We wanted to pass along a few feedback points following our Black Book presentation on AMERCO (UHAL) last week, which is now on our Long Bench:
- Margin outlook may be too conservative: With 3.5msf of recently added storage space (~7% of the total portfolio) left to stabilize in the coming 18-24 months towards the mid-90% occupancy range, the share of storage revenue in the model is set to expand from ~10% historically to perhaps ~13-14% by the conclusion of the stabilization period and prior to any additional external growth. What this means is that, despite the likely normalization of equipment rental revenues, Adj. EBITDA margins will likely stabilize at a higher level than the 33-34% level realized pre-COVID, owing to storage assets typically running at 60-70% NOI/EBITDA margins upon stabilization. We originally modeled UHAL returning to ~34% EBITDA margins in FY23/Y24, so it is likely that we were too conservative. We estimate that every ~100bps of additional total company EBITDA margin equates to roughly ~$3/share in additional EPS, so a 36% EBITDA margin (which is possible) would result in annual earnings power between $35-40/share versus our ~$30/share estimate for FY23/24 originally. Again, additional disclosure around the operating expenses and G&A attributable to each segment would be very helpful and could only help the company's valuation. Our understanding is that there are recurring concerns around management's "secret sauce" in acquiring and stabilizing storage assets and earning above-average unlevered returns, leading to less typical disclosure
- Research coverage: There has been movement for years among long-term buy-siders to push for sell-side coverage, but the brokers have punted due to (1) lack of investment banking business and (2) a relatively non-engaging management team from a corporate access perspective. The result is that an increasingly large and important self-storage player is left in an informational void. We'll try to fill it!
- Segment multiples: There is some thought that we may have been too conservative in applying a 5x peak EBITDA multiple to the equipment rentals business, with UHAL's brand and positioning in the one-way market warranting an above-average valuation relative to comps. We don't disagree, and a subjective 6x multiple would push the upside to $800/share which is possible. What matters in the present is that UHAL is signaling Bullish
Replay Link: https://app.hedgeye.com/feed_items/104317?with_category=81-reits
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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