Good morning, and welcome to the AMERCO third quarter fiscal 2022 investor conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Sebastien Reyes. Please go ahead.
Good morning, everyone. Thanks for joining us today. Welcome to the AMERCO third quarter fiscal 2022 investor call. Before we begin, I'd like to remind everyone that certain of the statements during this call, including without limitation, statements regarding revenue, expenses, income, and general growth of our business may constitute forward-looking statements within the meaning of the Safe Harbor provisions of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Certain factors could cause actual results to differ materially from those projected.
For discussion of the risks and uncertainties that may affect AMERCO's business and future operating results, please refer to Form 10-Q for the quarter ended December 31, 2021, which is on file with the U.S. Securities and Exchange Commission. I'll now turn the call over to Joe Shoen, Chairman of AMERCO.
Thanks, Sebastien. We had another quarter of good financial results. I continue to work on our customer experience. My workforce is long since ready for the COVID mandates to cease. They are unnecessarily stressed. Demand, fortunately, is still strong for both our moving and storage products. As you are well aware, there are disruptions in the vehicle pipeline that impact our repair and CapEx budgets and will likely do so for two or three years. While the OEMs are working hard to resolve this, any relief for this summer is very unlikely. Like many life insurance companies, Oxford has suffered actuarially unpredicted insured deaths. However, assets and liabilities are well-matched and we will work through this. I appreciate your support and encourage your use of our services. We are only as good as our next customer interaction.
With that, I'll turn it over to Jason to walk you through the numbers.
Thanks, Joe. Yesterday, we reported third quarter earnings of $14.35 a share. That's compared to $9.33 a share for the same period in fiscal 2021. Throughout my presentation, my comparisons are gonna be for the third quarter of this year versus the third quarter of fiscal 2021, unless otherwise noted. Regarding equipment rental revenue, you may recall last year, we reported a very strong third quarter, posting an increase of $187 million. As you can see from yesterday's filing that we were able to build upon that this quarter with an increase of nearly 21% or approximately $167 million. Within the one-way rental market, we continue to see improvements in transactions and to a greater extent, revenue per mile or rate.
Improvements for our in-town markets continue to be a good mix of transactions and revenue per transaction. Even with some headwinds in January and when I say headwinds, I quite literally mean poor weather, we have seen growth in U-Move revenue continue into the next month. New equipment continues to flow into the fleet, just not at the rate that we would like to see it. Capital expenditures on new rental equipment were $809 million for the first nine months. That's compared to $547 million in the first nine months of last year. In response to the pace of new acquisitions and customer demand, we've slowed the number of units that we retire and sell. This has resulted in growth of the rental fleet this year.
Our expectation for net fleet CapEx in fiscal 2022, so this is gross purchases less sales, has been reduced to approximately $495 million for the 12 months. Even with this essentially being an estimate of just the next three months, there is a degree of uncertainty surrounding this due to availability of equipment from manufacturers. Proceeds from sales of retired rental equipment increased by $41 million to a total of $471 million in the first nine months. Sales volume for the third quarter was about even with where it was last year. However, used truck sales prices have been unusually strong. I would estimate that somewhere close to $2.35 of our $5.02 quarterly EPS improvement came from the sale of retired fleet.
Demand for self-storage has not weakened. Our occupied unit count at the end of December increased by 94,000 units compared to the same time last year and that trend continued into January. Revenues for the quarter were up $36 million, which is about a 30% increase. Our all-in blended occupancy rate for the quarter experienced an increase from 73% in the third quarter of last year to 84% this year. For the subset of these facilities that have stabilized and I'll define that as locations that have been at 80% occupancy or better for the last two years, that cohort of properties increased 320 basis points to an average occupancy of 95.7%. We also had 81 more properties fit that definition this year versus the same time last year.
We've seen increased revenue per foot, indicating improvements to our average rates as well. Capital expenditure spending related to real estate was $783 million for the first nine months. That's up from $365 million last year. Spending in the third quarter was our second largest quarterly investment ever, demonstrating the success that we've had at increasing the pace of investments. We currently have approximately 7.2 million sq ft in development actively across about 146 projects. We have somewhere close to 100 properties that we own but we have not yet started building on. We have somewhere around 90-95 properties in escrow, totaling $227 million in purchase price if we elect to close on all of them.
Operating earnings at our Moving and Storage segment increased by $140 million to $404 million for the quarter. Within that, we saw operating expenses increase $116 million. Our two largest operating expenses, personnel and fleet repair and maintenance, accounted for about two-thirds of that increase. As a percent of revenue, both ran almost even with the third quarter of last year. Keep in mind that our operating margin third quarter of last year was one of our better third quarters ever. Several other categories that increased to a lesser extent were shipping costs and property taxes. As Joe mentioned, operating earnings at our life insurance company were down $5.1 million for the quarter. This is largely due to mortality losses that you can reasonably attribute to COVID.
While not what you would hope or plan for, this is a risk when issuing life insurance, and we expect those effects to diminish over time. We continue to improve our cash and liquidity position in anticipation of impending investments and to lock in our borrowing costs for this next development cycle. As of December 31st of this year, we had cash and availability from existing loan facilities at our Moving and Storage segment of approximately $2,344 billion. During the quarter, we entered into another note purchase agreement to issue $600 million of fixed rate senior unsecured notes in a private placement offering. The weighted average interest rate on those is 2.71% and they funded in January.
Our intended use of these funds will primarily be to expand our presence with new locations and sell storage and warehouse space in support of our U-Box program. With that, I would like to hand the call back to our operator, Carrie, to begin the question and answer portion of the call.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question will come from Steven Ralston with Zacks. Please go ahead.
Good morning.
Morning.
Looking at the quarter, we know that the third quarter, fiscal quarter is seasonally weaker than the others. This has been just in line with in the past, especially last year, which you pointed out was unusually strong. It seems like the underlying fundamentals of being the strong demand in the pricing of the rental equipment and vehicles is still quite strong. Is that a proper deduction?
Yes. Yes, this is Joe. Absolutely. People are still moving for a tremendously wide variety of reasons and we're getting our fair share of that business.
It seems like you're managing the difficulty in acquiring new vehicles pretty well, upping your maintenance expenses. I know it's a foggy outlook but you say that it might take at least three years to resolve this. Can you add any more color to this? Because it really seems like you're managing through it as best you can.
Well, I think we're working very hard at it. What happens is when you don't buy, you basically have the amount of miles you believe you can run on a piece of equipment. If you're running on it, you're basically at the end of its life. We're running a little bit more miles on the equipment is essentially shortening their useful lives. The way you bring more useful life in is to bring in more equipment. If we undershoot by 5,000 trucks this year, next year we need 5,000 more trucks, in addition to those that we are normally wearing out. At a point, it becomes difficult just physically to get that addition done. Right now, we're not getting it done because of problems with the OEMs.
You know, we build the boxes on about 70% of our box trucks and that's quite a little manufacturing assembly operation. They'll be highly stressed as soon as we get
Access to more chassis from the OEM. I've been through this before, and it takes a couple of years to kind of work the bubble out, which is the problem. We understand it. We're working at it.
Even though you're doing this blocking and tackling in the rental business, how much more time are you spending, management's time, in expanding the storage facilities? Because I've seen it's been quite active.
I've committed a lot of management time to that and the balance is working out so far. Of course, I have to be careful I don't distract them from our moving customers. Same people do both functions as soon as you get geographically specific. We're doing okay. We just about have this thing ginned up. I wanna replace this stuff or add stuff quicker than we have for the last 24 months and we're getting close to being able to deliver that.
Thank you for taking my questions.
Sure. Thank you.
Once again, if you have questions, you can press star then one. The next question comes from Jamie Wilen with Wilen Management. Please go ahead.
Thanks. Another phenomenal quarter, fellas. Couple questions. First on self-storage, can you quantify the rate increases you've been able to achieve over the last twelve months, percentage-wise?
Sure. This is Jason. I look at that at. You have to break it up into a couple different pieces, right? We have a portfolio of properties that are still trying to stabilize, so you don't see quite the right activity on those, and then you have the properties that are stabilized. On stabilized properties, our average revenue per foot for the nine month or, I'm sorry, for the quarter is probably up close to 6% compared to last year. If you look at asking rents, what we're on average charging a new customer this year versus last year, that's also probably about a little over 6% up.
Okay. Given the rapid increase in occupancy rates and the rate increases, what is your timeframe for a new unit to reach stabilization now? I know it used to be four years but what is it going down to now?
Well, when we're mapping out the investment in one of these, we're still assuming five years. However, I think in today's environment, we're seeing some of these ramp up in two and a half, three years.
Okay. When I look at similar competitors in the self-storage business, I look at Life Storage that has a really similar footprint to what we have as far as owned units and managed units. They have an $11 billion market cap, which is almost equivalent to our entire market cap yet self-storage only represents 10% of our revenues. How do we close this value gap in that if 10% of our revenues are worth almost what our entire company's trading for, and you know, we obviously have a rather nice truck rental and U-Box business as well.
You know, I think those are key questions, Jamie. Right now, what I'm driving on is getting more products so we can put a cap rate on more product. I'm kinda selfish that way, okay, now. Your question's a good question. It's a question that is regularly discussed at the board level and we're trying to figure how to do that and hopefully we'll have some news for you before the year's out, but we'll see. You know, my time gets spent almost entirely on just driving the business and these other questions are a little bit more this long-term strategy. It's a little bit more what we work at the board level. I don't consider myself an expert on what's gonna determine our market cap. We're moving it, and we're gonna.
You know, I like moving it. I'm a shareholder like you are, so I like to see our market cap up.
Okay. On the U-Box front, I think we had close to 50% growth this quarter, if I read it correctly, versus last year. When does that become its own segment and how are the profit margins in U-Box enjoying the incremental volume relative to the rest of the company?
Well, I'll add this, Jason. From a management perspective, it kind of is being overseen separately, as any of our other large segments are. From the financial statements, no one else reports their portable moving and storage business publicly. Our requirement is, I think, when it becomes 10% of revenue for a 12-month period, we would do that. We're not close to that right now. Regarding margins, you know, we have estimations of what these programs look like on a standalone basis but it's really hard, we've talked about this before in the storage business to break that apart. From some rough estimations internally, it's a positive program and it's very close to the overall operating margin.
I would say that we have some quarters in the last year and a half.
Where it operates at the overall margin, otherwise it's within a point or two of it on how we're allocating costs. It's been challenged this year with a big component of that business is the one-way move business, which is shipping these boxes across the country, which has a component of freight costs, and freight costs have been up. Freight cost as a percent of the revenue that we're collecting, it's not out of historical bounds but it's at the higher end of what we've paid over, say, the last 10 years.
Gotcha. I'd like to go back once more to the value disconnect 'cause on marketing your truck rentals, on marketing your self-storage and marketing your U-Box, if I had to rate you on a scale of one to 10, I'd give you something north of 12. On marketing the stock on a scale of one through 10, I would give you somewhere in lower double digits. You know, when I look at a company, we've earned over $50 a share, and it's just nine months. You know, I think it's really time to start instituting a regular quarterly dividend. You know, certainly at least several dollars a share on a quarterly basis. Our trading volume is somewhat limited. We are a $600 stock.
I see no real reason why it would be inappropriate to do a five-for-one stock split, and we'd still be trading north of $100 and create a little bit more trading liquidity within the markets. I do think it's time to change the corporate name to the world-recognized U-Haul that you've built so well. I think these are just very easy, prudent, and steps, and the time is right to take these steps to create some more value for all of us, as well as your family and mine as U-Haul shareholders.
Well, I'm hearing you there and you may be penetrating my cranium. Sometimes repetitive feedback works. I'm taking you seriously, okay?
Very good. Nice job on managing the business. It's been remarkable how you've grown this business in a prudent manner and the profitability you're able to enjoy today and look forward to more tomorrow. Thanks, Joe.
You bet.
The next question comes from Craig Inman with Artisan Partners. Please go ahead.
Hey, good morning. You know, I'd throw in there, Joe, you mentioned the you know the migration of combustion engines in the press release to electric and I hadn't really thought much about that. How do y'all think about that in terms of the business, the evolution, you know, the OEMs committing more resources to the electric, you know, how your fleet would operate if that becomes more of a product to use? Any thoughts there would be great.
Presently, there is no product out there that will work for us. That's number one. There's a lot of talk. Of course, we follow the talk and visit with these people. There's tremendous political momentum behind it, but not quite as much mechanical reality. At some point, this very well may get developed to the point where you can do it. My suspicion is that we'll see a long period of a mixed fleet, and I think you'll see that in the whole country, with the long period of a mixed fleet. We'll have time to do that. Of course, the end result is there's more capital investment into the electric vehicles, basically. You spend more upfront, and you regain it on the fuel.
Well, our opportunity is, you know, we're not buying the fuel every time, so we're not quite as eager to become an early adopter of it as, say, maybe a local UPS delivery man because they know their route. They've got it. I don't know, but I'm sure they've got it down within 20 minutes a day. They know exactly how their routes are coming in. They know the mileage. They can manage electric vehicle much more realistically. So where we're letting people go down the highway, well, the technology just isn't there yet. So we're monitoring it very closely. We don't have a great push from our customers to offer that. I think our customers at the point it becomes technologically and economically feasible, I think our customers will certainly accept it.
There, there's no drumbeat at the consumer level, "Why don't you have an electric truck for us to rent?" Well, if they did ask it, the answer is there is no electric truck. There's a lot of concepts, there's some prototypes, but there really isn't something that you would wanna put into the hands of your or my wife and encourage them to even move 50 miles. Until that comes, we're not gonna do it but when it comes, it's gonna take a big capital and redirection and also an infrastructure. The electrical infrastructure is, it's totally different than the gas and diesel infrastructure. There's a whole bunch of timing issues that are totally different.
Our fleets don't typically come back to a home base every night, like let's say, again, I'll use UPS because I think they're a real with-it group of people managing their fleet. Well, they can bring the vehicle back to its home base and they have some idea of what its condition is going to be, and so they can then provide a strategy for how they're going to refuel these batteries, which is not a seven- or ten-minute operation like it is with gas engines. There's a lot of uncertainties. It's very muddy. We're monitoring it and we're speaking with, as far as I know, most of the likely prospects. We have a, you know, some small number of electric vehicles circulating at our technical center. We're keeping our eyes wide open.
Nothing's going to happen now other than it's muddy. Normally, when we buy a truck, a big truck, you're looking at a seven to 10-year lifespan minimum. I kind of have to try to peer into that seven to 10-year cycle and say, "Well, what are we going to be re-fleeting with? With the trucks I buy today, what will I be re-fleeting with?" That's very, very uncertain at this time. Unfortunately, that's about as specific as I can be. When it happens, we're going to be there but it's not happening yet.
Yeah. That's great color. You're not seeing, though, that the issue on getting the trucks is not at the level where the OEMs are committing more resources to the electric now, which is hurting their ability to produce for y'all. Those aren't colliding at this point in time.
I don't really think I have a view of that. I suspect that but I don't know that. Of course, when you get to the level, say, of Jim Farley or somebody at Ford, he's very, very focused on the electrification. Very, very focused. Now, he has a whole another cadre of people actually run the plants and buy the parts and everything. So far, they've kind of still they're still focused on the present products but this is going to change. There's going to be conflicts and that's just normal. I don't think that's necessarily affecting us today. At the very high level, I'm not the person who interfaces with Mary Barra for our company but again, at her level, she's very, very focused on this electrification.
There's tremendous political pressure on her and she's responding to it. At her level of resource commitment, I'll bet we are getting shorted but she's not resource committing yet at the, you know, parts and labor point of view or the plant-specific point of view where it's impacting us.
Okay. I know a few years ago, the fleet obviously was in the newest best shape it's ever been and y'all hadn't been able to buy up to the level you've wanted on replacement. I mean, is it still ahead of average? I mean, is it still in a position where you've you know, obviously you're pushing out buying the trucks, which puts pressure on you later but from a customer experience and a management ability, it's still in good shape?
Well, I look at this as a long walk. Where we are right now, we've about burned off the excess fat.
Okay.
If you knock this down, we're, you know, we better. We have a caloric input that's required to continue and we're, it's everything we can do to keep doing that. I'm very eager for the OEMs to come online. Then we know we would build back some of this fat or whatever you want to call it back into our physical system because I feel a lot more comfortable. It's very fortunate we had it. No one knew these COVID disruptions were gonna come but I'm kind of one of those people who's always trying to put away something for a rainy day. What we've had a rainy day as far as buying vehicles and then coupled with expanded demand, which that wasn't a scenario we ever thought or that I ever thought through.
I always thought if you know the demand would fall if we had a problem like this. In this particular instance, for a host of reasons, demand rose. We've pretty much, I would say, we're not carrying a lot of fat or unused capacity in our fleet. You're right. four years ago, we had a lot and then I was putting more in. For the last now almost 24 months, we've been unable to do that. In fact, we're replacing at a lower than the required replacement in our judgment. Now, you can push that a little bit with repair, obviously. We have a big repair network and we've ginned it up and everybody's on high alert. We're holding our own.
I really would like to see some relief from the OEMs by the fall.
Okay.
there's some prospect they'll have some by that time.
Okay. In the self-storage side, just so I got this right, 7.2 million ft in development and then there's 100 properties owned but not started building, and then on top of that, escrow is 90-95. Is that the right?
Yes.
Okay. That 100 properties isn't in the development number?
No, no.
Okay
Land use is the problem and I'm sure you know that better than I. Land use is totally unpredictable. We're at various stages of land use, which is all very frustrating to me because it's a very slow process. In fact, these cities have used COVID as an excuse to not actually process, literally not process building permits, which is, I don't know, it's kind of a you can't go anywhere. Some few cities will let us hire a private processor for them or and we do a lot of Zoom meetings, but the ability to just walk into the building department and talk over a set of plans isn't existing right now in most jurisdictions. In our prior experience, you could always do that. You could iron some simple things out pretty quickly.
It's just become more time-consuming.
Okay. Those properties that are behind the development pipeline there, they're all about the similar size, so you could think about them. Are they getting bigger, smaller in terms of average?
Well, commercial property's gone to the moon. Most of this is commercial property. My experience is commercial property is up 100% over 24 months ago. If you were paying $10 a foot, you're paying $20. If you're paying $20, you're paying $40. It's gone to the moon. Now, that's only a component of the cost of a facility. I don't know that the size is going up, but the dollar is gonna go up. The dollar-
Yeah.
Is up. Maybe not the size and of course, that has to all be predicated on what we believe is the rate we're gonna attract at the time we're actually open, which is a little bit of a guessing game. We have people who've been doing this, you know, for 30 years. They're halfway, you know, thoughtful and so we're trying to be very judicious. Of course, Jason has all his analysts look at these projects and we're attempting to be judicious and can not do uneconomic things. Property's gone up. In a couple of places, we're just gonna have to pay up and then we're gonna have to figure out how we're gonna get the rate out of the customer.
You know, with the financings, with the private placements and, you know, obviously the rate is favorable, more favorable than y'all have had at other points. Does that lower your cap rate going in? Does that allow you to bid more aggressively or do y'all keep kind of the same hurdle rates? Just
We've kept the same hurdle rate unless we make a conscious decision on a property-by-property basis. We'll take a deep dive on this one because we think we can straighten it out during the 10-year period that most of our financing encompasses. We think we can get it straightened out in anticipation that we may not have such a favorable rate environment in the future. You know, that's kind of a vague statement. That's the truth. We're not. A lot of our, well, I would say 98% of our competitors, purchasing competitors for buying storage, have already taken the plunge. They're there. They're assuming 3% or so interest rate over the life of the project. That's not my expectation. Now, watch me be wrong and them be right, okay, so. That's not my expectation.
Our planning is that we're gonna see rates bump certainly within the next 10 years to a different level. What has puzzled me is none of it's done what I was taught when I went to school. I could be wrong. I thought the rates would go up multiple times over the last five years and they haven't. Maybe they'll by some miracle stay low. No, we haven't dropped our forecast rate, and that has kept us from buying, making some acquisitions that other people have. Okay, that was their strategy. That's about all I can tell you. Yeah, it was a slightly different strategy. I don't wanna-
Yeah.
miss every opportunity.
Yeah, that's good to know. No, that's great. Good color. Thank you. I appreciate it.
Okay.
This concludes our question and answer session. I'd now like to turn the conference back over to management for any closing remarks.
Well, I appreciate everyone's attention today and the questions and we'll look forward to speaking with you after we report our year-end results in May. Thank you, everyone.
Thank you. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.