National Storage Affiliates Trust Aktie

Greetings. Welcome to National Storage Affiliates Fourth Quarter 2025 Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, George Hoglund, Vice President of Investor Relations for National Storage Affiliates. Thank you. Mr. Hoglund, you may begin.

We'd like to thank you for joining us today for the fourth quarter 2025 Earnings Conference Call of National Storage Affiliates Trust. On the line with me here today are NSA's President and CEO, Dave Cramer; and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. Please limit your questions to 1 question and 1 follow-up and then return to the queue if you have more questions. In addition to the press release distributed yesterday afternoon, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at nsastorage.com.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties and represent management's estimates as of today, February 26, 2026. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call. The company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional details concerning our forward-looking statements, please refer to our public filings with the SEC. We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as FFO and core FFO and net operating income contained in the supplemental information package available in the Investor Relations section on our website and in our SEC filings. I'll now turn the call over to Dave.

Thanks, George, and thanks, everyone, for joining our call today. The fourth quarter provided further confirmation that our portfolio performance has inflected in a positive direction. We are benefiting from the significant operational efforts executed by our team over the past few years to position NSA for outsized growth. We produced solid results for the quarter and delivered wins in several areas, including all but 1 of our 21 reported MSAs saw improvement in same-store revenue growth versus what we reported in Q3. Same-store revenue growth was down 70 basis points in the fourth quarter compared to down 260 basis points in the third quarter, a substantial improvement. We experienced sequential improvement each month of the quarter.

Year-over-year occupancy also continued to improve, finishing the year down 70 basis points. Remember, we were down 140 basis points at the end of the third quarter. Our core FFO per share results came in at the top end of our guidance range, beating consensus. Looking at the full year, we delivered a handful of notable accomplishments, including we consolidated another brand, reducing the number of remaining brands to 6 and an additional growth driver with the formation of our preferred equity investments platform. We continue to execute on our portfolio optimization program by exiting 5 states and selling 15 properties totaling $97 million. We also acquired 10 properties totaling $75 million across our joint ventures and on balance sheet. And most importantly, we exited the year on solid footing with positive momentum that is carried into 2026 as January in a month occupancy was up 20 basis points year-over-year.

We clearly turned the corner. Tremendous efforts undertaken by our teams to internalize the Pro structure, dispose of noncore assets upgrade and centralize our marketing, revenue management and operations platforms, along with the consolidation of brands and the move to one web domain are paying off. Looking at 2026 and beyond. The backdrop for self-storage is improving. First, new supply is currently stable and is projected to decline over the next few years to levels well below long-term historical averages with the impact becoming more meaningful in 2027. Second, there is momentum in the current administration to address home affordability, which could provide a boost to the housing transaction market and self-storage demand. Lastly, increased ability in self-storage pricing practices could lead to rising street rates, providing a near-term lift to revenue growth.

Now let me comment on our real position within the sector. Our portfolio fundamentals have inflected positively, and we have the most to gain from a recovery in the level of housing turnover. Our enthusiasm is supported by the fact that we're starting the year with strong rental volume inflection from negative to positive year-over-year occupancy and an encouraging trajectory of same-store revenue growth, while we remain focused on disciplined expense controls. As we enter the spring leasing season, we will continue to focus on driving internal growth with increased marketing spend, competitive position in terms of rate and promotion, solid execution from the sales process, and remaining assertive with our ECRI strategies. Meanwhile, we continue to improve our portfolio through capital recycling and reinvesting in our properties while also growing our portfolio through expansions and acquisitions. I'll now turn the call over to Brandon to discuss our financial results.

Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.57 for the fourth quarter and $2.23 for the full year at the high end of our guidance range as our focus on operational improvements is starting to be reflected in our results, with same-store revenue and NOI coming in for the high end of the full year guidance ranges. For the quarter, same-store revenues declined 70 basis points, driven by lower average occupancy of 120 basis points, partially offset by year-over-year growth in average revenue per square foot of 100 basis points. This is meaningful improvement from the 2.6% revenue decline in the third quarter, with 9 of our reported 21 markets delivering positive revenue growth.

For the full year, same-store revenues declined 2.3%. Expenses declined 80 basis points in the fourth quarter while growing 3.1% for the year, slightly below the low end of our full year guidance range, benefiting from our meaningful expense control efforts. Most notable savings came from payroll costs that were down 4.1% in the quarter and 2.8% for the year as we continue to find efficiencies with hours of operations and staffing. Meanwhile, marketing was up 37% for the quarter and 31% for the year as we continue to invest in customer acquisition spend in markets where we clearly see the benefits. Outside of same-store operations, the lighter tropical storm season led to favorable results within our insurance captive where we retain a portion of the property casualty coverage for our stores. This resulted in lower expense in the other line item within operating expenses compared to the run rate from the first 3 quarters.

Moving to the transaction environment. We completed the sale of 3 assets during the quarter for $24 million and subsequent to quarter end, we sold 3 additional properties for $21 million and acquired one wholly owned property for $10 million. Our portfolio optimization program will remain active in 2026 and as we prioritize scaling in markets while generating proceeds for deleveraging and funding attractive investments through our JV and preferred equity programs. Our on-balance sheet investments will largely be to fulfill 1031 requirements. Now speaking to the balance sheet. We have ample liquidity and maintain healthy access to various sources of capital. We have $375 million of maturities this year consisting of a $275 million term loan that is due in July and $100 million of unsecured notes due in May and October. We have optionality and will most likely address these maturities with a new term loan. Our current revolver balance is approximately $400 million, giving us $550 million of availability. Our leverage continues to come down with net debt to EBITDA of 6.6x at quarter end just slightly above our 5.5 to 6.5x target range.

Now moving to 2026 guidance, which we introduced yesterday and the full details of which are in our earnings release. The midpoints of key items of our guidance are as follows: same-store revenue growth of 90 basis points, same-store operating expense growth of 3%, flat same-store NOI growth, core FFO per share of $2.19. We have also guided the acquisition and disposition ranges of $50 million to $150 million. In both cases, these amounts represent NSA share. With regard to same-store revenue, we foresee the year-over-year growth steadily improving as we progress through these next couple of quarters. As Dave mentioned, our occupancy is slightly positive year-over-year at the end of January, and that spread has continued into February. At the midpoint of our guidance range, the $0.04 decline in core FFO per share is due to growth in G&A of approximately $0.02. This growth primarily comes from assuming target level cash incentive comp as the same expense in 2025 for our corporate team was below target levels given the company performance. The remaining $0.02 is attributable to a combination of headwinds from debt refinancings and the tough comp for our insurance captive based on my earlier comments regarding the favorable results in the fourth quarter of 2025. Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator?

[Operator Instructions]

Our first question is from Samir Khanal with Bank of America.

I guess, Dave, when I look at your guidance, you're calling for a healthy improvement here in revenue growth, you're down about 70 basis points in 4Q getting to about 1% at the midpoint, I think it sort of puts you even above the peers here. So maybe help us kind of walk through kind of how you get there. Talk about the breakdown, let's call it, occupancy through the year, rate growth, move-in rate growth. and even ECRIs. How do you think about all of that?

Yes, Samir, thanks for joining. Thanks for the question. I'll start off and then I'll have Brandon [indiscernible] a little bit of Acadian. I think where I would start is what's different today versus where we were a year ago when we were giving guidance is our transitioning is done. Our platform is working very, very well. Our synergies and our strategies are working very, very well. All the work we put into our people, process and platforms is complete. And so there's no distraction or no moving pieces right now. So as we sit here in '26 versus where we were a year ago, we just came off of pro internalization and had a lot of moving pieces.

Right now, we're no longer chasing occupancy. Here to say that occupancy in January was 20 basis points up year-over-year. That's something we haven't seen for a couple of years. And so that gives us a high level of confidence that we'll continue to work on that occupancy gains throughout the year. The rate environment is stable. We have seen good contract rate growth through the back half of 2025, we expect to have solid contract rate growth through the year of 2026. And that comes from also the strength in the ECRI program. We're now more [indiscernible] than we have been historically. And that's because we have a high confidence level in our marketing program and our customer acquisitions platforms. We're seeing very, very high levels of rental volume. We finished on a square footage basis, about 11% up year-over-year in the fourth quarter.

Keep in mind that was muted because we were down about 10% in October because of a hurricane comp. And thus far in January and February, those numbers are even stronger. So we're just very, very pleased with the rental output we're getting at the top -- through the top of the funnel all the way to the rentals themselves. And so I think for us, looking at all the things we're thinking about, RevPath is positive. Occupancy is positive, contract rate is going in the right direction and our platforms are really working. I think for us, where we're coming from, where we've been, we feel very, very confident on how 2026 will play out. And I'll let Brandon kind of walk you through the cadence of the year.

Yes. I think the main thing I would add, Samir and you touched on it in your question, the negative 70 basis points that we delivered in the fourth quarter, Dave remarked in the opening about how that improved. So it was more negative to start the fourth quarter, and it got less negative trending towards flattish as we got to the end of the fourth quarter. And then based on the data points that we've given for end of month, January occupancy, my remarks about how that's continued into February. We just feel comfortable that we're starting the year within the negative 30 to positive 210 revenue range, whereas a year ago, we were delivering a quarter and starting the year that was, frankly, well below the low end. So it required much more of an improvement than what's required now.

And I guess just as a follow-up, maybe as we're talking about the guidance, maybe you can hit on expense growth here, right? I mean, you have about 3% for this year. Maybe talk kind of the components to kind of get there as we think about '26.

Yes, Samir, I'll go most significant line item is property taxes, so we'll start there. we're assuming a range of 3% to 5%. That's consistent with kind of multiyear averages for our portfolio. Personnel, you saw the good success that we had in that line item, both in the fourth quarter as well as for the full year '25. We're expecting similar successes. I expect that line item to be flattish in 2026 over '25 and then outside of those 2 line items, I would say the largest percentage increase is going to continue to be marketing expense, not to the tune of the 30-plus percent that we saw this year, but still probably in the teens on a year-over-year growth rate. And after that, a lot of the other line items fall generally in that low to mid-single-digit range that we have for the total OpEx guide, the 1 exception being insurance. We do believe we're in a better market, a renewal is in April 1. And so we are forecasting that line item to be a year-over-year decrease in the cost.

Our next question is from Michael Goldsmith with UBS.

Third question on the January occupancy being up 20 basis points. Can you talk a little bit about what's driving that? I think you talked a little bit about strong rental volumes. It seems like marketing spend is up, but can you walk through some of the moving pieces? Are you cutting rate to drive that occupancy higher during the slower season? Just trying to understand the moving pieces and context around the occupancy improvement.

Yes. Sure, Michael. Thanks for the question. Thanks for being here. I think it's a combination of all those things. Clearly, we committed to a higher marketing spend related to the back half of 2025 and that was based on our conviction that we were seeing the activity at the top of the funnel and our ability to convert those into rentals. And so we've done a really good job looking at the sales process all the way through the funnel and our conversion rates. And so that would include how you use discounting, where you're priced in the markets, the amount of marketing spend and when you're spending that money. This is where AI and some of the AI technologies and the modeling we have are really starting to pay off, and the fact that the teams are doing a really, really good job as we model our marketing spend and model our dynamic pricing and use of discounts to really work on that closure within that funnel.

And so we've seen a significant improvement in our ability to really work the conversion rates through that funnel. So I would tell you from a pricing standpoint, we're keeping the same competitive position we've kept through the back half of the year. We did a good job holding occupancy and not having the seasonal trough that you normally would have, and that's a function of marketing spend pricing, discounting and then use of call center and staffing hours and those things. So I think all those things in place. We're not undercutting markets. We're not trying to go out and kind of move markets one way or the other, we're to stay within the appropriate competitor set to get the results we want.

And as a follow-up, like where do you see yourself to the point of actually having pricing power, right? Occupancy is improving. You're improving operationally. You're talking about strong rental and volume. So is there a certain level of occupancy where you think you would have pricing power?

It's a really good question, and it really varies by market and by store. So we do have markets that are having some good success like a couple of the ones that jump out the page Wichita, Colorado Springs, even Portland. If you look at Portland, where supply and demand are in check and those markets are responding well to not only street rate or market pricing, but the easier eye programs and what you're able to drive through the ACI programs are working very effectively. And that's really, I think, as you look at our portfolio, we do have a lot of stable markets where they are benefiting very much from all of the changes we've made within the company. And all of the adoption that we've done within the company is helping those markets.

The other markets, Mike, like Phoenix and Atlanta and Gulf Coast of Florida and stuff, it's really a supply issue where until you really get that balance and get a better demand profile to get these stores filled up, it's going to be harder to get pricing power. The one thing I would add into that, too, is it's also we've noticed you got to get granular down to the unit size. It's one thing to scrape overall properties and look at overall occupancies and overall pricing power. But there are subsets of unit types that are seeing pricing power within some of our markets because supply and demand is in check on that particular demand for that unit.

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

Congrats on the successes on the [indiscernible] internalization. Just hoping for a little bit more color on kind of the move-in rate trends throughout the fourth quarter and into January as well as kind of how the quantum and or cadence of ECI has changed maybe year-over-year or however you could help us contextualize that?

Sure. I'll start, and then Brandon if you want to jump in here. I think what you have seen and you will see from us is our movement rates as they went through the fourth quarter narrowed on a year-over-year spread. And that's because if you think about few years ago in 2024 when we were internalizing the pros, we reset street rates pretty hard in the back -- really the fourth quarter of 2024 and left them elevated outside of the competition range, probably until April or May of 2025. And so our comps on a year-over-year basis are tougher. The first 5, 6 months of this year just on the move-in rents. Now for us, we're getting the rental volume we want, we're effectively priced where we want to be priced in the markets.

But I think you guys will see us go negative on moving rates probably the first 4 or 5 months of the year. and then get back to more of a neutral deposit position from June, July on. But we are seeing significant rental volume. Again, I'll reiterate, we're not undercutting the market. We just adjusted our competitive position to really work on customer count and do it as smart as we can to get to a better revenue output. The back half of that question was I'm sorry, I'm on a blank now.

ECRIs and how that's changed the quantum.

Yes. Thanks, Juan. Sorry about that. The cadence hasn't changed. So we're still hitting the ECRIs around the same timing that we have been hitting them. I do know our magnitude of rate increases has increased on a year-over-year basis. All of the testing and the things that we're doing and our confidence in the ability to attract new customers and drive additional rental volumes is allowing us to be more assertive on the rate increases through all of the steps, whether it be first, second, third, fourth across the board. And so that's also helpful as we look at our revenue projections this year.

Great. And then I was just hoping you could comment on when you're leasing units of the size or the number of square feet that is being taken up has changed. I know at one point, I think it was last year that has gone down for a bit. But curious on kind of the latest thoughts around how many square feet people are actually seeing today and how that's trending?

Yes. Good question and good memory. We certainly -- this time last year, we were facing probably about a 5 to 6 square foot per rental square footage roll down we've since closed that back up. We're back up to where most of our rentals are either at the same level or a little bit bigger in square footage. And so that's also very much helping in stabilizing occupancy and making sure we're attracting the customers for the units that we're vacating. So feeling good about that progress we made, and that really flipped for us really the -- probably starting September of last year, and we've been able to hold it all the way through February thus far.

Our next question is from Todd Thomas with KeyBanc Capital Markets.

I appreciate the detail on January and February data with regards to occupancy and moving rents seems you've recovered a lot of ground. You described '25 is sort of a tale of 2 halves, first half being a little weaker, followed by an improvement in trends in the second half. Is 2026 from sort of a revenue growth standpoint, also expected to be sort of a tale of 2 halves? Or do you think you can continue to recover in the back half of the year when some of your comps begin to normalize?

Yes, Todd, this is Brandon. I do think that we'll have the benefit of some easier comps in the first half of the year. And partway through the third quarter as well. The fourth quarter will be the tougher comp. We see the year-over-year same-store revenue growth is steadily increasing as we go throughout the year until maybe we plateau a little bit because of what you touched on, it does get a little bit tougher of a comp starting in the back half of the third quarter and then really for the entirety of the fourth quarter.

Okay. And then Brandon, Dave too, I think you both touched on reducing leverage as a priority. And I just wanted to ask whether the guidance includes any sort of deleveraging initiatives really primarily, I guess, outside of organic EBITDA growth? And do you have a leverage target for year-end '26?

Yes. So our 5.5 to 6.5x range remains kind of the long-term target for us and just outside the top end of that at the end of 2025. Based on the midpoint of the same-store NOI guide, Todd, as you know, flat on that metric and FFO being relatively flat. It's really calling for leverage to stay fairly neutral and a little bit of seasonality depending on which quarter you go through because the metric is calculated on an annualization of the given quarter, as you know. But outside of that, I would say, by the end of '26, it's going to be fairly similar to the end of '25.

Capital deployment will affect that. You saw the guide on acquisitions and dispositions at the midpoint of each we're saying that, that would be neutral. Obviously, changes month by month based on the deals that we're seeing, the success we're having on some of the disposition initiatives, any of the particular deals in front of us that we're underwriting for acquisition, largely through the joint ventures, as we said earlier. So the timing and the success on those fronts could drive it and move it a little bit. But generally, at the midpoint you're seeing it stay pretty constant.

Our next question is from Salia Meta with Green Street Advisors.

Just a quick one here to start off. Sorry if I missed this before. I know you guys mentioned January and February occupancy, but did you guys provide any color on where move-in rates are thus far into 1Q?

Thanks for joining. What we talked about is our move-in rates will inflect negative for the first probably 4 or 5 months of the year and is due to a little tougher comp from 2025. And where we're positioned in our markets to make sure that we're maximizing flow through the funnel and conversions and customer count working towards our revenue goal because that's what we're trying to work towards. But I think you will see some negative move-in rates for the next -- probably until about June, and then we think they'll inflect actor more neutral positive for the back half of the year.

Great. And given the roughly, I guess, 1% move in rate growth and overall rental rate growth in the quarter, how are you guys balancing the trade-off between occupancy and rate growth going forward? Is 1 going to be a bigger priority than the other. You guys kind of mentioned that you guys aren't chasing occupancy. Does that mean that you guys are happy with where occupancy levels are at currently?

Yes. I think you're touching on it, it's a balancing point of marketing spend and the use of price and discount to get better conversion and really occupancy can lead to revenue. And so for us, we think we are at a point where we can use those levers effectively and drive some more customer count, which will increase our occupancy. And so the fact that we're starting the year coming out of January on a positive note on a year-over-year basis. As we look at our year, we think we'll be able to continue to work on the occupancy side of the house effectively with -- and that's a nice revenue output for us. So that is, as you think about our year, we think we'll be more occupied at the end of 2026 than we were at 2025.

Our next question is from Michael Griffin with Evercore ISI.

Dave, I'm curious if you can touch a little bit on sort of organic customer demand. Obviously, I think it's a positive seeing the same-store revenue growth inflect into next year, but it feels like that's more an enhancement of marketing initiatives and capturing more of the top of funnel demand as opposed to the pie maybe expanding a bit. So can you talk a little bit about organic customer trends, how are new customers versus renewals? And really is the inflection driven by, I guess, capturing more of the pie of customers out there rather than expectations for more customers to come back to the market?

Yes. Good question. Thanks for being here. I would agree with your premise. And I think we're approaching 2026 with a mind frame that the competitive environment will be very similar to what we faced in 2025. Nationally, we know that new deliveries are coming down, but that number takes a while to be absorbed. And so I think, as you think about our stores that are facing competitors in a 3- and 5-mile ring, we don't see a material change in the number of stores facing that competitor set in 2026.

So we're going to be very focused on just executing and trying to take more of the pie. And certainly, every month, you go deeper into absorbing new supply, it helps, but we did not in our guidance at our midpoint, really modeled in any catalysts or anything that's really materially different than the way we're thinking about how the competition is going to look for 2026.

That's certainly some helpful context. And then maybe just on the external growth opportunities. It seems that particularly the acquisitions component of that might be more in kind of the JV structures that you've laid out. But can you give us a sense of what kind of product type you're targeting with those, whether it's going in cap rates, your yield requirements, just maybe give us a sense of kind of external growth priorities and the investment pipeline for the year ahead?

Yes. Really great question. First of all, we're targeting markets where we can densify our portfolio, get better synergies, get better operational efficiencies. And that's been part of our portfolio optimization program now for a couple of years. And so the markets we are targeting are really around where we think we can have good efficiencies and good success in buying properties. We're probably a little less attractive to the markets that are really struggling right now because we'll want those markets to improve before we want to step into them, but we have a number of markets where we have had good success. We've seen the inflection points. We're seeing things go in a positive direction, and we're very actively working in those markets to come up with acquisitions. The best cost of capital right now for us is our JVs and the new structure, the preferred equity structure will lean into that this year as well. And then we will [indiscernible] balance sheet, if needed, primarily used probably to fulfill 1031s as we come across those through the dispositions. But we're willing and able and want to buy, but we're just being very diligent with our money right now because it's -- certainly, there's -- you got to be very smart and you got to be very diligent on how you put your money out and deploy it.

Our next question is from Ravi Vaidya with Mizuho Securities.

I wanted to ask about the rent per occupied square foot. You've seen strong improvement there on both a year-over-year basis and on a quarter-on-quarter basis. Do you -- how do you see this metric trending in 1Q '26 and in the -- throughout the balance of 2016 as well? Do you think it's going to be stable, accelerating or decelerating?

Good question. Thanks for joining. We approach 2026 with continued improvement in the achieved rate. It becomes more challenging when you have bigger roll downs like we're facing today. So our rent roll downs are in the low to mid-30s at this point. And so the strength of our ECRI program and the improvements we've made around how we implement the ACI program will help offset that rent rolled out. But we did throughout the year, show modest improvement in the achieved rate as we went through the year.

Got it. That's helpful. And I wanted to ask another question about the guide. I know that you mentioned that we don't have any housing-related catalysts or any other demand catalyst for achieving the same-store revenue guide. But what are some of the potential levers of maybe upside or elements of conservatism that might be baked in given that the broader operating environment remains a bit choppy.

Yes, good question. I'll start and then Brandon, if you want to jump in. Certain things that can move the guide around and one of the primary things is asking rents. If we see good improvement in asking rents, and we see a good spring leasing season, and that's the hard part about sitting here today, it's February. And if we're sitting here in May, I think we'd have a lot more light on how active the spring leasing season was. Did we have good rate? Were we able to drive the street rate asking rents up as historically this industry does.

And so that's the one thing that we don't know, and that could push the guide up or it may push you to the low end, if history rates don't cooperate and you get more volatile competitive environment as far as the revenue side of the house goes. And that would affect occupancy, and it would affect, obviously, what you're driving home for the achieved rate if you're any movement on that street, right? Anything else?

Ravi, I mean, the one thing I might add is just it's outside of our control, obviously, is just regulatory environment and any state of emergency declarations due to severe weather or other events, our portfolio is not currently subject to significant restrictions there. But obviously, that could that could play a factor. There's always some elements of that in the portfolio as you go throughout the year in the state of Oklahoma. We had some restrictions in 2025 that impacted our OKC and fulsome markets. So that's just one variable. But we try to, as much as you can incorporate some elements of that as we think about kind of the normal course revenue management program.

Our next question is from Ron Camden with Morgan Stanley.

Just 2 quick ones. Just can you just contextualize your dividend payout ratio for this year? And sort of I think you talked about sort of an inflection? Is it sort of a '27 or '28, like when do you sort of anticipate getting that back to sort of even as this inflection sort of plays out?

Ron, thanks, this is Dave. Thanks for the question. Yes, certainly, the guidance would imply we're not covering the dividend this year. We will be light on covering the total payout. Certainly, as we think about it, we are at an inflection point. We are seeing fundamentals turn positive. We're seeing our organic growth turn positive and there are moving pieces that investment activity and things like that, that can move FFO around. We did come off of covering the dividend in third quarter and fourth quarter of last year.

And so I think we have very good discussions with our Board. Our Board is very in tune to what the outlook of the company is. And right now, I think, to your point, as we finish the end of the year, we probably be back to where we're covering 100% of the dividend towards the back half, really, the fourth quarter of the year. And then into 2027 is the fundamentals keep improving well we'll certainly be in a much better position. But we're certainly aware where the payout ratio is, and we're working very hard to accomplish that to be lower.

Great. That's helpful. And then my second question, I think the release sort of noted that all the one market saw sort of sequential improvement, which I thought was interesting. I mean can you just double-click on whether the heavy supply markets versus maybe the lower supply, how those are sort of performing and what your expectations are in terms of that, the strength of the inflection?

Yes, good question. I'll start and then Brandon wants to come in here, but you're touching on it. The markets where we are still facing a tremendous amount of competition that needs to be absorbed are the ones that are really not inflecting positive are going to take time. And really, it's just time. And in some markets like Phoenix, they need to stop building because they're still building in Phoenix. And so you make 2 steps forward and then you have to take 3 steps back as somebody adds some more product to the market.

The markets that don't have that, and I mentioned a couple of them earlier, Carlo Springs, Wichita, Portland, we're seeing nice, solid sequential growth in rate and occupancies have been steady, and we're seeing some pricing power in those markets, and we're having good success. And so fortunately, we do have a diversified portfolio. We have a lot of our markets that are going in the right direction. And so that makes us feel very good as we think we've hit that positive inflection point. even a market like Atlanta, which is improving, it's still very much negative, but we are seeing some consistency and some stability in some of these markets, which is encouraging to us.

Our next question is from Eric Wolfe with Citigroup.

You mentioned the positive trends on occupancy year-to-date. I was just wondering if it's possible for you to update us on where RevPath has been trending just to understand how average realized rents have been moving through the early part of the year especially given your comment around seeing more success on these CRIs.

Eric, thanks for joining good question. RevPath is following the similar trends. We are seeing improvement in RevPath that would be consistent with nice solid ERI gains. And obviously, the improvement in -- or stabilization and occupancy and a slight improvement in occupancy, but the RevPath is growing, yes.

And it looks like your other property-related income or revenue was a 40 bp drag on your same-store revenue growth this quarter. Can you just talk about what's embedded in your guidance for that line item and where you see it trending throughout 2025?

Yes, Eric, it's Brandon. That line item will continue to be a little bit of a drag. That includes our -- the tenant insurance dollars that are retained at the store. We've always had some amount of tenant insurance dollars reported within the store level NOI dating back to the Pro structure. So that's just remained. And as we talk about all the things that Dave hit on here, the jockeying between street rates, marketing spend, our discounting and promotion initiatives. The at the time of rental upsell and tenant insurance, we have altered that over the past couple of quarters in order to prioritize getting that rental. And so that's created a little bit of a drag in that line item. And so we expect that to continue in '26. Although it does -- that comp gets easier as we get to the middle part of the year.

Our next question is from Omotayo Okusanya with Deutsche Bank.

Yes. Good afternoon, everyone. First question I had was, again, what guidance does not really contemplate any real change in the housing market. Just curious how you guys are thinking about again some of the affordability initiatives that are our President Trump is trying to make happen. And just kind of take a look at all of that. I mean do you kind of feel like the housing market could get better, so this could potentially be a positive catalyst? Or do you kind of look at it and kind of take more -- you see a whole bunch of refinancing activity because mortgage rates are now down at 6%, but it's still not low enough to really stimulate housing demand?

Yes, this is Dave. Thanks for joining the question. That's a hard one. I mean we are encouraged to the fact that at least everybody is talking about it, and they're trying to find a solution or some solutions to get progress. We did not look at 2026 of any type of frac or catalyst in that piece we just approached '26 that would probably remain the same. Any improvement on that would be much welcome. We would be positioned for outsized impact, should they track any of that and open up the resale market or things like that. But I think we see the same step away do. There's a lot of listings. There's a lot of stuff going on out there, but we do not see any significant improvement.

That's helpful. And the second question, the preferred equity platform -- could you just talk a little bit kind of like everything is not kind of in place. Can you just talk a little bit about kind of how deployment is going to work there and how quickly you think you can kind of put out capital?

Yes, sure. It's a 2-year program that we'd set up that we wanted to get the capital out in 2 years. Certainly, we are working very, very hard. We do have 3 properties under contract today. totaling a little over $50 million. So we're pleased that we've got that stood up and we've got properties under contract. We'd like to get that out as quick as possible. If you can find the right deals. So it's hard to [indiscernible] As you know, these transactions are lumpy and timing cannot be particularly same, but we are happy that we're off and running, and we're certainly looking at a lot of properties and there a lot of opportunities.

Our next question is from Wes Golladay with Baird.

I just have a quick question on the portfolio optimization. When you get through this year's dispositions, will you be largely done with the program?

Yes, I think so. We've done the majority of the heavy lifting and the larger work. This year, we'll wrap up a lot of that. And then after that, it will just be as things materialize stuff. But yes, most of the heavy lifting is done.

Our next question is from Annabel Azar with Barclays.

Can you remind us of your strategy for payroll and how you think about the trade-off between like lower end payroll costs versus potentially losing sales?

Yes. And Annabel, thanks for joining. We've been working for a number of years on how to model payroll. And I can tell you with the data we have today and much better tools that we have today, we certainly want to meet the customer when they want to meet us and how they want to shop with this. And so there's no singular answer to perfect staffing levels. We have markets where we have to have more staffing with more hours and markets what's less. But what I do know is we have a much better line of sight. What we've been working on is hours of operation. And that would be -- can we be open later? Can we be closed earlier? Do we need to be open 8 hours, 10 hours, 12 hours a day? Do we need to be open 6 hours a day?

We've certainly put a lot of emphasis around our customer care center and our call center teams are doing amazing things. Plus, we've implemented AI there, so we have a lot of automation built in there where we do not have to be around. We've put -- obviously, the barcodes on the window. We have an app stood up. But for us, it's fluid in markets and pretty fluid in stores, but we have seen payroll savings. And we do think there are more additional payroll savings for us as we go forward, but we will not try to do that at the expense of the customer. But I do believe, clearly, the customer expectation and when they want to surround and how they want us has changed. There's definitely that digital transformation is real, and it allows us to just to be a little more flexible when we're at the store.

That's really helpful. And then one more. You guys have invested a lot in your website and platform over the last year or 2. How much more of a benefit do you see coming from improved search rankings and higher conversion rates?

Another good question. We've certainly put a lot of effort there, and we've seen a lot of success. If you look at our visibility scores and our out ranking scores, and it's a testament to the rental volume. So when we talk about rental volumes being up 20% and 30%. That's all of these things coming together and working very, very well. So we're extremely happy. Obviously, you're never done. You're always working and trying to find another penny year and another rental there. And so the teams are working very hard with their modeling and how we're evolving our AI modeling and there's a lot of progress around what we're doing with Google around. How we're looking at our search and how we're looking at our paid search and our effectiveness around all of the channels that are available to us. And so I'm very pleased with the progress, but still more to come there.

Our final question is from Michael Goldsmith with UBS.

Back for a couple of follow-ups. First, I think you mentioned some restrictions in Oklahoma, like including toll. So can you kind of clarify what you're referring to there?

Yes, I'll jump in a little bit, Michael. What we had last year is they had high wind and fire major restrictions around counties because it was so dry. And so what we faced for a number of months was a restriction on how much we could increase rates at a certain particular time. And so we set a little calmer on Oklahoma through probably 5 or 6 months of that year and then we had a pretty good lift in January around working back through the portfolio in Oklahoma and catching folks back up to where we want them to be.

Like Brandon has said, a lot of these state of emergencies they're generally pretty short in nature, and they're not as widespread, I mean it would be like County or by city sometimes. And that one just haven't been a wildfire one that hung on because they had such dry conditions for such a long period of time.

Got it. And then Brandon, a follow-up just on the refinancing. Can you walk through what's untapped for this year and just how you're thinking or thinking about it?

Yes. The $375 million that we have coming due this year, concentrated $275 million on that term loan and then $100 million on the private placement notes. As you can see on Schedule 4 in the supplemental blended rate on that $375 million out of 4.25%. And so if we, as I said earlier, executed a refinancing of all of that through the term loan market, again, depending on whether we take some of that floating or fix it all for the tenor, you're probably in the mid- to high 4s. And so that's -- let's just say that's 0.5% of rate reset on that notional.

And so that kind of partial year impact in 2026, Michael. So that kind of gets to some of that interest expense headwind that I mentioned earlier. That's just kind of the Plan A. There's obviously the private placement market. or secured market. So we feel comfortable with being able to address the maturities. That will be the main focus for our finance team. And then I was also referring to in my comments earlier, and you see it footnoted in our guidance table. One of our joint ventures has about $360 million of debt that comes due in October. And so currently, the plan there would be to refinance that. And so that's a 3.5% in-place interest rate. So there would be a rate reset at the JV level, and then we would pick up our 25% share of that. So that's all incorporated into the guide.

There are no further questions at this time. I would like to turn the call back over to Mr. Hoglund for closing comments.

Yes. Thank you all for joining us today, and we appreciate your continued interest in NSA and we look forward to seeing many of you investors next week at the conference of Florida. Thank you.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

Greetings. Welcome to the National Storage Affiliates' Third Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, George Hoglund, Vice President of Investor Relations for National Storage Affiliates. Thank you, Mr. Hoglund. You may now begin.

We'd like to thank you for joining us today for the Third Quarter 2025 Earnings Conference Call of National Storage Affiliates Trust. On the line with me here today are NSA's President and CEO, Dave Cramer; and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. [Operator Instructions]

In addition to the press release distributed yesterday afternoon, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at nsastorage.com.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties and represent management's estimates as of today, November 4, 2025.

The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call. The company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional details concerning our forward-looking statements, please refer to our public filings with the SEC.

We also encourage listeners to review the definitions and reconciliations of the non-GAAP financial measures such as FFO, core FFO and net operating income contained in the supplemental information package available in the Investor Relations section on our website and in our SEC filings.

I'll now turn the call over to Dave.

Thanks, George, and thanks, everyone, for joining our call today. We delivered solid results in the third quarter, reflecting sequential improvement in the level of year-over-year same-store revenue growth in 16 of our 21 reported MSAs. Additionally, our core FFO per share result beat consensus estimates. Our focus on driving performance with our upgraded tools, a consolidated platform and an enhanced team is starting to take hold and has continued into the fourth quarter.

Contract rates in October were better than last year by 160 basis points versus a 20 basis point increase for the third quarter. Occupancy ended the month at 84.3% versus 84.5% at the end of September. We were pleased that we're able to hold occupancy relatively flat in October. On a year-over-year basis, occupancy was down 170 basis points. I'll remind you that occupancy in October of last year had 20 basis points of hurricane demand.

Looking at the sector more broadly, we are positive about the outlook for self storage in 2026 and beyond. Given that, one, new supply over the next few years is expected to come down to levels well below long-term historical averages, supporting a notable shift in the supply-demand balance for the sector. Two, assuming Fed interest rate cuts push down mortgage rates, this would likely result in increased storage demand that would accelerate the current inflection in fundamentals.

Three, in addition, lower interest rates will benefit our borrowing costs and overall cost of capital, which will aid us in our future acquisition activity. Additionally, we are encouraged by our relative position in the industry as we have 2 levers to pull: rate and occupancy, which provide us with a growth potential advantage going forward.

Our positive momentum is supported by: one, the pace of our same-store revenue growth is improving quickly, suggesting the worst is behind us and a solid inflection off of the bottom. Two, our continued focus on the execution of our strategy, including enhanced marketing and revenue management, optimized staffing levels, property improvements and expense controls are all starting to show results. Three, we continue to add earnings growth drivers as evidenced by the launch of our preferred investment program. Adding strategies like this will help return NSA to being a growth company.

In aggregate, these factors provide the best setup for the self storage sector and our portfolio have seen in several years. We are confident that our revenue growth will continue to improve even without a housing market recovery. Although the pace of the recovery is uncertain, we are encouraged that we have reached an inflection point. We will continue to focus on improving our occupancy level and revenue growth with increased marketing spend, competitive position in terms of rate and promotion, solid execution of the sales process and remaining asserted with our ECRI strategy.

We are also focused on improving our portfolio through continued capital recycling and reinvesting in our properties.

I'll now turn the call over to Brandon to discuss our financial results.

Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.57 for the third quarter, in line with our expectations. The 8% decline from the prior year period was due primarily to a decrease in same-store NOI and an increase in interest expense. For the quarter, same-store revenues declined 2.6%, driven by lower average occupancy of 150 basis points and a year-over-year decline in average revenue per square foot of 40 basis points.

This is a meaningful improvement from the first half of the year due to us finding stability operationally and also as we encounter the easier comps to last year. To emphasize this, I'd refer you to Schedule 7 in our supplement, where we break out same-store total revenue between rental revenue, which represents over 95% of the total and other property-related revenue, which primarily consists of tenant insurance dollars retained by the stores.

Our rental revenue line item was down 2.2% year-over-year in the third quarter compared to negative 3.2% year-over-year in the first half of 2025, a 100 basis point improvement. The other property-related revenue line item on the other hand had a difficult comp as last year's third quarter was outsized, partly due to us commonizing all of the legacy PRO properties onto our corporate tenant insurance program. Understanding these different components is critical to evaluating the same-store portfolio performance in the third quarter and the implied fourth quarter growth at the midpoint of our guidance.

Expense growth was 4.9% in the third quarter. The main drivers of growth were property taxes, marketing and utilities, partially offset by a decrease in insurance costs. Property taxes were elevated mainly due to a tough comp given successful appeals in the prior year period. Marketing was up 29% versus the prior year as we continue to invest in customer acquisition spend in markets where we clearly see the benefits. We expect some of these expense pressures to ease a bit in the fourth quarter as implied by our guidance range.

Moving to the transaction environment. Our 2023 JV acquired 2 properties, one in California and one in Tennessee for a total of $32 million. We also completed the sale of 2 assets, which were discussed on last quarter's call. Our continued commitment to our capital recycling program provides several benefits.

First, we're becoming more operationally efficient. Second, it generates proceeds to deleverage. And third, it funds attractive investments through JV and preferred equity structures. We're particularly excited about the preferred equity program that we just announced because this opportunity allows us to accretively invest in self-storage deals that provide us with a larger initial yield than wholly-owned acquisitions.

It also allows us to continue partnerships with our former PROs using a structure that solves for our partners' capital raising needs and NSA's risk-adjusted return requirements for capital deployment. It also provides a captive acquisition pipeline for us as we have a right of first offer on the properties acquired by the joint venture we announced with the Investment Real Estate Group.

Now speaking to the balance sheet. We have ample liquidity and maintain healthy access to various sources of capital. Subsequent to quarter end, we amended our credit facility agreement to remove the 10 basis point SOFR index adjustment on our revolver, Tranche D term loan and Tranche E term loan. This amounts to nearly $1 million of annual interest savings on the debt associated with these facilities. We have no maturities of consequence until the second half of 2026, and our current revolver balance is approximately $400 million, giving us $550 million of availability. Our leverage has been slowly coming down with net debt-to-EBITDA of 6.7x at quarter end, down slightly from 6.8x in Q2.

Turning to guidance. And given that results were in line with expectations, we maintained our guidance ranges for 2025 for same-store growth and core FFO per share, which are detailed in the release. I'll highlight that the midpoint of the same-store revenue and NOI guide imply continued improvement in the pace of growth for the fourth quarter, building off of the inflection in the third quarter, which gives us further confidence of positive momentum into 2026.

Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator?

[Operator Instructions] And our first question comes from the line of Samir Khanal with Bank of America.

Dave, when I listen to your opening remarks, your comments in the earnings release, your prepared remarks, certainly, you have a very positive tone here, which is a bit different versus what we've heard from the peers. Maybe help us understand what makes you so confident sort of on a relative basis.

Yes. Samir, thanks for joining. Good question. I think from my seat and from our seat, we spent the last couple of years in a very challenging environment working on our company and working on our -- the way our company was structured, working on initiatives that allowed us to become better and position ourselves to have better performance in the future. You think we collapsed the PRO structure. We consolidated brands. We consolidated operating platforms. We hung everything on nsastorage.com, centralized marketing platform, have centralized revenue management now, centralized pricing, centralized marketing. And so we've worked really, really hard to put ourselves in a position now where we're looking forward saying that we think we've inflected.

From this point forward, as we go forward, as we look out to 2026, we think we're in probably the best position we've been in several years to perform in today's environment than any other environment that's in front of us. And so as we look out and we look at the progress we've made over the last 3 or 4 months, around some of the efficiencies that we're tracking like occupancy level, contract rate and where we're heading coming out of this year and looking into 2026, it just feels like from our seat, we feel very, very good about how we're executing, how the team is executing all of the work and the changes we've done are coming together. And we just feel very confident as we head out that we're in a position today that we haven't seen in several years from easing supply pressures from the sector, but really from our seat looking at what we have in front of us.

We have a couple of levers to pull that make us a little bit different than our competitors. We have occupancy left and we have rate left, and we're going to work on our marketing spend, and we're going to work on our execution and really focus on driving our portfolio forward and having success around in today's environment and really sets us up in a position for 2026 going forward. You heard in our opening remarks, we've been able to hold occupancy relatively flat coming -- we improved in the third quarter, held it flat in October. We're in a position now where contract rates is still remaining positive on a year-over-year basis.

There's just a lot of things that we feel that we've worked on that are really starting to have fruit right now, and it feels like as we go into 2026, it sets us up to have a good year.

Got it. And then I guess switching subjects here on -- maybe on the disposition side. Maybe talk around kind of capital recycling, how you're thinking about that sort of disposition capital recycling over the next 12 months?

Yes, I think we'll stay at our thought process around recycling our capital. We still have some markets and some stores that we're in the market with right now. And so we have stuff that we have not closed on, but we're marketing today. As part of that initial push, as we look through our portfolio, everything is built around becoming operationally efficient and really trying to find the future that this serves us the best and creates the most return for our shareholders. And so we look at recycling capital, we've had good success selling properties. We've had good success with the buyers wanting our properties, and we've been able to turn around and reinvest that money from the recycling program in very efficient ways.

Brandon will -- has spoken in his opening remarks about this new opportunity we just created, which allows us to take some of this recycled capital and put it to very good use and a very good preferred investment. And we just think we'll be smart about it. We think that probably the big chunks of our recycling program are over, but we will continually work on the portfolio to make sure we're in the best position to perform.

Our next questions are from the line of Michael Goldsmith with UBS.

Dave, the move-in rate was up 4.9%, which is really encouraging, but same-store revenue growth was down 2.6%. So from your perspective, how do you think about these improved street rates flowing through the algorithm and its ability to impact -- positively impact same-store revenue growth. How long do you think that takes? And what's the opportunity there?

Yes. Good point, Michael. I think from our seat, we're doing 3 things right now. We're closing the year-over-year occupancy gap and as we look out into 2026, we're going to work very hard around having a pretty level basis on year-over-year occupancy and look next year to grow that occupancy on a year-over-year basis. So that will help on the overall revenue output of the portfolio.

Along with that, obviously, we'll position ourselves in the market from a street rate and promotion positioning to make sure that we're competitive and we get the amount of conversions we want for the marketing effort and for the positioning that we're doing around attracting new customers. And so that creates still a rent roll down, which I think we're all dealing with. But what I do have more confidence in as we get better and better with our platforms is around the ECRI strategy and our ability to continue to maximize how we implement in-place rate changes to our customers. And so that's probably a long-winded ended answer to, I think we have 3 things that we're working on that are going to help us drive additional customers into the platform and actually be able to maximize the revenue.

And so as we look at 2026, we're going to start the year in a position we haven't been in several years and the fact that we're going to be pretty flat on a year-over-year basis on occupancy. We're going to have good positioning on contract rate. And from that point forward, it's just a matter of how we drove 2026 as rental volume levels and how we execute on the ECRI program.

Got it. And as a follow-up, just along the same lines, to what extent are the former PROs impacting same-store revenue growth? Is that a positive now? Or is that still a little bit of a drag? How have you been able to operate those stores better and when do you think you can kind of harness maybe some of the upside from your operations out of those stores and realize that benefit.

Yes. Good question. We definitely in the third quarter saw some momentum around, I'll give you this data, around move-in square footage for Q3. And if you think about the overall move-in square footage for Q3 was 5.8% higher than it was a year ago. So as we look at our platforms and our marketing and all the things we're working on, we certainly saw an improvement in the net rental square foot that we were able to achieve. Of that, 3% of that $5.8 million came out of the core portfolio, the corporate stores that we have managed before. The PRO store saw a 10.1% improvement in that net rental square foot on a year-over-year basis for Q3.

So we certainly are starting to see momentum around all of the rebranding and all the efforts around centralized platforms starting to flow through on a rental basis, which will lead to revenue and revenue outperformance. From the expense side of the house, we've seen some savings around payroll, but we're also spending more on the marketing dollars to generate the rental volume that you're seeing here. So we just think -- as we talked about last quarter, we were a little bit behind where we thought we would be. Definitely we're happy with what the momentum we saw in the third quarter.

The next question is from the line of Spenser Glimcher with Green Street.

Just given your former PROs were obviously a strong piece of your historical external growth. Should we expect to see more of these growth-focused JVs form in the near to midterm?

Spenser, yes, thanks for joining. I certainly think it's an opportunity. We -- one of the strong points of the -- there was a lot of strong points to the PRO structure, but that was one of them with their access to these local markets and ability to get off-market transactions done with buyers and sellers and us being the buyer and then finding sellers. And so I do think it's an opportunity. We are very pleased to announce the one that we have just announced.

We put this in the Mid-Atlantic, kind of Northeast section of the country where this former PRO has a very, very strong operating presence, and they have very, very strong tentacles into these markets where I think they're going to have very good success buying properties and have good success in this program. So I think it could lead to more. We don't have a line of sight right now on more, but it's certainly something we think could be attractive.

Okay. Great. And then I know you mentioned in your prepared remarks that the capital recycling provides obviously to delever and that has been coming down slowly. But can you just talk about the larger capital allocation decision here to grow at all when you're 45% levered and trading at a material discount to NAV that doesn't allow you to delever outside of those disposition proceeds?

Yes, Spenser, this is Brandon. I would say everything that we're doing today is pretty modest and with a very disciplined and prudent eye, I mean, if you just look to the activity that we reported for the third quarter, right? I mean we completed the sale of 2 assets that was part of the 10 pack that we had talked about closing the majority of that portfolio in late second quarter. So that was just finalizing that deal. Our JV '23 acquired 2 stores.

Our capital outlay was $8 million. Certainly, this preferred investment that we're talking about is a larger capital outlay and upwards of $100 million plus, but that will take time to deploy all that. And then at the same time, we have a clear initiative to improve the portfolio over time through some targeted select dispositions. And so I hear the spirit of your question, but I would just say that everything we're doing is relatively modest and measured for long-term benefits.

The next question is from the line of Eric Wolfe with Citibank.

I think on your last earnings call in your recent presentations, you provided the [ RevPAF ] growth. I was just hoping you could provide that for October specifically and then talk about how you expect to trend through the quarter to hit that midpoint of your guidance.

Yes, Eric, this is Brandon. I'll take that first, and then Dave can chime in. That metric, we started to introduce into our investor deck back at June NAREIT, and that followed our first quarter supplemental in late April, early May, which is typically when we introduce any type of new disclosures, right? And so in that first quarter supplemental, that's when we first started introducing the in-place customer rate for our same-store portfolio as well as the rates at which customers were moving in and out. And so because we were providing that in-place customer rate, it's essentially -- [ RevPAF ] is essentially a combination of that in-place customer rate metric with the occupancy.

And so to your question about October, Dave in his opening remarks mentioned our occupancy down 170 basis points at the end of October. We were down 140 at the end of the third quarter. So on average, you're in that down 150 to 160 territory. But you also commented the contract rates were up 160 basis points. So those 2 things are essentially flat, meaning that [ RevPAF ] metric for October is essentially flat as well.

All of that having been said, you do have things like the impact of discounts and concessions, which we've talked on these calls more recently about those discounts being elevated in the prior year. So that eats into the revenue growth a little bit. And then you also heard in my opening remarks about that other property-related revenue line item being a little bit of a drag. And so those are really the things that are dragging you from that [ RevPAF ] metric for the third quarter to get to that negative 2.6% that we reported. And that's also what would take you in October from being flat on [ RevPAF ] to something that's negative, but frankly, starting with a 1 handle instead of a 2 handle, and that is where we need to be, obviously, to get to that midpoint of the guide.

That's helpful. And then I think you mentioned a comment about occupancy being flat to start 2026. Did you mean that on a sequential basis or on a year-over-year basis, meaning you're comparing it versus like, say, October, the third quarter on average? Are you saying that by the time you start 2026 that on a year-over-year basis, that 170 basis points of occupancy gap that you have today in October will go to 0.

I think what Dave meant well, he can answer for himself there, but I'll also be really clear about what's in our guidance. I mean we -- I've said at recent conferences, we expected to have something in that 150 basis point year-over-year delta for the back half of the year and now a range of scenarios feeds a guidance range, obviously. But I still expect we would be negative year-over-year to some degree, but certainly not to the magnitude that we were to start '24 and '25, which I think was the essence of Dave's remark. So not entirely 0 year-over-year, flat year-over-year, but modestly negative and improving.

Our next question is coming from the line of Michael Griffin with Evercore ISI.

Dave, I want to go back to your comments just on inflection as maybe you look to the year ahead, and I realize you're not giving '26 guidance at this point, but can you give us a sense of maybe the trajectory or expectation of same-store revenue growth? Was that more a comment of a year-over-year improvement? Or could we see that maybe in the first half and then building throughout the year?

Yes. Thanks for joining. It's a good question. I think everything we see today and what Brandon was just commenting earlier is our momentum sequentially month-over-month, and our traction that we're gaining on a year-over-year basis, we're closing the gap on several fronts. And that's around some of the occupancy delta that we faced in the last couple of years, certainly on a contract rate basis as we go forward. And so we look at 2026, where we're starting in a much better position earlier in the year than we've started the last 2, 3 years in several quarters.

And so we look at 2026 probably with a little bit more rosy lens in our opinion right now, just from our starting position. And so I think from an occupancy level contract rate, where we're going to be with [ RevPAF ], I'm not giving any guidance for 2026, but we do think we're going to be in the best position we've been in several years and have some success there.

Great. Appreciate the color there. And then maybe Dave or Will, can you walk through maybe some of the assumptions or give us a little more color on the recently announced joint venture in terms of what kind of properties you're targeting in terms of acquisition cap rates? And then maybe an IRR you're underwriting to and assumptions maybe around revenue -- NOI growth or exit cap as it relates to achieving that IRR.

Yes, Griff, this is Brandon. I'll take it and then Dave can supplement. Certainly, value-add deals is the flavor of what we're looking for in the structure. I think to Spenser's earlier question, a lot of the properties fit the profile that very well may have suited our former PRO under our PRO structure, meaning the initial yield may look stabilize, but there could be an opportunity for further upside just because the properties if we're acquiring them off market, the JV is acquiring them off market, they've maybe been undermanaged by a less sophisticated operator.

Also some assets that maybe have expansion opportunity where our former PRO and partner have a specialty in being able to deliver on those types of additive additions and expansions to sites. And so that's the profile. I would tell you the yield that we're targeting, our cash flow is priority to our partners. And so all of the operating cash flow after [ debt ] service will come to us up until that 10% pref return is filled. And so that -- and that just corresponds to the level at which we're invested in the capital stack.

And so we expect that initial cash flow to be less than the 10% and the delta, the unpaid piece of the 10% will accrue and then be paid over time as cash flows increase.

Yes. I think I'd just add to that, to Brandon's point, I mean, I don't think we're being overly assertive on exit cap rates, and I don't think we're being overly assertive as we think about revenue growth. I think the partner we've chosen has a good handle on their markets, and we overlook all the underwriting as well on the properties they're buying. And I think we'll certainly be very smart about putting capital out and how we underwrite the performance of the properties.

The next question is from the line of Juan Sanabria with BMO Capital Markets.

Just in the opening remarks, Dave, you mentioned the enhanced team. So I was just hoping you could spend a little time on the additions you have made and maybe future opportunities to kind of bolster the senior leadership of the company.

Yes. Thanks, Juan, for joining. Good question. We've really spent a lot of time around looking at all facets of our business. Early on, we had to obviously strengthen our financial team as we brought all the accounting and all the stuff through the PRO structure and the team has done a good job there. Our recent additions have really been around more revenue management, performance driving leadership roles. And so we brought in a seasoned person to help us with our revenue management. She takes care of the ECRI pricing and upfront pricing for customers and promotions and she really leads the data science team and the revenue management team on the efforts towards improving and remodeling and tweaking and continually to test and do all the things we're trying to do around driving the maximum dollar through our portfolio.

We've also added strength in the IT department that allows us with these consolidated systems to have the most efficient technology platforms we have and continue to develop and we added another strengthened leadership position around the marketing -- pure marketing team and the customer acquisitions team. And so I think adding this experience, these 3 people we added had years of experience in their field. They've had years of experience, 2 of them had years of experience around self-storage. And so I think we've just really strengthened there. And then that just ripples through the team. As they come in, they bring in additional talent, whether it be at a manager level or whether it be at systems operations level. And so they've just done a really, really good job strengthening that side of the house.

On the operations front, obviously, now the transitions over the operations team has spent a tremendous amount of time around staffing levels, hours of operation, I think I said in my last call, it's nice to be focused on the business instead of transition. And I think all the benefits of focusing on the business are starting to pay off, and we just are really starting to hit our stride.

Great. And then just on the revenue side. Hoping you could talk a little bit about ECRIs and kind of the quantum or the cadence and how that's changed? And then on the move-in side, could you give the numbers net of discounts? I think that's a more useful figure than the kind of the advertised rate, if you will.

Sure. I'll start, and then Brandon can finish up on the rate question. From the ECRI strategy program, I would tell you how we look at the cadence of the ECRIs, we haven't changed. We've been testing some different thought process around it, but we haven't changed, and we haven't seen anything that's going to make us really change our cadence. I think on the magnitude side, all of the testing we're doing is helping us improve our magnitude on the rate increases. And that's all the way through from the first time rate increase, all the way through the existing customer base.

And so I think on a year-over-year basis from our seat, we feel like the ECRI program is still a little bit stronger than it was last year, and will continue to evolve as data points tell us it can evolve. And so having the additional talent, additional strength and additional wisdom there is paying off on our ECRI strategy.

And then, Juan, on your discounts question, related to the move-in rate metric that we report back in Schedule 7 for the same-store pool. As Dave mentioned it earlier, for the third quarter, we were up 4.9% from the move-in rates. If you adjust that for discounts. It's -- for both third quarter and the second quarter, it was about 100 to 150 basis point impact because concessions were higher. So that 4.9% would otherwise be kind of mid-3s. And for second quarter, we reported that move-in rate was up 130 basis points, and it was probably closer to flat.

Do you have the corresponding October?

October year-over-year, Juan, is very -- is high just because -- and that's a consequence of last year, September and October comp was as much easier, just given where we had moved rates, given what was going on in the market as well as what we were dealing with the PRO internalization. So our move-in rates achieved for October were up 14% and I would also guide you to take 1 point, 1.5 points off that for the discounts. But that's going to flip in November and December, we're likely going to be down. So on average, for the fourth quarter, I think it will be year-over-year relatively flat.

The next questions are from the line of Todd Thomas with KeyBanc Capital Markets.

A couple of questions or follow-ups, perhaps on the new growth vehicle that you announced yesterday. I guess, first, will the $105 million pref, will that be funded on a property-by-property basis? Or is each investment completed? Is that how that will work? And then Brandon, you noted that the properties will not hit the 10% pref early on, the balance will accrue. But based on today's cost of debt and the return profile and assets that you're looking to acquire, any sense what the time line might be for that 10% hurdle to be achieved?

Yes, Todd. So on the first question, it will be deployed on an investment-by-investment basis or asset by asset. So it will occur over time. And we've been working on the specifics of the agreement with our former PRO for multiple months and very pleased to be able to announce it now. We've also, over this past few months, been concurrently underwriting a couple of deals that haven't materialized, but jointly underwriting some opportunities. So we are excited about what we're seeing in the market and looking to deploy those first dollars in the venture.

On the second question, it's going to be deal dependent. I mean, I think the initial cash yield to us will rival the type of cash yields that we're generating in our other JV structures. But then obviously, that growth is going to [ inure ] to our benefit disproportionately. And so then that's where it has an opportunity to get up into that 10%. So it will vary. But I'll just tell you because I referenced that we've underwritten a couple of opportunities recently. You're hitting that in a few deals that we've looked at most recently, year 3 on average, I would say.

Okay. And then it sounded -- I mean, you characterized it like a program, and I think you referenced this or maybe mentioned it in a prior question. It sounds like you don't have line of sight into additional ventures, but is there interest from former PROs to replicate this? Is this something that you think we should assume with sort of a geographic market focus or some exclusivity regionally around the country that you might roll out?

And then with regard to move-in specifically, you just rebranded and announced that you rebranded those stores. How many move-in stores are there left operating today because my understanding is that the acquisitions made by that venture will be branded move-in. And how comfortable are you with that brand-in banner moving forward from an operational standpoint?

Sure, I'll take this. This Is Dave, Todd. Thanks for the questions. I think there is interest from other former PROs around this program. And like I say, we don't -- like I said we didn't have a direct line of sight, but we've certainly had conversations. And so if we think it's appropriate, and we think it's the right time to move forward, you could see us roll this out a little bit more to -- as you said, it really around geographic focused, opportunistic focus areas where this fits their capital need and our capital want. And so yes, I think we could see some more activity here in the future. I don't -- again, no direct line of sight, no timing on that, but it's certainly something that could materialize.

As far as the move-in brand, they still operate, I think over, I don't know, 35, 40 stores. They've got probably in that range around those store count. They are a regional brand that is strong when we [ collapsed ] the PRO structure, it was a brand they wanted to keep. So they paid to have our iStorage stores branded from their move-in stores and they wanted to keep their regional brands. So there's a lot of strength in their local markets with this brand. And so we're pretty comfortable in their ability to manage the stores in this venture for us and to have success at a level where we think it's appropriate.

Okay. So there won't be any additional fees or any sort of efficiencies or scale benefits from this growth vehicle, it's purely just limited to the preferred equity investment, and that's it?

Yes. I mean certainly, there's an initial 10% and then upon exit of a particular part of this venture, there's a chance for us to earn up to about a 14% total return somewhere in that neighborhood of where we want to be potentially. But right now, it's a preferred [ 10% ] with an upside.

Okay. Right. But no revenue management platform that's being shared, no technology, no overlap around -- any impact around tenant insurance or anything of that nature?

Yes. yes, there is TI, Todd. That's something we could mention. They're using our TI program, and so we'll have some benefit from the TI use program. We get some -- obviously some revenue off of that TI program. Other than that, no revenue management, no marketing, no other fees being paid to us, but the tenant insurance is an upside. That's correct.

I think, Todd, though, to your -- tying your questions together, though, this initial deal with our former PRO made a lot of sense given that particular PRO had invested a lot in building out a property operations group. So -- and our comfort with them being managers of assets stems from obviously our history with [indiscernible] PRO. To your earlier question about do we see this more as a programmatic thing that we can roll out to other operators or other owners? The answer is yes. And I think in some of those situations, we would potentially be the property manager in which case, some of those scale and platform benefits would start to come into play.

Next questions come from the line of Jon Petersen with Jefferies.

Can you update us on how the consolidation of brands on a single website is going? And if you've got search engine optimization back to the levels where it was before the integration?

Yes. Thanks for joining. Good question. Yes. So the -- we've had good success with the NSA storage consolidation and consolidation of brands. From a high level, October was really the first month where we had really year-over-year statistics because there was a lot of noise on different websites and different [ major ] websites and trying to track the numbers as you think about everybody else having their own little systems and those pieces. But just a couple of high-level stats to come in October.

I mean web shopping sessions were up 23% year-over-year in October, which we thought was a good metric, shows good solid progress on the fact that we're actually, the marketing spend and the visibility we're putting at our place and where we're putting our underwriting shares was working, and so we're very happy with that. And the conversion rate was up 7.1%. So we're pretty happy with both the shopping session and the conversion rate. So again, momentum, things that made us happy and pleased with the progress.

Okay. All right. That's helpful. And then maybe related to that, Dave, I think in your prepared remarks, you mentioned that you want to spend more on marketing. Can you talk about what that might look like, like what channels and maybe dollar amounts that you guys are targeting on marketing?

Yes. I think the run rate will be pretty consistent as we go through the fourth quarter of what we saw around the third quarter as far as dollars deployed towards really the primary driver of this is around the paid marketing platform. You do some paid search in social, you do some paid search in other platforms, but we're really working hard on positioning ourselves in the market where we have the right efficiency to get the right amount of sessions we want and the amount of our reservations, which obviously lead to rentals.

And so the team has done a good job with the new modeling around our paid search model, and that's been our primary effort and primary lift, and we're very happy with the progress we're making there. So I think from our view, we use the marketing dollars as a tool. And if the tool is working, we'll continue to put dollars into the tool as long as we get the results out of it.

Next question is from the line of Ravi Vaidya with Mizuho Securities.

Can you discuss some of the demand drivers within the quarter and for October here? Are you seeing any more housing-related demand given that mortgage rates are in the high 5s and low 6s? And within your portfolio, which markets do you think have the most immediate upside in the event of a housing market recovery?

Yes. Thanks for joining. Good questions. Certainly, we have not seen a major shift in the amount of people because of the housing market. Obviously, you're pleased to see rates come off a little bit, but it does not have -- hasn't had a material impact, in our opinion, on the amount of resale of homes or turnover around homes. I would note that moving is [indiscernible] about where it would be in our thought process of positioning of why people are using storage.

So we're seeing moving as a top reason people use storage, which is good. But that doesn't mean they're buying a house. It could just mean they're moving from apartment to apartment or some other place and they're still renters. But the fact that we have seen more around moving in, transition is encouraging as far as just people moving around the country.

The second part of that, Sun Belt obviously, for us. We've got a lot of exposure throughout the South. If you think about down through Florida, down through parts of Phoenix and Vegas and you go all the way through really the southern parts of the country would be the biggest benefit, we think, from a housing turnover for our portfolio. And we have a lot of exposure down there. We like the market long term. We think they're a great place to own storage, but we think they've been the most adversely affected during this lockup of the housing market.

Got it. That's super helpful. And maybe just one more here. It seems like fundamentals are inflecting and there's a lot of positive momentum. Maybe why not narrow the guide at this point sitting in November? Like what are some of the bear and bull assumptions regarding the implied 4Q core FFO and same-store?

Yes, Ravi, this is Brandon. Your question touches on probably more of just an approach that we've always taken where, especially if we've revisited the guidance midyear in August, and things haven't materially changed and we feel comfortable with the ranges generally, we just leave them untouched down the board. Obviously, our commentary here and we've got a couple of conferences coming up, which I'm sure will be helpful for folks. It allows people to kind of understand our -- any type of bias or narrowing that others want to take from our results and commentary and apply. So that's really the reason. It's just kind of been our historical approach of leaving everything unchanged and then supplementing it with our remarks on these calls.

The next question is from the line of Brendan Lynch with Barclays.

The PRO internalization was kind of -- the reason you guys gave at the time was about managing your assets in-house and simplifying your story. But with the new JV structure, it seems your partner is going to manage the assets and the JV itself has a bit of complexity. So maybe just help us think about how we should think about the benefits of this ongoing change to your structure?

I'll start and Brandon, you can jump in. I think in this particular opportunity, we like the priority position we have in the investment. We understand the operator. We understand the markets that they'll be looking in. We don't have a significant presence in those markets from an operating standpoint. We did rebrand our stores to iStorage, but the markets that this particular person is in is not necessarily on top of those stores. So I don't know that we look at it as it's overly complicated from our point of view. It's -- they're good strong operator, and we know they understand the markets and where they're at.

And from our seat, that's part of the reason we chose them. We were very, very comfortable. We didn't think it was going to be a high risk and a high attention need from us. We understand their abilities and what they're able to do, and we felt very comfortable that they're able to grow their portfolio in a manner that we would approve and have success with.

Okay. If you do -- it sounds like you're considering doing more of these going forward, would you expect to manage the assets in any other JVs that come down the line? Or would you kind of outsource that again?

No, I think we're open to doing both. I think depending on the situation of the investment and the situation of the operator, I think we could see this where you may find folks who want to do this and have us manage the stores. And so I think the opportunity would sit on both sides. Again, I think we evaluate at the time of who this -- who the people are and how strong they are and what their desires are and what our desires are, and it could lead us to both paths.

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

I just have two quick ones. Just on the same-store revenue, I know the guidance implies you're sort of down 1.3% in 4Q, but the commentary suggests that the inflection point, so maybe you're doing better than that. So I guess I was just wanting to tie those together. And is the thinking here if things continue to improve that presumably same-store revenue should flatten out at some point in the next 12 to 18? Just high level without sort of thinking through guidance here.

Yes, Ronald. So I'll just -- I might restate some of the same things we said earlier, and that's more just to reemphasize and try to answer your question at the same time. So one of the stats that Dave gave earlier about October was our contract rates being up 160 basis points. That's for the all customers in place for the same-store pool. And then the same-store average occupancy for October being down 170 in the month, and I supplemented that and said, on average, it was in the 150 to 160 range. So those 2 things, the in-place contract rate for all same-store customers as well as the average occupancy stat that gives you this flat [ RevPAF ]

And then you have higher discounts year-over-year. I mentioned tenant insurance year-over-year being a little bit of a drag. Those are the things that put you into the red negative year-over-year still on revenue. But to Dave's opening remarks, the pace of that year-over-year growth is changing quickly. And so we like the trajectory. We like the trajectory that we have exiting the year, entering '26. And so I think being flat on revenue growth is certainly achievable sooner than a 12-month time frame or 18-month time frame, I think you're talking a shorter window than that.

Yes. Super, super helpful. I guess my follow-up, just on the dividend, I think the payout ratio had been over 100%. Now that we're at this inflection, just does your -- how does your thinking change about when you can get back to below that 100% level mark?

Yes. I think you're touching on something. We're confident in our trajectories. We're really confident in how we're starting to execute. That certainly puts us in a position to start growing FFO again. And then the pace of that will be determined on how -- a lot of factors that we've talked about on the call here today. I think from our Board seat, they're very thoughtful. They always think about all of the things that are going on with our business and what the future looks like. But the one thing that is very prevalent in our business, to Brandon's point, is you can move pretty quickly in this industry about rates and about occupancy and really adjust to the factors that are going on pretty quickly in this industry.

So I think as we go forward, we're looking to 2026 in a little more positive way than we were looking at this year. So I think that helps from the dividend payout percentages.

Our final question is from the line of Omotayo Okusanya with Deutsche Bank.

Just wanted to go back to the JV, again, Brandon, with your comments about 3 years to get to the 10% prerequisite return. Can you just kind of give us a little bit more information around what kind of NOI growth you are basically underwriting to underneath that? And kind of what kind of debt or cost of debt this JV entity will have when it does ultimately fund the debt part of the equation?

Yes, Tayo, it really is going to vary based on the specific deal and the opportunity that, that deal provides. And so I think it's tough to speak to it in generalities. We wanted to announce the program because it's been something we've been working on for a period of time now, and we do think that it's going to be an important part of our story for 2026. But I think maybe getting into some of the particulars that you're asking about will be easier once we've identified and funded the first couple of deals and then we'll have real numbers to speak to.

Illustratively, what I would tell you is if you think about a 6-cap property and the debt cost is very similar to that cap rate. So you're kind of neutral there. And then if you had 6% equity yield, we're 75% of that equity capital and we're getting all of the cash flow, you run that math and you're at an 8% yield, right? I mean that's super high level, super simplistic, and then you layer growth on top of that. And so you can kind of -- if you use that super high-level illustrative example, you could impute that growth that would be required to get you to a 10% return to your end of year 2, middle of year 3 and year 4 scenarios, right?

Got you. Okay. And then why would your PRO partner also be willing to take on a 10% preferred equity hurdle? Like what's kind of in this for them? The first few years kind of sound like it basically is working for you before they kind of start to make any money. So why is the 10% preferred equity the most attractive cost of equity to them?

I think, Tayo, from their seat, looking at the properties they're going to buy and looking at it from their lens, as we talk about our underwriting, we talk about how we think the properties are going to perform and the overall performance of the deals they're making. I think they have had history and have proven that they're going to outperform. And from their lens, this is an appropriate level of cost of capital for what they're going to get out of it. And so I -- just being around that -- these operators a long time, I was one of these operators. I think they will find some home run deals that work out very, very well for them and makes us very attractive for them.

At this time, this concludes our question-and-answer session. I'll turn the call back over to George Hoglund for closing comments.

Yes. Thank you all for joining our call today, and we look forward to seeing many of you at the upcoming conferences this month and next. Have a good day.

Ladies and gentlemen, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.

Greetings, and welcome to the National Storage Affiliates Trust Second Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host George Hoglund, Vice President, Investor Relations. Thank you, George. You may begin.

We'd like to thank you for joining us today for the second quarter 2025 Earnings Conference Call of National Storage Affiliates Trust. On the line with me here today are NSA's President and CEO, Dave Cramer; and CFO, Brandon Togashi.

Following prepared remarks, management will accept questions from registered financial analysts. Please limit your questions to one question and one follow-up and then return to the queue if you have more questions. In addition to the press release distributed yesterday afternoon, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at nsastorage.com.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties and represent management's estimates as of today, August 5, 2025. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call. The company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional details concerning our forward-looking statements, please refer to our public filings with the SEC.

We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as FFO, core FFO and net operating income contained in the supplemental information package available in the Investor Relations section on our website and in our SEC filings.

I will now turn the call over to Dave.

Thanks, George, and thanks, everyone, for joining our call today. During the second quarter, we generated sequential improvement in occupancy, moving contract rates and our rent roll down spreads. However, our same-store NOI and core FFO per share results fell short of our expectations for several reasons, including: first, there's been no meaningful improvement in the overall macroeconomic conditions, including housing transition as interest rates remained elevated and affordability remain challenged; second, the interest rate and overall inflationary environment have been more challenging than what was contemplated in our guidance, which has weighed on interest expense and repair and maintenance expense; third, there is continued pressure from new supply in several of our markets and is having a greater impact than expected.

Fourth, it is taking longer to realize the benefits from the pro internalization as we work through the changes to revenue management strategies, brand consolidation and management procedures. Finally, the elevated use of concessions during the quarter was a near-term drag on revenues.

Taking all these factors into account, in addition to our assumptions that will now be net seller of assets for the year, we've adjusted our guidance ranges accordingly, which Brandon will detail in his remarks.

Moving to the transaction environment. We sold 10 properties, which were all former pro properties in noncore markets where we did not have a scale, and were therefore inefficient to manage. We exited 4 states with this transaction, making a total of 5 states that we've exited year-to-date. We also acquired one property in Texas and an annex to an existing property in California, which was completed as a 1031 exchange.

During and subsequent to the quarter, our 2023 JV acquired 2 properties, one in New York and one in Tennessee. After acquisitions, net proceeds of $40 million were used to pay down the revolver. Although there remains a steady flow of opportunities coming across our desk, we remain very disciplined in the use of our capital and are focused on improving our balance sheet metrics. Overall, we remain confident in the outlook for NSA.

We still expect to realize the full benefits in the pro internalization. And as the housing market loosens, we expect to realize outsized benefit given our geographic exposure to Sunbelt and suburban markets and will be more impacted by a housing recovery.

Lastly, new supply is projected to decline over the next few years to levels well below historical averages, which will support an improving supply/demand backdrop. We continue to focus on improving our portfolio and occupancy position with increased marketing spend and the use of concessions. We've increased repair and maintenance spend as we address these in the portfolio that will enable us to improve performance. Although these actions add near-term pressure to revenues and expenses, we believe these are the right decisions in light of our current operating environment.

With that said, I do believe that we've hit bottom in fundamentals and that we're just starting to hit our stride operationally. Some of the positive trends that we saw in the quarter and ended July are as follows: occupancy increased 140 basis points sequentially during the second quarter to finish at 85% and further increased in July to 85.3%. This is a noticeable difference from July last year when we lost 40 basis points of occupancy from the current same-store pool. Year-over-year occupancy has narrowed to 150 basis points at the end of July from 220 basis points at the end of June.

RevPar has grown for 5 consecutive months ending July with the year-over-year delta improving down from 4.2% in February to 2.2% in June and now down to 1.6% in July. On a same-store NOI basis, 2 of our reported MSAs, Houston and San Juan, inflected positive for the quarter. Bad debt expense grew on a year-over-year basis and remains in line with historical averages. We are seeing the benefits of technology in our call center with 15% of our total incoming call volume now handled by AI, and the evolution of our paid search model is driving more opportunities and leading to higher value rentals.

Further, our existing customer base remains healthy. We continue to be pleased with the overall success of the ECRI program, and length of stay remains above historical averages. While the pace of our progress was slower than expected in the first half of the year, we are encouraged by the positive trends that we experienced in June and July. We are focused on maintaining that momentum throughout the rest of 2025 and into 2026.

I'll now turn the call over to Brandon to discuss our financial results.

Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.55 for the second quarter, an 11% decline from the prior year period, due primarily to a decrease in same-store NOI and an increase in interest expense. For the quarter, same-store revenues declined 3%, driven by lower average occupancy of 240 basis points and a year-over-year decline in average revenue per square foot of 30 basis points.

Expense growth was 4.6% in the second quarter. The main drivers of growth were property taxes, marketing, R&M and utilities, partially offset by a decrease in personnel costs. Property taxes were elevated mainly due to a tough comp as we had successful appeals in the prior year period. Marketing was up 39% versus the prior year given the competitive environment and targeted spend on markets with rebranded stores.

R&M was higher largely due to cost inflation, addressing deferred maintenance and some weather-related items. These revenue and OpEx results led to same-store NOI growth of negative 6.1%. Going forward, we expect some of these expense pressures to ease, and we expect sequential improvement in the year-over-year revenue growth which is reflected in our guidance.

Now speaking to the balance sheet. We have ample liquidity and maintain healthy access to various sources of capital. We have no maturities of consequence until the second half of 2026 and our current revolver balance is $400 million, giving us approximately $550 million of availability. As Dave referenced earlier, we expect to be a net seller for the year, and the use of near-term asset sale proceeds will pay down the revolver, which, combined with improving fundamentals, will help to bring leverage down over time. Net debt-to-EBITDA was 6.8x at quarter end, down slightly from 6.9x in Q1.

Turning to guidance. Based on year-to-date actuals and taking into consideration the factors impacting performance that Dave highlighted in his remarks, we have adjusted our guidance ranges for 2025 for same-store growth and core FFO per share and now expect same-store revenue growth of negative 2% to 3%, same-store OpEx growth of 3.25% to 4.25%, same-store NOI growth of negative 4.25% to 5.75% and core FFO per share of $2.17 to $2.23. Additional guidance assumptions are detailed in the earnings release.

Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator?

[Operator Instructions] Our first question comes from the line of Michael Goldsmith with UBS.

My first question is on the updated guidance. When you started the year, you laid out kind of the different scenarios underpinning the midpoint and the higher end at the low point. Just based on this updated range, can you kind of walk through this scenario is contemplated to hit the different -- the high end, the low end, the midpoint and what sort of macro expectations for the back half is required to kind of fall within that range?

Yes, Michael, this is Brandon. Thanks for the question. So our revised -- I'll anchor my comments really to the same-store revenue growth because that was from a magnitude, the largest change which flow through obviously the same-store NOI, and that's the biggest driver of the total core FFO per share adjustment in our ranges. So regarding same-store revenue in terms of the operating fundamentals, what's assumed at the midpoint is us being at or near the top of occupancy as you typically would seasonally this time of year and then having a sequential decline as we progress through the back half of the year.

Dave mentioned, at the end of July, we were down 150 basis points in occupancy. So we are forecasting at the midpoint an occupancy trend that is not too dissimilar from what we experienced last year, which was some of that typical seasonal sequential drop off such that we would hover around that year-over-year delta of minus 150 basis points plus or minus. And then similarly, we would see some seasonal sequential decline in street rates that would have its own impact on the rate roll down between move-ins and move-outs. But generally, like our contract rate, we're estimating we'll follow a similar pattern as last year. You saw in the documents year-over-year, we were flat on the in-place contract rate to last year. And so if what I just described plays out, we would remain relatively flat on a year-over-year basis.

And then you have the impact of higher discounts and concessions, which we talked about earlier as well. And we expect that on a year-over-year basis to continue. So those are the big building blocks that get you to the back half of the year being down 2% year-over-year, which combined with our first half negative 3% gets you to the midpoint for the full year of that negative 2.5%. And then on the high and low end, it's really obviously things being better or worse than what I just described. But that's -- and I wanted to focus my comments on really that core midpoint.

The last part of your question, I would say there's a lot less dependent on the macro with this midyear revision as there was at the beginning of the year. I mean we obviously have 6 months of reported information. We've got 7 months of operational data in front of us -- excuse me, 7 months of operational data in front of us with July. And so you're only projecting 5 months of the year and you've really seen what's going to transpire in the key spring and summer leasing season. Whereas at the beginning of the year, there was a lot more predicated on some macro improvement.

Just as a follow-up, given where your shares are trading, how are you thinking about share repurchases? And there was a little bit of a maybe lower volume of acquisitions. So maybe walk through kind of the capital allocation thought process and between share repurchases and acquiring new properties.

Yes, sure. I mean, look, the opportunity to repurchase our own shares is there for us. We have a plan that we reestablished late last year. Certainly, the stock price today, we view as very attractive and at quite a discount to a fair value. But you hit it on the head. We're going to balance those decisions with our capital plans and sources and uses. The acquisition environment, Dave touched on, he can expand on it further, but it's very competitive. And so the prices that are required to win single deal -- single property deals versus making a more diversified investment into your own company that are underwriting on, I mean, I think those are all the things that factor into those decisions. But we're going to be judicious and disciplined about it and keep our balance sheet metrics in mind as well.

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

I guess, Brandon or Dave, given some of the pressures you've talked about in the markets, whether it's Atlanta or Phoenix, how are you addressing your ECRI strategy? I mean have you seen any sort of customer behavior changes and maybe even an increase in churn I guess just around your ECRI strategy would be helpful?

Yes. Thanks for the question, and thanks for joining today. I'd say, on a whole, we've seen no significant changes in the program, the acceptance of the level of expected turn created by the ECRI program and then the net output of the revenue gains we're getting out of it as a whole, no changes. We've actually dialed in a little more areas where maybe we could be a little more assertive on maybe a magnitude just based on risk factors and things like that.

I would tell you, as we went through the pro transition in the back half of last year and really the first quarter of this year, the team worked very hard at working through that backlog of customers that hadn't had a rate increase. And so we pushed quite a few rate increases through really the last couple of months of last year and the first part of this year and had good success there.

But I think we learned a couple of things just we work through the magnitude of those customers and how many rate increases we push and understanding what that churn look like, we're able to dive in a little bit more on our risk scores about maybe pushing some longer-term tenants in that existing pro base. But we're happy with the outcome. But again, every time you get more data points, you learn, but the program as a whole is still very stable and doing what we needed to do.

Got it. And another topic that has come up is the dividend, right? I mean, given we'll see where our numbers shake out for next year from an AFFO perspective, but how should we think about the dividend given where the AFFO payout ratio is?

Yes, good question. We certainly know that we're at a higher payout ratio than we've ever been, and we're currently above the payout that we're earning. And I would tell you, our Board is very thoughtful as we are as a leadership team on how we evaluate the dividend policy and the payout ratio. We routinely discuss the current state of our business as well as the near and long-term outlooks. Our Board has insights to our initiatives, our strategies, what the company is deploying. They have very deep knowledge of the self-storage sector and the dynamics of the self-storage sector.

I would tell you, I think the Board understands the long-term plan as well as the impact of the cycles of the sector. So I think it also plays into our ability to really make a meaningful improvement in a relatively short time frame because of the short contract rates that we have, the short month leases we have. I think our Board has a long-term view and has a good understanding of where we're at and where we're headed.

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

For your move-in rent data on Page 21 of your supp, I was just curious if you could tell me sort of what concessions or promotions are included in that number? And whether you think that changes -- that number, a good forward indicator of where your average annualized rental revenue will eventually go? So actively, if we look at the sequential or year-over-year changes, and those moving rents, does that kind of eventually tell us where you think that annualized rental revenue will eventually go?

Yes, Eric, this is Brandon. So I don't have a specific adjustment to that move in contract rate number since that's an annual number on the discounts. The way that we look at the discounts internally is just kind of like on a total dollar basis. And historically, we've talked about it is just how much are discounts as a percent of total revenue that we're earning and that discount percentage was lower for a long period of time during the pandemic and when fundamentals were much stronger. And basically, we've been returning back to more normalized levels of discount. So something in like the 2% up to 3% of revenue range.

I think our use of discounts more recently -- I would tie that together with Dave's earlier comments about ECRI as well. I mean we've strategically been using discounts in part to kind of lessen the amount of ECRI that we maybe have to push most immediately as to a customer, especially in this tough environment over the last few years, you know the narrative. There's been a lot of reputational risk that I think has been introduced to the industry and to certain operators with the way those are processed. So it's -- we're testing a lot of different ways of acquiring the customer and then moving their in-place rates up.

The second part of your question, I would not say that the move-in rate is an indicator of where the long-term in-place contract rate is necessarily going to go just because of how dynamic the Street move-in rates can be as well as just the power of the ECRI. So the way we think about it, now that we started disclosing the move-in and move-out rates that are on that Page 21 or subschedule 7, you can see the rate roll down. And you can also see that we've been stable on the contract rate if not improving a little bit, these last several quarters, and that's just through the power of the ECRI. So I think you can still maintain long term, a strong in-place contract rate even if those street rates are below that -- the moving rates are below that.

Understood. And then I think -- sort of a follow-up. I think in the opening remarks, you could have had it wrong, but I think you went through monthly what the revenue per available square foot was, and I think it was accelerating through the second quarter and reached negative 1.6% in July. I think RevPar is usually a pretty good indicator for sort of revenue growth, but maybe there's a difference, but I just want to make sure that I sort of understood it correctly that effectively your same-store revenue was getting better throughout the second quarter and reach, call it, around negative 1.6% in July?

Yes. You heard it correct. This is Dave, Eric. And you're right, we were down 4.2% in February, down 2.2% in June and then the 1.6% in July. So for us, RevPar is a pretty key ingredient to the overall revenue output. Obviously, your comment about what's happening with concessions plays into that. And to add on to what Brandon was talking about earlier is one of the things we've done with our asking rents and position in the market is we've tried to position ourselves to get a little easier manageable rent roll down and then also keep the customer count where we want it and attracting the right customers. And so adding in a discount is short term.

I mean, so if you're getting a little bit better asking rent and you're keeping the move-in volumes you want and use that at one time once a month or half off with the first month, it just burns through, but that does not show up in the rate. it's just a pure drag on revenue. But we do like the position of the -- our rent roll down is pinching down to like 20 now versus our high point last year was at 38 in October. So we certainly are working on finding the right path to make sure that from an ECRI perspective, customer account perspective, use of discounts that we're attracting the right customer we want and getting the value we want out of that rental.

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

This is Robin Haneland, sitting in for Juan. Just curious, could you discuss the competitive landscape from public payers and institutional portfolios in your markets?

Yes, certainly. This is Dave. Thanks for the question and joining. We would tell you this year, there's a couple of things that we -- new supply and the amount of supply being added we think has probably peaked in a lot of our markets. And so that, from a competitive standpoint, you're not getting a ton of new supply adding into your markets, you're just trying to absorb what has already been positioned in the markets. That, I think, has led to a little bit more stability around asking rents.

This -- we'd say the first 6 months of this year and really into July has been a little more stable around the competitiveness of asking rents. It appears that a lot of the occupancy levels maintained through the first 6 months of the year. So I think a lot of everybody have just a little bit more pricing position as far as that stability. And we've certainly seen that in our portfolio as well. For us, we actually were able to grow occupancy in July, which is something we didn't do last year, and we actually had street rates maintain and improve. And for us, the street rates will flip positive on a year-over-year basis in the month of October and September and August, those 3 months just because of competitive comps from last year.

But I would tell you, overall, we're happy with the stability in the asking rents and the way we're able to position those asking rents in the market.

And could you elaborate on the green shoots in your new marketing strategy? And what gives you the confidence on the implied second half same-store revenue to accelerate?

Yes, it's a good question. Part of the Pro transition, we rebranded in a lot of markets. And one, we introduced nsastorage.com so that is a singular domain name for all of our brands to live. And so any time you start fussing around with domain names and rebranding and rebranding of stores, there's certainly an element of disruption within your position and how Google sees you and how your visibility scores come and your ability to really be seen by the customer overall.

And so from our marketing spend perspective, we've really spent more dollars really targeted around those rebranded markets. A lot of those are in the pro markets. And we've really elevated from a paid search perspective, where we're positioning our ads, how we're positioning our ads and really using a little more automation and a lot more technology than it was used in the past. It's led to the elevated marketing spend, but I can tell you what we're seeing is top of the funnel demand improving significantly. And now we're working that top of the funnel demand through the actual funnel and working on conversion rate.

And I'd tell you some of the green shoots of that, is the fact that we did grow occupancy in July. It's something that didn't happen last year. We put more customers into our portfolio at the back half of June and the first -- in the full month of July. And so far in August -- early in August, we're very happy with the stability we've seen in August. So all those things combined, we believe that we're in a better position to attract and find new customers.

And Robin, I just want to add, just to your question about our confidence and what's implied in the back half. I'll tie it to what we were just discussing with Eric, just to make a clarification point. That RevPar year-over-year negative number, 1.6 that we were talking about, that's a good example of -- that number doesn't include concessions. And so I don't expect the year-over-year revenue growth in July to necessarily be negative 16. It will be something worse than that because of the use of discounts that RevPar number also doesn't include bad debt and some of the fees and other ancillary income.

But I do expect the July year-over-year revenue growth to be better than the negative 3% that we posted for the first 6 months. And so I just want to give some specific data points in combination with what Dave said, just to give you a sense of why we feel good about the general trend and that sequential improvement.

Our next question comes from the line of Michael Griffin with Evercore ISI.

Maybe you can give a little more color on maybe just kind of the delayed -- not necessarily implementation, but pushing back some of the benefits of pro transition. I mean it seems like that the properties are all kind of centralized on one platform. So it doesn't necessarily seem like they're competing with each other from a revenue perspective.

But I mean, is it back-end synergies? I'm just trying to figure out what is sort of delaying the benefits that you were expecting maybe earlier in the year?

Yes. Thanks for joining. Good question. I really -- in our opinion, we really got the nuts and bolts buttoned up really December of last year. I can tell you from our team's perspective, this is the first time I can -- since I've been with NSA publicly away from the private side of secure carrier in 5 years, we haven't had some kind of transition going on, where we were absorbing stores or had some kind of pro internalization going on. So the team has actually had 4 or 5 months of heads down now.

And I think that's important to think about as we enter this pro transition, we took a large number of stores over a small time period, 5 to 6 months and add them to centralized portfolios and change all the technology out. I think what we're -- as I look at it, we thought maybe we'd be a touch further ahead because of conditions that were out of our control, the economic conditions, the housing turn. A lot of these pro stores are in the Sunbelt market. Though Sunbelt markets are also very challenging. You've got Florida, Gulf Coast to Florida, West Coast of Florida, you've got Phoenix where a large position of these stores were. You got Dallas Fort Worth, which was a large position in these properties, Las Vegas. So a lot of these pro stores are in very challenging markets.

And as we talked about in the last question, the rebranding takes time. It takes effort, takes a lot of effort. I think the team has executed well. I think there's still room for us to improve. And we will continue to focus on that and gain more traction. But a new domain name, consolidation of brands, consolidation of new brands, end markets, all those things combined, I think it just put us a little bit behind where we thought we would be.

Dave, appreciate the context there. And then I know you mentioned that at least in your call center sort of trying to leverage AI to see some benefits there. But I'm curious from a customer acquisition standpoint. I mean I imagine that most of your inbounds are still through kind of traditional Google search means, but are you able to kind of see any impact or benefit from searching with AI tools, whether it's ChatGPT or anything of the like. Just wondering kind of how that customer is attracted to potentially renting a storage unit?

Yes. It's a really good question. I think it's early to really understand all of the implications of chat and AI technology on how the consumer is shopping. Certainly, the consumer has changed their shopping patterns because they speak through their phone now and ask more sophisticated questions. And obviously, the technology has to have a better answer and a more sophisticated answer.

I will tell you from our seat, our team has spent a lot of time and is continuing to spend a lot of time analyzing how -- how do you get to the end result. I mean that's what Google ultimately wants to do is they want to listen to what you say to it and get you to the end result. And so we're spending a lot of time going back through our content that sits on the website, how it's worded, what it's worded like, is it chat friendly, are we doing the right things to make sure when a customer is looking for a storage facility, we have the ability to show up well.

I think it's evolving and it's evolving quick, and it's going to be very dynamic. And for us, I think we'll do our best to stay on top of what's going on around that arena and adapt to it. Also say within our company, we are very happy with our use within our own platform and the fact that the call center was able to contain through our agent, we call her Alexis. She was able to contain 15% of all the phone calls that came to our call center and actually solve an end result. So what we mean by contain is that an agent or that platform actually solve the consumer's question and handle the call without it going to somebody else.

We think there's room to grow there, which gives you efficiencies and also keep your people focused on the real calls that need a personal touch. We like that. And then we also launched at our stores what we call My Storage Navigator, where you can walk up in the store, you can take your cell phone, you can scan a QR code and you can completely transact with us 100% without having a manager at the store. It's right now running in a web-based solution, but that can also be turned on as an app that's downloadable.

And so we are certainly focused a lot around how the consumer wants to transact with us and modifying our technology to adapt to it.

Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

I just wanted to follow up on a few things related to the pro transitions and the consolidation of banners. With regard to the web search and some of the comments that were made, where are search rankings and conversion rates today relative to where they were before the pro transition? Can you give us a sense how far maybe some of those metrics fell off and sort of where they stand today?

Yes, Todd, it's Dave. Thanks for the question. We certainly have improved our visibility score, and that's one of the metrics we look at substantially in all of the markets where we've consolidated brands and then brought brands onto the single domain name. And statistically, that's allowing us to show up significantly better in keyword searches in the amount of times that we're showing up where consumer wants to find us in an overall ranking.

But if you think about some of the progress we've made, we've used this a few times in some of the decks that we put out. But we want to be in that top 3 range. And statistically, we're moving nationally to that piece of it. We've had like -- Florida be an example where maybe our visibility score would have been before the transition almost 11, if you think about the metrics around the visibility score, and now it sits at 6.

We're certainly making improvements in the markets we want to make. It's a process. It's not all about paid search. It's about all of the things that go into being found, and it's review scores and it's where you are at around the map process, the Google my business process, how you work on your organic treatment. And so we are making significant improvements there.

Because we switch platforms, we don't have all consolidated data from the old pros websites to ours. But I can tell you that in our own platform where we had visibility, we're driving about 13%, 14% more people to the top of the funnel today than what we were doing a year ago. So that's an improvement that we like that means we're being found more and more folks are coming into our website and looking for a shopping experience with us. That's led about a 6% to 7% improvement in opportunities. So top of the funnel to opportunity, which would be like a reservation of quote, that's up about 7% on these stores that we have year-over-year data on.

And so I think all the things we are doing are improving. And so we're happy with it. We certainly need to be better. We want to continue to refine and get better as we learn and go through it.

Okay. And then with regards to the use of concessions and discounts, did that increase throughout the period and into July? Or have you now been able to ease up a little bit? And was the implementation and response from the use of concessions, was that more broad-based across the portfolio? Or was it primarily in the markets that remain a little bit softer?

I think, certainly, it was in the markets that were softer. We were certainly more assertive in those markets. I would also tell you the last couple of months, as we talked about in NAREIT, we were very specific about a unit type and a unit size as we were having not only -- we focused on the price we have rolled down, but we were actually having a square footage roll down of about 5 or 6 square foot per rental. I think we talked a lot of you at NAREIT about it. So we got very specific around concession use around type of units and size of unit, and we actually ran some sales on our website around particular unit sizes, and we were very happy that it worked.

I mean, we certainly found some traction, and we're able to rent and target specific unit types and sizes. And a lot of the concessions were around that piece of it.

Our next question comes from the line of Jon Petersen with Jefferies.

On the same-store revenue guidance, call it, about 250 basis points. Are you able to parse out, I guess, how much of that is related to the housing market being weaker than your initial forecast? And how much of that you would ascribe to the pro internalization challenges?

It's tough, Jon, as you can imagine. But what I will say is that when we introduced guidance in February, we did talk about the low end of guidance, assuming no meaningful improvement in housing and demand still being kind of more muted on a relative level versus like the midpoint and high end of our guidance assumes much stronger occupancy gains, if you recall, I think at the midpoint, we said 250 basis points of occupancy gain peak to trough, which we obviously didn't experienced this year.

So that alone, I would say, the macro, hopefully, we were clear enough in February that if you're looking at the existing home sale data as one data point, right, of course, not all of our demand is coming from that source, but using it as a correlative data point, based on all the -- 6 months of information that's been reported, we all know that hasn't materially improved. So I think that alone, you're at least at the low end of our previous range. And then I think you compound that environment with some of the unexpected elongated challenges that Dave described on the pro transition front, and that's kind of -- that walks you the rest of the way to our revised range now.

Okay. All right. That's really helpful. And then I guess on the pro internalization challenges, is it specific pro portfolios that are harder than others maybe to integrate? Or would you describe the challenges as more broad-based across all the pro portfolios?

I think we've had success -- it's probably more market driven than it is particular pro properties. If you think about, as I mentioned earlier, some of these portfolios, a larger concentration of the pro stores are in very challenging markets. And then you throw on a rebrand on top of -- Phoenix, for an example, we did not only have 2 stores down there that we operated as a corporate. And then the rest of those stores were managed by Pros. And so we had to go down and obviously bring our -- we hired as many of the team members as possible, but we had to bring in leadership into that market and then go through a rebrand, establish ourselves in the rebrand. And then on top of it, it's a tremendously competitive market, right? There's a lot of new supply. A lot of things going on in Phoenix.

And so I think all those things couple it. So I wouldn't categorize it as one particular pro set of stores were more challenging, it's probably more market-based, I think, is what we would say.

Our next question comes from the line of Spenser Glimcher with Green Street.

Maybe just 1 for me. On the disposition front, can you just talk about how many properties you currently have earmarked for sale just over the near term? And then where has pricing been in terms of cap rates on recent acquisitions or dispositions, excuse me?

Yes. Thanks for joining. Appreciate the question. We do have a list of stores that we have identified in addition to that we're evaluating for either some kind of disposition strategy or can we spend some capital on them and improve the way they're positioned in the market I think we'll have probably some more color on that in calls to come. We're still working with our Board and our leadership team around a strategy around how do we reinvest in the portfolio? How do we really think about the portfolio as long-term health and long-term success and then how do we position that with the assets we have. So we'll have some more coming out on that.

I would tell you the stuff that we are selling, we're having great success with. I mean we just sold a total of 10 properties that were very single market properties. A lot of them are in locations in states where not large markets and not a lot of scale for us to have. And those properties sold sub-6. So I mean, it's on a trailing basis. That's -- we're just having good success around what we're selling and the type of asset we're selling and the attraction of people who want to buy it. And so lots of buyers out there looking for a lot of the products that we're working on. And so we're happy with that piece of it.

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

I wanted to ask a bit about the Portland market. It really stood out as a positive same-store revenue growth. And maybe I just wanted to know what are some of the demand drivers here? And maybe what led to that outsized result versus maybe some of the other markets that are inflicted with higher supply?

Yes. Good question, Ravi. It's Dave. I think Portland is really a story if you think about self-storage as a sector and what happens in self-storage. We have a lot of well-positioned assets. It's a market we've been in for a long time, starting back with the original brow and the Northwest South storage. A lot of knowledge there, a lot of success there. But Portland went through an over development cycle just prior to COVID there in '19, where there was just a tremendous amount of new supply built and supply got out in front of demand. And Portland had to cycle through COVID helped mask kit for a couple of years, but Portland really had to cycle through a tremendous amount of new supply.

The reason I say that is it shows you the strength of the sector when everything comes back in balance. Portland itself as a market seems to be stabilizing, and it seems to be a little more healthy than maybe it has been in the past 2 or 3 years. But what really has come back in balance is the supply-demand ratio of product and consumer looking for product. And it's allowed us to obviously get occupancy back. It's allowed us to have some pricing strength, not just us. I think everybody, if you heard calls reported that Portland is one of the markets that was starting to perform well. So probably why I like this sector.

I mean, if you keep supply and demand in balance, things work very well. And when you get it overbuilt and if building slows down like a cycle we're going to head into where new supply is starting to come off its size, the sector will grow into itself, and you'll have good output when you're done.

Got it. That's really helpful. Maybe just one more here on your acquisitions guidance. I guess, why lower it right now and maintain the disposition guidance? Why not match fund the 2 of them? Or do you see better opportunities to use the disposition capital at this time?

Yes, good question. I think there's a couple of things going on. We're certainly being very, very patient and disciplined with our capital. Would we buy if we find the right properties? Absolutely. And we see a lot of deals that come across the desk, we underwrite a lot of things. Just given today's environment, it's been very challenging to match our cost of capital with the type of products that we're seeing come across our desk at this point.

As I mentioned earlier on the previous question, we are also looking at reinvesting in our portfolio and what can we do within our portfolio to make sure that we can optimize performance within our portfolio. So when you start thinking about investing capital dollars and matching it to the best investment, some of the money will be used to invest in our portfolio, and that will be a better return than trying to buy a property on the outside that you don't know.

We will be -- we're going to be very active. Our JV wants to buy properties. That's a good source of capital for us. It's a good cost of capital for us. I think with the JV will remain active. I think the balance sheet piece just is a little more challenging at this time.

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

Just 2 quick ones. Going back to sort of the pro internalization, maybe can you just remind us what the sort of occupancy and rent delta was that you were trying to close? And I could appreciate that may be a little bit delayed. But how far along are you? Are you 20%, 30% of the way? Just trying to get a sense of how much more upside there is to go?

Yes, Ron, thanks for joining. Good question. I'll start with the occupancy. We've not been able to meaningfully close the gap on occupancy yet broadly. We've had some markets where we've had successes. But overall, as you can see from our initial guidance to where we're at today with our full portfolio, we did not see a spring leasing season we thought we'd see in volume. And obviously, the pros are in more challenging markets. So obviously, a lot of pressure around building occupancy there.

So I think there's a lot of upside as things turn and as opportunities present themselves and the conditions change to close that occupancy gap. We still believe in that. We still believe there's room to grow there. And the marketing spend and the rebrand starts to take hold, some of those things will start to help that.

From a rate perspective, we did a good job getting through the existing tenant base, and we're able to work fairly well through the ECRI piece of that and so we're able to move contract rates in those particular pro stores and move RevPar from those pro stores because of the existing cement base. So I'd say we're probably 70% through with the first wave of that, and then we'll start to roll them into the traditional platform where you have cadence and magnitude following what our platform is. So more upside on occupancy but still some to go on rate.

Really helpful. And then my second question was just on expenses. I think you've talked about sort of the marketing spend, but maybe just updated thoughts on just property taxes and any other sort of line item. I know it was a pretty small move on the same-store expenses, but just any color there.

Yes, Ron. So on property taxes, I mentioned in my opening remarks, we had a difficult comp because there was a onetime benefit in the second quarter numbers last year. So if you strip that out, the 8.5% year-over-year growth on that line item that we reported for the second quarter, it would be closer to 3%. And then for the 6 months, I think we reported nearly a 7% increase year-over-year. But again, if you strip out that onetime benefit in the prior year period, it's closer to like 4%. And so that 3% to 4% range is kind of in line with what we're projecting still for the full year, meaning on a year-over-year basis, that growth will come down in the second half of the year.

Marketing was elevated. Dave touched on that earlier. It was definitely a lever that we were pulling in combination with the discounts. We do -- we spend a lot of time evaluating the success of those different paid search campaigns by market, and we do think there's opportunity in the back half of the year for us to dial back in some of the markets where we maybe just didn't quite see as much relative success versus some other markets.

So on a year-over-year basis, it's still going to be the largest growth of all the expense line items, but I don't think it will be quite to the same magnitude that you saw in the second quarter. For the full year, I think we're still -- we're still talking 25% to 30% year-over-year on that line item.

Ron, actually, sorry, one last one. On personnel, I did want to add, you saw that line item would be lower in 2025 versus prior year, some of that was adjusting staffing levels of the legacy pro managed stores that we started that effort last July. And then some of it -- and then we also -- through taking over those stores, we just had a little bit of attrition in employee base. And so we kind of got fully staffed at the beginning of this year. So as we enter the back half of the year, and you see this on the trailing 5-quarter data, in the back schedule of the supplemental, the comp becomes tougher.

So we were negative growth first half of the year on personnel, it will be -- expected to be low to mid-single-digit positive growth in the back half of the year.

Our next question comes from the line of Wes Golladay with Baird.

I just want to go back to the My Storage Navigator. Has that been rolled out at all the properties? And what is your goal for that over the next 2 or 3 years for a percentage of leases done through that system?

Good question, Wes. It has been rolled out, and it's just in its infancy. And right now, I can tell you just watching -- we're really studying customer behavior, how many times they walk up to the door, different office hours, different times of the day. I do believe that is a goal or a tool that we can use to really offset how the customer transacts with us. I mean, I think if we looked at it right now, I think that tool could probably do 4% or 5% of our rental volume at the store level here in the next 6 months. So people who went to the store will use that tool probably 4% to 5% of the time.

And I think that could grow substantially more than that. It's easy. It's easy to use. It's effective. And really, the consumers are telling us that's more of the way we want to transact today. If you think about where we're at pre-COVID till now -- pre-COVID, we weren't leasing it all online. And today, about 65% of our total rental volume is coming through some touch point on that digital platform where it's never reaching the store at all and about 40% is just pure customer doing it all by themselves. So we do think there's a great opportunity there.

Okay. And then one more on the AI. Is this still too soon to put numbers on the aggregate opportunity, whether it's the cost savings from the call centers or the leasing you just talked about, what are you thinking about as far as the total opportunity?

It's too soon. I'm excited about it. So I'm going to be careful here. I just think it's too soon. There's so many things you can do with it from pure call volume, success of call volume, having it step in and help your call center agents do a better job, your store personnel do a better job. I think we just -- let's watch it evolve and we'll keep trying to give you the tidbits of stats we see, but I think it's just too soon to where that can go.

Our next question comes from the line of Omotayo Okusanya with Deutsche Bank.

This is Sam on for Tayo. I hope I didn't miss this, but can you guys talk about how synergies come in versus the initial expectations as it relates to the pro integration?

Yes, Sam, thanks for joining. I think we've talked quite a bit through the call about -- we've had if you think -- let's start with operations and costs. We've had good payroll savings. We certainly experienced the G&A savings we thought we'd see around the pro internalization. So some of those nuts and bolts right off the bat, we were pleased with.

I think from an upside synergies around really revenue and NOI improvement, we have not realized yet what the potential is there. And that stems a lot around from a rebranding, how long the rebranding is taken to catch hold. Obviously, market conditions in a lot of these markets are still very challenging. So we haven't been able to significantly move the needle around that revenue and NOI improvement. Once that does happen, that is a meaningful chunk of our NOI. Those stores are. They're probably close to 40%, 45% of our NOI. So there is an opportunity for us to see that. But at this point in time, that revenue NOI synergies is just not materialized at the pace we thought it would yet.

Our last question comes from the line of Brendan Lynch with Barclays.

You had a lot of good color in there about My Storage Navigator and AI agents and the new website. When you think about your technology suite as a whole in your data analysis and the algorithms, how effective do you think it is now versus where you want it to be at some point in the future when it's honed to perfection for lack of a better term? Like what is the gap between where it is now and where you're trying to get it?

It's a really good question. I always use a baseball term here. We're in the beginning to middle innings on a lot of that stuff. Having the tools built is a huge, huge checkmark for us. And having it behind us where we're not developing is a huge checkmark for us. Now when you put data to it and let it learn and you adapt and you modify and you tweak is where you really get the performance.

And so in some of those ways, even like our paid search bid model is new. I mean -- and so I just think there's a lot of opportunities yet for us to realize around all of the things you had mentioned website, AI technology around the call center and particularly how we are found and how we transact on the internet.

Maybe just to follow up on that. If I understand correctly, it sounds like what you need more so than anything else now is data. Given the size of your portfolio, it's just data collection over a longer period of time relative to maybe some of your larger peers that can collect a wider swath of data at any given point in time? Like are you going to be able to catch up to them just with the passage of time?

Yes. And I think in today's world, we'll catch up quicker because of the systems that are available. If we were doing this 10 years ago, you would not have the sophistication of modeling, sophistication and machine learning that we have today. So yes, time will help. Every time you run a month worth of paid search and you watch the keyword results and the success of the results and where your money went, that model adapts and it learns and it learns at a very fast pace. So yes, time will certainly help us, and it's always beneficial to have an extra data point, but I think we can close the gap very rapidly versus if we were trying to do this 10 years ago.

There are no further questions at this time. I'd like to pass the call back over to George for any closing remarks.

Thank you all for joining our call today, and we look forward to seeing many of you at the various conferences in September.

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