大众仓储 (PSA) 2026年第三季度业绩电话会：上调FFO指引

核心要点

• Public Storage公布2026年第三季度核心FFO为每股4.34美元，同比增长0.7%，同店NOI增长和外部投资抵消了较高的融资和行政管理（G&A）成本。
• 同店收入和NOI均增长0.5%。平均新入住租金上涨9%，创2022年第二季度以来最大增幅，而出租率保持在高于上年同期的水平。
• 管理层在2026年第二次上调全年核心FFO指引，将区间上调了0.10美元至每股16.90美元至17.10美元。
• 今年迄今，Public Storage在收购、开发和贷款方面已投入或承诺投入超过125亿美元，初始收益率处于5%出头的水平，稳定收益率处于6%的高位水平。
• 公司正在整合NSA和Public Storage Canada。管理层预计，自2027年起，相关资产组合将对收入增长、费用协同效应和利润率扩张提供支撑。
• 截至季度末，流动资金总计约为41亿美元，净债务与EBITDA之比为3.4倍。

核心财务数据

业务与经营业绩

Public Storage表示，经营基本面正从企稳迈向渐进式复苏。客户留存率改善，出租率高于上年同期，且新客户定价增强推动同店收入恢复增长。

地区业绩表现依然参差不齐。供应较低的沿海和中西部市场实现2%至4%的收入增长。在公司前25大市场中，60%的市场实现了收入同比增长，且超过70%的市场实现环比改善。

阳光地带市场继续面临新供应带来的压力，但管理层表示新增交付量正在减少，随时间推移将有助于市场复苏。洛杉矶在2026年早些时候紧急价格限制到期后恢复了收入正增长。管理层预计，进一步常态化可在2027年和2028年带来3500万至4000万美元的收入上行空间。

近90%的客户互动通过数字化方式完成，约四分之三的客户以数字方式完成租赁。公司的AI虚拟客服Elli已处理了超过30万次客户互动。Public Storage还在将数据科学应用于定价、人员配备、客户留存和投资承销。

7月交割后，NSA资产组合立即迁移至Public Storage系统。8月和9月的入住量增长超过30%，同时预计约三分之一的资产将在年底前完成品牌更换。公司还将约14,000个继承的不可出租单元重新放回租赁池，并确定了超过1亿美元的潜在扩建、再开发和改造投资。

Public Storage Canada于9月完成交割。系统整合计划于次月完成，早于原定时间表。管理层预计近期大多数收购活动仍将侧重于美国，并辅以对渗透率较低的加拿大市场的投资。

截至季度末，在建项目储备接近8亿美元。Public Storage还完成了一项1.5亿美元的场外沿海资产组合收购，初始资本化率在6%的中段水平。

管理层业绩指引

该展望假定全年新入住租金实现低单位数增长，出租率同比实现微幅正增长。管理层预计第四季度出租率将更接近上年同期水平，而新入住租金预计保持正增长，但低于第三季度9%的增幅。

第四季度隐含的核心FFO约为每股4.26美元，低于第三季度的4.34美元，这反映出在第三季度利好物业税调整后面临较高的对比基数、估计0.01美元的再融资影响，以及与SureGuard相关的约0.01美元的环比减少。

管理层维持了NSA和Public Storage Canada对2026年业绩产生中性影响的预期。管理层预计，随着整合、出租率举措和资本项目的推进，它们在2027年和2028年的收益贡献将增强。

风险与关注要点

• 较高的利率推高了投资门槛，并在买方融资成本与卖方定价预期之间制造了差距。
• 尽管管理层预计新增交付量将会减少，但新供应仍继续对阳光地带的部分地区带来压力，包括坦帕、休斯顿和夏洛特等市场。
• 随着Public Storage清理单元并处置逾期租户，NSA的整合正在产生近期的坏账以及维修和维护成本。
• 加利福尼亚州的紧急价格限制仍是潜在的经营约束。管理层表示，最新的与风暴相关的应对措施已纳入指引，预计对2026年的影响极小。
• 抵押贷款利率和疲软的住房交易量仍是需求方面的考量因素，不过管理层预计不会对仓储需求产生重大的额外增量影响。
• 涉及定价、披露和税收的当地监管提案需要关注，但管理层表示预计短期内不会有任何重大影响公司财务状况的措施出台。

分析师问答环节点评

入住定价与出租率：管理层表示，第三季度9%的新入住租金增长并非由异常的基数对比或洛杉矶市场所推动。较低的客户流失率减少了需要替换租户的单元数量，从而在入住量下降的情况下仍能实现更强的定价。10月的趋势总体保持一致，尽管定价增长受到季节性放缓的影响。

现有客户租金上涨：较强的新客户租金改善了现有客户租金上调的经济效益，因为租户退租时的替换成本更低。管理层预计，若新客户定价保持坚挺，这一贡献将继续保持有利。

促销与营销：尽管合同租金提高导致报告的促销折扣增加，但每户租户的促销活动同比略有减少。公司增加了营销支出，并表示获得了吸引人的回报。

NSA整合：近期的收入和NOI符合原计划。由于强劲的入住量、线下单元的恢复以及额外的投资回报项目，管理层对长期NOI增长的信心有所增强。

资本配置：融资成本上升放缓了交易活动，但管理层认为这最终可能会给卖方的预期带来压力，并创造出以更高收益率或低于重置成本收购资产的机会。近期超过一半的交易活动来自场外渠道。

人工智能与运营效率：在过去六至七年中，Public Storage通过数字工具、集中化和自动化，将工时减少了约30%。随着AI能力的扩展，管理层预计在2027年和2028年将获得更多的效率提升机会。

辅助业务：租户保险、第三方物业管理以及与NSA合资企业相关的费用支撑了业务增长。包含NSA和Public Storage Canada在内，辅助业务NOI总计增长约40%，其中约一半的增长归因于收购的资产组合。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Operator

Greetings, and welcome to Public Storage Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Jed Reagan, VP of Investor Relations and Strategic Partnership.

Brandon Reagan

Thank you, operator. Hello, everyone, and thank you for joining us for our third quarter 2026 earnings call. I'm here with Tom Boyle and Joe Fisher. Before we begin, we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meaning of the federal securities laws.

These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, October 27, 2026, and we assume no obligation to update, revise or supplement statements that become untrue because of subsequent events.

A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, financial supplement, SEC reports, and an audio replay of this conference call on our Investor Relations website, investor.publicstorage.com.

We ask that you initially limit yourself to 2 questions. However, if you have additional questions, please feel free to jump back into the queue. With that, I'll turn the call over to Tom Boyle.

H. Boyle

Good morning, everyone, and thank you for joining us. I'll frame my comments today around 4 points. First, Operating fundamentals exceeded our expectations in the quarter, giving us confidence to raise our outlook for the year.

Second, PF NX continues to strengthen customer experience and improve how we run the business including continued investment in digital and AI capabilities. Third, the closings of NSA and Public Storage Canada were important milestones for our value creation engine.

Our focus has turned to integration, execution and positioning these assets for stronger contribution in 2027 and beyond. Fourth, in a higher rate environment, our balance sheet, capital allocation capability and data science tools are strategic advantages that allow us to invest with discipline and speed.

Let me begin with operating fundamentals. The third quarter results were better than expected, supporting our increased outlook and strengthening our confidence in the trajectory of the business as we move towards 2027. That confidence does not reflect a major change in the macro environment.

Demand remains uneven but we are seeing better customer retention, stronger new customer pricing and a more favorable supply backdrop as new construction slows. Our retention progress reflects a stronger culture of customer obsession.

During my property visits this quarter, I saw a cultural change moving. It's simple things at 1 visit, a property manager ran to a customer to help them download our app so that they could open the gate from their phone but those simple things are showing up in our improving survey results and operating metrics.

The combination of improved retention and moderating supply is creating a better operating setup. New customer pricing improved year-over-year for the second consecutive quarter. Occupancy remained ahead of the prior year and same-store revenue accelerated sequentially from the second quarter to the third quarter by 110 basis points into positive territory.

As we exit 2026, confidence is building that we're moving from stabilization to gradual recovery. Now let me turn to PS Next. PS Next remains central to how we intend to win. It brings together customer experience, pricing, operating efficiency and digital capability in 1 integrated platform.

Nearly 90% of customer interactions are digital and roughly 3/4 of customers complete their lease digitally today. That's an important foundation as AI changes how customers discover businesses, compare options and engage with brands.

Last quarter, I spoke about Elli, our AI-powered virtual agent. Ellie has now handled more than 300,000 customer interactions, and that capability continues to expand. It can improve the customer experience while allowing our teams to focus on the interactions where personal assistance makes the greatest difference.

We also expect customers will increasingly interact with public storage, not only directly but through AI agents as well. Whether that is [indiscernible] [ rock bots, dots ] or other emerging interfaces, we are tuning our digital and AI platforms to make sure the experience is seamless either way.

The key point here is that AI does not change the fundamental demand for storage. Storage remains need-based, local and physical. What AI changes is how customers discover, evaluate and interact with operators. In that environment, Public Storage is well positioned because of our scale, our digital foundation, our brand and our customer experience.

Turning to MSA and Public Storage Canada. The closing of MSA was a major milestone in the quarter. We moved the portfolio onto public storage systems immediately after closing in July, allowing us to move quickly from transaction execution to integration.

During one visit had a transitioning store in the quarter, I saw the look on both the teammate and the customers face when a teammate was able to immediately address a rent concern with our Web Champ system in place. a simple and quick resolution of a customer concern.

And the resolution was seamlessly real-time supported by our data science engine. Rebranding is underway. With approximately 1/3 of the portfolio expected to be fully rebranded by year-end. We're encouraged by the early results in the wholly owned portfolio, including strong move-in volumes and incremental capital opportunities including potential expansions.

Tenant and property cleanup work is underway at the stores, creating some near-term noise, including elevated bad debt and repair and maintenance activity, but this work is critical to position the portfolio for improved revenue, margins and operating performance over time.

As the assets season on our PS platform, we see meaningful opportunities to improve the customer experience, increase utilization, address off-line units and deploy high-return capital. Our conviction in the long-term opportunity has increased as we operate the portfolio.

We were also excited to reunite the Public Storage Canada team and portfolio with public storage following the September closing of that transaction. This is a high-quality public storage branded portfolio in an underpenetrated market with meaningful long-term potential. Systems integration is expected next month ahead of the original schedule.

We are setting both portfolios up for 2027 and beyond for revenue upside, expense synergies, margin expansion and the strong long-term value creation. My fourth point is capital allocation and external growth. Interest rates have moved higher. Higher rates create challenges, but they also create opportunity.

When financing costs remain elevated, asset values and seller expectations adjust over time. Our balance sheet and financial flexibility are meaningful advantages in that environment. We are also becoming faster and more precise across our capital allocation tools.

Our work in sourcing, AI-informed underwriting and approval processes is cutting deal time lines in half and allowing teams to act more effectively at the micro market level. Capabilities we are building internally as well as through our partnership with Welltower are also helping us identify and prioritize attractive markets by harnessing the deep consumer databases that Welltower has built over a decade and combining it with the power of Public Storage's vast operating data.

The largest transaction in the quarter was an off-market $150 million portfolio acquisition in desirable coastal locations from a family exiting the business. This deal has a mid-6 billing in cap rate and illustrates the opportunity created by generational transitions, the value of off-market sourcing and the importance of speed and certainty of execution.

Our development pipeline has grown year-to-date to nearly $800 million at quarter end. Higher construction and also financing costs have made development more difficult across the industry. But we continue to leverage our platform advantages to find attractive micro markets in a less competitive environment, really across acquisitions, development, expansions, lending and third-party management we continue to see opportunity in all elements of our value creation engine.

As we enter the fourth quarter, our focus is increasingly shifting towards 2027. The building blocks for 2027 and beyond are increasingly clear. We are seeing better operating momentum in the core business. We are strengthening customer experience and retention.

We are advancing PS Next in building new digital and AI capabilities. We have closed 2 major transactions and are now focused on integration. We are preparing to deploy capital into 2027 with more precision, faster timelines and better data. And we're doing all of this with a strong balance sheet and aligned leadership team and an owned culture that is gaining momentum across the organization.

These blocks are coming together to position public storage for stronger per share earnings growth in future years. With that, let me turn it over to Joe.

Joseph Fisher

Thank you, Tom, and good morning, everyone. As Tom mentioned, we are raising guidance across all key metrics for the second time this year, reflecting continued robust operating momentum. In addition, we completed NSA and Public Storage Canada and continue to find accretive deals across all our value creation avenues. Funding over $12 billion year-to-date in activity at attractive locked-in cost.

Now digging into our third quarter results. Core FFO for the quarter was $4.34 per share, up 0.7% year-over-year. Growth in same-store NOI and accretive external growth activity more than offset higher financing costs and G&A. Same-store revenue and NOI each grew 0.5% in the quarter.

More importantly, forward-looking indicators strengthened. Average move-in rents improved a positive 9%, our strongest level since 2Q of '22 and move-in rates are up 28% from the fourth quarter of 2025. Well ahead of historical trends and a clear indication that the business is moving beyond the last few years of stabilization.

Existing customers also continue to perform well and respond to our improving customer experience as reflected in lower churn and higher occupancy. Market conditions remain mixed by geography. Although utilization across the industry remains strong as storage continues to provide an affordable space alternative to housing.

New supply continues to pressure certain Sunbelt markets, but that supply is declining and should support a recovery there over time. In many coastal and Midwest markets, where supply levels are lower, we are seeing more normalized revenue growth in the 2% to 4% range, with further improvement likely as supply declines.

Los Angeles is improving following the expiration of state of emergency pricing restrictions earlier this year, returning to positive revenue growth. Importantly, improvement extended beyond Los Angeles and was broad-based, including across parts of the Sunbelt.

Within our top 25 markets, 60% are generating positive year-over-year revenue growth and over 70% are showing sequential improvement. Our focus is on carrying this momentum into 2027 when supply conditions should become more favorable. Expense growth was roughly flat in the quarter, supported by favorable performance in property taxes, payroll, utilities and indirect cost.

Property tax results included better-than-expected assessments in Illinois and successful appeals in Texas. Outside of the same-store pool and excluding strategic acquisitions, non-same-store NOI grew 22%, while ancillary NOI grew 21%. Both were ahead of expectations and remain meaningful contributors to shareholder value.

Turning to 2026 guidance. We are raising full year guidance for the second time this year, supported by improving leading indicators and stronger-than-expected core operating performance. We are raising core FFO guidance by $0.10 or 0.6% to $16.90 to $17.10 per share with a midpoint of $17. This increase reflects improved same-store performance and continued strong contributions from non-same-store and ancillary NOI.

At the midpoint, same-store revenue and NOI growth are now expected to be positive 0.25% and negative 0.3%, respectively. Those represent improvements of 45 and 85 basis points from our prior outlook. The revised full year guidance continues to assume low single-digit move-in rate growth and modestly positive year-over-year occupancy. Continued churn improvement is expected to drive higher ECRI contributions.

Turning to transactions and value creation. Year-to-date, we have deployed or committed over $12.5 billion across acquisitions, development and lending with a rated average going-in yield in the low 5s and a stabilized yield in the high 6s. PS Next is a key driver of those returns. As our best-in-class operating platform helps us generate more NOI and cash flow in a storage property than the competition.

Importantly, this activity has been funded on a leverage-neutral basis. Higher interest rates have increased hurdle rates and moderated transaction activity. However, our strong balance sheet and operating platform position us well to capitalize on a potential reset in asset values.

Lastly, balance sheet and capital markets. Our balance sheet remains exceptionally strong in terms of leverage, liquidity and capacity. Year-to-date, we have completed over $12 billion of capital markets activity, fully funding our external growth initiatives.

In the third quarter, we issued $1.2 billion of unsecured debt at a weighted average rate of 4.85%. That activity included our first Canadian bot issuance and continued use of our hedge program including a 10-year treasury hedge at 4.32%, of which we still have $500 million remaining for future use. $900 million of this issuance year-to-date was subsequently swapped to Canadian rates to hedge our PS Canada equity exposure, further reducing those rates by approximately 1%.

We've also entered into forward sale agreements under our ATM program year-to-date that are expected to generate nearly $400 million of future net proceeds at approximately $326 per share. At quarter end, available liquidity was approximately $4.1 billion between cash and our line of credit, supplemented by approximately $600 million of expected annual free cash flow.

Our balance sheet remains 1 of the best in the REIT sector with net debt to EBITDA of 3.4x and debt plus preferred equity to EBITDA of 4.7x, and debt plus preferred equity to enterprise value remaining in the low 20% range. While debt metrics were modestly elevated this quarter by 0.4 turns due to the transaction timing we expect the 2 major transactions to be slightly deleveraging over time.

In summary, operating momentum improved. Guidance increased, the value creation engine remained active and the balance sheet was further strengthened. We are executing today with an eye to the future and building multiple drivers of long-term per share earnings growth.

With that, I'll turn the call back to the operator for Q&A. Thank you.

Operator

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

分析师问答

Michael Goldsmith

9% move in rate for the third quarter was strong. Can you talk about the cadence of that through the quarter? And then what have you seen so far across the operating metrics in October?

H. Boyle

Yes. Thanks, Michael. We did see a strong move-in rate activity throughout the quarter. I'd say maybe taking a step back, I'd say, fundamentals overall, as I just mentioned, were better than expected. Actually start with the improving churn, which is something that we've spoken about now for several quarters. .

We attribute both to customer mix but also the customer focus of the teammates at the properties and around the company paired with lower move-in volumes really leading to that strength in the summer months at the peak leasing season.

And in terms of sequentially through the quarter, I think we had reasonably good strength throughout as it relates to move in rates such that the combination of move-in rate and move in volume moving revenue, if you will, was in positive territory year-over-year while move-out revenue was in negative territory, certainly helping the acceleration of the business through the quarter.

In terms of October, relatively consistent trends there. So nothing that has meaningfully shifted not quite the 9% year-over-year growth as we move from the summer into the fall part of the seasonal period, but trends are consistent in terms of both churn benefits as well as move-in volumes being modestly lower is roughly flat as we sit here through October.

Michael Goldsmith

Got it. And then just to follow up. The implied fourth quarter same-store revenue growth is 1%. So showing continued sequential improvement. So does that require anything to materially change there for the backdrop in order to hit that, can you talk about kind of like what your expectations are for moving rate occupancy and easy arise through the fourth quarter to kind of hit that number?

H. Boyle

Yes. I mean, obviously, we had the benefit of seeing October performance as we put together that outlook. And so it's certainly, October is very consistent with that. And Joe just walked through some of the trends expected full year numbers, including low single digits, move-in rent growth, which we expect to be in place as well as the year-over-year growth. So nothing more to add to that. .

Operator

Our next question comes from Nicholas Yulico with Scotiabank.

Nicholas Yulico

I just want to stick with the move-in rate growth, which was very strong this quarter. I was hoping you could quantify if there was any year-over-year comp benefit plus any impact in LA that really drove that number unusually high this quarter?

H. Boyle

Yes. There's nothing unusual that I'd point to that drove that. I think it's a combination of the factors I just highlighted. I would note clearly that, that is managed not at the national level, but is managed very much so at the local property and unit level, and we certainly see a wide variety of outcomes there where certainly some markets and submarkets that we operate in, saw a different mix of rate and volume and those sorts of things.

But overall, certainly on the aggregate, encouraged by that pricing strength. As I said, that was really peak leasing season, which is our strongest pricing power, highest occupancy through the year. We are anticipating and have seen in October that same level of year-over-year growth doesn't persist into October, and we're anticipating into the fourth quarter.

But as you think about L.A., for instance, L.A. actually not a meaningful contributor to that, actually, L.A. move in rent growth, just a touch under the national average so nothing unique there either.

Nicholas Yulico

Okay. Yes. And I guess as you think about the sort of trade-off between pushing rate and preserving occupancy as you head into next year, I mean, what does the competitive landscape look like? I mean, do you feel good still about the ability to push rate versus what competitors in the market are doing right now? .

H. Boyle

Yes. Again, it's a dynamic marketplace. So we're going to see across the different markets, as Joe highlighted, we have markets where maybe you characterized them as coastal markets where we've got 2% to 4% same-store revenue growth.

Pretty good and healthy move in rate growth supplemented there, and then you're going to have a combination of the Sunbelt markets, which continue to absorb really tremendously absorbed new supply over the last several years that will continue into '27.

And some of those markets are certainly going to have move in rates that are lower in a more competitive new supply dynamic. Quest, we've seen encouraging trends there. As Joe highlighted, I would expect that, that continues into '27 with less new supply deliveries in '27 compared to '26.

Operator

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

Samir Khanal

I guess, Tom, you talked about improving customer retention here in the portfolio. And I guess, broadly, with customer churn improving and occupancy stabilizing here, how are you thinking about the opportunity to push ECRIs into 2027? .

H. Boyle

Yes. We continue to have a really stable and attractive existing customer base. If you look at that vis-a-vis existing customers and their price sensitivity or you look at their payment patterns or delinquency patterns, continues to be strong performance.

And that's really been the case over the last several years with more pricing strength from new customers that actually gives you a little bit more ability to think about ECRIs given the fact that the replacement cost if a tenant vacates is actually lower.

And so we saw some of that benefit in the third quarter with a little bit stronger ECRI contribution in the quarter, which was healthy. And to the extent that new customer strength continues, would anticipate that, that positive contribution does as well.

Samir Khanal

Got it. And then I guess my question, the second one is on the MSA acquisition, which you've closed. I mean, is there any early reads into the portfolio, maybe metrics coming in better than you expected? Maybe any color on that?

And kind of where is the greatest opportunity to outperform your original underwriting for that portfolio? Is it from revenue management? Is it from operating efficiencies or potentially better market fundamentals in MSA's portfolio?

Joseph Fisher

Samir, it's Joe. Maybe a couple of things on that. starting off with just in terms of what we guided to for the year, we did guide to a neutral impact from both MSA and PS Canada with no change in those expectations. So overall, revenue and NOI coming in line with our original expectations here in the back half of the year.

As you move forward into '27 and '28. Say that our conviction levels have only increased in terms of the go-forward NOI respective portfolios with MSA specifically, we've talked about a couple of different opportunities. One is on the customer experience front, definitely an opportunity there to continue to lean into that effort as we are across the entire portfolio.

Two would be vacant units or unrentable units that we are bringing back online. We have about 14,000 units there that we inherited that we are getting cleaned up and back into the rental pool. And so more revenue upside than we expected coming off of the total unit base.

And then 3 is the $100-plus million of ROI opportunities that we see in this portfolio that could additional developments and redevelopments, expansions, remixes, conversions, et cetera. And so that will take time to play out, but we do think there's more NOI upside coming off of that.

I guess as it relates to near-term trends, kind of what we're seeing in the portfolio, some puts and takes there to get to that in-line expectation here in the back half. But we've been really pleasantly surprised by the move in volume that we've seen coming into that portfolio.

If you look at August and September, we were up well over 30% on moving volumes across the portfolio. And that's really a benefit to getting the portfolio onto our digital ecosystem, getting it onto our temporary branding day 1. And as Tom said, we've got over 30% of that portfolio already permanently rebranded.

And so that's part of the thesis that we hoped and expected would play out, and we've been very pleased by that. The offset is that we have dropped to move-in rates a little bit, which is consistent with what our initial plan was. And then as we mentioned, we're cleaning up some of the customer base in terms of delinquent tenants that need to be moved out of that portfolio.

And so overall in line with expectations but more upside in the future.

Operator

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

Todd Thomas

Joe, you touched on L.A., which returned to positive same-store revenue growth. After the roll-off of the state of emergencies earlier in the year. How should we think about the runway from here? And can you comment on the catch-up opportunity there on ECRIs and maybe move in rents?

And then can you also comment on -- it looks like new state of emergency measures that were just recently implemented in California from recent tropical storm here. It looks like last several days or so, any thoughts or expectations on the impact that, that might have in terms of late in the year performance or anything that we should consider for 2027.

Unknown Executive

Yes. Todd. So I'll kind of take those in order. From LA perspective, we've been really pleasantly surprised with the performance post the state of emergency expiration. So when you look at our revenue increase guidance of roughly 50 basis points here, about half of that is coming from L.A., an additional lift there.

So a very nice relative and absolute positive for revenue growth for us this year. And then I think in terms of the continued momentum that you referenced, we still have a lot of recapture to go out there and get.

As we talked about before, we have an exceptionally well-positioned portfolio there in L.A. of high-quality assets in a market that does not have a lot of supply. And if you look at the trends for the rest of L.A. outside of the state emergency assets, we've continued to see good revenue growth performance throughout 2025 and 2026.

So just to recapture the trend line we still got almost 100 basis points of incremental revenue growth to go get on that portfolio which equates to around $35 million to $40 million of upside here in 2027 and 2028. So we'd expect that over time, we'll be able to put up those results and that will be additive to the growth profile here for the company.

As it relates to the most recent state of emergency that was put in place through mid-November at this point in time, we did factor that into our updated expectations -- we think it's a relatively de minimis impact on this year's numbers. And we hope that it rolls off in short order, and we can get back to operating in a normal course business.

Todd Thomas

Okay. That's helpful. And then, Tom, you mentioned in your prepared remarks, you brought up the Welltower data science partnership that was announced earlier this year. And I was just wondering if you can update us on the implementation.

Have you begun deploying Welltower's capital allocation models for PSA? And are they influencing your acquisition underwriting or your investment decisions today? And then can you also provide any color on the economics of that arrangement, maybe some of the licensing costs or other payments between the companies at this point?

H. Boyle

Yes, sure. Let's take those sequentially. I'll take the beginning piece and Joe can speak to the financial components. I'd maybe take a step back because as we started this year, there were a couple of components that we viewed as a real opportunity to utilize data science and our capital allocation decision-making paired with some team investments.

And so just an update on some of that activity. The first -- the focus has been around how do we get to faster speed and accuracy of that initial underwriting. And so that's a combination of tools that we're using internally as well as with some of the Welltower tools that you're speaking to the pairing, as I highlighted earlier, of their significant data sets paired with our vast operating data that we have in storage.

And yes, we're using that information in our investment committee decision-making today and continue to evolve and improve that data science work. Second component is around what's the opportunity to continue to use data science and our PS Next platform to drive operating efficiencies. And that's another component of the value creation engine that I highlighted earlier.

And then the third piece, which is also really important is the team investment. And so we have grown the size of the team. And as you think about the micro market targeting, the speed that we're talking about, the certainty of execution, all coming together to drive more off-market activity.

But you need the teammates that go sit and living rooms and get those deals done. And so that combination of multiple factors leading to some of our transaction volume success this year and over half of our activity being in off-market transactions.

So some good early returns on that activity, but we're certainly laying the groundwork for '27 and beyond.

Unknown Executive

Todd. And then related to the second part of your question, in terms of the arrangement, similar to any vendor that we do business with, we're not going to be able to publicly disclose what the economics are of those however, I'd just say it's a multiyear agreement with them. The economics are factored into our guidance.

And from an ROI perspective, we feel very convicted we're going to see returns on that agreement that we have to the benefits that Tom talked about.

Todd Thomas

Okay. Do these costs flow through G&A expense? Where will we -- I guess, I don't know if we'll ever see a breakout, I suppose, but where would these costs ultimately fall in the financial statements? .

Unknown Executive

They'll roll through G&A, Todd.

Operator

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

Juan Sanabria

Just hoping you could talk a little bit more about Los Angeles and how much of the portfolio, I guess, has been touched from an ECRI perspective in terms of being brought up to market and with the new, hopefully, temporary emergency restrictions, how much of your NOI, I guess, is affected by that? It seems like it's beyond LA maybe San Diego and Orange County. So just hoping for quantification of what that encompasses at this point.

H. Boyle

Yes, sure, Juan. In terms of the approach that we've taken in Los Angeles, when the pricing restrictions came off, we did have the ability to start to move to market-based pricing. We've taken advantage of that, and that's the what you see in the performance in the third quarter, the acceleration in financial performance from the portfolio in L.A.

As we've noted on prior conversations, we were not seeking to recapture the difference between market and where tenants were overnight. And we view that as an advantage to spread that out over time, both from a brand and franchise standpoint, given the strength of our portfolio in Los Angeles.

And so we're in that process but that likely takes 12 to 18 months to get there, which goes to Joe's comments earlier around future upside as we get into '27 on Los Angeles. In terms of the most recent state of emergency, as Joe highlighted earlier, we're certainly in compliance with the pricing restrictions there.

It is broader than L.A. County, but we'd anticipate that the storm emergency would move on after a shorter period of time compared to the state of emergency that was put in place given the fire impact and the relative impact of those different events.

Juan Sanabria

And then just going back to the top of the call where you were talking about moving rates in the 9.3%, which was clearly an acceleration from what you guys discussed in the September conference.

But just hoping you could maybe fold into that discussion, the use of discounts or incentives and how that, on a net basis is trending to kind of just round out that conversation.

H. Boyle

Yes, sure, happy to. So the other components that you just highlighted we're constantly testing and evaluating the mix of rate, volume and promos, marketing, all those different levers that we have. And again, really at the property and unit size level.

But specifically to get to your question around promotions, promotions were up in the quarter but as you think about rates being up 9.3% in the quarter, the promotional discounts given or the percentage of the tenant base that received promotions was actually lower year-over-year.

The increase there is driven by the higher contract rent that was achieved during the quarter. So actually, a modestly lower promotional activity per tenant this year compared to last year, and that's continuing into the fourth quarter.

Flip side is we did use a little bit more marketing and saw a very good return associated with that marketing spend in the quarter.

Operator

Our next question comes from Steve Sakwa with Evercore.

Steve Sakwa

I just wanted to see if you could provide a little bit more color just around the broad transaction market. I guess, what are you seeing on the pricing front? And changes in unlevered IRR expectations?

And maybe how are you, I guess, adjusting to those maybe higher return hurdles, but possibly also better NOI growth as you kind of look out what is that doing ultimately to cap rates in your view?

H. Boyle

Yes. Sure, Steve. So we have been active this year really across the spectrum of capital allocation. So we're live in dialogue with sellers as we move through the fourth quarter, we were frankly anticipating that we could have had a pretty active fourth quarter, which is more typical in the sector coming out of conferences and closing out the year following a stronger leasing season this year.

With higher rates, we're certainly seeing a little bit more of a disconnect between the higher cost of capital associated with buyers and seller expectations that have not necessarily adjusted yet.

But those higher costs, higher financing costs are going to put more pressure on certain owner groups and would anticipate that if rates stay where they are and stabilize here. And that's from a combination of factors, certainly those that are in those that have lease-up activity embedded in their underwriting.

And then also, certainly, as we think about new supply and higher cost of capital for new development that comes in all likely to have an impact from those higher rates. As you noted from our standpoint, we have a combination of a strong balance sheet with an attractive cost of capital on a relative basis paired with our PS Next operating platform that can earn more asset -- earn more cash flow from those individual assets.

And so on a relative basis, while the activity is slowing a little bit here, with higher hurdles that we're using, as Joe mentioned earlier, the opportunity set is attractive. And we feel like if rates stabilize here, there could be an opportunity for higher yielding returns, lower basis even below replacement costs in many of the markets that were evaluating today, and that's an attractive place for us to deploy capital into.

So I think it's a dynamic environment. We want to see how rates evolve through the fourth quarter, but one that we're optimistic around as we head into '27.

Steve Sakwa

Great. And then maybe just as a follow-up, Joe, I might have missed some of your comments around occupancy maybe into the fourth quarter. Could you just maybe reclarify your comments around occupancy and I didn't know if you were talking spot occupancy, average occupancy, but just maybe any clarification around fourth quarter trends would be helpful. .

Joseph Fisher

Yes. So for our occupancy, what we talked about was full year being slightly positive for the year, and we've been up kind of 20 or 30 bps on a year-to-date basis. So It'll probably come down and be more in parity on a year-over-year basis for occupancy in the fourth quarter.

At the same time, we'll continue to see churn hopefully stay lower on a year-over-year basis, continue to see a good ECRI contribution. And then we got move-in rates, which we expect to remain in the positive territory, although just not at the same magnitude as that 9% that we saw in third quarter.

Operator

Our next question comes from Brad Heffern with RBC Capital Markets. .

Brad Heffern

I appreciate the prepared comments on AI and the deck you put out a few weeks back, but there's still a lot of concern around us and other AI agents. I think most people would agree that making it easier to cancel isn't necessarily helpful because the hand still has to move out.

Nobody wants to do that. But I'm curious how you think about the risk that it allows tenants to push back on ECRIs more easily?

H. Boyle

Sure. So directly to that point, no question that the pace of innovation continues to be quick. And that's encouraging across a number of fronts for us. We view it as an opportunity for us across certainly the customer interaction that I highlighted with our virtual agent, the digital platform that we have, it continues to be tuned to those AI agents.

And to your point, our customer experience is one that does not make it difficult to move out or to cancel. We have month-to-month leases and those month-to-month leases enable customers to move out when they elect to. And that's always been the case. So no change there.

I think as it relates to the impact associated with rent concessions or otherwise, that's something that I actually gave an example earlier in my prepared remarks around a customer coming and requesting a look at rent concessions.

Something that we tune with data science engines in order to be able to optimize based on expected customer behavior and sensitivity and with AI agents likely to participate in that today and going forward, we would continue that tuning. And we haven't seen an increase in the level of requests for rent reviews or other things year-to-date.

But to the extent that we do, we'll navigate that with the same sort of predictive analytics around customer behavior and vacate patterns that we'd anticipate ultimately seeing from the end user that's utilizing those agents.

Big picture, like the AI landscape overall, and I highlighted this earlier, is one that set the benefit larger, more sophisticated operators, and we certainly count ourselves amongst that group, and we feel like a combination of our customer experience, digital platform, brand and data science capabilities position us well in that landscape to interact with agents and frankly, make it even more seamless for customers to rent and interact with us across the board.

Brad Heffern

Okay. Got it. And then on mortgage rates, obviously, they've moved higher. Do you think that, that has any impact at all on demand at this point? Housing has been unaffordable for a while transaction volumes have been down for a long time. So does it do anything? Or do you think the business has sort of rebased to this new environment of much less housing activity and it doesn't have an impact.

Joseph Fisher

Maybe a couple of things there, Brad. But I'd say, overall, we don't expect a meaningful impact from higher mortgage rates or less affordability or less transactional ability in the housing market.

You look at our overall demand or movement activity, we have about 45% of our movement activity coming from moves overall. But only about 1/3 of that is coming from moves from single-family ownership to single-family ownership.

So a lot of our move-in activity is the shorter duration stays in the SFR and multi-family world. And so we think, generally speaking, it's less demand overall, and it's come out of the backward-looking number and don't look I think it will be a big impact on a go-forward basis.

I think the other thing to think about, too, is just overall utilization in the space, which continues to increase. We've seen utilization even over the last 3 or so years, continue to increase at 3 to plus or minus increase relative to population growth or job growth. So kind of going up at 2x to 3x that type of number in terms of number of customers utilizing storage. So I think that probably continues into the future given the value proposition there.

Operator

Our next question comes from Ravi Vaidya with Mizuho. .

Ravi Vaidya

With moving rates up 9% and while moving volumes down 7%, is this a strategy shift that we should expect to continue? And with moving rates likely normalizing in 4Q, given your comments are low single digit for the full year. How should we think about the impact on ECRI activity and promotions?

H. Boyle

Yes. So as I noted earlier, there isn't a strategy shift necessarily, but what our models and team are reacting to on the ground from a revenue management standpoint, is a combination of elements that are really helpful.

And you see the impact of less churn from the existing customer base really being one of the most important components leading to that pricing strength. And so yes, with less move out and vacate activity we have less move in volume but stronger move in rate.

The trade-off between those is optimized at the local size code and property level and on a year-over-year basis, that trade-off was a positive year-over-year move in revenue impact. As the operating environment continues to evolve, those tools will be toggled at the local level.

And so I'm not going to sit here and say that there's a strategy shift underway, but we'll continue to react to it. In the third quarter, we saw a good combination of dynamics supported by the customer experience benefit and churn that was favorable, and we're seeing that continue into October.

Ravi Vaidya

Very helpful, are. I wanted to just follow up a question on the guide. The guide reflects an acceleration at the same-store revenue level, a sequential decrease in FFO, maybe if there's some is outside of the core that we should be considering maybe acquisitions or refinancing headwinds as we think about the fourth quarter? .

Joseph Fisher

Ravi. So as you think about 3Q going to 4Q, we're going from 4.34% in the third quarter down to $4.26 implied in the fourth quarter. That $0.08 deceleration is really driven by a couple of things. One is that in the third quarter, as I mentioned upfront, we had a really good quarter from a property tax perspective.

So the assessments for Illinois came in materially lower than we expected and lower than what we had accrued to throughout the first part of the year. At the same time, we had good appeal wins down here in Texas. And so while those will create a run rate benefit the onetime in 3Q creates a tough comp going into 4Q, even though those run rate [indiscernible] will be lower on a go-forward basis given 2 of those wins.

The other thing is that we have a refi in November and so you'll have a little bit of an interest rate reset that will cost us about $0.01 and then you have SureGuard that comes off a little bit from 3Q to 4Q as well. So that's coming down by about $0.01, and that kind of rounds to roughly that number in terms of the deceleration there.

The flip side is that we continue to see momentum, obviously, from a core perspective, so expect revenue to accelerate in the same-store pool non-same-store should continue to be positive and contributing year-over-year and then the ancillary business continues to be really strong for us.

Operator

Our next question comes from Spencer Glimcher with Green Street Advisors.

Spenser Allaway

Okay. Sorry. Yes. please. So I know the PS Canada acquisition only closed at the end of the quarter. But is there any color you can share in terms of move-in rent trends or leasing volume from the last month. Just curious your updated thoughts on the Canadian operating landscape?

H. Boyle

Sure. We didn't disclose anything related to operating metrics in Canada. And I think as Joe has highlighted before, we'll provide more color around the strategic acquisitions as we have a full quarter here.

So this is really quarter for PS Canada. And we're looking forward to the systems integration and team integrations here that we're planning for next month where we'll be putting our digital ecosystem in place, our operating systems and that integration planning is working really well.

In terms of market performance, I'm not going to get into specific markets associated with that, but we'll provide some more color as we have a full quarter next quarter.

Spenser Allaway

Okay. Fair enough. And then just thinking maybe about acquisitions moving forward. The Canadian market is obviously highly fragmented, not too dissimilar from the U.S., but there's arguably a lot less competition at [ Doris. ] So how should we think about near-term acquisitions being split across the U.S. and Canada, maybe over the next 12 to 24 months?

H. Boyle

Yes. No, I think you characterized it well. We think that there's a market opportunity for us to deploy capital there. And it's one of the reasons why we were so interested in this portfolio as it gives us an ability to grow and expand the capital allocation pie in underpenetrated markets.

So I think you captured that well [indiscernible] to be by far the deepest and most active market not only for self-storage as an industry, but also from a transaction volume standpoint.

And so we continue to expect that our activity is weighted towards strong U.S. markets while supplementing that with attractive new Canadian markets that we'll be deploying capital into for the first time.

So a combination there, but still certainly weighted towards U.S. activity.

Operator

Our next question comes from Mike Mueller with JPMorgan Chase.

Michael Mueller

I'm just curious what's behind the faster onboarding of the Canada portfolio? And what's driving that?

H. Boyle

The only driver there is, obviously, we want to get that integration moving as quickly as possible and the team rose to the occasion and was able to get some of that work done earlier as well as all of the integration and training work with the teams in those markets.

So all an encouraging acceleration from a timeline standpoint. It allows us to work together with those teammates with new systems in place earlier than we anticipated.

Operator

Our next question comes from Jeremy Cui with Goldman Sachs. .

Unknown Analyst

As you mentioned, new supply is coming down, have you started to see any impact on development lease-up, improving for volume or rate, especially in the Sunbelt?

H. Boyle

We continue to see really healthy activity in our new developments that have -- that are in the process of leasing up. And that's been the case really for the last several years. Obviously, some of that relates to the fact that we're targeting micro markets that we think there's supply and demand opportunity and that the demand profile supports new supply within that micro market.

And then we go about leasing it with our PS Next operating platform. So we continue to see pretty healthy lease-ups really across the board, and that includes some of the activity that we have in the Sunbelt. Your question specifically, do we anticipate it to improve, I think it would be logical to think with less new supply in some of those marketplaces that there could be some improvement into the next year and the following year.

But I'd say maybe level setting, we continue to see pretty healthy lease-up in the development activity we've delivered recently.

Joseph Fisher

And I think maybe just to add on to that, too, as you think about our conviction level and putting our money where our mouth is on that front and the belief in the lease-up potential of that $700 million that we've acquired this year, about half of that is lease-up activity.

So our average in-place occupancy for the acquisitions that we've done is in the mid-50s. And so while that is dilutive to this year, we're able to buy at discounts to replacement cost and get better total returns on a go-forward basis. And so we're already seeing good transaction -- or lease-up volume within those acquisitions as well in addition to that development portfolio that we have.

Unknown Analyst

Got it. Yes, that acquisition commentary is very helpful. I know strategy at PSA has been focusing on reducing labor costs. I wanted to know how much more runway is there for that strategy?

H. Boyle

Yes. I would maybe characterize it a little bit differently than you did. Focus has been around how do we utilize a combination of a digital ecosystem to create a bit of a different operating model that really touches many aspects of the team around the country and centrally.

And that relates to those tools being deployed but also specialization and centralization and automation of some of the tasks that are required to interact with our customers and provide a good customer experience. And we've been able to achieve that really over the last 5 or 6 years with an investment not only in the digital components, but also in our teammates on the ground in terms of new roles and opportunity and career pathing, that's led to higher engagement from our teammates paired with, as I noted earlier, better customer sentiment and then I think, directly to your point, lower staffing levels and a positive financial impact as well.

So it's really been a win-win-win across a few of those fronts. We've reduced labor hours across the platform over the last 6 or 7 years by about 30%. And with the advent of some of the AI tools that we speak to and I've spoken to already on the call, we're encouraged that there's likely to be even more opportunity as we head into '27 and '28 to capitalize on that opportunity to provide a more consistent, always available customer experience, paired with great teammates at the properties that are providing a great customer service and property experience. All within an evolving operating model.

Operator

Our next question comes from Eric Wolfe with Citi.

Eric Wolfe

I know we talked about this in prior Congos, but I was hoping you could talk about your initiative to give more customers fixed annual pricing, how you're evaluating whether it's additive in markets beyond New York and California. If you have any sense for what percentage of your portfolio could be using this new structure by next year?

H. Boyle

Yes. Thanks, Eric. So one of the things you're highlighting there is some significant price testing that we've been undertaking for about a year which results in a little bit of a different marketing package on the website or in person or over the phone, that communicates a little bit more clarity around what pricing and rents will be for a customer in the first 12 months of the tenancy.

Something we continue to test in a robust way. As you noted, we've been testing it in 4 or 5 different states more recently and are planning on expanding that as we move through the back part of the year. But I'd say more to come there. but encouraging trajectory at this point.

Eric Wolfe

And I guess does that make, I guess, move-in rates sort of any less as a meaningful indicator of your future revenue performance. I only asked because so many people pay attention to the move-in rates as sort of an indicator for your revenue growth is going.

But I didn't know that as you sort of change the structure of the lease and how it's sort of presented online if that changes the comparability of move-in rates on a year-over-year basis looks a little bit harder to compare.

H. Boyle

Yes. Eric, I'd say it may, but I'd say we'll communicate that over time. I'd say at this point, we continue to be very deep in testing there with more to come in the future. But I wouldn't preset any expectations there at this point.

Operator

Our next question comes from Linda Sai with Truist Securities. .

Unknown Analyst

I know there's been a lot of discussion around AI. Does that also translate into more visibility into predicting demand or understanding customer demographics better, which I understand has been opaque historically?

H. Boyle

Yes, absolutely. And I actually -- we spent a good bit of time talking about customer interaction and also capital allocation, but where our data science team has really been focused over the last 8 or 9 years has been around how do we tune and optimize our operating platform.

And that goes with, yes, demand goes with pricing, that goes to some of the staffing components that we're speaking to. And so it's really broad-based there, but that's really where our team has been spending more time historically.

We did recently have a new leader join that team and leading our data science efforts a new member of the team who came from a consumer products company that's bringing perspectives around, yes, customer behavior and demand profiles that we're excited to see where you can take it.

Juan Sanabria

And then you mentioned more bad debt temporarily. Are there other MSA occupancy or rent milestones we should track through 2027? .

Joseph Fisher

Yes.I think when we get into fourth quarter, we'll start to disclose where the NOI and same-store growth, if you will, is for that portfolio and some of the operating metrics.

I guess I would say our initial focus is going to be more on occupancy as opposed to rate and driving revenue through that mechanism. And thus far, we've been pleased to see that despite some of those headwinds, occupancy continues to increase on a year-over-year basis. So looking forward to hopefully seeing that trend continue throughout the fourth quarter.

Operator

Our next question comes from Tayo Okasan with Deutsche Bank.

Unknown Analyst

Yes. Good afternoon, everyone. At the self-storage conference a few months back, there just seems to be a lot of focus around kind of growing regulatory risk, whether potential price caps, whether it is improve disclosure around pricing practices to customers, whether it's some municipalities trying to tax self-storage in kind of accretive way I'm kind of curious, from your perspective, what you're seeing on ground just as you're kind of going into the midterms, and if there really is real risk that may be there's some new regulations somewhere that could potentially impact the bottom line or the top line. .

H. Boyle

Sure. So we certainly monitor all local activity, which is, I think, where we are headed across the country, and we have seen a number of bills and actually some path in different jurisdictions around the country, none of which I'd highlight that are having a financial impact on the company, but it does require monitoring those local legislations.

And then I think also, at the same time, working in partnership with the industry, the self-storage association and the local state self-storage associations, which are doing a great job in both communicating to customers as well as regulators and legislators around the benefits of the industry, the affordability of storage as a product and we're certainly participating in that and supporting those efforts.

The comments that I made earlier around our focus around customer experience is important, paired without affordability, and we feel like in partnership with some of the industry groups educating folks around the benefits of the sector, improving our customer experience on the ground and then certainly complying with any local legislation that comes into effect are all important components of where we go from here.

But there's nothing on the docket in the near term that we anticipate having a material impact to the financial profile of the company, we would certainly update you if that were to change.

Unknown Analyst

That's great. If I may ask one more, if you don't mind. So clearly, you've seen inflection and fundamental at this point. You guys have raised guidance twice in a row now, which is great. But at the end of the year for '26, it will a relatively flattish earnings growth year-over-year. .

As we kind of start to think beyond '26, if you continue to kind of see this kind of earnings momentum, Tom or Jeo, could you just kind of help us think through what that -- what -- from an earnings perspective, what kind of earnings growth that could tangle translate to?

Joseph Fisher

Yes. I would maybe characterize it as a combination of things. One, we're characterizing the operating fundamentals is certainly better than we anticipated in the third quarter. And an environment where we're moving from the stabilization of the last several years to a more gradual recovery in those fundamentals.

So that's maybe a component of it. But as you think about the building blocks that I highlighted earlier, they're important as you think about the earnings profile of the company in the coming years. So we spent some time on this call talking about Los Angeles.

We've spoken about MSA and PS Canada, which are additive to the growth profile in '27 and '28. And the ancillary businesses, which had a good quarter and continue to grow. And then as we think about future capital allocation into a medium and longer-term fundamental outlook that we continue to gain confidence around all additive to the earnings growth potential over the next several years.

And the focus of mine and the team around public storage is putting more and more of those building blocks in place as we think about the industry opportunity moving from here. Thanks.

Operator

Our next question comes from Ronald Kamdem with Morgan Stanley.

Ronald Kamdem

I appreciate all the commentary on the regional differences, but I was hoping we could double-click on the Sunbelt. Obviously, Houston, Tampa and Charlotte stood out on the same-store revenue. Just can you give us a sense? I know it's supply, but what's happening on the ground? Any commentary on demand in those markets? And sort of what strategy you guys are pursuing and so forth?

H. Boyle

Sure. Yes. I would characterize the Sunbelt overall, and Joe highlighted it earlier, is one that's sequentially improving in aggregate. You highlighted a couple of markets, which maybe are ahead of the other direction, which we can speak to.

But I think the absorption that we've seen in those markets has been really tremendous over the last several years given the amount of supply that was really intended to meet some of the '21 and '22 demand at the time. And so as we look about the markets that you highlighted, they're maybe zagging when the rest of the Sunbelt is going in a different direction.

And that's okay, right? I mean I think as we think about a geographically diversified portfolio around the country, seeing that occur as a healthy thing. In Tampa, specifically, we continue to see tremendous demand. there hasn't been a demand concern.

The amount of homebuilding and migration continues in some of those markets. And it made sense as an industry, frankly, to put new storage facilities in some of those new marketplaces around the West Coast Florida. We certainly took advantage of that ourselves, and we think, found some really interesting micro markets there that will be long-term winners.

Over the short term, likely to see more pressure. And that's okay. We're long-term believers in some of those markets that we're highlighting. And I think the absorption because of the strong demand will occur over the next several years, even in the West Coast of Florida, which has made weakest today, more along the lines of what we're seeing in the rest of the Sunbelt with sequential improvement.

Ronald Kamdem

Helpful. And then just wanted to round out the conversation on expenses. I think we've talked about property taxes, AB had insurance and some of the other factors the labor savings. Just when you blend it all together, how should we think about that run rate expense growth? Is the updated guidance, sort of a good signpost?

Joseph Fisher

Ron. So I guess just stepping back, first of all, the team has had phenomenal success over the last couple of years from an expense growth perspective, we're guiding to 2% here this year. We are around that threshold last year. And so even in an inflationary environment, where we've seen some of the outsized pressure on cost, we're able to maintain levels well below inflation. And so I would hope and expect that given the initiative basket that we have, be able to continue to control those numbers.

From a PTC perspective, we've been running kind of in the 3% to 4% range the last several years. I don't see a lot of reason that, that should change going into next year. When you go into payroll, Tom already talked about some of the benefits that we have from our customer-driven demand model as well as things like Eli and the locations to not just direct personnel but some of the indirect costs that we may see benefits to going forward.

As you go into R&M, we actually have some new tests and initiatives taking place that we continue to roll out market by market to in-source some of that management of those efforts and try to get better outcomes in a quicker fashion at a lower cost, all benefiting both expense and revenue for the customer.

And then utilities, we still continue to roll out additional solar installs. So I think we've got a couple more years of constrained growth on that front. And then marketing should be closer to inflationary and then within other indirect costs, you do have a softer insurance market.

And so hopefully, we can continue to push down on insurance premiums at the same time that we roll out AI-based physical security through our camera system and Orange Shield network to constrain some of the claims activity there within insurance.

So overall, I think we've got a pretty good stable of initiatives teed up to continue to battle expenses at the same time that we're seeing revenue start to accelerate and recover.

Operator

Our next question comes from Brandon Lynch with Barclays Bank.

Unknown Analyst

This is Annabel on for Brandon. Can you please elaborate on kind of what's driving the momentum in your ancillary businesses? And specifically, what's behind the strong growth in your tenant insurance business?

Joseph Fisher

Yes. Annabel, maybe 2 things. So one, I would just highlight, when you look at the numbers on the page there on Page 24, within our supplemental, we have rolled in the incremental benefits coming from NSA and PS Canada.

So when you look at total net operating income growth of 40% there in the quarter, about half of that is coming from the addition of those 2 portfolios including substantial growth, obviously, in the management fee line item, given that we have property management fees now on 5 total joint ventures coming over from MSA between their 4 legacy plus the newly formed OP joint venture.

We also have asset management fees coming in there on the OP joint venture. So a lot of fee business coming in. Aside from that though, that number of 20% for the residual business is still pretty fantastic. So tenant insurance, we continue to drive premiums higher at the same time that we continue to push additional options such as tenant insurance within parking for vehicles.

So we've got a number of initiatives in that space to continue to drive outsized revenue growth. And then when you look at the management fee business, just for our stand-alone third-party prop management, you're seeing really strong growth there as we're seeing a number of properties added somewhere in the $75 million to $100 million properties incremental on a year-over-year basis.

So see enhanced revenue and profitability coming from that and good momentum to help drive profitability into the future.

Operator

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Tom Boyle for closing comments.

H. Boyle

Thanks, Rob and I appreciate everyone joining today. So just to summarize some of our commentary here today, operating fundamentals are moving from stabilization to gradual recovery. Our strong L.A. portfolio is improving. .

We're deploying capital into a more attractive medium- to longer-term industry opportunity. We have 2 strategic acquisitions, which we're onboarding to the PSX platform to drive incremental cash flow in future years. We're building out our ancillary businesses, as Joe just spoke to. We're maintaining and utilizing our balance sheet advantages, and our [indiscernible] culture continues to take root.

The near-term environment remains dynamic, but the direction of travel from here is clearing. The building blocks for sustained per share earnings growth are coming together. Thanks for your interest in Public Storage.

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.