UHAL

• Capital Investment and Development:

  • The company invested $194 million in real estate acquisitions, self-storage, and UBOX warehouse developments in Q1, a $100 million decrease YoY. 18 new storage locations were added, totaling 1.1 million net runnable square feet.
  • Currently, 5.7 million new square feet are under active development across 106 projects, with an additional 6.3 million square feet of approved future development on owned, unstarted land. Both figures are down from 6.5 million active and 8.3 million pending at the same time last year.
  • Under the $350 million authorized share repurchase program announced in May, the company has repurchased $15.6 million of voting shares and $32.4 million of non-voting shares through June, with an additional $48 million of repurchases completed after quarter end. Approximately $242 million of repurchase authorization remains, and management still sees value in repurchasing shares at current prices.

• Product and Operational Updates:

  • Net tenant movement activity is picking up but remains below management's target levels. The company is pursuing a target of 3,000 independent U-Haul dealers, which requires lower capital expenditure than company-owned locations, and estimates the expansion is currently one-third complete, with the market able to support the full target.
  • UBOX saw an increase in total boxes in use and shipped this quarter, but revenue grew only 1.1% due to slower growth in average revenue per unit and an accounting shift for UBOX-related insurance to the company's property and casualty segment. Freight cost increases and higher rates of delayed shipments pressured results, but operational changes implemented four weeks ago have reduced late shipments and improved customer satisfaction. Higher-margin UBOX storage volume has grown over the past nine months.
  • Management prioritizes growing transaction volumes first, with expected revenue growth to follow as new customers become repeat users. The company uses a 12-month rate lock policy to differentiate its brand from competitors that erode consumer trust with unpredictable pricing.

• Self-storage development spending is projected to continue declining, with the company targeting a development rate closer to the rate of new rental occupancy, down from the previous 2x development pace. Development volume will continue to adjust downward through the rest of the year, with most currently planned projects committed to two years prior.
• Elevated freight costs are expected to remain a headwind for the full year, peaking in July 2024 and easing in the second half of the year, though this projection is contingent on volatile freight market trends.
• Year-over-year negative depreciation variances from the 2023 cargo van fleet depreciation rate increase are already subsiding, and no further per-unit depreciation increases are expected for the coming year. If resale market values for cargo vans continue to decline, the company will hold newly purchased units longer instead of selling into a weak market.
• UBOX performance is expected to improve after recent operational corrections to reduce late shipments, with growing stored box volume expected to improve long-term margins.

For the Moving and Storage segment: Average revenue per occupied foot for the total portfolio improved over 6% year-over-year. New customer rental rates rose 2.5% YoY, while exit customer rates were just under 2% lower than move-in rates. Same-store occupancy dropped 456 basis points to 88.3%, almost entirely due to stricter delinquent unit policies implemented in the prior year second quarter. Operating expenses increased $55 million YoY, leading to an EBITDA margin decline of just over 1.5%. Key cost increases include $20 million for fleet maintenance and self-insurance liability, close to $22.5 million for freight and shipping, and $13.5 million for fleet depreciation. Gains on disposal of retired rental equipment rose $24 million YoY to a $1.9 million gain for the quarter. As of June 30, the segment held $1.349 billion in cash and available liquidity.

• Persistently elevated freight and shipping costs, driven by higher carrier rates, are pressuring margins and will remain a headwind through the rest of the year, with unpredictable trends making the magnitude of second-half easing uncertain. Higher freight costs have also led to increased late shipments, which harm customer satisfaction, and require expensive expedited re-shipment.
• Resale values for cargo vans have weakened incrementally since the start of the fiscal year after a strong start. Continued weakness would force the company to hold units longer and could pressure future disposal gains.
• Broad inflation, particularly for personnel medical benefits and local regulatory minimum wage requirements for salaried staff in West Coast markets, is pushing up break-even revenue requirements for existing locations faster than historical revenue growth. Most large peer self-storage companies have seen 24+ months of move-in rates running below move-out rates, creating ongoing industry-level pricing pressure. Weakening consumer sentiment and pricing unpredictability among competitors is eroding overall industry reputation, creating an uphill battle for customer growth.

Q: Analyst asks if the declining trend in active and pending self-storage development square footage will continue through the rest of the year, and if management has a target floor for development volume. / A: Management confirms development pace will continue to decline toward a level slightly above new rental occupancy, from a prior rate twice the rental pace. Most committed projects were planned two to three years in advance, so the downward adjustment reflects current alignment strategy. Management remains open to opportunistic purchases of existing underoccupied properties when valuable opportunities arise.

Q: Analyst asks what explains the divergence between growing transaction volume and stagnant average revenue per transaction for moving services, and what this means for future growth. / A: CFO Jason notes that one-way moving saw stronger transaction growth than revenue growth as revenue per mile dipped slightly, an unplanned trend that management does not expect to continue. CEO Joe Shoen adds that the strategic priority is growing transaction volume first by expanding convenient access, which leads to lower average trip distances and smaller average tickets in the short term, but long-term revenue growth follows as new customers become repeat users. Management is not alarmed by the current trend.

Q: Analyst asks why UBOX revenue growth slowed to 1.1% this quarter after strong double-digit growth last year, even with expanded footprint and capacity. / A: CFO Jason notes that ~$2 million of the revenue gap stems from an accounting shift moving UBOX insurance revenue to the company's P&C segment, and underlying transaction volumes are healthier than headline revenue. Higher freight costs are pressuring margins, forcing a balance between passing costs to customers and protecting transaction volume. CEO Joe adds that tight freight markets increased late shipments, which hurt results, but operational changes four weeks ago have corrected this issue. Growing stored box volume, the higher-margin portion of UBOX business, will support improving margins going forward.

Q: Analyst asks how management decides where to expand self-storage, and if the company is pruning underperforming markets. / A: CEO Joe confirms the company does not prune existing storage locations; any square footage declines come from condemnations or site redevelopments that ultimately add more capacity. Expansion is opportunistic, focused on underserved markets ignored by national competitors, leveraging U-Haul's existing moving footprint to enter markets with existing brand awareness and customer base. Storage is fundamentally a local business, so decisions are driven by local market opportunities rather than broad regional targeting.