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

The best publicly traded self-storage performer the past 12 months isn't a REIT!

Jul 16, 2014 at 3:17PM

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.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Bill Stoller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information