Public Storage (PSA) Earnings Call Transcript & Summary

Greetings, and welcome to Public Storage Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, [indiscernible] Reagan. Thank you. You may begin.

Thank you, operator. Hello, everyone, and thank you for joining us for our second quarter 2026 earnings call. I'm here with Tom Boyle and Joe Fisher. Before we begin, 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, July 30, 2026, and we assume no obligation to update, revise or supplement statements that become untrue because of subsequent events. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, supplement report, SEC reports and an audio replay of this conference call at our Investor Relations website, investors.publicstorage.com. [Operator Instructions] With that, I'll turn the call over to Tom Boyle.

Good morning, everyone, and thank you for joining us. Our second quarter marked the start of our new era at Public Storage, what we call PS4.0. This new era is characterized by greater energy, urgency and a sharper focus on building the capabilities that will drive stronger per share performance over time. My 4 key points today cover initiatives coming together as building blocks from here. First, we recently closed the NSA transaction, marking the first major milestone of our value creation engine. Second, Public Storage Canada is a strong strategic addition to the portfolio and an attractive entry point into an underpenetrated market with meaningful room for future growth. Third, the PS Next operating platform continues to execute with improving leading indicators in the business and new capabilities that are helping us better serve customers. And fourth, our OI culture is gaining momentum across the organization with strong engagement from our team and real urgency around the opportunity ahead. Let me start first with our recently closed NSA transaction. Closing this transaction last week is a major milestone for public storage and a clear example of PS4.0 in action. As we've discussed, this is not just about getting bigger. It is about strengthening our platform, deepening our portfolio, expanding our opportunity set and driving differentiated per share earnings into the future. A tremendous amount of integration planning went into this closing, and that preparation paid off. We transitioned the 1,100 store and 575,000 unit portfolio onto Public Storage systems overnight and began operating activities immediately upon close. That is exactly the start we wanted. We welcomed over 1,300 new public storage teammates and got busy. With all our website and digital presence online that morning, the team completed over 1,500 reservations, switched over 265,000 auto pay accounts, began collecting rents and started rebranding with temporary signage on the first day. This early execution is important, but it's also just the beginning. The real value creation is ahead of us as we apply PS Next across the portfolio. We brand the assets and execute against the operating and capital opportunities we've identified. We are more confident in the achievement of the operating upside with our new unified team driving results from here across customer experience and revenue, operating efficiencies, tenant insurance and G&A. On the capital front, integration planning has also surfaced additional expansion opportunities that will add to value creation over time. And yes, lots of orange paint is on its way to a location near you. Thank you to the NSA team for the professionalism, focus and partnership they brought throughout this process. and thank you to our public storage teammates for their leadership. Getting to this point took a significant cross-functional effort, many long days, nights and weekends. In the strong collaboration between the 2 organizations is a big reason the transition is off to a solid start. Second, let me turn north to Public Storage Canada. We announced the acquisition of Public Storage Canada in June. We will reunite public storage with a portfolio that was operated under common ownership until the 1990s and has since been owned and operated independently by the Hughes family. Today, this high-quality PS branded portfolio is the third largest in Canada and sits in desirable infill locations across top metros with concentrations in Toronto and Vancouver. The portfolio demographics are strong with trade area populations averaging nearly 250,000 people in average household incomes approaching $100,000. The market is significantly underserved with per capita supply of 2.5, significantly lower than the U.S. and there is meaningful embedded upside in the assets that gives us a compelling opportunity to create value over time with our PS Next operating platform. The transaction also reflects disciplined capital allocation. It was acquired off market pursuant to an existing ROFO, ROFR structure with the Hughes family. And in addition to being accretive to long-term portfolio NOI, IRR and FFO growth, it creates the ability to finance a portion of the NSA acquisition with lower-cost Canadian debt. It is the second transaction this year funded with public storage OP units, creating another win-win opportunity. So when I step back, I see Public Storage Canada as both a strong addition to the portfolio and an important platform for growth in the future. Third, our PS Next operating platform. Our full team is zeroed in on improving customer experience, leading to improved fundamentals and on the building the platform for the future. The leading indicators of the business have turned, and our outlook from here is improving, which Joe will cover in more detail shortly. Our customer focus is translating into better execution, improving customer sentiment year-to-date, 80% lower move-out activity in the quarter and better-than-expected occupancy and move-in rent performance, both ahead of prior year. We continue to see favorable trends in our coastal and Midwestern markets and improving trends in key Sunbelt markets. We are seeing sequential improvement with development activity slowing across markets paired with steady demand. We have confidence in demand growth over the medium term with demographic tailwinds as millennial and Gen Z customers age into our core customer usage years. In L.A. County, performance will accelerate from here into 2027 with the expiration of pricing restrictions there from the Board of Supervisors. Technology remains a critical differentiator for our customers. Nearly 90% of customers interact with us digitally at some point in the rental journey. 3 quarters complete their lease fully digitally, and our app has been downloaded over 7 million times. That improves the customer experience and helps us run the business more efficiently. And it provides industry-leading data sets for use across the organization, including capital allocation, data science and machine learning initiatives. We're also investing in what's next for customer interaction. One example is Ellie, our AI-powered customer service agent which has already handled more than 90,000 customer interactions in recent months and continues to improve with every conversation. Eli doesn't just answer questions to resolve customer needs using our proprietary data in AI models. We're embracing these new capabilities across PS Next to drive a better customer experience, a better employee experience and stronger financial results. and we're excited to bring NSA and Canadian properties onto that platform to drive value creation. Now let's move to my fourth point, the Own It culture. We launched our Own It culture earlier this year with a combination of customer obsession, new talent and perspectives alongside strong in-place teams, empowerment with accountability and new incentives to drive alignment. The goal is a culture with more energy, more urgency and stronger accountability for execution. We recently moved into our new headquarters in Frisco, Texas, and I can feel the energy in the environment. We're also looking forward to our Southern California team moving into new office space in months ahead. Last week, we welcomed approximately 1,300 new teammates through the NSH transaction in a new office in Denver. We're excited to have them with us and we're bringing them into the public storage culture in a way that is clear, aligned and performance-oriented. As we said before, strategy only creates value if the organization is aligned behind it. That alignment is getting stronger. The energy I am feeling is translating into urgency and what we're building is a culture grounded in accountability, speed and execution. We see a meaningful opportunity ahead and our goal is to make sure the organization is ready to move with discipline and intensity as that opportunity unfolds. So to sum up, the company is putting more of the earnings growth building blocks in place at the same time than at any point in recent years. We closed NSA and have begun the value creation work. We announced Public Storage Canada will expand our platform into an underpenetrated market with room for future growth. We remain active on acquisitions with new data science tools and faster execution, continue to grow the development pipeline, our expanding the lending platform and improving the growth profile of our third-party management business. At the same time, PS Next is strengthening how we operate the core business, improving customer experience, brand, pricing and efficiency and as Joe will cover, the financial setup also improved from here with contributions from non-same-store growth, ancillary businesses, a future tailwind from LA restrictions rolling off and a more favorable financing profile supporting earnings power over time. These building blocks are for the future based on execution from here. While that execution will cover several years, the direction is clear. Our operating trends are improving, our growth levers are expanding, and the building blocks we're putting in place today position public storage for stronger growth in the second half and into the next several years. With that, let me turn it over to Joe.

Thank you, Tom, and good morning, everyone. The topics I will cover today include our second quarter results, a summary of recent transactions in a balance sheet and capital markets update. Before I dive in, several key highlights from the quarter include: Number one, continued momentum in operations, including occupancy, churn and move-in rates; number two, and across the board guidance raise; number three, 2 major value creation engine transactions; and fourthly, approximately $12 billion in capital markets activity completed or committed year-to-date. Moving to results. Core FFO in the quarter was $4.17 per share which was down year-over-year as we have previously communicated with a sequential decrease from first quarter driven by higher financing costs and G&A. Same-store revenue and NOI growth in the quarter were minus 0.6% and minus 2.2%, respectively, both ahead of internal expectations. On a forward-looking basis, core metrics were strong versus expectations. Average move-in rents turned positive at plus 1.6%, the first time since 2021 that both new move-in rates and occupancy were up on a year-over-year basis. Moving rates in 2Q were up 18% since 4Q '25, better than historical trends and a clear sign that we are moving past the last few years of stabilization. Occupancy of 92.5% was positive year-over-year by plus 0.2%. Lastly, our existing customers continue to perform well as demonstrated by a material reduction in churn. Expense growth was positive 4.4% for the quarter with pressure in property taxes and marketing offset by savings in payroll from our machine learning-based staffing model. The property tax increase was primarily timing with 1Q '26 having benefited from earlier-than-expected appeals wins on a year-over-year basis and thus an offset in 2Q '26. Outside of the same-store pool, NOI growth of 22% in our non-same-store pool and ancillary growth of 15% continued to lift results. Non-same-store performance and our external value creation engine continue to be a substantial and repeatable driver of shareholder value. Turning to 2026 guidance. We are pleased with our year-to-date performance and excited about the underlying momentum we are seeing in the leading indicators and core metrics of our business. We are raising our guidance across all key metrics. Revenue and NOI growth are now forecast at a midpoint to be minus 0.2% and minus 1.1%, an improvement of 90 basis points and 110 basis points, respectively. Importantly, while we have previously said that 2Q and 3Q, we made a low point for year-over-year same-store revenue growth. Our updated guidance implies an improvement from 2Q levels in the second half, with the fourth quarter expected to exit the year with positive revenue growth. The key assumptions underlying this guidance increase include improved new move-in rates at positive low single digits versus prior assumptions of down mid-single digits and an improved occupancy forecast of plus 30 basis points year-over-year compared to the prior assumption of flat. This is primarily due to the continued success we are having with our focus on customer experience as demonstrated by increased customer sentiment and decreased churn. Lastly, given the expiration of the state of emergency in L.A. County, we now see a headwind of minus 50 basis points for same-store revenue growth this year, an improvement of 30 basis points from our original guidance of minus 80%. For core FFO, a we are raising forecast to $16.75 to $17.05 with a midpoint of $16.90. This is an increase of 1.4% or $0.22 per share versus our prior forecast. This increase is being driven by the improvement in same-store performance, better interest expense, and continued strong contributions from non-same-store and ancillary offset slightly by increased G&A. Lastly, we expect financing benefits from our NSA and PS Canada acquisitions to be approximately $0.02 per share positive to core FFO in 2026 versus our prior assumption of neutral. This is a great start out of the gates for these 2 transactions. Specific to NSA's results, you can see in our supplemental that we provided a number of key disclosure pages historically provided by NSA. For core FFO, NSA achieved $1.14 per share for year-to-date 2026, which is ahead of consensus and annualized would have achieved above the high end of the original guidance range. For NOI, they achieved positive 2.4% growth year-to-date, well ahead of their midpoint of flat NOI growth driven by solid occupancy improvements and expense controls. On to transactions. Market activity has picked up in 2026 with roughly steady yields in the low 5s and sellers showing a greater willingness to transact. Our expanded team has been busier than ever in 2026, and we've acquired or under contract for over $450 million year-to-date. One area of particular focus for the team this year has been recently developed assets, which come with lower occupancy, that present higher stabilized yields and returns. While these can be modestly dilutive to near-term FFO, we believe that future upside growth and accretion make them the right long-term investment decisions. We are also speeding up the transaction process, improved efficiencies and sourcing data and AI informed underwriting and accelerated approvals have improved top of funnel to close deal timelines, leading to higher deal flow, Baxter execution, and a better process for owners looking to sell assets. In addition to the NSA closing on July 22, the other big recent transaction news was the announced acquisition of Public Storage Canada. As previously discussed, the strategic entry into the Canadian market provides exposure to a growing Canadian market with infill, high-quality properties, provides significant NOI upside to our PS Next operating platform, given 83% occupancy and 65% NOI margins and will be accretive to our future NOI, cash flow and IRR outlook. The $1.2 billion transaction will be funded with approximately $900 million of OP units issued at $321.98 per unit and approximately $300 million of Canadian-based debt issuance. In addition, the seller will have the opportunity to receive $288 million of OP units priced at $375 per unit and 2 earn-out tranches over the next 5 years should certain NOI outperformance thresholds be achieved. As mentioned earlier, the $900 million of Canadian equity exposure as part of this transaction, will allow us to finance an equivalent amount of our NSA acquisition and Canadian rates over 100 basis points below the underwritten U.S. levels. We look forward to closing this transaction in the third quarter. On the development expansion front, our pipeline has grown to $692 million across 47 projects with stabilized yields targeting 8% and remaining amounts unfunded of $432 million. For our lending business, our platform grew to $173 million outstanding, up $30 million from last quarter at a current rate of approximately 7.6%. And lastly, our third-party management platform welcomed 22 net new properties last quarter bringing our total to over 460 properties. We see a path to continued growth in all 4 of these key value creation drivers. Lastly, our balance sheet remains in excellent position from both a metric and liquidity perspective. We have had a very active and beneficial year in the capital markets with approximately $12 million of total capital markets activity. We have completed new issuances, created new facilities and programs placed hedges opened up a new market in Canada on multiple OP unit transactions and issued on our ATM program. These actions have strengthened our industry best balance sheet, enhanced our liquidity and financial flexibility and fully funded our accretive external growth. During the quarter and subsequent to quarter end, we announced a total of $5.9 billion of debt capital markets activity, including $1.4 billion in new unsecured issuance, the expansion and extension of our $3 billion revolving line of credit, a newly created $1 billion commercial paper program and a $500 million delayed draw term loan. The $1.4 billion of new unsecured issuance was done at a weighted average effective rate below 5%, which was partially supported by $1 billion 10-year treasury hedge we put in place earlier this year at 4.3% to help both recent and future issuance costs. We've also entered into forward sale agreements under our ATM program for nearly 800,000 shares at a price of $326.32 per share which is expected to generate nearly $260 million of future net proceeds. At quarter end, we had available liquidity of $3.8 billion between our line of credit and cash on hand, plus approximately $600 million of annual free cash flow. Our balance sheet remains one of the strongest in the REIT sector with net debt to EBITDA of 2.9x and net debt plus preferred equity to EBITDA at 4.2x, and debt plus preferred equity to enterprise value in the low 20% range. We are 1 of only 2 REITs with A and A2 ratings with S&P and Moody's, a further estimate to our balance sheet health. In summary, PS Next delivered solid results and an accelerating outlook. Our value creation engine was on full display. We made material enhancements to our fortress balance sheet and continue to execute across all aspects of our business. We are executing today with an eye toward the future and stacking up multiple drivers of absolute and relative per share earnings growth for years to come. With that, I'd like to turn the call back to the operator to open up for Q&A. Thank you.

[Operator Instructions] Our first question comes from Samir Khanal with Bank of America.

I guess, Joe, maybe to start off on the L.A. front. How quickly can you capture the revenue from L.A.? Maybe just walk us through the math for this year and then the next year as we think about the upside.

Samir, good to hear from you. So on L.A. and the state of emergency there, we did have that factored into our original guidance as a minus 80 basis point drag. As I mentioned in the prepared remarks, 30 basis points of that 90 basis point revenue increase in our guidance is going to come from L.A. So we are anticipating some ability to start recapturing as of the expiration on July 1 of this year. We are going to take a pretty measured and phased approach to that. It's not the idea to go out there and go all customers, either new or existing and move them back to market rates. But we are going to, over time, start to recapture that. As a reminder, we lost about 70 basis points of same-store revenue growth in '25, another 50 net this year. So that gives you an idea of the demand and supply environment out there, which remains really robust, kind of what we left on the table from the state of emergency and may be able to recapture in the future.

Okay. And then I guess my second question is on NSA. You mentioned expansion opportunities. that you're finding? And again, I know it's early, but maybe expand on that? And have you identified at this point any sort of incremental revenue or cost synergies beyond the original underwriting.

Yes, Samir, it's Tom. I'll cover that. I think as it relates to the capital opportunities, I think there's really a couple that we've identified that I'll share today in collaboration with the NSA team over that integration planning period. The first is expansion, as I highlighted. So there's definitely some opportunities expansions on some of the existing assets. And we're excited about that. The development team is spending time there. Joe and I just green lit and expansion at our most recent investment committee this week. So getting moving on those, and that value creation will come over the next several years. The second component is more tactical. And this is driven by an ability to spend some R&M dollars and get more units online. So we found about 14,000 units and the NS 18 pointed those out to us that we can bring back online and which will drive incremental inventory opportunity as we move through the second half year of 2026. The second part of your question related to overall synergy expectations, I'd say our confidence continues to grow. You heard from me just a few moments ago around, we were able to get our systems in place overnight. And that enabled us to have first visibility in terms of the operating situations. And then also give our teams tools and the unified team moving forward, those tools to start driving the business. And so we have confidence both top line, bottom line, ancillary and the like from here and we expect to execute on that plan along those same lines of the road map that Joe provided back in March but have more confidence in terms of the execution on that now that we have the visibility and the teams in place.

Our next question comes from Michael Goldsmith with UBS.

One will be more near-term, one will be more kind of intermediate long term. But maybe on the near term, can you provide an update on July and how that how that's reflected in your guidance where you expect kind of proceeds to revenue growth to accelerate slightly through the back half?

Yes. So I'll take the first piece of that and then the guidance question Joe can take. We have seen improved core performance as recently highlighted on the call. As we think about moving rents, for instance, moving rents growing 1.6% in the second quarter compared to a decline of 2.4% in the first quarter. Promotions were a little higher in the second quarter, but that was really a function of April and a different promotional strategy in the month of April. But if you look at June, for instance, where we had more consistent promotions year-over-year, moving rents are up 4% and the strongest month in the quarter. As it relates to July, trends continued, occupancy up about 30 basis points year-over-year. Churn continues to be lower, which was a bright spot in the second quarter and moving rents again positive, maintaining the momentum from June. So I think a follow-on question could be, so what's driving that? I think it's a combination of several things. One, steady demand from the customer base across the country; two, reducing supply as we see new competitive supply entering the market slowing down. And then the third is some of the customer experience initiatives that we're really driving. Sentiment is up, as we highlighted, churn continues to be lower, which gives us more pricing power for new customers coming in, and the team in place continues to test and learn and drive the business. In terms of second half -- [indiscernible] keep on part of your question there, Michael, was around expectations for the second half embedded in guidance. I don't know, Joe, if you want to cover that?

Yes. So for second half trajectory, I think as we've consistently messaged we did expect 2Q to be the low point for the year as we faced kind of the toughest comps from a revenue perspective. And with the increased momentum that Tom was talking about, it does start to show up a little bit in that year-over-year revenue growth number. Obviously, that's a lagged number, it takes in the prior 4 quarters. But we do expect to go off of that minus 60 bps in 2Q, see that start to get a little bit better in 3Q and then even turned positive in the fourth quarter. So we have a nice trajectory there, but I think it's kind of a critical piece is the outlook beyond that and the earn-in that we're starting to build with some of this recent momentum of ECRIs continuing to contribute the existing customers staying with us longer obviously, occupancy coming up a little bit, and that's momentum that we're seeing on new move-in rates. So hopefully, it comes through that we're excited about the momentum we're seeing here in the second half and what that holds for the future.

Got it. And then as my follow-up here, I think just as you said, Joe, right, it sounds like near term, you've got a little momentum, things getting a little bit better, but you've done a lot of things that are setting yourself up for the intermediate term with the NSA acquisition Canada, you're acquiring more lease-up, L.A. gets better, you've got development. So it's really the public storage story now that like things are getting a little bit better in the near term, but you're setting yourselves up for a better 2027 and a big 2028 or some combination of the out years where all of this is going to kind of come together and drive more powerful growth?

Yes, Michael, I think you've covered that actually pretty well. We are building -- putting the building blocks in place, and we have more of them in place now than we have in the past. And continue to do that, and we are encouraged by the core trends we're seeing in the business as well.

Our next question comes from Nicholas Yulico with Scotiabank.

This is Viktor Fediv on with Nick. I have a question on your move-out rate trajectory. So to what extent this 3.5% year-over-year decline was being driven by mix, specifically higher in-place rent and longer tenured customers remaining in storage and therefore, representing a smaller share of move out? Or are there also unit size or market level mix shift affecting the average rate?

Yes, I think it's a combination of a couple of things. One, what you just highlighted around longer-term tenants continuing to stay with us, which we are seeing in the portfolio and churn is down, which is helpful, no question. And then the second thing is, that is a lagging indicator of where move-in rents were as well. And so as we move higher here in moving rents, you'd expect to see that decline start to moderate as we move forward from here. but certainly an additive component in the second quarter.

Good. And then as a second question, a follow-up on your NSA integration plan because historically NSA has been operating with lower churn than PSA. So as you transition the portfolio into your PS Next platform, do you expect to quickly align NSA with PSA's revenue management approach? Or are there any aspects of NSA pricing strategy that you believe is worth preserving, particularly given differences in customer mix and the submarket characteristics.

Yes. I think there's maybe 2 components to that question. I think the first is certainly geographically and from a customer base standpoint, there's differences between where churn is. But I think secondly, we are excited to bring those properties into the PSX operating platform and drive performance. And we think that there's opportunity probably first and foremost, around revenue as we think about occupancy as well as rental rate opportunities as we add the properties to our portfolio, rebrand them and drive performance there. And so a combination of both new customer, existing customer and new marketing opportunities all playing a part there.

Our next question comes from Ronald Kamdem with Morgan Stanley.

Great. Just taking a step back and trying to get a better sense of just top-of-the-funnel demand and some of the indicators that you guys are looking at, at this point? I think you've talked about sort of the narrative of improving demand. And I was hoping you could provide more commentary on what you're seeing in the portfolio and by market and specifically the slope of that improvement.

Sure. On the demand front, I would characterize demand as pretty steady as we move through this year and it certainly feels steadier this year than what we experienced last year, which is encouraging. And I think some of the use cases that we've consistently spoken about be it existing home sales that often comes up on these calls have been pretty consistent on a year-over-year basis, and we're seeing pretty consistent customer use from that use case, but also continued strength from customers that have run out of space at home, which continues to be a higher proportion and a healthy proportion there. So no real things that I would highlight that are new as it relates to use cases or otherwise, but I would say steady demand. The second component of your question is a good one to highlight, which is we have a number of markets, about half the portfolio that continues to perform really quite well. And I would characterize them as a stronger markets, and I would rattle markets off as I have in the past, like Minneapolis, Chicago, San Francisco, Boston, D.C., they're all growing 3% to 5% same-store revenue growth and seeing good trends there. And at the same time, we have Sunbelt markets that continue to sequentially improve. And those markets have declined from a revenue standpoint over the last several years. We continue to see that this year. Given the really difficult comps that they had and the demand that they experienced during '21 and '22, but also the new supply that went to try to match that demand. And that new supply is being absorbed. And we're seeing sequential improvements in many of those markets from here. So I'd say encouraging trends across both sets of markets as it relates to the operating fundamentals I spoke to just a few minutes ago. And then you put the L.A. component that Joe spoke to, which will be an additive component of revenue growth as we move really into 2027, which is encouraging.

Great. And then my second question, just going back to the acquisitions, I was just hoping -- I know there's -- the acquisition team has expanded and you've talked about sort of the focus there. But if you think about just going forward, just can you give us a sense of like what you guys are doing differently than you have in the past to sort of lead to this outcome where you can increase acquisition volumes and presumably at attractive returns.

Yes. Thanks, Ron. I think that there's a couple of things that I'd highlight, and we've highlighted in the past, one, we have significant capital resources year in and year out, and that gives us an ability to be active and and to compound our per share earnings growth opportunity. The second is the operating platform gives us an ability to earn more cash flow from those assets as we put them on the platform. So we've been investing in the team as well as tools to drive more activity, more precision, shrinking deal time lines with a real micro market targeting focus which has resulted in some attractive activity year-to-date. As you highlighted, about $450 million of acquisitions year-to-date. About 70% of that is off market. and a meaningful portion of that is also lease up given the confidence we have in the operating platform, we're not shying away from that, which is additive to future earnings growth from here. On the development side, we did increase the size of the pipeline this quarter. We continue to target micro markets around the country with the national platform and try to maintain or grow that platform while the rest of the competitive supply dynamics continue to moderate. So a multipronged approach to the capital deployment, and I've challenged the team to continue to be active and find those opportunities as we invest in the platform this year, and it's encouraging to see the results year-to-date.

Our next question comes from Salil Mehta with Green Street Advisors.

I know you just briefly mentioned this, but I'd just like to quickly touch base on it again, but there was some broader commentary towards the latter half of last year, signaling that markets located in the Sunbelt, we're reaching an inflection point. But just looking at your disclosures here, I'm seeing Tampa down 10% on NOI and Miami at 3, Atlanta down 6, can you just walk us through what you're seeing in these markets? And why are they continuing to lag?

Yes, sure. I can maybe provide some incremental commentary on certain of that. I think I hit the big picture around some of the tough comps and new supply. I certainly put Tampa and that [indiscernible] Tampa also had a benefit several years ago from some storm activity, which led to increased customer demand that we're now -- have been lapping. But I think big picture, sequentially, we've seen improvement in most of the Sunbelt markets, maybe not in Tampa. And I think that's been driven really over the last 12 months or so, and we expect to continue, but revenues continue to decline. So while there is improvement, it continues to be uneven month-over-month but the direction is clear. And so as we look at those markets, some of which you highlighted, but I would put some of the Texas markets in that camp, Orlando, Atlanta, Charlotte, for instance, all working through pretty similar characteristics, all seeing sequential improvement in the operating metrics but we're not expecting those to improve dramatically overnight. That absorption is taking place. And as we move through the year, we're still expecting, as we finish this year, that those markets are still in negative territory as we finish '26 and head into '27 but the direction is clear and the sequential improvement is occurring.

Great. And this is another follow-up. You guys achieved a positive move in rate growth around 1.6%. But can you perhaps highlight if this has led to any changes in terms of your ECRI program?

Yes, it's a good question. I think on the ECRI program, specifically, pretty consistent strategies year-over-year as move-in rents do move higher, that reduces the replacement cost component of that modeling and optimization, which should lead to stronger ECRI contribution over time. Obviously, 1.6% growth in the quarter is modest growth. But as we see that move higher over time only additive to the ECRI program.

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

Just curious on the acceleration that's assumed in same-store revenue in the back half and turning positive in the fourth quarter. Would that hold that assumption or that guidance or not for the sunsetting of the L.A. rent restrictions coming off, i.e., if we strip out L.A., would you still expect positive same-store revenue in the fourth quarter?

Yes. Juan, it's Joe. It would be pretty close. We do think L.A. with the acceleration there and the easier comps that we now face and with the revenue momentum that we're seeing right now post July 1. And L.A. will get to a positive year-over-year revenue growth potentially in the fourth quarter. So it is helpful to the portfolio. So it'd be close, but we do have a big component of the portfolio in those Midwestern and coastal markets. It's performing very well and continues to put up 2%, 3% and 4% revenue growth. So you have that. And then we do have a shift in momentum, as Tom talked about in the Sunbelt, where second derivatives getting better. You're probably not going to see the Sunbelt a whole get back to positive in the fourth quarter, but it is definitely moving in the right direction relative to where it's at today. So L.A. is additive to that, but it's not the sole driver of it.

Great. And then just on the churn point, that coming down and the focus on customer service, I guess, with all the analytics and data you guys are now running and taking advantage of I guess what would you highlight as kind of the key things in the customer's mind that is improving that length of stay or limiting churn? Like what has been most effective as you've been more focused on that customer-centric approach.

Yes. I think there's a few things. One, from a strategic standpoint, that's been a big focus area really for all the teams across the company as we're in a more competitive landscape today, and frankly, customers expect more. If I had to pick 1 thing, as you're highlighting that would be an important driver of that, I would say it's listening to our customers. And so we put in new survey programs. We used to get 2,000 to 3,000 surveys a month. We're getting more like 90,000 surveys a month now, and that's clearly going to grow with the NSA portfolio that's coming on. So listening to our customers and getting more of that feedback enables the team to resolve those concerns and provide a better customer experience for the customers at our properties and the focus is around a reliable customer experience. And when there are issues that come up, we can seek to resolve them faster this year than we did last year. And hopefully, even more so moving forward with some of the tools that we're putting in place and the like. So I would say that it's probably listening to our customers more, and we're seeing that benefit play out and customer sentiment scores within those surveys.

Our next question comes from Ravi Vaidya with Mizuho.

Can you discuss the decision to raise equity here? You have ample leverage capacity over $600 million in free cash flow. Why raise now? And how do you think about your various capital sources?