Executive Summary / Key Takeaways

• Public Storage ($PSA) is demonstrating operational stabilization and accelerating growth, driven by its comprehensive digital transformation and strategic capital deployment. The company recently raised its 2025 Core FFO guidance, reflecting an improved outlook for its self-storage and ancillary operations.
• Technological advancements, including AI-driven staffing and digital leasing platforms, are enhancing efficiency, reducing costs, and improving customer satisfaction, creating a significant competitive moat.
• Strategic portfolio expansion through disciplined acquisitions and a robust development pipeline, coupled with a strong balance sheet and advantageous capital access, positions PSA for sustained long-term growth.
• Despite near-term headwinds from localized pricing restrictions in Los Angeles and competitive market dynamics, PSA's diversified portfolio and resilient business model are expected to drive continued sequential improvement.
• The company's focus on reinvesting retained cash flow into high-return development and acquisition opportunities, alongside potential international expansion, underscores a commitment to compounding shareholder value.

The Foundation of Self-Storage Leadership: Scale, Innovation, and Strategic Evolution

Public Storage, a venerable real estate investment trust with over five decades of history, stands as a titan in the self-storage industry. Operating as an umbrella partnership REIT (UPREIT), the company's vast network encompasses interests in 3,103 self-storage facilities across 40 U.S. states, totaling approximately 224.1 million net rentable square feet as of June 30, 2025. This expansive footprint, coupled with its management of an additional 329 facilities for third parties, solidifies its position as an industry leader. The company's enduring strategy is rooted in long-term ownership and development, fostering operational stability and a resilient customer base.

Public Storage's competitive edge is significantly amplified by its pioneering technological differentiation and operational innovation. The company has invested heavily in a multi-year "Property of Tomorrow" program, a rebranding initiative exceeding $600 million, to holistically modernize its portfolio and enhance brand positioning. This physical transformation is complemented by a profound digital overhaul. Public Storage is advancing the industry's most comprehensive digital transformation, with customers now choosing digital options for an impressive 85% of interactions, a substantial increase from approximately 30% previously. Furthermore, 75% of move-ins are now completed using eRental, the company's digital online lease platform, and the PS app boasts nearly 2 million users.

These digital tools are not merely conveniences; they are foundational to a new, more efficient operating model. The company leverages artificial intelligence (AI) for dynamic staffing optimization, which has resulted in a nearly 30% reduction in on-property labor hours. This strategic deployment of technology creates a "win-win-win" scenario, enhancing customer satisfaction through seamless digital experiences, empowering employees with specialized roles and career paths, and bolstering profitability through improved efficiency and lower operating costs. Beyond digital, Public Storage is a leader in energy efficiency, having installed solar power at 1,024 properties by June 30, 2025, with a goal to reach 1,400 facilities by the end of 2025. This initiative has already yielded a 30% reduction in utility usage, directly translating to lower property operating costs and a more sustainable financial profile. These technological and operational advantages contribute directly to Public Storage's competitive moat, driving superior revenue generation per square foot and higher operating margins compared to many peers.

Within the competitive landscape, Public Storage holds a leading position, often achieving the highest revenues per square foot in its markets. Direct competitors like Extra Space Storage (EXR), CubeSmart (CUBE), and National Storage Affiliates (NSA) vie for market share. Public Storage's extensive scale and diversified geographic footprint, including its 35% common equity interest in Shurgard Self Storage Limited in Europe, provide a robust market presence and greater resilience against U.S.-specific market fluctuations compared to EXR. While EXR is known for aggressive acquisition strategies, Public Storage's established brand and network effects often foster superior customer loyalty and recurring revenue streams. Compared to CubeSmart, which emphasizes user-friendly technology, Public Storage's comprehensive digital transformation and AI-driven efficiencies are closing any perceived gap, while its larger portfolio and direct ownership model offer qualitatively stronger operational control and asset durability. Against National Storage Affiliates, Public Storage's direct ownership model contrasts with NSA's partnership-focused growth, giving PSA potentially superior control over its assets and diversified income streams. The company's cost leadership, achieved through economies of scale, allows it to maintain better profitability and cash flow, differentiating it from rivals.

The broader industry is experiencing a period of normalization following the record growth of 2021-2022. Move-in rents have significantly declined since 2022, making self-storage an increasingly affordable option, with new customer rents aligning with 2013 levels by early 2025. This needs-based business, driven by various customer events, demonstrates resilience across economic conditions. Industry-wide demand bottomed in 2024 and is showing signs of recovery, with positive year-over-year search trends. Crucially, new competitive supply deliveries are declining, with national delivery growth expected to be around 2% in 2025, a significant reduction from 5% in 2019. This favorable supply environment, coupled with stabilizing demand, sets the stage for a return to stronger growth for the sector.

Performance, Strategic Growth, and Outlook

Public Storage's financial performance in the first half of 2025 reflects the success of its strategic initiatives and the stabilizing market. For the six months ended June 30, 2025, net income allocable to common shareholders was $667.2 million, or $3.79 per diluted common share. While this represented a decrease from the prior year, it was primarily due to a substantial $214.8 million increase in foreign currency exchange losses associated with Euro-denominated notes payable. Excluding these non-operational impacts, Core FFO per diluted common share grew by 1.6% for the six months ended June 30, 2025, reaching $8.39, demonstrating an acceleration in underlying operational performance.

The Self-Storage Operations segment, the company's core business, reported revenues of $2.22 billion for the first half of 2025, a 1.6% increase year-over-year, contributing $1.63 billion in Net Operating Income (NOI). The Same Store Facilities, comprising 2,565 properties, saw revenues increase by a modest 0.1% for the six months ended June 30, 2025, driven by a 0.6% increase in realized annual rent per occupied square foot, which more than offset a 0.4% decline in average occupancy. This indicates a balanced revenue management strategy. Cost of operations for Same Store Facilities increased by 1.5%, primarily due to higher property taxes, though partially mitigated by decreased on-site property manager payroll, a direct benefit of the AI-driven staffing optimization.

The Non-Same Store Facilities, encompassing acquired, newly developed, and other unstabilized properties, were a significant growth engine. This pool, now totaling 538 properties, is expected to generate approximately $470 million of high-growth NOI in 2025. For the first half of 2025, Acquired Facilities' NOI surged by 19.7% to $73.4 million, while Newly Developed and Expanded Facilities' NOI grew by 16.7% to $58.8 million. This strong performance underscores the success of Public Storage's aggressive portfolio expansion. Since the beginning of 2023, the company has acquired 211 facilities, totaling 15.6 million net rentable square feet, for $3.2 billion. Development activities have also been robust, with $1.5 billion in new and expanded facilities completed by June 30, 2025.

Ancillary Operations also contributed positively, with revenues growing 12.4% to $162.6 million and NOI increasing 9.6% to $98.6 million for the first half of 2025. This was primarily driven by strong growth in tenant reinsurance premiums, benefiting from an expanded tenant base and higher coverage rates, and a substantial 36.0% increase in third-party property management revenues. The company's bridge lending program also added $1.2 million in interest income.

Public Storage's liquidity and capital resources remain exceptionally strong, supporting its growth ambitions. The company boasts high credit ratings (A/A2 for senior notes, A3/BBB for preferred shares), enabling advantageous access to capital markets. As of June 30, 2025, it held $1.10 billion in cash and equivalents and had $1.48 billion available on its $1.50 billion revolving credit facility. The company's retained operating cash flow is projected to increase by 50% to approximately $600 million in 2025, providing substantial internal liquidity for reinvestment. This capital is strategically deployed into a robust development pipeline, with $390.9 million remaining to be spent over the next 18-24 months, and new developments typically underwritten to an 8% plus or minus yield on cost. The company also plans to fund its estimated $710 million share of the proposed Abacus Storage King acquisition in Australia and New Zealand with Australian Dollar-denominated unsecured debt, leveraging its successful Shurgard experience in Europe. The recent One Big Beautiful Bill Act, which reinstated 100% bonus depreciation, further enhances the company's ability to retain cash flow for reinvestment.

For 2025, Public Storage has raised the low end of its Core FFO guidance range to $16.35 to $16.45 per share, reflecting the improved outlook. This guidance anticipates continued stabilization, with move-in rents narrowing to a mid-single-digit decline on average and occupancy improving to be down only 10 basis points on average. The outlook factors in an estimated 100 basis point drag on same-store revenue growth due to fire-related pricing restrictions in Los Angeles, primarily impacting the second half of the year. Property tax expense is expected to grow by approximately 5%, but this will be partially offset by moderate decreases in on-site property manager payroll due to ongoing operational enhancements. The company expects industry-wide demand from new customers to improve in 2025, and new supply as a percentage of existing stock is projected to decline to around 2.5%.

Risks and Conclusion

While Public Storage is well-positioned for growth, investors should be mindful of certain risks. The temporary governmental pricing limitations in Los Angeles County, in place until early 2026, will continue to impact revenue growth in a key market. Foreign currency fluctuations, particularly with Euro-denominated debt, can introduce volatility to net income. Deterioration in capital market conditions could affect the cost and availability of financing for future growth initiatives. Furthermore, development projects are subject to entitlement approvals and other construction-related contingencies, which can impact timelines and costs. Certain markets, such as Atlanta, Dallas, Phoenix, and Charlotte, are still navigating oversupply issues, which could temper local performance. The company also monitors macroeconomic shifts, which could influence consumer behavior and demand for self-storage.

Public Storage's investment thesis is compelling, grounded in its foundational market leadership, strategic operational transformation, and disciplined capital allocation. The company's commitment to digital innovation and AI-driven efficiencies is not merely a cost-saving measure but a core competitive differentiator that enhances customer experience and bolsters profitability. By leveraging its scale, strong balance sheet, and expertise in both domestic and international markets, Public Storage is poised to capitalize on stabilizing industry fundamentals and a more active transaction environment. Despite localized headwinds and broader economic uncertainties, the company's focus on compounding returns through high-yield acquisitions and developments, coupled with its resilient, needs-based business model, positions it for sustained long-term value creation for discerning investors.