Extra Space Storage Inc (EXR) — Q3 2025 Earnings Call Transcript

Thank you, and welcome to Extra Space Storage's Third Quarter 2025 Earnings Call. In addition to our press release, we have furnished unaudited supplemental financial information on our website. Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review. Forward-looking statements represent management's estimates as of today, October 30, 2025. The company assumes no obligation to revise or update any forward-looking statements because of the changing market conditions or other circumstances after the date of this conference call. I would now like to turn the call over to Joe Margolis, Chief Executive Officer.

Thank you, Jared. Good morning, everyone, and thank you for joining us today. Extra Space delivered solid results in the third quarter with Core FFO of $2.08 per share, meeting our internal expectations and demonstrating our ability to generate consistent earnings through our diversified platform. Same-store occupancy at quarter end was 93.7% and averaged 94.1% during the quarter, a 30 basis point improvement year-over-year. Last quarter, we reported that our high occupancy allowed us to begin pushing new customer rates, which inflected positive for the first time in 3 years. This trend continued and accelerated in the third quarter as we achieved new customer rate growth of over 3% year-over-year net of discounts. While new customer rates continue to improve, same-store revenue prior to other income was flat and slightly below our internal projections. This was partially due to strategic discounts, which were offered in the quarter focused on long-term revenue optimization. Excluding the impact of discounts, same-store new customer rate growth was approximately 6%. While these initiatives created a short-term headwind in the quarter and for the year, we view them as an investment for future revenue growth and still believe we are well positioned for accelerating revenue going forward. We have also been active in our diversified external growth channels. We have been able to complete and secure strategic off-market transactions through deep industry relationships at attractive going-in and long-term yields. I am particularly excited about the $244 million purchase of a 24-property portfolio in Utah, Arizona, and Nevada, which is the primary driver of our increased acquisition guidance to $900 million. A portion of this acquisition closed earlier this week, with the rest to close shortly when we complete the assumption of the seller's below-market secured loans. The acquisition will be primarily capitalized by the disposition of 25 assets, 22 of which are former Life Storage properties and which should close late this year or early in 2026. The stabilized yields of the newly acquired stores will be greater than those of the disposed assets, and those assets are of higher quality and in markets which provide better diversification and future opportunities for growth. Additionally, our Bridge Loan Program delivered strong performance with $123 million in originations during the quarter, and we strategically sold $71 million in mortgage loans. This program continues to provide interest income, attract customers to our management platform, and serves as an acquisition pipeline as we deepen our relationships with key industry partners. Finally, our third-party management platform expanded by an additional 95 stores during the quarter with net growth of 62 stores. Year-to-date, we have added over 300 stores, which brings our total managed portfolio to 1,811 stores. This multichannel approach to prudent growth allows us to create value across market cycles, whether through direct ownership, joint venture partnerships, lending activities, management services, or other creative structures. Our ability to deploy capital efficiently across these complementary strategies positions us to capitalize on market conditions regardless of the external environment. As a result, we are raising our full year Core FFO guidance per share at the midpoint, reflecting our confidence in our operational execution and gradually improving storage fundamentals. While we expect same-store revenue to remain relatively flat for 2025, we have driven outsized growth in our other revenue streams, bridging the gap until the positive trend in new customer rates translates into revenue acceleration. I will now like to turn the time over to Jeff Norman.

Thank you, Joe, and hello, everybody. As Joe mentioned, our third quarter Core FFO was in line with our internal expectations at $2.08 per share. Same-store revenue declined 0.2% year-over-year, which was slightly below our internal forecast. While the improvement in new customer rates is taking time to translate into revenue growth, we are encouraged by the sustained positive rate trend we achieved during the third quarter. While many operators continue to see year-over-year rate and occupancy declines, we have been able to increase rate growth sequentially every month since May due to our strong customer acquisition platform and proprietary pricing systems. We are also encouraged that our other income streams outperformed expectations and helped offset the same-store NOI headwinds. Tenant insurance and management fee income were both stronger than anticipated, demonstrating the value of our diversified revenue model. As expected, property taxes normalized in the quarter, returning to a growth rate of 1.6%, and we expect taxes to be low again in the fourth quarter. That said, same-store expenses were still above our internal estimates driven by repairs and maintenance and marketing expense. We view marketing expense as a revenue driver and continue to see strong returns from our marketing dollars. Like discounts, marketing spend causes a short-term drag from an expense standpoint. However, we made this strategic decision to increase marketing spend to enhance long-term revenue growth. Our balance sheet remains exceptionally strong, providing significant financial flexibility to execute on strategic opportunities. We maintain a conservative capital structure with 95% of our interest rates being fixed, net of our bridge loan receivables. During the quarter, we recast our credit facility and added $1 billion in capacity to our revolving line of credit. Through the recast, we also reduced our revolving and term interest rate spreads by 10 basis points. We also executed an $800 million bond offering at a rate of less than 5%, which completed our 10-year debt maturity ladder. We are raising our full year Core FFO guidance to a range of $8.12 to $8.20 per share based on our year-to-date performance and updated fourth quarter outlook. For same-store revenue, we are adjusting our forecast to a range of negative 25 basis points to positive 25 basis points growth for the full year, acknowledging that the positive impact from improving customer rates has not driven acceleration early enough in the year to reach the high end of our previous range. We are raising our same-store expense growth guidance to 4.5% to 5% due to our decision to invest in marketing to drive long-term revenue growth, while other expense categories will continue to normalize moving forward. The self-storage sector continues to demonstrate its resilience with our business model proving its strength as market fundamentals gradually improve. Our geographically diversified portfolio of over 4,200 stores across 43 states provides significant protection against localized economic fluctuations. Our scale and data give us a significant operational advantage over other industry participants and our high occupancy and positive rate momentum all position us well as we close out the year and head into 2026. With that, operator, let's open it up for questions.

First question, you're starting to see new customer rate growth, and it's well up above over last year. But I guess, like how long does that take to flow through the whole algorithm to start to benefit same-store revenue growth? Trying to understand kind of when we should start to see this drive that improved second derivative of same-store revenue growth?

Thanks for the question, Michael. In terms of specific timing, it depends, as you can imagine, on churn and other factors. So I'm not able to pinpoint a time when you see that inflect specifically into revenue growth. But what we can tell you is we're encouraged to see that go from slightly positive rates in May to then over 1% in June, over 2% in July, 3% to 4% in August. So 3% for the quarter net of discounts is an encouraging trend for us. As we extend that into October, it's over 5% net of promotions. So we continue to see that accelerating trend. As we get into '26, we'll guide and give a little more detail about how that translates into revenue, but the trend is encouraging.

Got it. And my follow-up question. It sounds like you've been using discounts and promotions to drive customers to the channel. Has that continued into October? And is the plan to continue to lean on that in the fourth quarter?

So we in the past several years have not used discounts as a tool very much. And that's why historically, we've given one number for new customer rate growth because there really was almost no difference between the new customer rate growth before and after discounts. In the quarter, we've tried a continual effort that we always do to optimize long-term revenue. We tried some different discounting strategies, particularly in states with states of emergency to try to maximize performance in those states. And it's proven to be a short-term headwind, although we believe in long-term value creation. So that's why we're now kind of giving two new customer rate numbers, gross and net of discounts, because there is a more meaningful difference between there, and we want to be fully transparent. And how long and in what fashion we continue will depend on the results of the testing.

Great. I appreciate the details so far. Joe, could you provide more insight on your comment regarding the short-term headwind? Specifically, was there anything you could point to, such as a particular region or differences between EXR legacy and LSI? Is there anything that could help you or investors understand what exactly occurred that may have been worse than expected? This information will likely be considered in next year's guidance.

Yes. I would say our new discounting initiatives were initially aimed at areas under states of emergency, like Los Angeles and a few other locations, as well as some randomized stores to create a useful data set, if that helps.

And Jeff, if I understood the spirit of your question, I think you're wondering if this sort of a permanent change versus something temporary? I'd view it as more temporary. We leaned into it in this quarter and the headwind is felt primarily in the quarter.

Okay. And just to confirm, you're seeing normal seasonal patterns. This has nothing to do with seasonality.

Correct. October has continued to play out pretty similar to September. As we mentioned, we've actually accelerated rates further, still have healthy occupancy. It's 93.4% today. So continues to be a positive trend into October.

The prepared remarks talked about the $244 million portfolio acquisition. Wondering if you could give any detail on the initial and stabilized yields and how long you expect it will take to reach the stabilized yield and kind of what that upside is driven by?

Sure. Happy to, Caitlin. So the portfolio is a mix of stabilized assets and their stabilized assets are 78% occupied. So we're happy to get our hands on them and prove the performance to our standards. But there's stabilized stores and then the balance of the stores are in different stages of lease-up, kind of from very beginning to close to completion of lease-up. So the yield is a blend of different types of stores. That being said, the leverage deal, we're assuming $50 million of debt at 3.4%. The leverage yield is about 4.5% in year 1 and gets to the mid-7s by the end of or into year 3.

Got it. Okay. And then wondering if you guys could talk about what you've seen recently on the reasons for storage use and if there's been any changes?

No real changes than we've talked about for the last several quarters. When we look at moving customers, in the third quarter we were at about 58%. That's up from mid-50s in the first and second quarter, but that's a seasonal increase. More people move in the third quarter than early in the year. So I don't think it's an indication of any significant improvement in the housing market. Just as a data point, the peak was the third quarter of '21 at 63%. So third quarter of '25, we're at 58%. So you see the decline in the for-sale housing market there. That's been partially picking up, that lack of demand has been partially taken up by customers who cite lack of space as a reason they're storing, and they stay about twice as long. Their average stay is about 15 months versus 7.5 months for the moving customers. So no real change in that dynamic.

Just 2 quick ones. Just the corollary to sort of the discount conversation being increased, should we take that as also sort of implying that maybe the marketing spend on sort of the web and all that is maybe incrementally less efficient as it was in the past. I guess the question is, has anything sort of changed in terms of those dollars online being spent and the return you're getting on those?

That's a really good question. So we view marketing spend as an investment, and we test every dollar we spend has to have a certain ROI or we're not going to spend it. And we haven't seen any decline in that ROI. So we wouldn't tell you that our marketing spend is any less efficient. And I think you can see the benefit of that spend in the rate growth that we experienced. So I mean, to answer your question without all the excess words is, no, there's not been any diminution in the effectiveness of marketing spend.

Helpful. And then my follow-up is just on the expense side. Obviously, property taxes, it is what it is, but this year seemed to be a little bit sort of outsized, right? You guys are running over 6% year-to-date on all expenses here. Just any sort of comments as you're sort of flipping over the next couple of years. Is there an opportunity for even more expense savings outside of property tax essentially?

Sure. I'll provide some general comments on that before we dive into specific details. We operate in a high-margin business, and it's important for us to invest in our properties to maximize long-term revenue. This includes spending on repairs and maintenance to maintain our properties in optimal condition, as we know this investment will pay off over time. Additionally, we want to invest in our staff because data shows that taking store managers away from their locations negatively affects revenue, safety, and cleanliness. Our aim is to be as efficient as possible without compromising the long-term value of our stores. As for marketing, we view it as an investment that yields returns. The fact that over 300 clients have chosen us to manage their properties, despite us being more expensive, indicates that our approach to store and personnel care is widely accepted in the market. Overall, our philosophy emphasizes efficiency; we want to avoid unnecessary spending while protecting our revenue stream in the long run.

And Ron, maybe to hit a couple of the specifics around some of the expense line items. You mentioned property taxes. Last call, we talked about how it was a bit of the tale of two halves in first half versus second half with property tax expense. We have lapped that comp. So you saw that drop significantly in the third quarter. As a reminder, a lot of that first half was driven by outsized increases at the legacy Life Storage stores, and that mark-to-market has taken place. So it was at 1.6% in the quarter. We expect it to be low again in the fourth quarter. And then as we look at a few of the other line items, we know payroll and benefits stand out as being outsized relative to our norms. A lot of that is a comp from last year. If you look at the 9-month number, it's sub-3%, and that's more in line where we'd expect it to be in the full year, closer to that 3% inflationary level. And then Joe touched on our approach to marketing and repairs and maintenance; we view those more as investments, and we'll make those investments as needed knowing that there's a long-term return.

I wanted to go back to the discounting strategy. Two questions. First, what exactly was the catalyst for offering these strategic discounts? And then second, you mentioned that this was tested or rolled out in some markets like L.A., where there are some state of emergencies, but it seems like it was a drag on customer rate growth to the tune of about 300 basis points or half of the gross increase that you achieved. You talked about October, but are you expecting both net and gross customer rate growth to continue increasing moving forward?

So I'll start by saying we are always trying new pricing offerings and strategies based on the amount of data we have, the number of stores we have, and the amount of testing we can do. So this isn't out of line with what other things we've done in the past to try to improve long-term performance. We're not running this company for the third quarter of 2025. We're trying to maximize long-term revenue.

Todd, maybe to hit the second half of your question, we won't get ahead of ourselves in terms of forecasting rate growth because we're more focused just on revenue growth overall, and we're open to using any of the levers as needed. That said, based on what we've seen sequentially since May and into October, the increase in pricing power has been a trend.

Okay. But in terms of the impact that the discounts had on overall portfolio rate growth in the quarter or move-in rent growth in the quarter, what percent of the portfolio had you rolled out or were you testing this discounting strategy on? Just trying to get a sense of what the magnitude of these discounts were like and potentially, assuming you're pleased with the results and you roll this out more broadly across the portfolio, just trying to get a sense for the magnitude of these discounts.

Yes. Good question, Todd. I think we're electing to share a lot of detail about the specifics of the test because, frankly, we view this as a competitive advantage. But in terms of trying to help quantify the magnitude another way, you talked about gross rent growth to new customers of about 6% in the quarter and the net number being closer to 3%. For October, that has tightened significantly. So it's gross improvement of a little over 6%, net improvement of a little over 5%. So I guess it gives you a feel of sort of the more temporary nature of some of the testing and it being less of a drag thus far into the fourth quarter.

Todd, I want to clarify that the change to our revenue guidance was not solely due to our discounting strategy. While it is a factor, the process of integrating new rates into the rental has been slower than we anticipated. This is something we cannot predict with perfect accuracy. We know it will occur over time, but it is challenging to determine the exact timing and pace. I just wanted to make that clear.

If I look at the last couple of years, you've had move-in rents down double digits at times, obviously improved a lot lately. But if I look at the times when move-in rents were down the most, your revenue per occupied foot wasn't down nearly as much, right? I think it was generally kind of just been flattish, right, over the last couple of years. So I guess I'm trying to understand, as move-in rents recover, why wouldn't the contribution from ECRIs come down, right? If the contribution went up over the last couple of years as you discounted more, as you discount less, why wouldn't that contribution from the ECRIs just come down?

Yes, it's a great question, Eric. If you consider how we manage the portfolio as rates fluctuate, it's a gradual process. After three years of negative rates, we still managed to keep our revenue growth relatively flat by utilizing all our strategies. Coming out of this situation will also take time for things to improve and accelerate again. Regarding ECRI, our approach has remained largely consistent year over year, with only a slight exception due to state of emergency restrictions in some areas which has created a bit of a headwind for ECRI on a year-over-year basis. This may result in a modestly lower contribution, but aside from that, the overall situation is similar.

Yes. And I would just add, importantly, that customers are accepting ECRI at the same rate as they have in the past. We don't see any greater reaction in terms of move-out from customers.

Maybe to follow up on Wolfe's question, I'm curious, Joe, if you can give us a sense of where those move-in rates need to go before you start to adjust your ECRI program. I understand that you all aim to maximize revenue, but it seems to me that as these move-in rents remain lower, you're going to have to compensate for it on the ECRI upside. So at what point, not to suggest that we reach an equilibrium, would this regime of higher ECRIs to address revenue decrease somewhat?

Yes. I look at it a little differently, right? Street rates, new customer rates are going up, and that gives us more headroom to increase ECRIs to existing customers, right? We don't want to move existing customers up too far over street rate, right? It provides somewhat of a cap, a guide for us. And as street rate goes up, that puts more and more of our customers into the eligible pool to receive an ECRI. So one of the challenges over the past several years is as street rates decline, more and more of our customers were in the group that were ineligible for ECRIs. And now as that switches, that pattern should change.

I appreciate the color there. And then maybe just on the acquisition opportunity set. I mean it seems like there are more transactions coming back into the market. You seem pretty constructive on this deal that the part of it is closed and part you're expecting to close by year-end. But maybe give us a sense of the opportunity set within the transaction market? Are buyers and sellers more willing to come together on price? Is it interest rate stability? Like I guess, what's the catalyst for maybe an incrementally positive outlook as it relates to acquisitions?

So I'm not overly positive on the open market. I don't see cap rates at a level that given our cost of capital, it's attractive for us to be the high bidder in a competitive bid. And we've seen lots of deals that we've managed, where we had first and sometimes last shot that we let them go because we want to be disciplined and adhere to our cost of capital metrics. But what I am encouraged and positive about in the future is our continued ability to create accretive deals through our relationships like the one we just discussed through our joint venture partners, which we've done several of which were at very high yields this year. We have another one of those under discussion and through being creative and the vast industry relationships we have, having over 1,800 properties we manage gives us an awful lot of relationships that allow us to do transactions others can't.

Yes. And Grif, I'd just add, being involved in the industry in all these ways, it allows us to hang around the hoop. Oftentimes, these acquisitions really are triggered by a life event for the seller or maybe a debt maturity or something else where it's not really a market function that's pushing them to sell; it's more of an event, and we want to be close by when those events happen and have first shot.

I mean another example is our Bridge Loan Program, where to date, we've bought 22% by dollar volume of the collateral we've lent against. So that provides somewhat of a proprietary acquisition pipeline for us, too.

Jeez, if I'm beating a dead horse here, but on the discounting, I guess a 2-part question. What's the strategy behind using it more aggressively in some of the rent restriction areas like L.A.? And then in October, you mentioned the gross versus net delta shrunk. So does that mean you're not discounting as much as you did in the third quarter? Or just why is that discount narrowing in October?

So we're always looking for ways to maximize long-term revenue while complying with law and substituting discounts for ECRIs is an effort to do that. And our use of the tool and how it evolves as we learn more will change over time. And that's one reason you see a difference in October or will see a difference in October.

Sorry. And then just on the dispositions, you noted that there's a big kind of portfolio that you've put out there for market. Just curious if you could share any feedback on pricing in the market for those assets. You mentioned that on the acquisition side, cap rates are necessarily super attractive. So it probably means good demand on those Life assets. Any color would be appreciated there.

Yes. We'll provide more color when they close. But we had bidders. We've selected a buyer. We're going through the process. I mean, I think it's very important for us as a company every year to look at our portfolio and due to market concentrations or individual asset growth or capital requirements, try to consistently improve the portfolio by doing some dispositions. And we're a little heavy historically this year because we're 2 years out from the Life merger, and we have some Life assets that we want to dispose of. But I think we'll sell assets every year and just try to recycle the money into better long-term assets.

Not to be greedy, but one very quick follow-up on the occupancy. I think you said October was 93.4%. Just what's the year-over-year delta on that?

So the year-over-year delta is about negative 40 basis points, Juan. And I would look at that much more as a result of last year's comp. If you look at our same-store occupancy September to October in 2024, it actually accelerated, part of that was related to the Life Storage assets. That's about the time we unified everything under the Extra Space brand. We got aggressive with pricing and took a lot of occupancy at those stores. So if you look at the sequential progress, 93.7% at the end of September, 93.4% in October, it's pretty similar to what we've experienced historically.

I wanted to ask about the bridge lending book. How do you expect the lower rate environment to impact the growth of this part of your business? Do you expect maybe that some operators might take more traditional financing options? And would a greater proportion of the mezz lending turn into acquisitions from here on out?

I believe a lower interest rate environment will impact the bridge lending program if it opens up the acquisition market. Many of our new bridge lending clients are those who would sell their assets if they could meet their desired price, but they cannot access the market right now. Therefore, they are seeking a bridge solution to help them until they can sell in the future. I think there is an inverse relationship between the acquisition market and the bridge lending business, which is fine. This is one reason we have multiple growth channels; in any given year, one may outperform the other, and we aim to make the best decisions for our shareholders based on current market and economic conditions.

Yes. And one thought, Ravi, that I'd add to that as well, as we've talked about, we originate these loans in a mortgage mezzanine structure. And as interest rate spreads as a whole tighten, the required spread of our A note buyers also tightened. So in terms of kind of the relative spread that we can bring in, we have some flexibility there, especially to the extent that we're holding mezz notes to optimize those yields.

I'm trying to compare this quarter to last quarter, focusing on your comments about occupancy and pricing. Last quarter, you felt optimistic about occupancy and pricing, achieving the highest ending occupancy in several years. However, this quarter seemed different; it appeared that you were attempting to raise prices but didn't achieve your goals and had to offer some discounts. I'm wondering if this was due to concerns about occupancy or move-in volumes. Is that an accurate perspective?

Yes. I respectfully think it's not. I think that we don't solve for occupancy. We don't get worked up if occupancy is 20 or 30 basis higher or lower. We don't solve for rate either. We solve for long-term revenue, and in some instances, if that's going to be a little higher rate and lower occupancy or a little lower rate and higher occupancy, we're ambivalent. We just want the highest long-term revenue. And the discounting strategy was not a reaction to any type of occupancy number. It was more thinking about we see more and more of these state of emergencies, how can we change our pricing structure to maximize revenue as these things come up across the country.

Okay. I guess the issue here is that it kind of feels like you guys have higher occupancy than the industry. And you can see that in various ways, but presumably, you guys took some market share over the last couple of years as you went to this discounted pricing on the front-end strategy. And I'm just wondering if the issue here now is that the rest of the industry just doesn't have as high occupancy. So if you guys are trying to push rate, you got to deal with the rest of the industry and what they're going to do. And so I'm just wondering if that is something that played out this quarter, again, where you guys seem like you're in a little bit better position to be pushing rate than the industry and then you hit a wall and the problem is that the rest of the industry isn't at the same sort of starting point as you guys right now in occupancy.

I appreciate the question, Nick. I don't think we've reached a limit. We continue to see rates accelerate through the quarter and beyond, and we're pleased with our occupancy levels. The industry is fragmented enough that while we focus on the large public operators and compare minor differences, we recognize that the industry has faced negative rates for a long time. Despite this, we've managed to maintain steady revenue growth over the past few years. As new supply decreases and we maintain high occupancy, we've been able to increase rates, and we see this trend continuing. As Joe mentioned, we are always experimenting, and the advantage of our large portfolio is that we can run tests to identify effective strategies that lead to stronger revenue outcomes. We're confident that the data guides us in maximizing revenue.

It's easier to push rates when you have higher occupancies. And as long as our customer acquisition platform can fill the funnel, which they can, we'll do much better with rates at higher occupancy than lower occupancy.

Just going back to the dispositions. Is there anything you can share on the 24 assets being sold just in terms of geography or rent levels just relative to the portfolio average? And as you continue to call the portfolio, as you mentioned, are there many more Life assets that you would say fit the disposition criteria, perhaps due to a lack of market concentration, just not being as efficient to operate?

The existing portfolio is concentrated in Florida and the Gulf Coast. There are certainly more Life Storage assets, but I believe this is the major portion. I don’t expect we will acquire another 22 property portfolio.

Okay. And anything you can share on how those assets' rent levels compare to the portfolio average?

They're lower.

Okay. And then just maybe the second question here. Can you just remind us what your on-site personnel looks like today just for your properties and then as well as regional managers, how many assets are these employees overseeing on average? And are you comfortable with this headcount for the near term?

We have about 1.4 full-time employees per store. This number varies depending on location; for example, a 100,000 square foot store in Manhattan requires more staffing than a 45,000 square foot store in Lexington, Kentucky. We are focused on using and testing technology to improve efficiency. This includes determining how to staff clusters of stores without maintaining full-time staffing at each location, which is a strategy that many in the industry are implementing. Ultimately, we aim to accommodate customers in the way they prefer to interact with us. More than 30% of customers still visit stores to speak with a store manager. Although they all have access to online transactions, they visit for various reasons, such as wanting to gauge the cleanliness of the store or having specific questions. If we eliminate the store manager role and force customers to rely on technology, some may choose to go to competitors instead. Therefore, as long as customers are choosing to come into our stores, we will ensure that a store manager is present. Reducing expenses significantly could lead to a loss in revenue, so we will protect that aspect while being mindful of our costs.

Just a general question here on acquisitions. Just curious, when you buy something that's not stabilized or actually something that has stabilized even, how much can you typically raise the going-in yield just from taking the assets, putting them on the platform, and getting the expense efficiencies? And I'm just thinking about that, like what's the low-hanging fruit in terms of going from an initial yield up to a stabilized yield that obviously has some additional revenue impact in it?

Yes. So it's a really good question, and it varies widely. If we're buying a store that's already on our management platform, either because we have a bridge loan on it or it's our management platform, then we've optimized NOI. And it's much more of a core purchase, and we'll try to do a lot of those with joint venture partners to enhance the yield. If we're buying something that's managed by a third-party operator, it varies widely because the quality of the third-party operators varies widely. Some are very good, and some are not as good. But it's not uncommon for us to see a 150 basis points or more increase in NOI once we can get it on our platform.

The repairs and maintenance during the quarter increased significantly. Was this a widespread increase across the entire portfolio, or was it mainly focused on the LSI portfolio due to some deferred maintenance related to it? Additionally, how do you perceive the future outlook for repairs and maintenance?

Yes, thank you for your question. Some of the significant growth is specifically attributed to the legacy LSI properties, and we anticipate that this will normalize. We had some catch-up to do on those properties, and we are beginning to see that normalization now. Overall, as Joe mentioned, we intend to take care of these properties. We are committed to doing whatever is necessary to protect those assets. There is indeed a notable contribution from the Life stores.

That's helpful. And then on the Bridge Loan Program side of things, could you just kind of talk a little bit about kind of what you're still seeing out there, ability to kind of put money to work and kind of at what kind of yields?

So we had a very active year last year. I think we did $880 million of originations. And a lot of that was new development stores that needed to pay off their construction loan and want to bridge to stabilization. That business has gone fairly quiet as the amount of new stores being delivered is going down, which is overall a good thing. That's been replaced somewhat by folks who need to buy out an equity partner because things are going slower than usual or wanted to sell and can't. So we've done through 3 quarters a little over $330 million worth of originations. So we're on a good pace for that. The pricing of loans we have on our books, the A notes average about 7.6%. The mezzanine notes are about 11.3%. So over time, we would like to keep our on balance sheet balances fairly steady. It will go up and down slightly quarter-to-quarter but change the mix to have more B notes and fewer A notes on balance sheet.

Thank you very much. I appreciate everyone's time and interest in Extra Space. I want to emphasize that we are optimistic about the future. Our rental rate trends are improving each quarter, and supply continues to decrease. Our ancillary businesses are also expanding and help to mitigate the time it takes for the new higher rates to affect the rental income. We are really encouraged as we look ahead to 2026 and are excited for what lies ahead. Thank you again for your interest.