Public Storage ($PSA)

Greetings, and welcome to the Public Storage and National Storage Affiliates Merger Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Brandon Reagan, Director of Investor Relations. Thank you. You may begin.

Thank you, Melissa. Good morning, and thanks for joining us for this joint conference call to discuss the combination of Public Storage and National Storage Affiliates, which was announced earlier today. Joining me from Public Storage are Joe Russell, Tom Boyle and Joe Fisher. And from National Storage Affiliates, welcome Dave Cramer on the call. As always, we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, March 16, 2026, and we assume no obligation to update, revise or supplement statements that become untrue because of subsequent events. You can find our press release, presentation, SEC reports and an audio replay of this conference call at our Investor Relations website, investors.publicstorage.com. A final note, we will be making presentation slide references during this call. Should you want to follow along, please take a brief moment to locate the feature presentation on our Investor Relations website. With that, I'll turn the call over to Joe Russell.

Good morning. Thank you, Brandon, and thank you all for joining us. Today, I am thrilled to announce the acquisition of National Storage Affiliates. I want to personally thank Dave Cramer, who is with us on today's call as well as NSA's Chair, Tammy Fisher; and Vice Chair, Arlen Nordhagen. We value the partnership approach each of you have taken through this extensive process, and we are excited to welcome NSA's team, customers and legacy partners to the Public Storage family. Clearly, this is an outstanding opportunity for NSA and PSA to combine forces, creating an historic juggernaut in the self-storage industry. Together, we will lead the industry with the best market scale, deepest data and digital platform, largest customer base and unparalleled financial strength, all led by a highly motivated team that takes pride in optimizing the Public Storage brand. And there's more to come on the heels of our recent announcements tied to PS 4.0, led by Tom Boyle and the senior leadership team at Public Storage. The combination of our portfolios and the entrepreneurial spirit that is deeply ingrained in our respective cultures could not be a better launch for the strategic vision of PS 4.0. Now I'm going to turn the call over to Tom (sic) [ Dave ].

Thanks, Joe. It's actually Dave. Good morning, everyone.

Pardon me, Dave.

No worries, Joe. Different names on the call today. So it's all good. So we're very happy to enter into this agreement with Public Storage. This transaction is an exciting step forward for NSA and delivers a meaningful premium to NSA investors. This transaction also enables our shareholders and our OP unitholders to participate in the significant value creation of this combination. For the past several years, NSA successfully executed a strategic transformation that fully integrated our operating platform, streamlined our portfolio and strengthened our marketing, pricing and technology capabilities. I would like to thank the NSA team for their hard work and significant accomplishments that put us in a position to enter this win-win transaction with Public Storage. We are confident that this transaction maximizes value for our investors and our Board of Trustees unanimously approved the definitive merger agreement with Public Storage following a thorough process. Our Board's goal throughout this process was to secure the best outcome for all of our constituents, and I'm confident, as is our Board, that we will achieve that goal with the strategic combination. We're excited about merging our complementary portfolio together, resulting in a stronger operating platform with enhanced scale and deeper reach across key markets, benefiting our customers and other stakeholders alike. I would add throughout this process, the Public Storage team has been an excellent partner to work with. We look forward to ensuring a smooth transition and continued growth and value for both sets of shareholders. I'll now turn the call over to Tom.

Thanks, Dave, and thanks, Joe. Today, we're going to walk through a significant transaction in the history of the self-storage industry, the strategic combination that expands our scale, deepens our market presence, accelerates our financial performance, benefits our combined customers and positions Public Storage to lead this industry for the future. Let's start with the facts on Page 2 of the presentation. Public Storage is acquiring National Storage Affiliates, the #5 self-storage operator in the country in a 100% stock acquisition valued at approximately $10.5 billion, including debt. Under the terms of the agreement, NSA shareholders will receive 0.14 PSA shares for every NSA share held. Post close, pro forma ownership will stand at approximately 92% PSA and 8% NSA. To finance the transaction and refinance the existing capital stack, we intend to put new financing in place at or around closing, consisting of approximately $1.8 billion of unsecured debt and $2.2 billion in secured debt, a structure that benefits from Public Storage's premier balance sheet. We expect to close in the third quarter of 2026, subject to NSA shareholder approval and customary closing conditions. This is a transaction built on strength, strategy and shared opportunity. If you move to Page 3. Why NSA? Why now? Let me walk you through the strategic rationale because every component of this deal is compelling on its own. Together, they make this a tremendous opportunity. First, category-leading scale and brand. We are creating the leading owned and operated self-storage platform in the world with increased depth in both the physical and digital world. When you combine Public Storage's brand strength, customer reach and operational infrastructure with NSA's footprint, you get something special. Scale matters in this business, and we're now operating at a level that sets a new standard. Second, complementary markets and assets. NSA doesn't just add size, it adds the right kind of size. Their portfolio is complementary to ours, expanding into high-growth Sunbelt markets and new geographies where we see long-term demand. Over the last several years, our team has toured almost all of these assets, and we're excited about the opportunity to bring them into our portfolio. Combined, we'll operate nearly 4,600 stores across 42 states. That's a 30% increase in total properties. Third, a creative joint venture structure. At closing, a new joint venture will be formed with 313 wholly owned NSA properties. This is a win-win structure. It creates a high cash flow yield for OP unitholders while concentrating the go-forward company exposure into NSA's growth markets. This JV allows PSA to wholly own 488 assets on balance sheet focused on our key Sunbelt and core markets. Fourth, synergy and margin upside. We've identified $110 million to $130 million in actionable synergies, identified and executable, driven by revenue management, brand, margin expansion, tenant insurance and overhead efficiency. Fifth, exceptional balance sheet. The combined enterprise will carry $77 billion in enterprise value, and we expect minimal leverage impact from this transaction. We're entering this combination from a position of financial strength, and we intend to maintain it. Sixth, accelerated growth and profitability. FFO accretion is expected to be neutral in 2026, ramping meaningfully in '27 and reaching $0.35 to $0.50 per share at run rate stabilization. On our multiple, that accretion equates to approximately $1.5 billion of value creation for our shareholders. Every one of these components reinforces the others. If you move to Page 4, let's put some numbers on the combined enterprise, so you can visualize just how significant this is. Public Storage today, $67 billion of enterprise value, 3,500 stores, nearly 260 million square feet. NSA brings $10.5 billion of enterprise value over 1,000 stores, 70 million square feet across 37 states in Puerto Rico. Together, $77 billion in enterprise value, 4,600 stores, 328 million square feet. Let's talk about the same-store picture specifically. Public Storage's same-store average occupancy stands at 92%. NSA's same-store occupancy is at 84%, representing significant upside potential when run through our operating platform and the margin uplift opportunity is similarly compelling. That's the upside story, and it's a big one that Joe will share more details on shortly. Moving to Page 5. The operating portfolio combination is compelling. On the left, you can see the 2 portfolios deepening our scale and operating presence across the national opportunity. But importantly, on a wholly owned basis, this will continue to deepen Public Storage's presence in high-growth Sunbelt markets. Those markets had tremendous performance during the high demand '21 and '22 period, but have spent the last several years readjusting and absorbing supply built to meet this increased demand. This combination is at a time when those markets are finding their footing. As we've discussed, the new supply picture is improving and the sequential momentum in these markets is building. The combined company will further benefit as it takes hold. On Page 6, you can see how NSA's operating portfolio will be segmented into a 100% wholly owned growth portfolio, a 20% owned high cash flow asset joint venture formed at closing and the existing 25% owned joint ventures in place. On the left, you can see the 100% owned portfolio concentrated in the core growth markets I just spoke to. This deepens our presence and grows our brand. We'll consider targeted dispositions from this pool over time as we shape the Public Storage portfolio of the future. In the middle is the win-win 80/20 venture structure formed at closing. It provides participating OP unitholders exposure to a high cash flow private venture while adding to Public Storage's operating scale and management platform. And the existing 75-25 ventures on the right will benefit from the operating capability of the combined company going forward. Now shifting gears on Page 7. I want to spend a moment on something that is core to why this deal works and why we have such high confidence in our ability to execute, PS 4.0. It's the reason Public Storage is not just the largest self-storage company, but the most effective. Let me give you the benchmarks, and these are measured against every major public self-storage operator. Revenue, Public Storage is #1 in revenue achieved in our markets, driven by our brand, customer experience and revenue management. Expenses, our efficiency is enhanced by our operating model transformation, enabled by our strong omnichannel digital experience. In an environment where operating costs matter more than ever, this is a meaningful competitive advantage leading to industry-leading margins in every single top market. Corporate efficiency, that leading operating efficiency is supplemented leading to industry best shareholder performance in recent years. Now here's why this matters for the NSA combination. When we bring NSA's 1,063 stores into the PS Next operating model, we're not hoping for improvement, we're applying proven, repeatable industry-leading playbooks to a new set of assets. The leadership team is in place, the incentive structures are aligned, the technology, the systems, the processes, they're ready. The Public Storage PS Next operating platform is the engine of value creation in this transaction. The synergy estimates are grounded in what we've already proven we can do and as self-storage market fundamentals continue to improve, and we believe they will, our operating efficiency will be the differentiator that drives our performance. So that's the strategic and financial foundation of this combination, the scale, the rationale and the operating platform that gives us full confidence in execution. Now I'd like to hand it over to Joe.

Thank you, Tom. On Page 8, we have presented a summary of the total synergies, the key underlying drivers and importantly, key areas that have not been factored into our synergy and growth estimates. In total, you can see approximately $110 million to $130 million of synergies at Public Storage's share. These are driven by the key categories of operations, tenant insurance and G&A. For NOI, we have identified $70 million to $80 million of initiatives and synergies, equating to 25-plus percent improvement in run rate NOI through a combination of occupancy upside, pricing and operating efficiency. As Tom mentioned, we have demonstrated leadership in historical same-store revenue and NOI growth with the #1 revenue per available foot and the #1 NOI margin versus peers. The same key drivers of those results will be what drives our revenue and NOI outperformance for NSA over the coming 3 years. For tenant insurance, we believe we have the ability to replace several existing tenant reinsurance programs provided by NSA's various brands with our industry-leading Orange Door insurance program, thus providing better outcomes for customers, increased adoption and improved profitability over the next 3 years, resulting in $15 million to $20 million of upside. For G&A, Public Storage has the industry's best G&A efficiency ratios, which we expect to continue. We will achieve $25 million to $30 million of synergies or roughly 50% of NSA's run rate G&A with the remainder to be incorporated into our indirect operating expenses. From a modeling perspective, I would note that there is additional accretion coming from our mezzanine investment and joint venture fees, offset by approximately $20 million of incremental financing costs. Lastly, you can see on the right-hand side, a number of key areas that are critical to our long-term growth and value creation, but that we have not factored into these synergies. For example, we believe that adding over 1,000 properties to our Public Storage brand will only serve to enhance customer visibility, trust, conversion and customer acquisition cost. Similarly, we have a clear initiative road map as part of PS Next platform to drive NOI growth for our existing portfolio. However, we have not yet factored those key synergies into our synergy underwriting. Lastly, the expansion of our portfolio into new markets and expansion of relationships with NSA's Pro network deepens our ability to deploy accretive capital across more locations and in more ways. Moving on to Page 9. Our confidence in this integration and synergy forecast comes from our historical capabilities in achieving significant margin expansion and value creation in very short periods of time on large-scale portfolios. As you can see in the various case studies on the top half of the page, on average, we have expanded margins by well over 1,000 basis points on other large-scale transactions since 2021. On the bottom left, you can see that PSA and NSA have a 9% difference in direct operating margin today. Now you might say that some of that is due to market differentials. However, in our like-for-like markets, that delta stands at 9%, resulting in a significant opportunity for future growth and value creation. Within our synergy estimates, we have assumed that we closed 60% of that gap, resulting in a pro forma NSA margin 4% below that of PSA's portfolio. In addition, we have assumed we will spend $300 million in capital expenditures to rebrand the portfolio, enhance the technology and modernize the properties, all for the benefit of our customers and their experience. On Page 10, we have presented the current and pro forma composition of the NSA portfolio. As you can see on the left, the current NSA portfolio consists of a consolidated portfolio and existing joint venture platform. On a go-forward basis, we have creatively structured the portfolio into the 3 portfolios you see on the right. We believe we have created a win-win for all stakeholders with these structures as all will benefit from our best-in-class PS Next operating platform, but each will have various differences in the underlying portfolios, yield profiles and leverage. Finally, on Page 11, you can see the pro forma sources and uses for this roughly $10.5 billion transaction. NSA is capitalized with approximately $5.7 billion in equity and OP units and $4.1 billion of pro rata debt and preferred equity. The future capitalization will consist of new low-cost PSA unsecured issuance on balance sheet and in the newly formed JV, we'll be placing secured debt to ensure optimal leverage for the NSA OP unitholders. As part of the JV financing structure, PSA will be providing a $240 million mezzanine loan at a rate of SOFR plus 650 basis points, which helps increase total returns for the JV and drives accretion for PSA shareholders. Importantly, the transaction maintains our industry-leading balance sheet with minimal expected changes to our debt and preferred equity to EBITDA ratio upon realization of synergies. Maintaining that financial strength allows us to continue funding acquisitions, developments and new loans to drive shareholder returns while integrating the portfolio. In summary, this transaction delivers 3 key financial benefits: First, meaningful near- and long-term per share earnings accretion driven by operational synergies; second, continued balance sheet strength with leverage metrics remaining highly conservative; and third, expanded opportunities for external growth through our increased scale, markets, relationships and free cash flow generation. With that, I'll turn it back to Tom for closing remarks.

Thanks, Joe. This transaction combines 2 of the leading self-storage operators, accelerates our financial performance, strengthens our portfolio with PS 4.0 powering it all with an aligned, motivated and experienced leadership team, customer-driven PS Next operating platform, our first major value creation milestone, all with our Own It culture aligned with shareholders. We're excited to welcome the NSA team and customers as we launch the next era of public storage positioned for the future. So with that, Melissa, let's open it up to questions.

[Operator Instructions] Our first question comes from the line of Todd Thomas with KeyBanc Capital Markets.

Congratulations. First question I had on the $60 million to $65 million of revenue synergies, can you just discuss a little bit more detail around the timing for that to be realized? And how much of that is occupancy upside versus price optimization?

Todd, this is Joe. So I'll try to take you through the overall synergies from revenue to expenses as well as a couple of the other line items. So overall, we expect to realize all synergies by the time we get through the year and end of year 3. As it relates to the revenue synergies, it's really a composition of both occupancy as well as rate, as you would expect. Occupancy, we have going from the mid-80s up to roughly 90%. And then we also have rate increases as we adjust pricing over the next several years. So in totality, we have total revenue growth of roughly 11% to 15% within that range. And that's really driven by a couple of different things. Obviously, the enhanced brand presence is helpful within that as well as our ability from a revenue and marketing and pricing perspective to open up the size of the funnel. And then we've talked a lot more recently about customer experience and our ability to retain customers with a good quality customer experience and drive down that churn number. So we feel convicted on the revenue side. As it relates to the expenses, I'll just take you through what we have there on that $10 million to $15 million. Again, that's probably going to take about 2 years on the expense side to get all the way up and running. Most of that is coming from our payroll efficiency, but we also have benefits coming through our marketing, insurance and utilities. And then if you go to the tenant reinsurance program, that should take about 3 years, we believe, to run through and get to that full number. And then lastly, just on G&A, we expect to realize about 75% of that synergy number in the first year going to 100% by year 2.

Okay. That's helpful. And then I just wanted to go back to -- Joe, you mentioned, I think, on Slide 9, you talked about briefly the $300 million of capital investment for rebranding and for technology improvements. And I just wanted to be clear in understanding, are you intending to rebrand the entire NSA portfolio to Public Storage's to the brand and banner, including the existing and new joint venture? And can you talk a little bit about the timing of that spend and the rebranding process?

Yes, Todd, this is Tom. I'll take that one. In short, yes, we would envision rebranding the assets to the Public Storage brand. And as you recall, we've spent a good bit of time over the last 5 years refreshing and rebranding our own portfolio and have a significant experience in doing so and similarly see the lift and customer benefit associated with doing that. This transaction obviously brings another component, which is consolidating the brand presence under the leading Public Storage brand. So yes, we're going to go out and buy a bunch of orange paint, and this will take several years to work through as it did with our Property of Tomorrow program that we just recently finished, but we've got a lot of experience and track record in doing that.

And how soon post closing do you plan to integrate the assets onto Public's pricing and revenue management systems?

Yes, effectively immediately. And we've spoken about our ability to integrate assets onto the platform in the past, and Joe walked through some of those case studies there on the slides that demonstrate our ability to do that. And so both from a systems and operational standpoint, we're going to be very focused on integration here in the coming months and look to hit the ground running.

Our next question comes from the line of Michael Goldsmith with UBS.

Congratulations to all involved. First question, just given the moving pieces with the JVs and the OP units, how are you thinking about the cap rate for this transaction?

I think the way I'd describe it is, as we look at the cap rates here and you look at the whole company portfolio, we're talking about a low to mid-5s on a going-in basis from a cap rate standpoint, call it, in the 180s on a price per foot basis, a value that we feel confident in. But I think the real story here is the value creation opportunity and placing those assets on our operating platform, as Joe and I both spent time looking at. So we would envision that the cap rate we're really looking at here is in the low to mid-6s post that value creation. And obviously, Joe walked through case studies that demonstrate our confidence in achieving those margin enhancements and cap rate uplifts.

Got it. And my follow-up question is, I believe when you approached Life Storage in the past, I think that merger opportunity was a little bit more expense savings driven than maybe revenue-generating driven, and this one seems a little bit more balanced. So can you just talk maybe a little bit about the difference in the portfolios? And is there a different approach here? Is there more confidence in the platform where it stands today? Just trying to get a better understanding of the approach here versus the last one that you tried.

Yes. I don't want to go into detail around other potential transactions in the past. I guess I'd say if you look at the case studies that Joe walked through, which are transactions that we executed on, in most instances, 0.5% to 0.75% of the synergy opportunities is going to be on the revenue side. And then you also have the expense side given the operating model transformation that we've been very successful in deploying through our own portfolio over the last several years. So I'd say it's typically a balance. And in terms of this transaction, we see that no different. I'd say the one thing that maybe is a little different on this transaction versus some of those case studies is this portfolio does sit at an 84% occupancy level. So there's clear vacancy, which can be filled up over time and aid that revenue story, which is a little different than, for instance, the simply self-storage or Easy storage portfolios.

Our next question comes from the line of Steve Sakwa with Evercore ISI.

Congrats everybody. On Page 6, when you talk about that high cash flow JV asset portfolio, I realize some of those markets are maybe not core public storage markets, but some of them seem to be maybe a little bit more in your wheelhouse. I'm just curious, how did you kind of allocate between those 2 buckets and decide kind of what went in the JV portfolio and what kind of stayed wholly owned?

Yes. Thanks, Steve. This was an opportunity to really look at the whole NSA portfolio, operating portfolio and to your point, spend some time thinking about what's really complementary to the Public Storage profile going forward. And we had the opportunity over the last several years to visit nearly every single one of these assets. So we know the assets well on the ground and then obviously have overlaid our proprietary data and data sets to select the assets that fit best within our pool, and that's on a market and submarket basis. And so you can see some of our core markets there on the left. But to your point, some core markets there in the middle as well, and we think there's upside in both portfolios.

Okay. And then maybe just going back to the G&A, I guess, on Slide 8. I guess you're assuming, I guess, roughly half of NSA's current G&A is kind of savings. Is there any reason kind of the merger wouldn't create, I guess, more savings on the G&A side? Is that just kind of a conservative number? Or I realize there might be some additional accounting that needs to come over. But I guess I would have thought you'd knock out a little bit more of the G&A overhead at NSA. Any thoughts there?

Yes. Steve, it's Joe. So if you look at our own financial reporting, we report both direct operating expenses as well as indirect operating expenses with those indirects equating to roughly 3% of revenue overall. And so that's our off-site costs that it takes to run that portfolio. So when you look at this for NSA, their indirect costs were generally included within G&A. And so when we look at the allocation for indirect costs, we went through and looked at all the off-site costs that it will take to run that NSA portfolio and did that build up. And that's where we got to the remainder that needs to stick in our numbers. That's why I mentioned it's not going to be in G&A on a go-forward basis. That will flow into our indirect expense bucket as we integrate the NSA portfolio over time. So we've basically taken 100% of the true G&A costs the way we would look at them and eliminate those and keep the off-site property management costs to run the portfolio embedded in our numbers.

Our next question comes from the line of Hong Zhang with JPMorgan.

Yes. I guess just thinking about the combined NSA, PSA portfolio, are there -- I guess, are there any properties or just regions that you would potentially look to sell out of?

Yes. Great question, Hong. As I noted in the remarks earlier, that will be something that we will explore over time, and that's consistent with what we've been sharing as it relates to our own portfolio as well as we think about micro markets and utilizing a very data-driven approach to shape the portfolio of the future. We'll be doing that as well as we think about the asset pool here that we're adding to the Public Storage portfolio. So yes, over time, we'll update you on that and certainly is part of the discussions moving forward.

Got it. And just to make sure I heard correctly about the rebranding. I guess, as you look at the NSA portfolio today, is there the potential to do another, I guess, multiyear property of tomorrow renovation program within the NSA portfolio? Or do they look good as is?

Yes. The properties look good. No question about that. But as it relates to the branding component and the Property of Tomorrow initiative, yes, there's an opportunity for us to bring those assets into the Public Storage branding, and that will involve new signage, office, lots of orange paint, those sorts of things, which will provide that consistent public storage customer experience that millions of customers around the country today experience with our stores around the country.

Our next question comes from the line of Ravi Vaidya with Mizuho Securities.

Congrats all involved. I wanted to ask more about the formation of the new cash flow JV. Why was this third entity formed versus rolling up the assets on a wholly owned basis? Why the utilization of secured debt for this structure? And what are some of the fee streams that we can expect from this?

Yes. So I'll take the first component of that as it relates to the strategic rationale around the joint venture, and then maybe I'll hand it over to Joe to discuss the financial components of that joint venture. So as I noted earlier, this really creates a win-win opportunity, one that creates a yield profile for participating OP unitholders in that joint venture. It's a private venture with higher leverage than the public company, all with the PS Next operating platform to drive improved operations and performance through that venture over time. So it creates a win-win and one that we were able to craft as it relates to asset selection to create that criteria and that win-win solution for all parties involved. And Joe, maybe cover some of the financial aspects.

Perfect. So I'll refer you to Page 11. We have the go-forward cap stack on that page. So you can see roughly $2.2 billion of total debt on that venture, which we valued at roughly $3.3 billion. So we get to about 65% to 70% overall leverage. That profile is consistent with what we want to be able to offer those participating OP unitholders as they did seek more leverage and more total return potential. That $2.2 billion is constructed of roughly $2 billion of secured debt, which we will need to place in the future. Right now, we'll be using a committed bridge loan component to fund that at closing. And then we also have the $200-plus million of mezzanine investment coming from Public Storage. As it relates to the fee streams, I would just say we plan to earn typical property management, asset management fees associated with this joint venture as you typically would in an arm's length transaction.

Got it. That's super helpful. And maybe just one more here. A number of these Sunbelt markets and NSA's top market list have -- they're really strong during COVID and maybe coming out of COVID, but they have struggled a bit recently given the high supply pressures. What are you seeing on the ground right now that makes you more optimistic about these markets and the potential to realize some of the operational synergies that you've laid out here?

Yes. I think there's a couple of components to that question. One is it relates to overall market fundamentals. And obviously, each one of these markets and assets is unique. But as we've been saying now for several quarters, we are seeing sequential improvement in many of these Sunbelt markets as we work through those '21 and '22 high demand comps as well as the new supply that you're speaking to, which is slowing down in the vast majority of these markets, and we expect will continue to. So that sequential improvement from a fundamental standpoint clearly gives us some confidence. And then as it relates to the synergy execution, we've been thoughtful, as Joe highlighted earlier, around sequencing through that synergy execution and recognizing that fundamentals are going to be a component as well as the new operating platform.

Our next question comes from the line of Ronald Kamdem with Morgan Stanley.

Great, congratulations. I guess Slide 9 that have the direct NOI margin comparison. I'd just love to double-click on that because 880 basis points delta seems pretty massive. Sort of similar to Todd's question, is there any way to break that 880 down into revenues, expenses, fees, anything else that could drive such a big margin in the same markets?

Ron, I'd say just from a modeling perspective, as you think about realization of that revenue over time, which we think probably takes about 3 years, we believe that's plus or minus 11% to 15% additional revenue growth on top of what the portfolio would have realized naturally. So that's the key driver. I think as Tom mentioned, plus or minus 50% to 75% of our operating upside typically comes from the top line component. And then from a margin perspective, we're expecting to close about 500 of that 900 basis points. So we'll end up with a margin on a stabilized basis, about 400 basis points below that of PSA. And we pressure tested that repeatedly from both a ground-up and a top-down perspective going line by line, making sure that we can go out there and execute upon both the revenue and expense synergies and then comping that relative to our other 3,000-plus assets and looking at similar revenue and rent levels, simpler operating profiles and making sure that we believe we can hit that margin number.

Great. And then, look, my second question is, I think what's interesting is there's really no talks of demographics in the presentation at all, right? When you're thinking about, yes, there are some overlapping markets, PSA tend to own assets that were sort of more concentrated versus NSA and so forth. So I'd just love to hear how you guys think about sort of these sort of new markets that you're getting into? Does demographics matter? Does it not matter? How are you guys sort of thinking through that?

Yes. Great question, Ron. No question, as I mentioned earlier around evaluating the opportunity set here. This was both a very data-driven approach, looking at demographics at the local submarket and micro market level, but also overlaying that with our on-the-ground understanding in the vast majority of these markets that we applied here. And thinking about both the long-term opportunity as well as the near-term value creation opportunity, we think strong in the vast majority of these markets we operate day-to-day and understand these markets really well. So in terms of both from a micro market and data-driven standpoint, yes, certainly using demographics as well as overlaying some new markets that we're excited about potentially growing into over time. As Joe mentioned earlier around expanded capital allocation opportunities, I think there's really 3 components to that. One of that is new markets and submarkets within our existing operating portfolio. Another one is partner relationships over time that NSA has nurtured. And the third is opportunities at the asset level, be it expansion opportunities and the like, which we think will accrue to the combined company's benefit over time.

Our next question comes from the line of Juan Sanabria with BMO Capital Markets.

Just hoping you could talk a little bit more about, I think, what Ronald was hitting on the last question, just the overlap from a geography perspective for part of the NSA portfolio that's going to be on balance sheet versus not. And where that opportunity lies or where there's more of a reliance on data analytics from stuff that is maybe comparable to not in those markets just to instill the confidence that you can drive that upside over the long term?

Yes, sure. So again, a couple of components to that question. One is, as we think about the overlap and the complementary nature of the portfolio, about 80% of the new operating portfolio across those 3 different buckets is overlapping from a complementary market standpoint, about 20% is new markets, which those new markets do present some incremental opportunities. As it relates to the wholly owned portfolio, there's a much higher overlap. And obviously, we listed some of those markets -- many of those markets that you see on the page, we've consistently spoken to is some of our favorite within our portfolio, looking at a Dallas-Fort Worth, for instance, one that we've consistently been adding to given the dynamic nature of that marketplace and our ability to continue to deepen our presence and scale there. So I think there's a combination of complementary and additive components of the portfolio and then some new markets that will be additive over time.

Juan, this is Joe. Just to add on to that a little bit. So Tom talked upfront in his opening remarks just about how incredibly important scale is in this business. And so when you think about those overlapping markets, one thing you all don't see when we think about that margin expansion opportunity, when you look at markets that we have critical density in versus those that we do not and look at that on a rent-adjusted basis, there's about a 600 basis point delta in our own portfolio between the margin on those that don't have density versus those that do. So that's a critical part of this portfolio being able to go out there and capture that overlap and really get increased conviction in our ability to close that margin gap as we scale up in certain trade areas or markets. So that's a critical piece to not get lost in there.

Great. And then just on the CapEx, the $300 million, I guess how much of that is going into what will be consolidated versus in the new joint venture? And how much is the orange paint that Keith being referenced and just the rebranding versus maybe some true deferred CapEx from some lack of love over the years for some of those assets?

Yes. So it's fairly well spread throughout the portfolio. Obviously, as Tom mentioned, we've toured the majority of these assets over the last several years. So I have a pretty good sense for what is needed versus not needed. But I'd expand on Tom's prior comments related to any time we take over an asset and try to get it up to not just PSA brand standards, but also when we talk about our 24/7 access, the omnichannel and digital experience that we offer to customers, it's critical that we put certain technologies in place as soon as possible to allow for e-rentals and allow for that staffing efficiency. So being able to go out there and ensure that all properties have gate access, making sure that all buildings and access points have digital code access, making sure that we put our security systems in place, which are pretty substantial costs to make sure we have 24/7 monitoring from a safety and insurance claim perspective. So there's a lot more that goes into that than just perhaps a deferred maintenance, a refresh of paints, a refresh of parking lots or a refresh of office. There's a lot that has to do with ensuring that we can get the customer the experience that they've come to know with public storage and making sure we go out there and hit our numbers.

Our next question comes from the line of Nicholas Yulico with Scotiabank.

This is Viktor Fediv, on with Nick. And I have a question on your -- on the NSA's existing JVs. So do you plan to just assume this 25% stake and manage this as is? Or is there a plan to buy out the institutional partners over time?

Yes. Thanks. So those are existing joint ventures that have been clearly very successful for the NSA team over time. We look forward to engaging with those capital partners and continuing that partnership moving forward. And obviously, we'd be reaching out to them in the near term post the transaction of this and sharing why we're excited about the transaction and what the combined company can bring to those partnerships.

Understood. And then as a follow-up, so how does this transaction change your overall external growth strategy going forward? So are you on hold until NSA's portfolio is fully integrated? Or do you plan to remain offensive?

Yes. So Joe spoke to earlier, one of the key components of this transaction is how it's been structured from a capitalization standpoint that continues to provide Public Storage with significant financial flexibility to add and continue our value creation pathway here. So more to come there as it relates to what could be next. But as it relates to overall activities, we continue to be encouraged by what we're seeing in the transaction market and think there's an opportunity for more transaction market activity overall within the industry in '26 compared to '25. We've been, as we've highlighted over recent months with the PS 4.0 announcement, adding capabilities to that team, both in terms of investing in the team itself, the Welltower data science partnership. And we're encouraged by some of the initial traction we've had with that dialogue and look forward to continuing to growing that component of the value creation engine and the earnings algorithm.

Our next question comes from the line of Caitlin Burrows with Goldman Sachs.

I think just one question for me. Maybe for those of us not as close to NSA, and you maybe touched on it in the very beginning, but could you just give some comments on what made PSA interested in this portfolio today versus maybe a couple of years ago?

Yes, sure. I'll take this, and I think there's a couple of components of it. One, as we sit here today, we think there's a tremendous opportunity to pair NSA and PSA together as we launch PS 4.0 into the next era. And I'd say that's across a number of different fronts. One, this is clearly a value creation opportunity and one that we've been speaking about earlier and plays into that value creation engine, applying MSA assets into our PS Next operating platform, adding over 450,000 customers, driving operational excellence through the combined portfolio moving forward and then an own a culture opportunity as we think about welcoming the NSA team to the Public Storage platform, injecting the energy, urgency and shareholder alignment that we're excited about, all to launch here into the next era. And we think the transaction is a fantastic way to do so, utilizing a creative set of structures to launch from here.

Our next question comes from the line of Eric Wolfe with Citi.

On the synergies, you mentioned the 900 basis point difference in margins that I think you called them the comparable stores. If you look at those same comparable stores, I guess, how much of a difference is there between the average rate and occupancy at those stores? So in other words, how much higher is your occupancy and rate at the PSA stores versus the comparable MSA stores?

Yes. Eric, so we have gone side-by-side on that within the markets as we're going through our underwriting and thinking through the synergies. When you look at that on a market-by-market basis, it's pretty consistent with what we said overall in terms of our ability to get from where they're at today in the mid-80s up to about 90%. So we might have a little bit of conservatism in there relative to our own portfolio, which operates a little bit higher on an occupancy perspective. And then on the rate side as well, we think there's pretty significant rate opportunity as we both drive new customers into the portfolio as well as retain existing customers. So I'm not going to go too specific on the exact dollar per square foot adjustments that we've underwritten. But I'd just say that overall, we believe that 11% to 15% revenue incremental to what the portfolio would have done by putting it onto the PS brand is what we'll be able to attain.

Got it. And then maybe a question for NSA. I guess why is now the right time to sell? You talked about finally starting to see the markets recover. Obviously, the stock had some momentum this year. I know you're getting a premium here. I was just curious how you looked at the opportunity with PSA versus staying independent as well as other opportunities that might have been considered?

Yes. Great question. Thanks. Certainly, we did. We spent a lot of time looking -- our Board and our teams looking at our long-term outlook. And we certainly think we've inflected and our team has done a great job working on all the things we're working on and directionally heading in the right way we want to go. But if you just look at the combining of this, our portfolio into this portfolio and the strength of this platform and the strength of this team and all the synergies it brings, I think as we evaluated our journey and where we're headed and combining with Public Storage, to me, it just made a lot of sense, it made a lot of sense to our Board, and we just think it's a very unique opportunity to really accelerate and get us to the goals we were shooting for.

Our next question comes from the line of Samir Khanal with Bank of America.

I guess, Joe, on Page 6, that first bucket, I'm sorry if I missed this, but you did talk about kind of these dispositions and asset recycling opportunity over time. Maybe talk about sort of the magnitude of that and how to think about it from a timing perspective?

Yes, that's something that we'll evaluate over time. This is Tom. As we integrate the assets into the portfolio and drive operating performance as well as taking a very data-driven approach as we get that operating data from those assets and consider the public storage platform over time, what's the right fit. And so more to come there, but there's likely to be some modest dispositions coming out of that. And as we noted, as we were spending time thinking about the Welltower data science partnership, I think you're going to hear more from us as it relates to potential dispositions from the Public Storage portfolio as well as we're targeting micro markets, utilizing a very data-driven approach to portfolio construction.

Our final question this morning comes from the line of Mike Mueller with JPMorgan.

I apologize if I missed this, but can you give a little more background on the new JV? Was this something that NSA, the OP holders were pushing for as part of the transaction to kind of move forward with it? Or is it something you wanted in terms of just isolating this part of the portfolio? Just a little bit more color on that would be great.

Yes. I think as I noted earlier, I think it's a real win-win opportunity for both NSA stakeholders as well as the combined company to create a different return profile and one that is attractive to all involved. And some of that, we spoke earlier to how we thought about market selection and the like. But I think some of it's also the capital structure associated with it, the operating platform upside that we're going to be bringing to that venture. And so it's a real opportunity to create a differentiated structure for a public company stock-for-stock deal that we think will maximize the opportunity for all involved.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Tom for any final comments.

Thanks, Melissa. So as you can hear, we're excited about this combination. It's got a creative structure as we were just speaking to, a real value creation engine opportunity, and it's a good time for us to continue to deploy capital as storage fundamentals improve from here. And so this is a great way to launch the next era of Public Storage positioned for the future. Thanks very much.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation. You may now disconnect.