And maybe just to follow up on that. In terms of length of stay, that's certainly an improvement. I think we've seen some other improvements in customer quality in terms of churn and lower bad debt, higher occupancy in the off-season. How much further do you think you can go in terms of improving the average customer's behavior in the portfolio and to kind of just maintaining that customer relationship for a longer time to benefit from their stay in your facilities?

Yes. That's a very good question, but also a hard one to answer. I don't know if we have like a goal for length of stay or any of these other metrics. But our scale and the amount of data we have, allows us to continually test ways to optimize performance. How do we get a better customer? How do we keep them longer? What -- just all kinds of different metrics. So I can say with confidence, we continually try to improve across all of these metrics, we have been improving. We have a good track record, but I don't know how far we have to go.

Your next question is from Ronald Kamdem from Morgan Stanley.

Just two quick ones. Just staying on the expense side. really looks like outside of property taxes, most of the line items was down, driving that sort of negative growth. Just thinking sort of long term about what more opportunities do you have on the expense savings side? And is there a scenario where expense growth could be lower than inflation?

Yes. Thanks for the question, Ron. We're really pleased with what we've seen on the expense side this year, and how we've been able to continue to leverage our scale to become more efficient. And I know you mentioned long term, I'll start with the year. As you look at the run rates we've had year-to-date in the first half and what we're guiding to for the full year, it implies that we stay in those sub-inflationary ranges, which we view as a real positive, especially in the face of some of the less controllable line items like property taxes, as you mentioned. Long term, while we won't guide or forecast into future years, I think that advantage, that scale advantage, the efficiencies that it drive will continue to be an operational advantage for fresher space. So I anticipate that we can continue to leverage those opportunities. One specific one maybe that I'll call out is on the insurance expense line item, we have a midyear renewal, which we've completed that was very favorable. It was only applicable for the month of June within the second quarter, and you can see the positive impact at that negative year-over-year change in our premiums [ add ] and that will continue to flow through through the rest of this year and into '27. So several reasons to be optimistic on the expense side looking forward.

Great. And then my second question was just on the -- back to the external growth. Obviously, the acquisition guidance went up. I guess I'd just love to hear what you're seeing in the market in terms of cap rates in terms of expected IRRs and so forth? And I think historically, you've talked about just pricing really not making a lot of sense for you guys to be really sort of aggressive and so forth. Just curious if that's still the thought and how you guys go about it?

Yes. We're looking at our underwriting discipline and continue to stay very disciplined in that, while asset pricing remains elevated. When we say that, I would say in anywhere from A to C markets, you're probably somewhere from the high 4s to the high 5s, if you want to look between those markets. So where we look at that, we're going to continue to harvest deals from our proprietary pipelines where it makes sense for us and where we continue to have deals that are accretive to us over our cost of capital.

The next question is from Samir Khanal from Bank of America.

Jeff, sorry if I missed this, but on the move-in rates, I know you excluded L.A., but just curious where would that have been, if L.A. was included? And just to confirm, would that have much of a benefit for you in 2Q?

Thanks for the question, Samir. We recognize that that number is one that is viewed not only to model our actual performance, but as a proxy for overall new customer health for our portfolio and across the industry, to include L.A County, which is artificially regulated, it doesn't make a lot of sense from our perspective, because you're going to be comparing apples and oranges a little bit, especially as you think back to your comp period last year when those restrictions were in place. So I won't provide a full portfolio number, but I can tell you that internally, we think of it the same way. We are not using that data. We're focused on it [ stands ] Los Angeles County because that's really the best proxy for what we're seeing across the portfolio.

Okay. And then, I guess, Joe, certainly positive comments around the supply side of things. Maybe elaborate kind of which markets are seeing less supply given that demand is steady here?

I think you're seeing lower supply in almost all markets. Now that doesn't mean that when -- there's still storage being delivered. And in that micro market, right, when we talk about self-storage markets, we're talking about very, very small areas, that's bad for that market and negative. But when we talk about MSAs and large markets, I think you're seeing a decline in deliveries in almost all MSAs.

The next question is from Jack Armstrong with Wells Fargo.

Can you characterize your ability to push ECRIs in the back half, [indiscernible] following a couple of quarters of lower churn and extended length of stay?

You're a little garbled in the question. It might be a systems problem. Do you mind repeating the question?

Yes. Sorry. And hopefully, this is a little clear. Can you characterize your ability to push ECRIs in the back half?

So I think the question is about ECRI, pushing ECRIs in the back half of the year. So we take a longer view on ECRIs and don't try to maximize in any 1 quarter or 2 quarters because customers are extraordinarily sticky. And when we test different ECRI levels, it's really hard to -- we don't see increased move-outs even with increase in ECRI. But that being fair, we need to have a long-term fair, sustainable program and that's what we see instead of maximizing ECRI.

Okay. That's helpful. And how should we be thinking about the growth in the bridge loan business going forward? Is $1.5 billion where you're comfortable keeping that book? Or do you plan to grow further from here?

Yes, the $1.5 billion, I think, is a good number for us. I think we'll continue to see it there. If we want to flex up or down, we can always sell the As -- as or hold the As a little bit longer. But where we are currently, I think that's a good spot for us.

Next question is from the line of Eric Wolfe with Citi.

This is Nick Jospeh here with Eric. In the release, Joe, in your quote, you mentioned that you're never satisfied. I was wondering if there's any meaning or anything you're trying to convey with that quote kind of on the go forward in terms of any changes either technology or M&A or kind of broader thoughts on the business to keep driving the results?