Q3 2023 U-Haul Holding Co Earnings Call
Strategic manner.
Speaker 1: as well as a strategic manner.
Speaker 2: As you may recall, last year during this third quarter, we reported a $187 million increase in EMOVE revenue. In the year before that, we had reported a $167 million increase.
Speaker 3: For the third quarter of this year now, we're showing a $77 million decrease.
Speaker 4: If you were to look at our last third quarter pre-COVID, which was the third quarter of fiscal 2020, and calculate an average growth rate over those three years, we're still up 13%.
Speaker 5: The decrease year over year in one-way transactions that we saw begin to develop last quarter continued into this quarter. Along with that, we then had a decrease in overall in-town transactions this quarter as well, due in part to a decrease in the last mile delivery rental business.
Speaker 6: During the first nine months of this year, we've invested just over a billion dollars on new rental equipment. That's up from $809 million for the first nine months of last year.
Speaker 7: About half of this increase I would estimate to be attributable to inflation, with the other half associated with an increase in trailer, towing device, in U-Box container production.
Speaker 8: During our last earnings call, I had reduced our forecasted gross Fleet CapEx number down to 1.4 billion.
Speaker 9: I'm further reducing this now to just under $1.3 billion.
Speaker 10: Proceeds from the sale of retired rental equipment increased by $56 million to a total of $527 million for the nine months.
Speaker 11: Sales proceeds from pickups and cargo vans have increased compared to last year, but we've purposely slowed the sale of box trucks for now.
Speaker 12: Resale values on pickups and cargo vans, while historically strong, have been coming down from level scene last year at this time.
Speaker 13: Performance of cell storage remains strong, although as Joe mentioned, there's some moderation that's beginning to show through.
Speaker 14: Choice revenues are up $31 million, which is a 20% increase.
Speaker 15: Looking at our occupied unit count at the end of December , we had an increase of 55,000 occupied units compared to the same time last year.
Speaker 16: In addition to the increased occupancy, we experienced
Speaker 17: to 9% growth in average revenue per foot.
Speaker 18: Our occupancy ratios across the entire portfolio of storage locations decreased 70 basis points to 83% year over year.
Speaker 19: The moderation and occupancy can also be seen in the same store groupings of these properties, where they saw an average occupancy decrease around 80 basis points to 94.6%.
Speaker 20: On the expansion front, for the nine months of this year, we've invested just over a billion dollars in real estate acquisitions along with the development of self-storage and U-Box warehouses.
Speaker 21: That's up from $783 million last year.
Speaker 22: Over the last 12 months we've added 77,000 new units. That's right around 6.2 million net-runnable square feet.
Speaker 23: And we currently have another 6.2 million square feet that's in some process of being developed right now across 148 projects.
Speaker 24: And then we have an additional 153 or so projects where we own the land or buildings, but we haven't started actual construction. That should account for somewhere around at least another 9.2 million square feet by the time we're done.
Speaker 25: on the new acquisition front we're down to just under 60 deals and escrow. Last quarter when we spoke we were somewhere around 100 so that number started to come down.
Speaker 26: In the movie and storage segment we saw expense growth outcase revenue growth.
Speaker 27: leading to a decrease in operating results. Our operating earnings for moving and storage decreased by $99 million to $305 million for the quarter.
Speaker 28: This still represents our third best third quarter, still represents one of our best third quarters in the history of the company.
Speaker 29: based upon total operating income.
Speaker 30: It's also one of the best operating margins for a third quarter.
Speaker 31: This is not to say that we're not working on improvements.
Speaker 32: Within the operating expenses, we saw them increase $75 million. We highlighted in the press release the $34 million attributable to fleet repair and maintenance.
On that front we're increasing our internal capacity to more of the repair work ourselves.
and the fleet is in good shape going into the summer months as far as preventive maintenance.
The increase in personnel costs flowed in the third quarter to a $13 million increase. And actually the month of December we saw a small decrease.
But there's still much more work that we can do here.
The next largest operating expense increase was a combination of what I call property level costs that include utilities, building maintenance and property taxes combined those rupt thirteen nine.
We continue to have strong cash and liquidity at the end of December . Our cash and availability from existing loan facilities at moving to storage totaled $2 895 million.
Also during the quarter we invested $225 million in six months, six months US treasuries to increase our yields. That $225 is not currently reflected in cash, it's in investment fixed maturities.
During the quarter, our interest expense for moving and storage was up $15 million, while interest income on our cash and short-term investments increased $24 million.
And then for the nine months our interest expenses up 43 million while interest income is up 42 million dollars.
With that, I would like to hand the call back to our operator, Gary, to begin the question and answer portion of the call.
Pardon me, we will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. 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.
budgeting cycle and of course I'm just putting more
Emphasis on budgets and I think that's standard management
We have, I think, some opportunity at
in our customer-facing personnel.
We will have to reduce the work in order to reduce the work force expense.
And we have several initiatives that have good promise there...................
course you can see from Jason's commonly had some great results from our client entity.
The second question is, with self-storage moving rates coming down and occupancy falling in the industry, are there any changes to the desire to expand self-storage?
It's far from the desire that desires real high, but of course what we're trying to do.
Storage is a very market-specific business. It's not a national market.
bikes.
So we're trying to pick our way through the
He's to find stuff that...
We'll want a little bit better than what the macro market is reflecting. And I think...
we're showing some success to have that.
Thank you. You're welcome.
You know, of course we perform everything and have a lot of confidence when we start out, they don't always...
work out as expected but in a macro since they are so
I'm continuing to have a desire to expand self storage. It's at least a 13 year asset and I don't know how
Along this present dip will go if it goes a couple of years, well on 30 years that's not.
Not that big a disturbance.
So I I'm still going ahead on that
Finally, CapEx for new trucks is moving up, but it seems management still wants to invest more in the fleet to improve the age. On a scale of 1 to 10, how far behind is the company where it wants to be with regard to the age of the fleet?
Any color on how much management needs to spend to bring the fleet back to good standing would be useful.
I'll touch that and maybe Jason will try to give you a number.
It's not actually the age we're working on, it's the cost for my health, it's a trade-off.
It relates to accumulated miles on the vehicle, and that kind of correlates to age if we have the same utilization.
This gets very model specific.
on skill 1 to 10 I think will probably.
The best shape on our small trucks and the worst shape on our biggest trucks I think can be just safe.
We were having more constraint replacing our biggest trucks than our smallest trucks so...
I don't know on a skill 1 to 10, I haven't thought of it that way, I don't want to tell you.
I still think we're about a year behind as far as truck purchases go. So, you know, that won't all be...
That all won't happen in one year. It's gonna be spread out over several years, so it'll be elevated spending over several years. I would say that so far this year, we haven't been able to, on the box trucks, make much progress in putting a dent into that. We're kinda just treading water with the number of new, larger trucks that we're getting.
Gary, do we have any other calls on the line yet?
We do. The first question comes from Stephen Holster with Zach. Please go ahead.
Good morning.
I'm sorry I was disconnected I went to star one and I don't know if this question has been asked yet but I was looking at it more that it was a real tough comparison quarter I thought you sort of indicate that and we were trying to retain the customers that you gained during the COVID you also mentioned that you've been in this
situation before. Could you talk around what you did in the past and will you be doing the same thing this time or is there something more additive that you'd be doing to try to retain those customers that you...
Would you talk around what you did in the past and will you be doing the same thing this time or is there something more additive that you'd be doing to try to retain those customers that you got during COVID?
Well, you know, generally in the United States, customer expectations have increased.
Over the last 20 years, and I expect that they'll steadily increase.
struck India only pay nearly
Everything we've done in the past is applicable, but the customer...
is looking for us to do more and my challenge is how to do more without just driving up.
relative cost.
See?
hel.
be positioning of our
We call our rotation fleet to the fleet that basically stays at a location most of the time.
Because there's a critical step, I think we've...
introduce new analytical tools that give greater certainty to people who at the local level are attempting to decide.
should be at the truck, the application AMD or C&D. And that sounds like it's a simple matter, but...
It's quite a blizzard of information.
spend some time and got new analytical or better analytical tools which I think will help that.
And I think we saw just a little bit of that effect to the third quarter.
And that's about what I did. It's just a whole bunch of small things. Kind of like these things football. It's just a whole bunch of small things that you do correctly.
Yes, blocking and tackling.
I was impressed with the fact that common from Sebastian saying you had to step up the operating margin in the third quarter, which is fiscal quarter, which is usually slower.
I look back and yes, the operating margin almost consistently stayed below 20% and here you came into 23%.
Is there been a structural change in the cost structure?
This is Jason. I would say it's probably twofold. It probably has more to do with revenue. And we have this larger base of self-storage revenue. We have U-box revenue. So our business and the margins, it's an economy of scale. So the more
utilization we can squeeze out of our assets, the better that's going to look. So over a long period of time, if you look at our expense structure, I think we've done a good job of improving revenue without increasing expenses as much. In any small time period, you know, compared to the last two years, for example.
You see some large variations, but over time we've done a good job of increasing revenue without a significant increase in expenses. There used to be a time where the third or fourth quarter we would dip into a loss period. And I think...
self-storage is a large component of why that isn't the case anymore.
All right, thank you for taking my questions.
Thanks, Stephen.
The next question is from Jamie Wyland with Wyland Management. Please go ahead.
Hi, fellas. Glad it's a few people call now. First question, regards the...
the public announcements by public storage that they were trying to buy life storage for 11 billion dollars And life storage said that that price was too little just by way of reference life storage has about 80 million dollars of owned and owned.
What is our current square footage in self storage for owned and managed?
Jason's looking to remember up. Cell 4.
Ones square footage were just over 55 million square feet and then we, including managed work at about 78 million.
So they're at 80 words 78. Is there anything different? 79. Okay, pretty much the same thing. Is there anything different in their facilities or occupancy rates or rental rates or growth trends in their business as you see, they'll publicly held information versus our self-storage operation?
Well, this is Joe. I thought that... Unless it's me.
and Uncle Bob's thought life, I thought that, all that moves.
didn't get a good response from shareholders on the term in my recollection. I think that was a real step up. They got themselves where they had a brand name that could possibly leverage it. Before that they had no brand presence at all. I think they've done a very credible job in moving that ahead. I don't know that.
I get to see a lot of the facilities, but they don't publish information specific enough.
I get to see a lot of the facilities, but they don't publish information specific about. But my impression is, is that...
the LiveStories team.
The live storage team has.
Increase the
ratio of Class A to Class B storage
in their organization since they did.
move away from Uncle Bob's and they've been working pretty hard.
So I think they've done a decent job of that in my mind. I don't know that they're.
Most recently it sounded like they said they were having a little...
maintaining rates, I don't know that for a fact. I'm not experiencing that. I'll see you then.
You called them Class A and Class B-RH, what would you characterize the you whole self-storage S?
I think it's the same mix. I mean, you know, if you have a 30 year old asset, so very simply just not
It's not what you would go today. Now.
We, as a normal thing, go back through these projects, refigure, and says, OK, well, we have a whole list of what the characteristics we would like to see in a facility. And we take a facility and do it.
review and
Where does it fall short of what we would build today?
Is there a way to do that?
do that.
So there you see us spending money in the fall, I think.
and non-relevant euphemism for it. So we're constantly doing that. I couldn't tell you.
I don't get a lot of opportunities to walk through other people's sites. I get some, but it's not they're not.
And not as open with that, you're kind of going to have to have to fit a little bit to the
operator to do that.
I think we've got
Of course, it's a long-term strategy.
Hardly better security.
Other than that, it's a little bit of money, but I think they've done a decent job.
has public storage ever approached us.
Yes, in about 19.
88.
Okay, five hours to plain use.
Given that they want to do a stock swap for life storage, it would be an interesting thing if you would consider
stock swap for our self storage to kind of crystallize the value that you have created in self storage given that
That $11 billion is not that far from our full market cap for U-Haul. If we could get stock for it and distribute those shares to shareholders, it's a pretty tax-efficient way to create liquidity and secure value for that operation. You know, if we could export the shares from the Microsoft Office that we're using, it
You know, we would still have our entire truck rental operation basically for free if we could do that.
Would you ever entertain a scenario like that? It seems like an interesting way to build value in a very tax-efficient way for shareholders and your family.
I haven't looked at that real hard.
some time.
All right.
I think that really the fact that our strategies to merge from the...
standards self-storage read and that were in the U-Box business which at one time public was in it exit.
Okay.
So we're in the truck rental business, which...
Public has flurged with the national part of it. I think extra space.
and life still have some few locations that they offer.
their own truck rental.
But we have kind of a, I think our physical strategies have diverged, but that's probably not.
Something that I will expect.
G unfinished
real movement on that be my opinion. It's, you know, again, you never know how strategies are going to turn out. We have somewhat diversion strategies. As Jason says, Lee.
Self-storage is probably made of suede.
Don't have to seasonally adjust our work force as hard as you had to 15 or 20 years ago. 15 or 20 years ago we've cut to the bone.
in October of September .
because we just didn't have, there was too much seasonality in the truck business.
And so we've done a lot of things...................
Part of the few blocks of potential storage.
And then we've done a tremendous amount of how we.
the size and the location of the car rotation fleet.
And all three of those have combined to give us
more predictable revenue.
Okay.
winter months so I don't...
It's going to be real. I have no idea if Public and Life can make this happen. I have no idea who wants to do what. I'm not privy to anything there. But it'll be interesting if they.
Because they have slightly different strategies.
in
Combining them, I suppose, and they both can argue, the other guy's strategy is no good. So I don't really know. Public does a great job of...
getting value for their NOI. I think they've done a great job in the marketplace and they have a...
with respect to a lot of investors.
I think all the other REIT competitors have struggled in the numbers that I've seen. I haven't seen anything in the last 30 days, but we look at that stuff.
Public seems to just do a better job of.
getting investor support for giving them our rental revenue. So maybe that.
We'll make that be a word.
But as far as just being operators, we're both great operators.
Que melts in your eye with Internet Optimumlas Start the?irus. The path.
Go ahead.
Joe, on the truck rental side, one of the things you've said in the past is the main metric that you really look at as fleet utilization. Now, I realize we have to upgrade the age of the fleet, but I look...
Is with volumes declining a bit yet fleet size increasing. How does this coincide with your objective to optimize fleet utilization?
So we need to do a little bit of truing up. We've been I think kind of a little bit shell shocked a bit, three years of...
Very strong utilization, but...
the average mouse for existing unitists.
mainly crept up.
average miles.
is a better indicator of cost per mile. OK? So, and also availability.
I'll be a little on, but we have roughly.
2000 more trucks.
Down from angels today, then we did a year ago.
Because you've seen, as you probably know, from just maintaining your vehicle.
There's a whole bunch of prelude to it and then sequel you got to get it to maintenance Then you got to get it back out of maintenance
Burns up time and basically makes the fleet.
had a nonproductive so we we
We've done.
A fair amount of investing and adding personnel to try to.
streamline that process a little bit.
If you took our top line number of vehicles compared to last year, I'd say take 2,000 off because they just aren't in service.
2000 additional what we would have seen a year ago and and I agree with you we're just getting right where maybe we need to
But we have to do a very model specific. We need to let some trucks.
Go!
But even the older it gets, just as you could watch it expect.
It's difficult to maintain the same amount of utilization just because of these.
maintenance, intervals, jamming things up. We worked real hard this winter as Jason alluded to, to be going into the spring here.
with the fleet fully maintained.
And we've crossed that line probably in the last six weeks where we're...
We're at where we want to be now of course. I then need to get see how the customers are going to respond to this
where we want to be. Now of course I then need to get see how the customers are going to respond to this. It's not altogether clear.
I see all kinds of positive signs but overall as I indicated one way transactions are down.
And if we don't have the transaction, we don't need the trucks. That's simple. I agree with you 100%.
Okay, and then lastly, with technology a few years ago, you initiated a program where people can rent a vehicle without having to go into a store and do a 24 hours a day. Could you talk about the success and failures of that and how that's changed the dynamics of your business?
It's an example, of course, of the...
technology but also consumer desires. There's more people who want to do some version of a very low contact transaction. And there's people who want to do transactions at the hours that Walmart maintains their stores instead of the hours U-Haul maintains their stores. So there's people who want to do transactions at nine o'clock at night and we've not seen an ability for us to staff to that. The what we call 24-7 truck rental has been a success. It's as a percentage, we have a little bit more coveted dealers.
because a percent of total transactions that we do at centers. And that is because...
Our centers are seven day a week operations and the dealers pretty typically are five day a week operations. So this is allowed.
us to
mitigate some maybe you know modest decline in total demand with
I mean, it increased in our service and the customer has responded. So...
an increase in our service and the customer has responded. So it's been a success.
There's still a great deal of room for improvement and we're hard at improving that.
But.
I would take.
We have a location here.
Zoom fucks ????? ???
Brooklyn Park Slope.
And there, it's a company managed location, it's a big location.
The manager has done a very good job of...
getting the customer literally.
to complete the transaction all of the keys.
So the customer comes in on their phone and they've already basically agreed to everything.
we need to see their driver's license and ask them one or two questions, hand them the keys, and then the trucks roll, we all have all those.
We have most of our locations.
coded so we can identify where the truck is, locate it in, and you give them the point time, we can direct the customer to it.
And I'll take Park Slope, they just walk out to the truck and drive away.
So that's a...
an example of a productivity enhancement.
and
We simply need more of that and we're very aware of that. We're working on it. It's not.
It hasn't come as fast, but we have good acceptance with the particular program.
I can't quote thee.
number of transactions year to date very.
Very possibly, but.
I think we're up about like 14 or 15 percent in those kind of transactions here over here. It's a number like that.
Thank you Joe. Appreciate it.
Don't.
This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
It's Joe, I just appreciate your being on the call. As you can see, we're attempting to...
Learn how to do a better job in communicating with investors.
I appreciate Steve with Zach being on the phone. I mentioned last time I'd like to.
Get another organization to follow us to or attempting to do that, but it's...
It's not as I am now learning. It's not a 30 or 60 day process takes a little while
So I'm not going to say we have something until we have something, but we're working on it.
Again, I appreciate it. Look forward to talking to you. Thank you.
for the talk. Next call.
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