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Operator: Good morning and welcome to the U-Haul Holding Company Third Quarter Fiscal 2023 Investor Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Sebastien Reyes. Please go ahead.

Sebastien Reyes: Good morning. Thank you for joining us today. Welcome to the U-Haul Holding Company third quarter fiscal 2023 investor call. Before we begin, I would like to remind everyone that certain of the statements during this call including, without limitation, statements regarding revenue, expenses, income and general growth of our business may constitute forward-looking statements within the meaning of the Safe Harbor provisions of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Certain factors could cause actual results to differ materially from those projected.

For a discussion of the risks and uncertainties that may affect the company’s business and future operating results, please refer to Form 10-Q for the quarter ended December 31 2022, which is on file with the U.S. Securities and Exchange Commission. I’ll now turn the call over to Joe Shoen, Chairman of U-Haul Holding Company.

Joe Shoen: Good morning and thanks for being on the call. I am not satisfied with our third quarter or our year-to-date numbers. Clearly, the post-pandemic easy top line growth is going away. We knew it would. The question now is will we maintain the new customers we serve during the boom? Of course, I intend that we do. In new move, we are experiencing a decline in average miles per one-way move and a decline in total one-way move. In in-town transactions, I would expect us to begin to stabilize. Our third quarter decline in in-town revenue is a bit misleading as while we saw last mile delivery business income decline, we have also increased our transactions with our reliable individual consumers. Self-storage is tightening up for everyone in the sector and we’re not immune to that.

However, we are still re-renting rooms as customers vacate and getting a fair rate. Self-storage is very local market dependent. Of course, this is not news, and a great effort is being made to add storage in an opportunistic, as well as a strategic manner. Personnel expense is up. We are running a bit more personnel than our revenue justifies. We need to affect some productivity improvements before this will flatten out or come down. Rental equipment maintenance is up. The difficulty in purchasing enough new vehicles and the resulting trade-off of lower depreciation for increased repair expense is the trade off, I would rather not be making. At this point, I believe we are trading down. We have very modest input on what the original equipment manufacturers are willing to produce and sell.

Until their appetite increases and unless we can figure out a better solution, this will be a drag on us. We have experienced this before and it does not fix very fast. Overall, I’m very optimistic on our prospects. We are working to increase our service and value to the customer. This is achievable and I remain hard at it. Jason?

Jason Berg: Thanks, Joe. Yesterday, we reported third quarter earnings of $199 million, compared to $281 million for the same period in fiscal 2022. In November, we issued our new Class of UHL.B Series N non-voting shares to our existing shareholders. This issuance along with the dividend policy that we put in place for these new shares requires us to now report our earnings per share in accordance with what’s called the two-class method under GAAP accounting. This disclosure is included in our Form 10-Q, as well as our earnings release. So let me start off with our equipment rental revenue. As you may recall, last year during this third quarter, we reported $187 million increase in U-Move revenue and the year before that, we had reported $167 million increase.

For the third quarter of this year now, we’re showing a $77 million decrease. If you were to look at our last third quarter pre-COVID, which was the third quarter of fiscal 2020, and calculate an average growth rate over those three years were still up 13%. The decrease year-over-year in one-way transactions that we saw begin to develop last quarter, continued into this quarter. Along with that, we then had a decrease in overall in-town transactions this quarter as well due in part to a decrease in the last mile delivery rental business. During the first nine months of this year, we’ve invested just over $1 billion on new rental equipment that’s up from $809 million for the first nine months of last year. But half of this increase I would estimate to be attributable to inflation with the other half associated with an increase in trailer, towing device, and U-Box container production.

During our last earnings call, I had reduced our forecasted gross fleet CapEx number down to $1.4 billion and further reducing this now to just under $1.3 billion. Proceeds from the sale of retired rental equipment increased by $56 million to a total of $527 billion for the nine months. Sales proceeds from pickups and cargo vans have increased, compared to last year, but we purposely slowed the sale of box trucks for now. Retail values on pickups and cargo vans, while historically strong have been coming down from levels seen last year at this time. Performance of self-storage remains strong, although as Joe mentioned, there’s some moderation that’s beginning to show through. Storage revenues were up $31 million, which is a 20% increase. Looking at our occupied unit count at the end of December, we had an increase of 55,000 occupied units, compared to the same time last year.

In addition to the increased occupancy, we experienced close to 9% growth in average revenue per foot. Our occupancy ratios across the entire portfolio of storage locations decreased 70 basis points to 83% year-over-year. The moderation in occupancy can also be seen in same-store groupings of these properties where they saw an average occupancy decrease around 80 basis points to 94.6%. On the expansion front, for the nine months of this year, we’ve invested just over $1 billion in real estate acquisitions along with the development of self-storage and U-Box warehouses, that’s up from $783 million last year. Over the last 12-months, we’ve added 77,000 new units, that’s right around 6.2 million net rentable square feet. And we currently have another 6.2 million square feet that’s in some process of being developed right now across the 148 projects.

And then we have an additional 153 or so projects where we own the land or buildings, but we haven’t started actual construction that should account for somewhere around at least another 9.2 million square feet by the time we’re done. On the new acquisition front, we’re down to just under 60 deals in escrow. Last quarter when we spoke, we were somewhere around 100, so that number started to come down. In the moving and storage segment, we saw expense growth outpaced revenue growth, leading to a decrease in operating results. Our operating earnings from moving and storage decreased by $99 million to $305 million for the quarter. This still represents our third best third quarter — still represents one of our best third quarters in the history of the company based upon total operating income.

And it’s also one of the best operating margins for a third quarter. This is not to say that we’re not working on improvement, so. Within the operating expenses, we saw them increase $75 million, we highlighted in the press release the $34 million attributable to fleet, repair and maintenance. On that front, we’re increasing our internal capacity order to do more of the repair work ourselves. And the fleet is in good shape going into the summer months as far as preventive maintenance. The increase in personnel costs slowed in the third quarter to a $13 million increase and actually the month of December we saw a small decrease. But there’s still much more work that we can do here. The next largest operating expense increase was a combination of what I call property level costs that include utilities, building, maintenance and property taxes combined, those were up $13 million.

We continue to have strong cash and liquidity at the end of December. Our cash and availability from existing loan facilities at moving the storage totaled $2,895 billion. Also during the quarter, we invested $225 million in six months U.S. Treasuries to increase our yields, that $225 million is not currently reflected in cash, it’s in investment fixed maturities. During the quarter, our interest expense for moving and storage was up $15 million, while interest income on our cash and short-term investments increased $24 million. And then for the nine months, our interest expense is up $43 million, while interest income is up $42 million. With that, I would like to hand the call back to our operator, Gary, to begin the question-and-answer portion of the call.

Operator: Pardon me. We will now begin the question-and-answer session.

Joe Shoen: purchasing cycle. And of course, I’m just putting more emphasis on budgets and I think that’s standard management. We have, I think, some opportunity at property lever costs. In our customer facing personnel, we would have to reduce the work in order to reduce the workforce expense. And we have several initiatives that have good promise there. And of course, you can see from Jason’s comment, we had some great results from our finance team.

Sebastien Reyes: The second question is, with self-storage moving rates coming down and occupancy falling in the industry, are there any changes to the desire to expand self-storage?

Joe Shoen: As far as desire, the desire is real-high. So — but of course, what we’re trying to do, storage is a very market specific business. It’s not a national market in my experience. So we’re trying to pick our way through the opportunities to find stuff that will run a little bit better than what the macro market is reflecting. And I think we’re showing some success at that. Of course, we perform everything and have a lot of confidence when we start out, they don’t always work out as expected, but in a macro sense they are. So I’m continuing to have a desire to expand self-storage, it’s at least a 30-year asset, and I don’t know how long this present dip will go. If it goes couple of years, well, on 30-years, if not that big of disturbance. So I’m still pulling ahead on that.

Sebastien Reyes: And finally, CapEx for new trucks is moving up, but it seems management still wants to invest more in the fleet to improve the age. On a scale of one to 10, how far behind is the company where it wants to be with regard to the age of the fleet? Any color on how much management needs to spend to bring the fleet back to good standing would be useful?

Joe Shoen: I’ll touch that and then maybe Jason will try to give you a number. It’s not actually the age we’re working on, it’s a cost per mile. There’s a trade-off that relates to accumulated miles on the vehicle and that kind of correlates to age, we have the same utilizations. This gets very model specific. On scale one to 10, I think we’ll probably the best shape on our small trucks and the worst shape on our biggest trucks. And I think if you just say, we’re having more constrained, replacing our biggest trucks than our smallest trucks. So I don’t know on the scale of one to 10, I haven’t thought of it that way, I wanted to tell you. Jason, you want to touch on the number?

Jason Berg: I still think we’re about a year behind as far as truck purchases go. So that won’t all be — that all won’t happen in one year, it’s going to be spread out over several years. So it will be elevated spending over several years. I would say that so far this year we haven’t been able to on the box trucks make much progress putting the dent into that. We’re kind of just treading water, but with the number of new larger trucks that we’re getting.

Sebastien Reyes: Gary, do we have any other calls on the line yet?

Operator: We do. The first question comes from (ph) with Zacks. Please go ahead.

Steven Ralston: Good morning. I’m sorry, I was disconnected. I went to star one and I don’t know if this question has been asked yet. But I was looking at it more that it was a real tough comparison quarter. I thought you sort of indicate that and we were trying to retain the customers that you gain during the COVID. You also mentioned that you’ve been in this situation before. Could you talk around what you did in the past and will you be doing the same thing this time or is there something more additive that you’d be doing to try to retain those customers that you got during COVID?

Joe Shoen: So generally in the United States customer expectations have increased over the last 20-years and I expect they’ll steadily increase. So everything we’ve done in the past is applicable, but the customer is looking for us to do more and my challenge is how to do more without just driving up relative costs. The positioning of our what we call our rotation fleet, that the fleet that basically stays at a location most of the time. This is a critical step. I think we’ve introduced new analytical tools that give freighter certainty that people do at the local level or to attempt to decide. It should be at the truck be at location A and B or C and D, and that sounds like it’s a simple matter, but it’s quite a blizzard of information.

We’ve spent some time and got new analytical or better analytical tools, which I think will help that. And I think we saw just a little bit of that effect in the third quarter. And that’s about what I — it’s just a whole bunch of small things. It’s kind of like I think football. So a whole bunch of small things you had to correct that.

Steven Ralston: Yes, blocking and tackling. I was impressed with that comment from Sebastien saying you had a step up in the operating margin in the third quarter, which is fiscal quarter, which is usually slower. And I look back and yes, the operating margin almost consistently stayed below 20% and here you came in at 23%. Is there been a structural change in the cost structure?

Jason Berg: This is Jason. I would say it’s probably two-fold. It has probably more to do with revenue, and we have this larger base of self-storage revenue, we have U-Box revenue. So our business and the margins, it’s an economy of scale. So the more utilization we can squeeze out of our assets, the better that’s going to look. So over a long period of time, if you look at our expense structure, I think we’ve done a good job of improving revenue without increasing expenses as much. In any small time period, compared to the last two years, for example, you see some large variations. But over time, we’ve done a good job of increasing revenue without a significant increase in expenses. There used to be a time where the third or fourth quarter we would dip into a loss period. And I think self-storage is a large component of why that isn’t the case anymore.

Steven Ralston: All right. Thank you for taking my questions.

Jason Berg: Thanks, Steven.

Operator: The next question is from Jamie Wieland with Wieland Management. Please go ahead.

Jamie Wieland: Hi, fellas. Clear, that’s U-Haul call now. First question regards the public announcements by public storage that they were trying to buy life-storage for 11 billion. And life-storage said that, that price was too little. Just by way of reference, life-storage has about 80 million of owned and managed square footage. What is our current square footage in self-storage for owned and managed?

Joe Shoen: Jason’s looking the number up.

Jason Berg: So for owned square footage, we’re just over 55 million square feet and including managed we’re at about 78 million.

Jamie Wieland: So there were at 80 million, where is 78 million, is there anything different

Jamie Wieland: 79 million.

Jamie Wieland: In their facility. Okay, pretty much the same thing. Is there anything different in their facilities or occupancy rates or rental rates or growth trends in their business as you see they are publicly held information versus our self-storage operation?

Joe Shoen: Well, this is Joe. I thought that, that uncle Bob’s bought wife, I thought that — well, that move was — didn’t get a good response from shareholders for the near-term in my recollection, I think that was real step up. They got themselves where they had a brand name that it could possibly leverage it before that they had no brand presence at all. I think they done, you know, for a credible job in moving that ahead. I don’t know that. I get to see a lot of their facilities, but they don’t publish information specific about. But my impression is, is that the life-storage team has increased the ratio of Class A to Class B storage in their organization, since they did B, moved away from uncle Bob, and they’ve been working pretty hard after that.

So I think they’ve done a decent job of that in my mind. I don’t know that they’re — most recently, it sounded like they said they would have a little still maintaining rates. I don’t know that for a fact, I’m not experiencing that, I’ll say better.

Jamie Wieland: You called them Class A and Class B rates. What would you characterize the U-Haul self-storage asset?

Joe Shoen: Well, I think it’s the same mix. I mean, if you have a 30-year-old asset, very simply just not what you would build today. Now we — as a normal thing, go back through these projects, reconfigure and say, okay, well, we have a whole list of what the characteristics we would like to see in a facility and we take a facility and do them. Review and where does it fall short of what we would build today. And is there a way to do that? And so there you see us spending money in what we call, I think, improvements in some for it. But it — so we’re constantly doing that. I couldn’t tell you. I don’t get a lot of opportunities to walk through other people’s sites. I get some, but it’s not — they’re not as open with that.

You kind of, going to have to fit a little bit to the operator to do that. So I think we’ve got, of course, a long-term strategy. I think we have, arguing better security. But other than that, it’s kind of, it’s a little bit of money, but I think they’ve done a decent job first.

Jamie Wieland: Has — Joe has public storage ever approached us?

Joe Shoen: Yes, in about 1988.

Jamie Wieland: Okay.

Joe Shoen: Nice covers, the point of use.

Jamie Wieland: Given that they want to do a stock for swap for life-storage, it’d be an interesting thing if you would consider stock swap for our self-storage to kind of crystallize the value that you have created in self-storage given that, that $11 billion is not that far from our full market cap for UHOL. If we could get stock for it and then distribute those shares to shareholders or pretty tax efficient way to create liquidity and secure value for that operation. And we would still have our entire truck rental operation basically for free, if we could do that with. Would you ever entertain a scenario like that? It seems like an interesting way to build value in a very tax efficient way for shareholders and your family?

Joe Shoen: You know, I haven’t looked at that real hard sometime. I think that really the fact that our strategy is to verge from the standard self-storage REIT, and that we’re in the U-Box business, which at one time public was in and exited, okay. So we’re in the truck rental business, which public has with, it doesn’t have no part of it. I think extra space and life still have some few locations they offer their own truck rental. But we have — I think our physical strategies have diverged, but that’s probably not something that I would expect any real movement on, that that would be my opinion. It’s again, you never know our strategy is going to turn out. We have somewhat divergent strategies, as Jason said, the self-storage has probably made it, so we don’t have to seasonally adjust our workforce as hard as we had to 15 or 20 years ago.

15 or 20 years ago, we had cut to the bottom in October, September yet, because we just didn’t have — there was too much seasonality in the truckload business. And so we’ve done a lot of things, part of it is U-Box, bunch of its storage, and then we’ve done a tremendous amount of how we — the size and the location of what we call our rotation fleet. And all three of those have combined to give us more predictable revenue in the winter months. So I don’t — it’s going to be real, I have no idea if public in life can make this happen. I have no idea if the — who wants to do what, I’m not privy to anything there, but really interesting if they have slightly different strategies. And combining them, I suppose they’re both can argue, the other guy’s strategy is no good.

So I don’t really know. Public does a great job of both of them. Getting value for their NOI and I think they’re doing a great job in the marketplace and they have respect to a lot of investors. And so I think all the other REIT competitors have struggled in the numbers that I’ve seen. I haven’t seen anything in the last 30-days, but we look at that stuff. Public seems to just do a better job of getting investors support for giving them our rental revenues. So maybe that we’ll make that deal work. But as far as just being operators to both grade operators.

Jamie Wieland: Okay. Joe on — I’m sorry.

Joe Shoen: Go ahead.

Jamie Wieland: Joe on the truck rental side, one of the things you said in the past is the main metric that you really look at is fleet utilization. Now I realize we have to upgrade the age of the fleet, but I look as with volumes declining a bit, yet fleet size increasing, how does this coincide with your objective to optimize fleet utilization?

Joe Shoen: So we need to do a little bit of truing up, we’ve been — I think, kind of, a little bit shell shocked that three years of very strong utilization, but the average miles per existing unit is mainly crept up. And average miles is a better indicator of cost per mile, okay? So — and also availability, I’ll be a little wrong, but we have roughly 2,000 more trucks down for maintenance today, then we did a year ago, because you’ve seen as you probably know from just maintaining your own vehicle, there’s a whole bunch of to it, and then sequel, you got to get it to maintenance and you got to get it back out of maintenance. And this burns up time and basically makes the fleet kind of non-productive. So we’ve done a fair amount of investing and adding personnel to try to streamline that process a little bit.

But we’re — if you took our top line number of vehicles, compared to last year, I’d say take 2,000 off because they just aren’t in service. 2,000 additional what we would have seen a year ago. And I agree with you, we’re just getting right where maybe we need to print some very — but we have to do a very model specifically, need to let some trucks go. But even the fleet, the older it gets just as you could watch it to expect. If it’s difficult to maintain the same amount of utilization just because of these maintenance intervals jamming things up. We worked real hard this winter, as Jason alluded to, to be going into the spring here with the fleet fully maintained. We crossed that line probably in the last six weeks to where we’re at where we won’t be.

Now of course, I then need to get see how the customers are going to respond to this. It’s not altogether clear, I see all kinds of positive signs, but overall, as I indicated, one-way transactions are down. And if we don’t have the transaction, we don’t need the trucks, that’s simple. I agree with you 100%.

Jamie Wieland: Okay. And then lastly with technology a few years ago, you initiated a program where people can rent a vehicle without having to go into a store and do it 24 hours a day. Could you talk about the success and failures of that and how that’s changed the dynamics of your business?

Joe Shoen: Well, it’s an example, of course, of the changing technology, but also if consumer desires, there’s more people who want to do some version of a very low contact transaction. And there’s people who want to do transactions at the hours that Walmart maintains their stores instead of the hour U-Haul maintains their stores. So there’s been one new transaction 9 o’clock at night and we’ve not seen an ability for us to staff to that. So the — what we call 24/7 truck rental has been a success. It’s as a percentage and a little bit more of it at dealers as a percent of total transactions that we do at centers. And that is because our centers are seven day a week operations and the dealers pretty typically a five day a week operations.

So this has allowed us to mitigate some maybe modest decline in total demand with an increase in our service and the customer has responded. So it’s been a success. There’s still a great deal of room for improvement and we’re hard to add improving that. I would take to have a location in Park Slope, Brooklyn Park Slope, and there the company managed location, it’s a big location. They’re the managers done a very good job of getting the customer literally to complete the transaction all but the keys. So the customer comes in who are on their phone and they’ve already basically agreed to everything. We need to see their driver’s license and ask one or two questions, handle the keys. And then the trucks are all — we have all the — we have most of our locations coded, so we can identify where the truck is located at any given point in time, we could direct the customer do it.

And at Park Slope, they just walk out to the truck and drive away. So that’s an example of the productivity enhancement. And we simply need more of that and we’re very aware of that. We’re working on it. It’s not — it hasn’t come as fast, but we have good acceptance with that particular program. I can’t quote the number of transactions year-to-date very, very thoughtfully. But I think we’re up about like 14% or 15% of those kind transactions year-over-year, it’s a number like that.

Jamie Wieland: Okay. Thank you, Joe. Appreciate it.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Joe Shoen: (ph), it’s Joe. I just appreciate you being on the call. As you can see, we’re attempting to learn how to do a better job in communicating with investors. I appreciate Steve with Zach’s being on the phone. I mentioned last time, I’d like to get another organization to follow us too. We’re attempting to do that, but it’s not as I am now learning, it’s not a 30 or 60-day process. It takes a little while. And so I’m not going to say we have something till we have something, but we’re working on it. Again, I appreciate it. Look forward to talking to you next call.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.