Extra Space Storage Inc. (EXR) Q4 2025 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us and welcome to the Extra Space Storage Inc. Q4 2025 and Year-end Earnings Call. [Operator Instructions] I will now hand the call over to Jared Conley, VP of Investor Relations. Please go ahead.

Thank you, Miriam. Welcome to Extra Space Storage's Fourth 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, February 20, 2026. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call. I would now like to turn the call over to Joe Margolis, Chief Executive Officer.

Thank you, Jared, and thank you, everyone, for joining today's call. We delivered positive core FFO in the fourth quarter of 2.5% and full year core FFO growth of 1.1% despite challenging but improving operating and supply environments. Operationally, we continued to experience the trend of increasing new customer move-in rates, while maintaining strong occupancy levels. In fact, in the fourth quarter, 16 of our top 20 markets experienced positive year-over-year move-in rates to new customers and sequential improvement in revenue growth, contributing to same-store revenue growth returning to positive 0.4% in the quarter. Only 2 of our top 20 markets reached this metric in the fourth quarter of 2024. In the quarter, we also deployed capital strategically in a number of our investment and external growth channels. First, we took advantage of an opportunity to repurchase approximately $141 million of our common shares at an average price of around $129. Second, we closed on 27 operating stores for $305 million, bringing our full year total to 69 stores for $826 million. Third, we executed several high-value JV-related transactions, acquiring 7 stores for $107 million gross while selling our interest in 9 JV properties and unlocking a $37 million promote. Fourth, we originated $80 million in bridge loans, growing the portfolio to approximately $1.5 billion at year-end. And finally, we added 78 third-party managed stores with net growth of 45 stores in the quarter. For the full year, we added 379 stores and 281 net new stores to the program, bringing our total managed portfolio to 1,856 stores. Our diversified external growth platform continues to provide us with opportunities across various channels, which we believe gives us an external growth advantage over all other industry participants. Overall, it was another solid year for Extra Space Storage. We generated positive same-store revenue and FFO growth, and our external growth platform is firing on all cylinders. While only incremental, we are pleased to see progress in most of our markets as they absorb the new supply that was delivered in the last few years. We feel better with regard to our positioning going into 2026 than we did heading into 2025, and in our ability to gradually accelerate performance as fundamentals continue to improve through 2026. I will now turn the time over to Jeff Norman.

Thanks, Joe, and hello, everyone. As Joe mentioned, we are pleased with the sequential improvement we've experienced in new customer rate growth as well as seeing acceleration in our same-store revenue growth. We were also pleased to see improvement in our same-store operating expenses, which increased only 1.1%, with several notable drivers. Property taxes declined 3.4% due to the expected normalization of prior year increases, and property operating expenses, including utilities, were down over 5%. These savings were partially offset by higher health care costs and elevated marketing expense. Our decision to invest more in marketing has been instrumental in driving our stronger move-in rates and positions us for revenue growth as we move through 2026. The net result was same-store NOI growth of 0.1% for the quarter. Our low leverage balance sheet remains strong with 93% of our total debt at fixed rates, net of loan receivables and a weighted average interest rate of 4.3%. Our commercial paper program launched in December of 2024 saved us over $3 million in incremental interest expense during 2025 and has been another useful tool to optimize our cash management and reduce our cost of capital. We have only one material debt maturity in 2026 and a balanced maturity schedule over the next decade. Our flexible and conservative balance sheet provides us access to many types of capital and we have plenty of dry powder to efficiently execute on our growth strategy. In last night's earnings release, we provided our 2026 outlook. Our guidance reflects our current visibility and represents a slow and steady recovery in storage fundamentals. We have not assumed any specific catalysts that could materially accelerate storage demand or any material positive or negative changes in the economy. Specifically, we have not assumed a meaningful improvement in the housing market, nor a change to current pricing restrictions in Los Angeles County. With these factors in mind, our 2026 same-store revenue guidance is negative 0.5% to positive 1.5%. Our expense growth range is 2% to 3.5%, reflecting disciplined cost management while maintaining strategic investments in our people, our properties and our platform that drive long-term revenue growth. This results in same-store NOI of negative 2.25% to positive 1.25%. Our core FFO range for 2026 is $8.05 to $8.35 per share, approximately flat on a year-over-year basis at the midpoint. Our guidance assumes that average bridge loan balances remain generally flat as compared to 2025. It also assumes that most of our 2026 acquisitions will be completed in joint venture structures. In summary, we are encouraged by our positive momentum in new customer move-in rates and same-store revenue. While it takes time for rate improvements to flow through our rent roll, our stable occupancy and strong customer acquisition platform position us well to capitalize on demand as market fundamentals continue to improve in 2026. The combination of our operational strength, talented team and diversified growth platform gives us confidence that we can continue to deliver long-term value for our shareholders through 2026 and beyond. With that, Miriam, let's open it up for questions.

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

First question is just on the same-store revenue guidance. You did 0.4% same-store revenue growth in the fourth quarter, the midpoint of the guidance calls for things to remain the same in 2026 at 0.5%. So recognizing that you've now had the benefit of street rates being positive and that's starting to flow through, I guess I would have expected it to be a little bit higher. So can you kind of walk through kind of like what's the read on how we should interpret the midpoint of the guidance kind of expecting trends to remain kind of flat with where they currently are and if there's any sort of seasonal cadence associated with that, that'd be helpful?

Sure, Michael. Thanks for the question. You're right that at the midpoint it really implies generally flat same-store revenue growth as compared to our exit in the fourth quarter of 2025. As always, we provide a range recognizing the number of factors that could have evolved throughout the year, and to your point, at the higher end of our range, that would imply continued acceleration in 2026. And at the low end, some deceleration, generally flat at the midpoint, as I mentioned. And based on the trends we're seeing today with steady occupancy improving and steady new customer rate growth and a gradual year-over-year compression of the roll down between move-out and move-in customers, it's setting itself up to provide a better fundamental outlook than we saw last year. All that said, the range does capture a number of potential outcomes, which include both acceleration or deceleration, depending where you are in that range.

And maybe sticking with the trends you're seeing today, can you kind of give us an update with how street rate has trended through January and into February and just to see if anything has changed in terms of demand environment or the existing customer into the new year? That'd be helpful.

Sure. So for the first 45 days of the year, we continue to see the trends we saw in the fourth quarter. Mid-February occupancy is 92.5%. It's about 40 bps down year-over-year, and rates to new customers are sort of up slightly over 6%. So all the positive signals continue.

Your next question comes from the line of Samir Khanal of BofA Securities.

Jeff, maybe sticking to guidance here. On the expense side, it's that 2% to 3.5%. You go back last year and even the prior years, it's been higher. So I guess what gives you the confidence to kind of come out with that sort of lower range this time of the year.

Yes. Thanks, Samir. The biggest needle mover as we compare to 2025 is property tax. As you know, for the first half of '25, we had outsized property tax increases that impacted our full year number, with that being the biggest driver of the expenses. We saw that normalize in Q3 and improve further in Q4, and we expect that to be at a more inflationary type rate in 2026. That's the biggest factor. Insurance, which is running a little hot in Q3 and Q4, we have a midyear renewal. All indications are that the market's favorable, and we would expect that to improve materially in the second half of the year. And then most of the other line items, we've done a good job of containing and finding additional efficiencies and think those will be low single digits, if not better. So without getting to specific guidance line item by line item, gives you some of the big building blocks.

Got it. And the other line item that sort of stuck out was the acquisition volume guidance. I know you talked about dry powder, you talked about external growth, but that level is lower than what you were guided to last year. Maybe provide more color on that and kind of broadly what you're seeing kind of on the transaction side.

Sure. So we expect in 2026 that most of our acquisitions will be done in a joint venture format where we put in a minority of the capital. So 200 million of our capital may represent a much larger number of gross acquisitions. And that's because given where returns are in the market for deals, we would likely not be interested in many of them wholly owned on balance sheet where if we do them in a joint venture structure, we can enhance the returns so they become accretive to our shareholders. I'd also say it's a guidance number and we have plenty of capital, sources of capital, that if there are other opportunities, we will execute them and increase our guidance like we have for the last 2 years.

Your next question comes from the line of Brendan Lynch of Barclays.

Joe, you started by saying that street rates are turning positive in 16 of 20 markets. That's certainly attractive progress there. But on the same-store NOI front, it looks like a lot of -- about half your markets are still in negative territory. How should we think about the transition of those kind of street rates improving and that finally flowing through down to same-store NOI and more markets converting to positive in the next couple of quarters?

Yes, I think it's a good question and you kind of hinted at the answer. It does take time for new rates to flow into the rent roll. We only churn 5%, maybe 5% to 6% of our customers a month. So it's really a forward indicator and not something that has immediate impact on our results.

And Brendan, from an NOI standpoint, property taxes in a lot of those markets that you're seeing in the 2025 numbers were a pretty significant factor. And with that being more muted and we expect it to be more muted in '26, that's another positive driver as we think of how that flows through the NOI where we don't anticipate the same headwind in some of those markets with outsized property tax growth.

Great. That's helpful. And maybe another follow-up on the expense front. Jeff, you called out health care costs being a factor in the fourth quarter. We've heard a lot of your peers suggest the same. What is your expectation for that line item going forward in 2026?

Yes, there still will be pressure on the health care side. That is the headwind that I think all companies are facing. On the other hand, we continue to find efficiencies in general payroll and staffing, which mutes it to some extent. So I won't provide specific numbers in terms of our budget. But overall, the total payroll line item is within our general expectation for expenses as a whole, driven by savings on the payroll side.

Your next question comes from Salil Mehta of Green Street Advisors.

Just a quick one here to start off. Regarding California's, I think it was, Senate Bill 709 that went into effect earlier this year. Have you guys been able to see any, I guess, tangible changes in customer behavior or patterns as a result, I guess, the forced extra disclosure that was mandated.

So our disclosure pre legislation was as robust as what they're requiring. Now they want it in a different spot in the lease, in a specific font and color. None of that made any difference. We had very robust disclosure before the bill, and now everybody has the similar disclosure, kind of more of a level playing field, and we haven't seen any effect on our leasing activity in California.

Awesome. That's great to hear. And I guess a slight pivot here as a follow-up. You guys mentioned that the guidance is not factoring in any housing market recovery or any improvements in the macroeconomic environment. But I guess more broadly speaking, what are like the top, I guess, macroeconomic drivers outside of home sales that you guys view could help provide a catalyst for the storage industry? Are you guys tracking anything specific, both on a market and national level? Any color here will be super helpful.

So a couple factors that we think are very important. One is job growth. Job growth is highly correlated to self-storage performance, and it's one of the reasons that even though in 2025 our exposure to Sunbelt markets was a headwind, that we believe our kind of proportional overexposure compared to our peers to the Sunbelt is going to be a benefit to us, because in the future we do believe that's where there'll be outsized job growth. And then the other most important factor is, of course, supply. And we see not that supply is going to 0. I don't think it will ever go to 0, new supply, but we do see a continued incremental reduction in new stores getting delivered.

Your next question comes from Michael Griffin of Evercore.

Maybe to start, Joe, just on the interplay between rate and occupancy. I realize you guys are solving for revenue maximization, but just given that you've run at, call it, a higher elevated occupancy compared to the industry group, and it seems to be some pretty constructive commentary on the new customer rate growth side. Does now feel like the right time to lean more into pricing? Or how should we think about the push and pull between rate and occupancy to drive revenue this year?

So I don't think you can think about it as we're leaning into occupancy or we're leaning into rate. Our algorithms price every unit type in every building every night. And we'll make those decisions as to whether, to use your words, they want to lean a little bit into rate more or whether they want to pull back to encourage more rentals on a unit type by unit type basis in every single building. So I can't tell you that Jeff and I sit around the table and say, let's lean into rate, lean into occupancy. It's just not the way it works.

Certainly, that's some helpful context. And then maybe just next, I know there was an earlier question just on the regulatory landscape, but there was some news out a couple weeks ago just related to stuff going on in New York. I realize there's probably only so much you can say, but maybe from a broader perspective, is kind of the regulatory onus more of a focus, a potential headwind as it relates to jurisdictions and municipalities, whether it's on capping rate increases or what have you this year? And how do you think Extra Space is positioned to sort of maybe address some of the concerns out there as it relates to potential regulatory environment?

Sure. Good question. So with respect to New York, we were served with the complaint filed by the New York City Department of Consumer and Worker Protection. We disagree with the allegations in the complaint. To give you context, the complaint cites 117 consumer complaints over a 3-year period having to do with our 60 properties in New York City. So we have well over 100,000 customers in that time frame, so 0.1% of our customers issued a complaint to the city. We will defend ourselves vigorously, and because it's active litigation, I really can't say anymore. With respect to the broader question about regulatory patterns, we certainly have seen post-COVID an increase in regulation and proposed or attempted regulation of the self-storage industry. There's been a few jurisdictions that have proposed price caps, as you suggest, but none of those have been implemented, and I think that's a difficult piece of legislation to get passed. I think what's more common is disclosure legislation. That's been successful in many states. And as I said earlier, in many ways, we welcome that because we believe our disclosure is very robust, best-in-class. And to the extent certain disclosure has to be codified that everyone has to do it, that could be a good thing for us.

Your next question comes from Eric Wolfe of Citi.

As far as your same-store revenue guidance, I know you just try to maximize your same-store revenue and you're not going to guide the specifics on occupancy versus rate because it's the combination of the 2. But as part of your guidance, you seem to at least be assuming that this current trend of 6% move-in rate growth comes down materially. I think that sort of has to be the case to get to your guidance. First, is that the right conclusion that you're assuming that, that move-in rate growth comes down? And then second, what would cause that? Is it the comps getting more difficult, demand indicators just sort of flattish? Like, what would actually cause that?

Yes, Eric. Thanks for the question. As you acknowledge in your question, we don't assume that all factors remain equal. So as you talk through it, of course, increases and decreases in occupancy, increases and decreases rates are all factors. But in your scenario referring to rates specifically, if we were to try to isolate that, certainly lapping comps does become more difficult as you move particularly in the back half of the year. So I mean that would be a reasonable assumption. But as Joe led with, we are okay if we're driving revenue growth through any of those levers. So we do provide the range partially to recognize each of those factors and that some could be stronger or weaker. We're also mindful of the fact that you have a headwind of approximately 40 basis points from pricing restrictions in Los Angeles County. So those are all things that we're thinking through as we come up with our range.

Got it. And that 40 basis points on L.A., is that like a dilution, like what it would be doing versus what it will actually do? And maybe you could just share what your actual forecast is for L.A. in terms of sort of actual same-store revenue. So when you're forecasting it for 2026, like what's the number that you expect it to end up at for the year?

No. Thanks for the question. We don't guide at the market level or disclose that at the market level, but you're right that, that is dilution versus what we would have expected growth to be in those markets, absent those restrictions.

Your next question comes from the line of Ravi Vaidya of Mizuho.

Can you offer color on your discounting strategy in the broader promotional environment in 4Q? And what do you have embedded in the guide from a discounting and promotional standpoint?

So our discounting strategy is channel-based, based on testing and research we've done for a number of years. So online, we seldom offer discounts, discounts being 1 month free or $1 for the first month, because all of our data is very clear that customers -- long-term customers seeking storage on the web do not respond well to that. We do selectively offer discounts in the stores depending on unit type occupancy and other factors, and we'll continue to do so. I do not envision any change in our discounting strategy until the data tells us there's a reason [ to know ].

Got it. That's really helpful. Just one more here. Can you describe how your team is using AI or any agentic technologies and maybe how that's an opportunity to lower marketing expense or any other operating expenses?

Sure. So we kind of think about AI in 2 big buckets: external use of AI and internal use of AI. And externally, AI's influence on traditional search is real and rapidly changing. We're staying very close to it. So far, the factors, the metrics that make us and other large companies successful in the SEO landscape are the same -- seem to be the same factors and metrics that make a company successful in the Google AIO or ChatGPT landscape. So this is something that we and the other large companies, frankly, have the expertise, technology, focus, resources to stay close to. And I think it's going to be a factor that continues to provide advantages to large companies and differentiates us from most of the industry and allows us to continue to consolidate the industry. On the internal side, I mean we've had machine learning in our pricing models, as I referenced earlier, for years and years and years, also being used in -- to help with marketing spend, software development, certain areas of the call center. We can see it in the future helping us at the help desk, contact management operations. So lots and lots of use cases. We formed an internal platform team to help us make sure that we step into this in a prudent manner and also kind of vet and triage the dozens and dozens of potential opportunities that are coming up. So we think it's going to be a big part of our operations, our technology stack in the future, and we think it will [indiscernible].

Your next question comes from Todd Thomas of KeyBanc Capital Markets.

I just wanted to first follow-up on the revenue growth forecast and some of the comments made earlier. Is the base case for guidance at the midpoint, is that currently sort of assuming a stronger first half and a moderating growth rate in the second half of the year as the comps get a little bit more difficult? Is that sort of the right way to think about it based on your comments?

Good question, Todd. As you can tell by the full range, the growth is still pretty flat, right, high end of 1.5%. Seasonality may impact that 10 to 20 basis points either direction as you move throughout the range -- or throughout the year, excuse me. But that might be as much of a factor as the previous year's comp as anything. So I wouldn't read into that too much. I would look at it more as gradual, slow and steady growth. But to your point, recognizing that you lap more challenging comps the deeper you get into the year.

Okay. And then, Joe, you mentioned job growth as an important factor for demand. You talked about Sunbelt job growth being a favorable long-term factor. New York, Southern California, Miami, San Francisco, they've been some of the higher performer markets. I realize some of that's Sunbelt, but they've been sort of some of the higher performer markets. It seems with sequential revenue growth really leading the way. Do you expect to see those markets continue to perform or outperform in 2026? Or do you think that you'll see some of the other Sunbelt markets really take the lead next year? Or is it just more of a gradual recovery process for some of the other markets?

I think it's more of a gradual recovery process. I think the correlation between market performance in 2025, in particular, has to do with supply, right? The thing that muted Sunbelt market performance -- many Sunbelt market performance was oversupply, and many of the markets that you mentioned did not have that factor. So one thing we know, looking back at kind of long-term trends market by market, is market performance is cyclical. It's really difficult to find correlations between markets, therefore our strategy of having a broadly diversified portfolio with exposure to as many growth markets as we can. And one factor is, how's the market done the last 2 years, right? Atlanta's been a difficult market because we had several years of double-digit revenue growth. So now it's on the other side of that -- so markets will cycle between overperformance and underperformance and having a broadly diversified portfolio can somewhat smooth out that return series.

Your next question comes from the line of Viktor Fediv of Scotiabank.

I have a question regarding your ECRI strategy. So you previously mentioned that your ability to drive increases is somewhat limited until street rates start to increase. So what is the average magnitude of increases sent to customers today versus this time last year? And what is your kind of base case assumption for ECRI contribution to same-store revenue growth in 2026? And how does it compare to 2025?

So Viktor, we don't disclose specifics around the program. We view that as a competitive advantage and part of our overall revenue strategy, but we don't see it changing materially on a year-over-year basis. So at the portfolio level, contributions should be generally similar with the one caveat being Los Angeles County.

Got it. And then can you provide some additional details on the 26 properties that you sold during the quarter? So probably some details on pricing and the bidding process overall. And are you largely done with your kind of overall portfolio optimization, or you may consider to sell something as well in 2026 and '27?

I think we'll sell a small number of properties every year as we seek to optimize the portfolio and get -- improve our market exposure dynamics. We had a greater number of sales in 2025, largely because of the 22 former Life Storage assets that we sold. And that was part of the original plan when we merged with Life Storage. We wanted with certain select assets to improve the NOI, improve the asset, get beyond the 2-year period and sell them because we didn't think they had the growth characteristics that were attractive to us. They required capital that we didn't think we could get a return on or for market positioning reasoning. So we put that portfolio on the market. We got bids. We executed the sale at a market cap rate for the quality of assets that they were. And they weren't the best assets in our portfolio. And we successfully reinvested the capital, right? We bought stock. We made bridge loans and we did over $300 million worth of portfolio acquisitions in the fourth quarter. I can't give particular cap rate or pricing because of our arrangement with the seller, but it was a market transaction.

Your next question comes from the line of Caitlin Burrows of Goldman Sachs.

You mentioned that you expect continued incremental reduction in new stores getting built. So wondering if you can give more details on your supply expectations, which markets are more versus less exposed, and also which data or source informs that view?

So we start with Yardi, which is a national database and might have a little different opinion. We take that data and we apply it only to the markets that we're active in, right? So we don't care what's getting built in North Dakota, for example. And then we use other data that we have through our people on the ground, our investments team, our management team. And when we look at that -- stores that we expect to be delivered in 2026 in our same-store markets, it's an incremental step down, very modest step down, but a step down. I'd also say that when you look -- Yardi does a great job. We think they're the best data source in the industry. I'm not criticizing Yardi, but I think it's hard for them when projects get canceled for them to take it off of their list. They're sometimes behind on taking stores off their list that are -- that don't go forward. And we've seen historically the amount of stores being delivered is always somewhat less than what was predicted. So we think that the situation will get incrementally better. And the markets are the same markets, right? It's the Sunbelt markets that have a lot of this built northern New Jersey, Las Vegas, Phoenix and Atlanta, I guess that's a Sunbelt market. So they're not going to automatically get, where there's no supply, but it will be incrementally better over time.

Got it. Okay. And then also on your comments that you feel better going into '26 than '25, I'm guessing that incremental improvement to supply is part of it. But I guess, is there anything else you can comment on what's driving that? And is there a certain line item in your guidance that reflects that confidence? Because it looks like the full year '25 same-store revenue and same-store NOI results are within the '26 guidance range. So just wondering if that improved feeling is reflected in guidance or not necessarily.

So I think the biggest difference between going into '25 and going into '26 is going into '25, we were still experiencing every month negative new rates to customers. And now we've turned that corner for a number of months and that pattern has certainly established itself. So that and the supply situation has certainly helped us feel better going into 2026. With respect to our guidance, we've gotten a lot of questions about that. It's really hard prior to the leasing season to be fully optimistic and fully bake these trends into your guidance, right? We've had 2 years where we did not have the leasing season that we expected, and until we get to that point where we know what the leasing season is going to be like, we're going to remain somewhat cautious.

[Operator Instructions] Your next question comes from the line of Ronald Kamdem of Morgan Stanley.

Just 2 quick ones. One is on the -- just on the operating platform. I think you guys have taken the philosophy that having people at the stores and sort of managing assets, sort of managing sales, I should say, is going to sort of bear fruit. So I guess, one, I just want to hear a little bit more about how you guys think about the potential to replace people in the long-term role in the platform. And, two, any other sort of big changes that you're thinking through about on the platform to be able to reaccelerate growth?

So our philosophy is that we want to let the customer choose how to do business with us, and the customer can't choose how to do business with us if we close certain channels to them. So right now, we allow the customer to interact with us online, at the call center or at the store. And 31% of our leases are from customers who walk into the store and have not interacted with us online or on the phone. So if we take those people out of the store, those customers all have a cell phone, they all have a computer, they all could choose to interact with us that way, but they want to go to the store for a reason. And if they get to the store and there's no one there, maybe they'll scan the QR code, maybe they'll go online or maybe they'll go across the street to the competitor. And you don't need to lose too many rentals in a high-margin business where your expense savings is overshadowed by the loss of revenue. So as long as the customers are telling us they want to talk to a store manager, right, 31% of our tenants walk into the store. 5% of our tenants start online, reserve a unit, but will not sign a lease until they go to the store, see the unit and talk to the store manager. 8% call the call center, make a reservation, but will not sign a lease until they go to a store and sign -- talk to a store manager. So the store manager is a very, very important part of our process. In addition, the store manager helps keep the store clean, helps prevent break-ins, helps prevent people from living there, helps prevent the mattress from being left in the drive aisle. The asset is taken care of better when there's a human being there. And one reason our management business is growing much faster than competitors who don't use store managers is because people want -- they want store managers in their valuable assets. So we believe this very strongly. It's why we have a higher occupancy rate, I believe, at higher rents than our competitors. That being said, there are ways to find efficiencies. And we are looking and testing for different ways to reduce the number of hours, but I don't -- until the customers tell us they only want to interact digitally, I don't foresee a future where we have no store managers.

Super helpful. I want to come back to the operating expense question because it was sort of lower than we anticipated as well. I think you hit on the insurance and maybe you sort of talked about property taxes as well, but maybe can you talk through sort of marketing spend and some of the other line items that's getting you to that guidance?

Thanks, Ron. I think you hit 2 of the biggest ones in terms of primary drivers of growth in 2026, at least as we anticipate in our guidance. And then marketing is the, I would say, the variable expense. And as we've talked about before, we really view that as a revenue driver. So it's a line item that we're happy to pull back on if we're not getting the returns we want and still see healthy transaction volume. On the other hand, it's one that we're also happy to lean into and spend more because it's pretty direct return that we can calculate. So I would say that, that's probably your risk factor, Ron, to the positive and to the negative, is marketing expense. And then on the margins, property taxes, just because of the magnitude of the total expense load that they contribute. The rest, Ron, I would say would be definitely inflationary. Sorry about that.

Your final question comes from Michael Mueller of JPMorgan.

It's [ Daniela ] here. On the bridge loans, it looks like you guys have gone through the majority of your backlog of bridge loans. Considering the balance is expected to be generally flat in '26, should we expect the balance to decline beyond '26? Or do you have meaningful activity there to keep it consistent?

Yes, thank you for the question. We are intentionally guiding to maintaining relatively flat balances. That's not necessarily because there's a lack of volume to keep originating loans, but we have a really flexible structure where we can choose how much of the loan to retain. So if we see higher volume, we can sell more of our mortgage notes and just retain the higher-yielding mezzanine piece, or we can retain both. So we're confident we can retain those balances at this level based on the origination activity we've seen. We've also seen that a lot of these loans -- or borrowers exercise extensions. We see that oftentimes at or before maturity, we are buying these assets, so it serves as an acquisition pipeline for us. So we're happy to participate in the industry in any way we can to partner with other storage participants. And this is just another good tool that helps bring in management, it sources future acquisitions and provides a solid return along the way.

There are no further questions at this time. I will now turn the call over to Joe Margolis, Chief Executive Officer, for closing remarks.

Thank you all for the questions. Good conversation. We appreciate your interest in Extra Space and look forward to reporting to you throughout the year how we do on our guidance. Thank you and have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.