UHAL: AMERCO Crosses $4 billion Top-line Milestone as Revenues Increase 14.2% in FY2021; Pace of Openings of U-Haul Storage Locations Accelerating

By Steven Ralston, CFA

NASDAQ:UHAL

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Headquartered in Reno, AMERCO (NASDAQ:UHAL) is North America’s largest “do-it-yourself” moving and storage operator. U-Haul offers “do-it-yourself” moving and storage and supplies products and services to help people move and store their household and commercial goods in the United States and Canada. The company also has Property and Casualty Insurance and Life Insurance subsidiaries, Repwest Insurance and Oxford Life Insurance, respectively.

Management’s goal is to be the predominant provider of moving and storage services for “do-it-yourself” consumers in North America through U-Haul International. The company has developed complementary verticals to better serve its customers, from moving supplies (boxes, tape etc.) and trailer hitches to ancillary products/services, such as the filling of propane tanks and specialty extension services, such as U-Box (portable moving and storage units) and eMove (an online marketplace of independent moving and self-storage affiliates).

In fiscal 2021, management achieved a top-line milestone of generating over $4 billion in revenues. The achievement was accomplished through years of building the brand name and the supporting infrastructure of both the moving and storage businesses of U-Haul International.

Operational Summary of Fiscal 2021

During fiscal 2021, AMERCO continued to benefit from demand for in-town and one-way rentals, resulting in remarkable earnings leverage from the company’s expanded capacity in retail locations and fleet additions. In addition, volume in the Corporate Account business (aka the last mile business) also increased. Total revenues increased 14.2% in fiscal 2012 to $4.54 billion from $3.98 billion during fiscal 2020 while operating expenses only increased 4.1%. This earnings leverage on AMERCO’s asset base helped produced a 38.2% increase in earnings per share.

Under the company’s growth strategy, management had steadily increased capacity over the last few years, positioning the self-moving equipment rental business well to benefit from the surge in demand related to COVID-19 in a leveraged manner. Management has consistently increased the number of retail locations, box trucks and trailers in the rental fleet. Prior to the pandemic, during fiscal 2019 and 2020, company- owned locations increased 15.4%, the truck fleet expanded 9.3% and the trailer fleet increased 7.6%.

Self-storage demand improved. After several years of declines in the all-in blended occupancy rate, the average monthly number of occupied units increased by 57,000 units (i.e. +18%) to 71.8% in fiscal 2021.

Looking forward, new truck purchases had been delayed not only by manufacturing delays at the automakers, but also by management’s desire to preserve liquidity in face of the pandemic during the first half of fiscal 2021. In addition, management reduced the amount of purchases of real estate, construction and renovations by 32.8% due to the pandemic. As a result, depreciation expense declined, boosting reported earnings. As the company resumes its fleet normalization program and self-storage construction to catch up to plan, depreciation expense will impede earnings growth.

On other hand, the payment of a $123 million tax refund is still pending, and the company’s fiscal 2020 tax return requested carry-backs of $258 million. The cash refunds will bolster the company’s liquidity position and could certainly help fund the planned fleet normalization program and self-storage construction.

Fiscal 2021 Financial Results

On May 26, 2021 after the market close, AMERCO reported financial results for the fiscal year ending March 31, 2021. Revenues were well above our expectations. Total revenues increased 14.2% to approximately $4.54 billion, driven by a 14.5% increase (or an increase of $391 million) in self-moving equipment rentals and 30.1% increase (or $79.8 million) in self-moving/self-storage products & services. In the self-storage area, revenues increased 14.0% (or $58.5 million).

In the self-moving equipment rental business, revenues increased across most metrics: volume of transactions and average revenue per transaction for both in-town and one-way rentals of trucks and trailers (double-digit increases), along with volume in the corporate account business. Furthermore, the rate component of average revenue per transaction of one-way rentals was strong.

In self-moving/self-storage products & services, the 30.1% revenue increase was due to increased sales of hitches, moving supplies and propane.

In the self-storage area, revenues increased 14.0% (or $58.5 million) as the average monthly number of occupied units increased by 18%, driven by occupancy gains at existing locations and a 9% increase in new capacity (3.7 million net rentable square feet) over the last 12 months.

Total costs and expenses increased only 4.1% (or $142 million). Cost of sales and commission expenses increased 30.5% and 14.3%, respectively. Depreciation expense decreased $27.1 million (or 4.3%), primarily due to a slowdown in the expansion of the rental fleet as COVID-19 has delayed new truck production.

In fiscal 2022, management plans to return to a normalized rotation program by investing $1.2 billion (capital expenditures) into the rental fleet, which also shall be dependent upon manufacturer availability.

Earnings from operations increased 77.9% (or by $421.0 million) to $961.1 million compared to $540.1 million in fiscal 2020 year. An income tax expense of $185.8 million was recorded.

For the 2021 fiscal year, AMERCO reported a net income of $610.9 million (or $31.15 per diluted share) compared to $442.0 million (or $22.55 per diluted share) for the fiscal 2020 year. Shares outstanding have remained stable at 19,607,788 shares for a decade.

As of March 31, 2021, AMERCO has a strong liquidity position in the Moving and Storage operating segment of approximately $1.115 million (cash plus availability from existing loan facilities). Working capital increased 12.6% to approximately $5.67 billion.

Recent News – U-Haul

The pace of openings of U-Haul storage locations is accelerating. During the height of the pandemic in 2020 and early 2021, there were very few announcements concerning the openings of new locations. However, starting in March 2021, there has been a flurry of news flow regarding new store openings and the acquisition of sites.

On June 2, 2021, U-Haul (a wholly owned subsidiary of AMERCO) opened a new retail & indoor self-storage facility in Erie, Pennsylvania at Peach Street Marketplace (2255 Downs Drive). The 55,805-square-foot facility has 748 indoor self-storage units with climate-control options.

On May 24, 2021, U-Haul announced that a 700+ unit self-storage facility will be opened in Florence, South Carolina at 2020 W. Evans Street. On April 15th, U-Haul acquired a 124,426-square-foot property with a K-mart building. Constructed in 1968, the building has been vacant since 2017. The 10.11-acre property will also offer truck and trailer rentals, moving supplies, towing equipment, U-Box portable storage containers, hitch installation and propane.

The renovation plan is motivated by the company’s corporate sustainability initiatives by lower the carbon footprint by repurposing an existing building into a modern facility. The renovation is estimated to prevent the use of 1,472 tons of metal manufacturing and transportation, avoid 6,526 tons of new concrete pours and prevent 8,154 tons of building and demolition debris being deposited into landfills. All told, by repurposing instead of constructing a building, it is estimated the amount of greenhouse gas emissions will be reduced by 8,534,275 pounds.

On April 12, 2021, U-Haul announced plans to transform the former Capitol Archives & Record Storage building at 618 Capitol Avenue in Hartford, Connecticut into a self-storage facility. The 87,387-square-foot four-story building was acquired on March 25th.

On March 30, 2021, U-Haul opened a 636-unit self-storage facility in Framingham-Southborough, Massachusetts at 15 Pleasant Street. A retail store also offers hitch accessories, moving supplies and boxes. The 93,088-square-foot building and property was acquired in March 2018 and was formerly occupied by Genzyme.

On March 10, 2021, U-Haul announced that a self-storage facility will be opened in Winona, Minnesota. U-Haul acquired a former 84,540-square-foot Shopko® store at 405 Cottonwood Drive on March 1st. A temporary showroom has been opened to provide truck and trailer rentals, towing equipment and moving supplies. Soon, the location’s 10.22-acre lot will also offer U-Box portable storage containers, hitch installations and propane.

The facility will be renovated to render hundreds of indoor climate-controlled self-storage units. The renovation plan is motivated by the company’s corporate sustainability initiatives by lower the carbon footprint by repurposing an existing building into a modern facility. The renovations are expected to be completed in the summer of 2021.

AMERCO is one of the leading companies in the self-storage industry (the third largest self-storage operation in North America), a complementary operation and logical extension of its self-moving business.

A decade of continued growth in the number of truck & trailer rental stores, along with a steady expansion of the rental fleet, positioned AMERCO to benefit, in a leveraged manner, from the transition of a significant portion of the workforce to remote working locations. Going forward, management is focused on optimizing vehicle utilization and reactivating the company’s fleet rotation program.

Valuation

The expected EV-to-EBITDA range for this valuation metric over the next 12 months is 8.4-to-10.5. The target price for AMERCO is $655 per share, which is based the stock achieving the high end of the expected range.

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