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When you think of “U-Haul” what comes to mind?
If you’re like most people you’re thinking about rental vans and trucks emblazoned with U-Haul’s signature orange stripe.
What you might not think about is self storage.
U-Haul’s parent company, Amerco (NYSE: UHAL), operates four different brands. U-Haul, AMERCO Real Estate Company, RepWest and Oxford Life Insurance Company.
Not surprisingly, the company generates most of its revenue from its rental equipment. But it came as a shock to me when I discovered that self storage is one of U-Haul’s fastest growing businesses.
The chart below shows the breakdown of Amerco’s revenue sources.
Over the past few days I’ve shared investment opportunities in the self storage industry. Self storage is a great business, with relatively low costs associated with building and maintaining self storage facilities.
Rental rates and occupancy rates are on the rise industry-wide as demand seems to be growing faster than self storage companies can add facilities.
Below is a table comparing the four major self storage REITs to U-Haul. Here I compare the stocks in terms of rentable square feet, occupancy rates and PE ratio.
As you can see, U-Haul is well below the major players in terms of rentable square feet. U-Haul also lags when it comes to occupancy rates. According to the Self Storage Association’s most recently published numbers, the industry average for occupancy is 87.4%.
When it comes to occupancy rates, clearly U-Haul has some catching up to do. But the company has made some progress here, with occupancy rising from 78.7% to 80.5% last year. Especially when you consider that U-Haul increased its self storage capacity by 15% in FY2013 and 13% in FY2014, this is very promising.
Generally speaking, Amerco is very healthy. The chart below illustrates the company’s rising revenues, rising earnings and rising profit margins, a recipe for success.
Perhaps it is Amerco’s financial strength that explains the chart below. It illustrates U-Haul’s impressive 67% 1-year return, 200% 2-year return and 640% 5-year return. Still, even after these gains, the stock is trading at a PE of 16.4, well below the S&P 500 average of around 19.5.
One area where U-Haul stands apart from the four major REITs is dividend yield.
U-Haul’s dividend payments are somewhat erratic. The company paid a $0.53 dividend in 2005, a $1 dividend in 2011, a $5 dividend in 2012 and another $1 dividend earlier this year.
Three of the four self storage REITs boast dividend yields higher than 3.3%. The remaining REIT, CubeSmart (NYSE: CUBE), pays 2.83%.
Does that difference in dividend mean that the REITs are better opportunities than U-Haul? I’m not convinced. Of the big four self storage REITs only ExtraSpace (NYSE: EXR) is doing better than U-Haul in 2014. And none of them have outperformed U-Haul on a 1-year, 2-year or even 5-year basis.
U-Haul’s rental equipment, by far it’s largest business segment, grew by 10.6% last year. Rental and self storage equipment & services grew by around 6%. Meanwhile, self storage and life insurance premiums – Amerco’s #3 and #5 sources of revenue respectively – each grew by more than 19%.
The result was that U-Haul’s FY2014 earnings were 29.13% higher than its FY2013 earnings.
Can you think of a company that is growing its earnings by almost 30% and is trading at a PE of 16.4? I know I can’t. And I can’t think of a better reason to buy U-Haul stock.
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