Here’s a Real Estate Play That Nobody Follows

Most people who rent a U-Haul to move their possessions across the city or country have probably never thought about the company behind it. 

In U-Haul’s case, it’s Nevada-based Amerco (UHAL), which, in addition to operating a moving and storage business, also generates considerable revenue and income from property, casualty, and life insurance.  

However, its biggest attraction might be the land on which U-Haul runs its business. 

The History of U-Haul Dates Back to 1945

U-Haul was founded in 1945 by Leonard “Sam” Shoen and his wife, Anna Mary Carty Shoen, in a garage owned by Carty Shoen’s family. The couple started the business because they tried to rent a utility trailer to move their possessions from Los Angeles to Portland. No one would rent to them, so they crammed what they could into the car, and a business was soon born.

They say the best business to start is one that fills a need. The Shoens felt they weren’t alone in their need for a one-way rental of a utility trailer. They took $5,000 in savings and a 1937 Ford and started U-Haul in the summer of 1945. The rest is history. 

U-Haul entered the self-storage business in 1974 by installing chain-link storage areas within its existing buildings. By 1980, it had more than 600 U-Haul locations and 60,000 self-storage rooms. A couple of years later, its rooms had almost doubled to 110,000. Its first climate-controlled building came in 1993. Today, it has more than 490,000 rooms covering 44 million square feet of self-storage.

In the first quarter that ended Aug. 3, the company’s moving and storage business generated $1.52 billion in revenue, 9.4% higher than a year earlier. Its earnings from operations were $481.62 million, flat to a year earlier.  

In fiscal 2022, its moving and storage business generated $5.40 billion in revenue. That was almost 94% overall. U-Haul drives Amerco’s business.

What About the Other Segments?

As I said in the introduction, Amerco also has a property and casualty business through RepWest Insurance Company and a life insurance business through the Oxford Life Insurance Company.  

In 2022, the property and casualty business had $115.0 million in revenue and $49.8 million in operating earnings, while the life insurance business had $238.8 million in revenue and $19.5 million in operating profits. 

There’s no question that these two segments are peanuts compared to U-Haul. However, they both generate stable returns from a combination of premiums written and investment income. In 2022, its investment income from the two insurance businesses totaled $150 million. That helps keep the lights on. 

However, as I said in the headline, the company’s real estate might be its best asset. Here’s why.

It’s Also a Real Estate Play

One of Amerco’s subsidiaries is the Amerco Real Estate Company. 

It provides real estate services to the U-Haul system. These services include buying existing buildings suitable for conversion to self-storage, existing self-storage facilities, and vacant land. In addition, it sells surplus properties and leases office, commercial, and industrial space. 

Amerco Real Estate is part of its moving and storage business. It doesn’t break out the numbers for this business. However, Amerco’s land, buildings, and improvements are carried on its balance sheet at $7.5 billion as of June 30, up from $7.3 billion at the end of March. 

That’s approximately 42% of its $17.8 billion in total assets. Of the company’s $6.23 billion in notes, loans, and finance leases payable, roughly $3 billion are real estate-related obligations with interest rates varying from 2.27% to 5.5% and maturing between 2023 and 2042.

So, the interest expense on its real estate is a fraction of what it generates from its moving and storage business. For simplicity's sake, let’s assume it pays 5.5% on all $3 billion in real estate obligations. That’s $165 million in annual interest expense, or $41 million a quarter.

As I said, its moving and storage business generated almost $482 million in operating earnings in Q1 2023, about 12x its interest expense. Considering all $6.23 billion in obligations, it doled out nearly $50 million in the first quarter on interest. That’s slightly more than 10% of its moving and storage operating earnings. 

All the while, its real estate is growing in value. 

The Bottom Line

Barron’s recently covered the quirky holding company controlled and competently run by Joe Shoen -- founder Leonard Shoen’s son -- for 35 years. Retail investors might not know UHAL stock, but institutional investors sure do.

“‘Amerco is one of the great businesses that are completely unknown on Wall Street. The brand is ubiquitous,’ says Steve Galbraith, chief investment officer at Kindred Capital Advisors, a Norwalk, Conn., investment manager that owns the stock. He thinks the shares are worth 50% more than their current price—not outlandish, given that they peaked last November at $769,” Barron’s contributor Andrew Bary reported on Sep. 16.

Bary wrote that Bill Smead, the portfolio manager of the Smead Value Fund (SMVLX), thinks Amerco shares are worth $1,000, double where they currently trade. 

Joe Shoen admits that the company has poorly communicated with investors. If Amerco can tackle this problem, there’s no telling how high UHAL stock could go. 

Down 31% year-to-date, Amerco looks like a cheap real estate play disguised as a storage company.

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