How Pure-Play REIT Investors Missed a 68% Return With AMERCO

Much like the apocalypse, the self-storage REIT sector has four horsemen. However, unlike the apocalypse, there appears to be no end in sight for earnings growth in this specialty REIT sector!

It is composed of Public Storage, CubeSmart, Sovran Self Storage, and Extra Space Storage (NYSE: EXR  ) , which has been leading the self-storage REIT pack for the past 12 months.

However, pure-play REIT investors focused primarily on dividend income may have easily overlooked the other publicly traded company in the self-storage sector, AMERCO (NASDAQ: UHAL  ) , for two simple reasons:

1. AMERCO isn't a REIT, and doesn't payout a regularly scheduled dividend.

2. AMERCO isn't a self-storage pure-play.

Here is how AMERICO stacks up against the four REIT horsemen of the self-storage REIT sector:

UHAL 1 Year Total Returns Chart

Most investors realize U-Haul has both moving and storage revenues. The majority of U-Haul revenues are in fact derived from truck and trailer rental. This is probably the major reason AMERICO is a C-Corporation, and not a REIT. However, an even closer look reveals AMERCO is also the parent of:

  • AMERICO Real Estate Company-which in addition to providing real estate and development services to the U-Haul network, also leases: office, commercial, and industrial space, including land for billboards and cell phone towers.
  • Repwest Insurance Company-a property and casualty insurance company providing policies for U-Haul customers and dealers, as well as other independent self-storage operators.
  • Oxford Life Insurance Company-policies and annuities geared to the elderly, unrelated to the self-storage business.

These AMERICO business units are a source of fee income, as well as providing in-house expertise and services to U-Haul by way of vertical integration.

A closer look at U-Haul

One synergy that U-Haul derives from the rental truck and trailer business is having over 200,000 mobile billboards which constantly reinforce the U-Haul brand.

On a market cap basis $5.6 billion U-Haul ranks No. 3 behind $6.2 billion Extra Space. Industry giant Public Storage sports a market cap of almost $30 billion and owns 2,200 locations containing 142 million square feet. Both CubeSmart and Sovran Self Storage have market caps in the ~2.5 billion range.

U-Haul has been actively growing its owned self-storage portfolio, acquiring ~2.1 million square feet during both FY 2013 and FY 2014. U-Haul has a fiscal year which ends on March 31st.

AMERCO FY 2014 highlights

  • Self-moving equipment rental revenues were up ~$188 million, or 10.6% compared to FY 2013.
  • Self-storage revenues increased ~$29 million, or ~19% compared to FY 2013.
  • Operating earnings for the Life Insurance segment increased $3.7 million Y-O-Y, and Oxford Life was upgraded by A.M. Best to A- (Excellent) with a stable rating.
  • Increased rental transactions at U-Haul helped the Property and Casualty segment to increase operating earnings by ~$5 million.
  • Spending on real estate related acquisitions and projects of $321 million in FY 2014 represented an increase of ~53% compared to FY 2013.

A contrast in analyst coverage
Although Extra Space Storage and AMERCO have similar market caps, there is a huge disparity when it comes to coverage by Wall Street analysts. The mix of business units found at AMERCO has resulted in coverage by only two firms, compared to 16 firms following Extra Space, a pure-play REIT.

An ugly chapter that is finally over
The AMERCO family of companies was founded just after World War II by co-founders L.S. "Sam" Shoen and his wife, Anna Mary Carty Shoen. The company is still led by Edward J. Shoen, Chairman and President of AMERCO, Chief Executive Officer and Chairman of U-Haul. In August, 2012 a long running lawsuit filed by former AMERCO insider Paul Shoen and Alan Kahn was dismissed with prejudice, ending an almost 10 year court battle.

Investor Takeaway
AMERCO outstanding performance this past fiscal year serves to validate its unique business model. A nasty inter-family squabble has been put to rest for good. Because AMERCO is not a REIT, and has revenues from so many diverse sources, it has very little coverage by Wall Street analysts.

Although self-storage revenues from U-Haul do not even come close to the 75% minimum threshold to qualify as a REIT, AMERCO could potentially unlock even more shareholder value by spinning out its self-storage business unit as a REIT in the future. Regardless, AMERCO and its moving and storage U-Haul business unit appear to be hitting on all cylinders.

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