Executive Summary / Key Takeaways

• Public Storage (PSA) is leveraging its industry-leading digital transformation and AI-driven operational model to enhance efficiency, reduce costs, and drive superior financial performance, positioning it for sustained growth amidst stabilizing market conditions.
• The company's "compounding returns platform," fueled by strategic acquisitions and a robust development pipeline, is a significant engine of growth, contributing substantially to core FFO per share acceleration.
• Despite a competitive move-in environment and specific regional headwinds like pricing restrictions in Los Angeles, PSA's diversified portfolio, strong balance sheet, and focus on existing customer behavior underpin its resilience.
• Technological differentiation, including 85% digital customer interactions and a 30% reduction in on-property labor hours through AI, provides a distinct competitive moat and drives margin expansion.
• The 2025 outlook anticipates continued operational stabilization, with core FFO per share growth, modest occupancy improvements, and effective expense control, supported by increasing retained cash flow for reinvestment.

Public Storage's Enduring Strength and Strategic Evolution

Public Storage, a Maryland real estate investment trust (REIT), stands as a dominant force in the self-storage sector, operating through an umbrella partnership REIT (UPREIT) structure. As of September 30, 2025, the company's extensive footprint included interests in 3,152 self-storage facilities across 40 U.S. states, encompassing approximately 227.70 million net rentable square feet, alongside 1 million net rentable square feet of commercial and retail space. This vast network, coupled with a 35% common equity interest in Shurgard Self Storage Limited, which operates 323 facilities across seven Western European countries, underscores Public Storage's significant market presence and diversified geographic exposure.

The company's strategic evolution is marked by a consistent focus on growth through both organic initiatives and substantial acquisitions. Since the beginning of 2023, Public Storage has acquired 260 facilities, adding 19 million net rentable square feet for a total of $3.80 billion. This includes the notable 2023 acquisition of BREIT Simply Storage LLC for $2.20 billion, which brought 127 owned facilities and management of 25 third-party facilities into the portfolio. This aggressive expansion, alongside a robust development pipeline, has significantly bolstered the company's "non-same-store" portfolio, a critical driver of future earnings.

The self-storage industry itself is characterized by its needs-based demand, often driven by life events that occur regardless of economic conditions. Its affordability relative to other space alternatives makes it a resilient option for consumers and businesses alike. The sector has undergone a period of normalization over the past three years, with move-in rents declining to levels not seen since 2013, indicating a more balanced market. This normalization, coupled with a multi-year decline in new competitive supply deliveries—projected to fall from approximately 5% of existing stock in 2019 to around 2.5% in 2025—creates a favorable backdrop for established players like Public Storage.

Technological Edge: Fueling Operational Excellence and Growth

Public Storage's "compounding returns platform" is fundamentally underpinned by its advanced technological differentiation and continuous innovation. The company has achieved an industry-leading omnichannel customer experience, with a remarkable 85% of customer interactions and transactions now occurring digitally. This digital shift has enabled a modernization of field operations through the strategic integration of Artificial Intelligence (AI). AI is directly utilized for customer service and to staff properties more appropriately, moving beyond the traditional model of constant on-site management. This approach has led to a nearly 30% reduction in on-property labor hours, while simultaneously boosting employee engagement and lowering turnover.

Beyond customer interaction and staffing, Public Storage is deploying new technology-based strategies across its entire organization. These initiatives span customer search and generative engine optimization, sophisticated unit pricing and revenue management systems, and enhanced asset management, including security, vendor relations, and maintenance. The company also leverages technology to identify and execute development opportunities, providing its field and corporate teams with tools to more effectively drive revenues and control expenses. Collectively, these technological advancements are directly contributing to higher revenues, improved margins, and accelerated core FFO per share growth.

A significant environmental and financial initiative is the company's solar program, which aims to install solar panels on over 1,500 self-storage facilities. By September 30, 2025, installations were completed on 1,108 properties, resulting in a 30% reduction in utility use. This not only benefits the environment but also significantly reduces operating costs. Furthermore, a corporate transformation initiative, launched in the third quarter of 2025, is focused on modernizing and streamlining corporate functions through technology. This program, expected to incur costs of $15 million to $20 million over three years, is projected to generate annual cost savings of $3 million to $5 million starting in 2026. These technological investments are not merely incremental improvements; they are foundational to Public Storage's competitive moat, driving superior financial performance and solidifying its market positioning for long-term growth.

Competitive Landscape: A Differentiated Leader

Public Storage occupies a leading position within the self-storage industry, distinguished by its scale, operational efficiency, and strategic depth. Key direct competitors include Extra Space Storage (EXR), CubeSmart (CUBE), and National Storage Affiliates Trust (NSA).

Compared to Extra Space Storage (EXR), Public Storage's extensive network and international interests, particularly its stake in Shurgard in Europe, offer greater geographic risk mitigation and revenue diversification. Public Storage's strategy emphasizes long-term ownership and development, which tends to generate stable, recurring revenue streams. While EXR is known for aggressive acquisitions, Public Storage's established brand and broad operational scale provide a qualitative edge in customer loyalty and market positioning. Public Storage's financial health, including its strong cash flow generation and profitability margins (Gross Profit Margin of 73.01%, Operating Profit Margin of 53.00%, Net Profit Margin of 39.53%, EBITDA Margin of 68.21%), appears comparable to EXR, with Public Storage potentially benefiting from a broader base for risk management.

Against CubeSmart (CUBE), Public Storage's large-scale facility network provides broader coverage and market penetration. Public Storage's direct ownership model offers more control over revenue streams compared to CUBE's emphasis on third-party management. However, CUBE has demonstrated strong technological integration for customer interactions, potentially offering a more user-friendly experience for tech-savvy customers. Public Storage's financial metrics align with CUBE's, with both showing robust cash flow from core operations, but Public Storage's scale may provide an edge in cost efficiencies.

In comparison to National Storage Affiliates Trust (NSA), Public Storage's scale and diversification offer more stable revenue and better risk distribution than NSA's decentralized, partnership-focused model. Public Storage's operational execution and established infrastructure lead to greater efficiency. While NSA's model allows for agility in emerging markets, Public Storage's comprehensive network supports superior market positioning and financial stability.

Public Storage's primary competitive advantages, or moats, stem from its strong brand recognition, extensive network of facilities, and diversified international interests. Its established brand fosters customer loyalty, translating into recurring revenue and higher occupancy rates. The diversified portfolio, including international exposure, offers significant risk diversification and enhances adaptability, potentially improving pricing power and profitability in various markets. The company's technological advancements, such as AI-driven staffing and digital customer interactions, further solidify its operational efficiency and cost advantages, creating a margin enhancement of approximately 10% for many acquired assets.

Despite these strengths, Public Storage faces vulnerabilities, including potential market saturation in certain regions and reliance on broader real estate cycles. The high capital requirements for real estate acquisition and regulatory hurdles for development act as significant barriers to entry, protecting Public Storage's market share and financial performance from new entrants. However, these barriers can also favor competitors with strong acquisition capabilities, intensifying competition.

Financial Performance: Resilience and Growth Drivers

Public Storage's recent financial performance reflects a business driving stabilization and leveraging its strategic advantages. For the three months ended September 30, 2025, net income allocable to common shareholders increased to $461.41 million, or $2.62 per diluted common share, up from $380.71 million, or $2.16 per diluted common share, in the same period of 2024. This increase was primarily driven by a $71.5 million foreign currency gain on Euro-denominated notes and a $21.7 million increase in self-storage net operating income (NOI). For the nine months ended September 30, 2025, however, net income allocable to common shareholders decreased to $1.13 billion, or $6.42 per diluted common share, from $1.31 billion, or $7.43 per diluted common share, in 2024, largely due to a $193.3 million increase in foreign currency exchange losses.

Core Funds From Operations (FFO) per diluted common share, a key metric for REITs, demonstrated strong acceleration, increasing by 2.6% to $4.31 in the third quarter of 2025, a 560 basis point acceleration from the prior year. For the nine months, Core FFO per share grew 2% to $12.71. Self-storage NOI increased by 2.6% to $844.37 million for the third quarter and 1.7% to $2.48 billion for the nine months ended September 30, 2025. This growth was significantly bolstered by the non-same-store portfolio, where NOI from Acquired Facilities and Newly Developed/Expanded Facilities collectively surged by 31.1% ($18.6 million) in the third quarter and 22.8% ($39.1 million) for the nine months.

Same Store Facilities, representing approximately 77% of the U.S. portfolio, saw revenues remain relatively unchanged in the third quarter and increase by a modest 0.1% for the nine months ended September 30, 2025. Realized annual rent per occupied square foot for these facilities increased by 0.6%, while average occupancy decreased by 0.5%. Expense control remained robust, with same-store costs of operations held flat in the third quarter and increasing by only 1% for the nine months, driven by reductions in property payroll and utilities due to operational initiatives. Ancillary operations, including tenant reinsurance, also contributed positively, with NOI increasing by 5.44% in the third quarter and 10.53% for the nine months, largely due to higher tenant base and premium rates.

Public Storage's profitability margins are indicative of its efficient operating platform, with a Gross Profit Margin of 73.01%, Operating Profit Margin of 53.00%, Net Profit Margin of 39.53%, and an EBITDA Margin of 68.21% on a trailing twelve-month basis.

The company's liquidity position is robust, with retained operating cash flow expected to reach approximately $650 million for 2025, a significant increase from $400 million in 2024. This substantial cash flow, combined with a strong balance sheet (Total Assets of $20.11 billion, Total Equity of $9.41 billion, and a Debt/Equity Ratio of 1.08 as of September 30, 2025), and high credit ratings (A by S&P and A2 by Moody's for senior notes), provides ample capacity for future growth and strategic investments.

Strategic Initiatives and Outlook: Compounding Returns

Public Storage's forward-looking strategy is centered on its "compounding returns platform," which integrates leading operations, strategic capital allocation, and advantageous capital access. The company has announced over $1.3 billion in wholly-owned acquisitions and developments for 2025. During the first nine months of 2025, 74 self-storage facilities were acquired for $814.60 million, with an additional 12 facilities acquired or under contract for $119.90 million subsequent to September 30, 2025. These acquisitions are typically underwritten for going-in yields in the 5.25% range, with stabilization expected in the 6s under Public Storage's management.

The development pipeline remains robust, with $650 million in projects slated for delivery over the next two years. Currently, 29 additional facilities are in development, totaling 2.60 million net rentable square feet with an aggregate development cost of $483.80 million, expected to open within 18 to 24 months. These development projects are underwritten to achieve an 8% plus or minus target yield on cost, with a stabilization period of three to four years. The company's ability to execute on these projects, even as industry-wide development volumes decline due to increasing complexity and costs, highlights its competitive advantage in this area.

For 2025, Public Storage has raised its outlook for the second consecutive quarter, reflecting outperformance in same-store and non-same-store NOI growth, and acquisition volume. The core FFO per share guidance for 2025 is set at $16.35 to $17.00, with the midpoint consistent with 2024. Excluding the estimated $0.23 per share impact from pricing restrictions in Los Angeles, the midpoint would represent a 140 basis point increase year-over-year. Same-store revenues are projected to be down slightly year-over-year, including a 100 basis point impact from the Los Angeles restrictions. Move-in rents are anticipated to be down 5% year-over-year on average at the midpoint, improving to a 3% decline at the high end of the range. Occupancy is expected to be down 10 basis points on average, an improvement from the end of 2024. Same-store expense growth is projected at 3.25% at the midpoint, primarily driven by property taxes, but offset by payroll efficiencies and solar program benefits. The non-same-store portfolio is expected to contribute $454 million in NOI at the midpoint, with an additional $80 million in NOI upside beyond 2025 through stabilization.

Internationally, the company's relationship with Shurgard in Europe has provided valuable experience in exporting its operating model. This experience has informed its interest in potential new partnerships, such as the previously announced due diligence for Abacus Storage King in Australia and New Zealand. While the offer to acquire Abacus Storage King was withdrawn in August 2025, the company's strategic intent for international expansion remains.

Risks and Challenges: Addressing Headwinds

Despite its strong positioning, Public Storage faces several risks and challenges. The most immediate is the impact of fire-related pricing restrictions in Los Angeles County, where a temporary governmental pricing limitation is in place under State of Emergency declarations. This is expected to result in a 100 basis point impact on same-store revenue growth for 2025, with the effect accumulating throughout the year and extending into early 2026. Los Angeles is expected to return to strong growth once these restrictions expire.

The self-storage industry continues to operate in a competitive move-in environment, requiring ongoing adjustments to rental rates, promotions, and marketing efforts to attract new customers. Macroeconomic uncertainties, including potential changes in demand, trade policy, tariffs, high interest rates, and inflation, could impact the business. Property tax expense is expected to grow approximately 5.5% in 2025 due to higher assessed values, posing a recurring cost challenge. The housing market is anticipated to remain in a "steady as she goes" environment in 2025, not acting as a significant demand driver. Furthermore, foreign currency exchange fluctuations, particularly concerning Euro-denominated notes payable, can introduce volatility to net income.

Development activities, while a source of high returns, are subject to challenges such as difficulty in finding projects that meet risk-adjusted yield expectations, obtaining building permits, and managing rising costs for entitlements, labor, and materials. If capital market conditions were to deteriorate significantly for an extended period, Public Storage's access to or cost of debt and preferred equity capital could be negatively impacted, potentially affecting future investment activities.

Conclusion

Public Storage's narrative is one of a resilient industry leader leveraging its foundational strengths and strategic foresight to drive consistent performance and growth. The company's "compounding returns platform," deeply integrated with its digital transformation and AI-driven operational efficiencies, is proving instrumental in optimizing revenues, controlling costs, and accelerating core FFO per share growth. This technological edge, evident in 85% digital customer interactions and a 30% reduction in on-property labor hours, provides a significant competitive advantage and underpins its superior profitability margins.

Despite facing a competitive landscape and specific regional headwinds like the Los Angeles pricing restrictions, Public Storage's diversified portfolio, robust acquisition and development pipeline, and strong balance sheet position it for continued outperformance. The company's 2025 outlook, marked by operational stabilization, modest occupancy improvements, and effective expense management, reflects a confident trajectory. For discerning investors, Public Storage represents a compelling opportunity, offering a blend of stability, operational excellence, and a clear roadmap for long-term value creation, driven by its technological leadership and strategic capital deployment. The ongoing success of its digital initiatives and its ability to capitalize on market opportunities will be key indicators of its continued leadership in the evolving self-storage sector.