Executive Summary / Key Takeaways

• Public Storage is demonstrating operational stabilization across its vast self-storage portfolio, with sequential revenue growth improving in most markets and the occupancy gap to the prior year narrowing significantly in early 2025.
• The company's strategic investments in digital transformation and operational efficiency, including AI-driven staffing models, are yielding tangible benefits, enhancing customer experience, reducing costs, and strengthening its competitive moat.
• A robust acquisition and development pipeline, coupled with a strong balance sheet and increasing retained cash flow, positions Public Storage for continued external growth and market share expansion, including potential international opportunities like the proposed Abacus Storage King joint acquisition.
• While facing near-term headwinds from competitive move-in pricing dynamics and specific market restrictions like those in Los Angeles, the company's diversified portfolio, resilient existing customer base, and favorable long-term supply trends support its outlook for stabilization and future improvement.
• The 2025 guidance reflects expected Core FFO per share stabilization, underpinned by growth in the non-same-store portfolio and expense control, despite anticipated impacts from LA restrictions and ongoing competitive pressures on new rents.

Public Storage: Building on a Foundation of Scale and Innovation

Public Storage, a Maryland real estate investment trust, stands as a titan in the self-storage industry. With a history spanning over 50 years, the company has built a formidable presence, owning interests in over 3,000 facilities across 40 U.S. states and managing hundreds more for third parties. This extensive network, operating primarily under the recognizable Public Storage brand, forms the core of its business, complemented by ancillary operations like tenant reinsurance, merchandise sales, third-party management, and bridge lending. The company operates as an umbrella partnership REIT (UPREIT), conducting substantially all business through its operating partnership, Public Storage OP, L.P.

The self-storage sector is fundamentally needs-based, driven by life events that occur regardless of economic cycles. This inherent resilience, coupled with the relative affordability of self-storage compared to other space alternatives like larger homes or apartments, provides a stable demand baseline. The industry has recently undergone a period of normalization following the elevated demand peaks of the pandemic, leading to softer move-in pricing dynamics. However, a favorable trend is the multiyear deceleration in new supply deliveries nationally, expected to be around 2% in 2025 compared to 5% in 2019, which should support improving operating fundamentals over time.

In this landscape, Public Storage holds a dominant position. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, the company's scale significantly outpaces rivals like CubeSmart (CUBE) and National Storage Affiliates Trust (NSA), and it is closely matched in size by Extra Space Storage (EXR). This scale provides advantages in brand recognition, operational efficiency, and access to capital.

A key differentiator for Public Storage is its ongoing strategic investment in technology and operational innovation. The company is actively pursuing a comprehensive digital transformation. This includes platforms like eRental, which allows customers to complete lease transactions online, and the PS app, enabling digital account management and property access. These tools are seeing significant customer adoption, with 85% of interactions now occurring digitally. This digital ecosystem supports a new, more efficient operating model, leveraging data and AI to optimize staffing levels at facilities, contributing to a nearly 30% reduction in on-property labor hours. The strategic intent is to enhance customer convenience while improving operational efficiency and creating specialized career paths for employees. Beyond digital, the company is also investing in energy efficiency through its solar program, aiming to install panels on over 1,400 facilities by the end of 2025, with 946 already completed. This initiative is expected to yield tangible benefits through reduced utility costs. The "so what" for investors is that these technological advancements and operational efficiencies are not merely incremental improvements; they are foundational to strengthening Public Storage's competitive moat, driving margin expansion, and positioning the company for enhanced profitability and adaptability in a dynamic market.

Performance Reflecting Stabilization and Strategic Execution

Public Storage's recent financial performance reflects the broader industry trend of stabilization, coupled with the positive impacts of its strategic initiatives and growth activities. For the three months ended March 31, 2025, net income allocable to common shareholders decreased to $358.2 million, or $2.04 per diluted share, compared to $459.2 million, or $2.60 per diluted share, in the same period of 2024. This decline was primarily driven by a significant $106.2 million increase in foreign currency exchange losses related to Euro-denominated debt, partially offset by a $13.2 million increase in self-storage net operating income (NOI).

Breaking down the self-storage segment, Same Store Facilities (2,565 properties) saw revenues increase slightly by 0.1% to $934.5 million. This was a result of a 0.6% increase in realized annual rent per occupied square foot, offset by a 0.6 percentage point decrease in average occupancy. While occupancy was down year-over-year, management noted that higher move-in volumes (up over 2% in Q1 2025) and strong existing customer behavior helped narrow the year-over-year occupancy gap from 80 basis points at the end of 2024 to 30 basis points by March 31, 2025. Move-in rates for new customers remained competitive, down around 5% in Q1 2025 and 8% in April, but management sees demand bouncing off its bottom. Same Store cost of operations increased modestly by 0.3%, primarily due to higher property taxes, partially offset by decreased on-site property manager payroll, reflecting the benefits of operational efficiency initiatives.

The Non-Same Store Facilities (Acquired, Newly Developed/Expanded, Other) were a significant growth engine, contributing a $13.5 million increase in combined NOI. This growth is largely attributable to the impact of facilities acquired in 2023 and 2024, including the Simply Storage portfolio. Ancillary Operations also saw strong growth, with revenue increasing 12.6% to $80.2 million and NOI up 12.2% to $49.5 million. This was driven by a 10.4% increase in tenant reinsurance premiums and robust growth in third-party property management revenue (up 34.3%).

From a competitive standpoint, Public Storage's ability to achieve a slight increase in Same Store revenue and a significant increase in Non-Same Store NOI in Q1 2025, despite a competitive move-in pricing environment, highlights the strength of its operating platform and growth strategy. While competitors like Extra Space Storage and CubeSmart also operate large portfolios, Public Storage's scale, brand recognition, and increasingly efficient digital platform provide advantages in attracting and retaining customers. Comparing TTM financial ratios, Public Storage's Gross Profit Margin (73.07%) and EBITDA Margin (72.16%) remain strong, indicating solid operational efficiency, though direct comparisons of recent quarterly growth rates across all competitors require caution due to varying portfolio compositions and reporting methodologies.

Capital Strength and Growth Trajectory

Public Storage maintains a robust financial profile, characterized by strong credit ratings (A/A2 for senior notes) and significant liquidity. As of March 31, 2025, the company held $287.2 million in cash and equivalents and had $1.48 billion available under its $1.5 billion revolving credit facility. This financial strength is a critical competitive advantage, enabling the company to pursue growth opportunities across economic cycles.

The company's capital allocation strategy focuses on reinvesting retained operating cash flow and opportunistically accessing debt and equity markets. Retained operating cash flow is expected to increase significantly from $400 million in 2024 to approximately $600 million in 2025, providing substantial internal funding for growth. The company had $9.4 billion in notes payable outstanding at March 31, 2025, with a weighted average interest rate of approximately 3.10%. While approximately $1.2 billion in unsecured notes are scheduled for principal repayment in the next twelve months, the company plans to refinance this debt, leveraging its strong credit profile.

Acquisitions and development remain key drivers of future growth. Since the beginning of 2023, Public Storage has acquired 195 facilities for $3.1 billion. Acquisition activity picked up in Q1 2025, with $141 million spent on nine facilities, and an additional $43.2 million under contract subsequent to quarter-end. The company is also actively developing and expanding facilities, with a robust pipeline of approximately $650 million expected to be delivered over the next two years. As of March 31, 2025, $424.8 million remained to be spent on current development and expansion projects. Management typically underwrites new developments to stabilize at an approximately 8% NOI yield on cost, viewing these activities as generating favorable risk-adjusted returns over the long run.

A notable strategic move is the proposed joint acquisition of Abacus Storage King in Australia and New Zealand, with Public Storage's estimated share of the cost being approximately $586 million, anticipated to be funded with Australian Dollar denominated unsecured debt. This potential expansion into the APAC region, building on the company's experience with Shurgard (SHUR) in Europe, highlights its ambition for international growth leveraging its operational expertise.

Outlook and Risks

Public Storage's unchanged guidance for 2025 reflects management's expectation for continued stabilization and modest growth, despite specific headwinds. The Core FFO per share guidance range is $16.35 to $17.00. This includes an estimated $0.23 per share negative impact from temporary governmental pricing restrictions in Los Angeles and Ventura Counties following recent wildfires. Excluding this impact, the midpoint would imply a 140 basis point increase in Core FFO per share year-over-year.

The Same Store outlook at the midpoint calls for revenues to be down slightly year-over-year, incorporating the estimated 100 basis point impact from the LA restrictions. Key assumptions include move-in rents averaging down 5% year-over-year (an improvement from recent declines), occupancy averaging down 10 basis points (an improvement from the end of 2024), and steady existing customer behavior. Same Store expenses are projected to grow 3.25%, driven primarily by property taxes (expected to grow ~5%) but offset by moderate decreases in on-site payroll due to operational enhancements. This results in an expected 1.4% decline in Same Store NOI at the midpoint.

The Non-Same Store portfolio is expected to contribute $454 million in NOI at the 2025 midpoint, with an additional $80 million in NOI upside beyond 2025 through stabilization. Higher acquisition volumes are anticipated, although unidentified acquisitions are not included in the current guidance range.

While the outlook signals stabilization and growth in key areas, risks remain. Macroeconomic conditions, including interest rates and inflation, could impact demand and operating costs. Changes in laws and regulations, particularly regarding property taxes, evictions, and rental rates (as seen in LA), pose risks. Development activities face challenges in entitlements and rising costs. International expansion carries foreign currency exchange risk, as demonstrated by the recent quarter's results, and execution risk. The competitive environment for new move-ins could remain intense, potentially impacting pricing power more than currently assumed. However, Public Storage's strong balance sheet, diversified portfolio, and operational efficiencies provide buffers against these potential headwinds.

Conclusion

Public Storage is navigating a dynamic market by leveraging its foundational strengths: unparalleled scale, a high-quality portfolio, and a leading operating platform enhanced by significant investments in digital technology and operational efficiency. The first quarter of 2025 demonstrated tangible progress towards stabilization, with improving sequential revenue trends and narrowing occupancy gaps, driven by strong existing customer performance and increased move-in volumes. While competitive pressures on new move-in rates and specific market restrictions present near-term challenges, the company's robust acquisition and development pipeline, supported by a strong balance sheet and increasing retained cash flow, positions it for continued external growth and market share gains. The 2025 outlook, while factoring in headwinds, reflects a business poised for stabilization and future improvement. Public Storage's strategic focus on enhancing its competitive moats through technology and efficient operations, coupled with its capacity for accretive growth, underpins the investment thesis for long-term value creation in the self-storage sector.