September 26, 2016 - 3:42pm EST by
2016 2017
Price: 335.00 EPS 22 25
Shares Out. (in M): 20 P/E 15.2 13.4
Market Cap (in $M): 6,550 P/FCF 24 21
Net Debt (in $M): 2,200 EBIT 800 880
TEV (in $M): 8,750 TEV/EBIT 11 10

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  • Self storage


Summary: I recommend a purchase of Amerco (UHAL).  It owns 25MM sq feet of self-storage space and runs the U-Haul business.   It is a well-run, property backed business that is trading at a 9.5%+ steady state free cash flow yield to the equity (assuming company stops expansionary cap ex) plus has hidden assets on top of that. 
Since Amerco has already been written up three times on VIC and most people are familiar with the self-storage and the U-Haul business, this section will be extremely brief.

The company has two lines of business: self-storage and moving.
The company does not disclose segment profitability, so the numbers here are my estimates.

Self storage owns and operates 25MM sq feet of storage space that once all locations mature should be able to generate EBITDA of 220MM per annum, which I value at $4.4bn using a 5% cap rate. This translates into roughly $220 per share (there are 19.6MM s/o.)
(I am assuming average over the cycle occupancy = 90% and 70% EBITDA margins, which seems reasonable given operating performance of publicly traded competitors.  Publicly traded competitors are trading at cap rates closer to 4%.)
The profitability of self-storage is affected by newly opened facilities that have not yet stabilized.  Once these facilities stabilize, I expect revenues and EBITDA to increase by roughly $100MM per annum, or boost net income and free cash flow by $60MM. 
Moving business: I estimate that it generated roughly $21-22 in fully taxed EPS in fiscal 2016 (03/31/2016.)  The results in fiscal 2017 are likely to be lower for a number of reasons including company writing off immediately rather than capitalizing certain items due to a change in IRS regulations, switching to purchasing trucks rather than leasing them, lower gains on sale of equipment, company perhaps being over promotional and higher truck costs.  I expect the business to recover and post at least $21 in fully taxed EPS in fiscal 2018 (starts April 1st of 2017.)   I am not a great fan of this business, and value it at 16x EPS = $336 per share. 

Thus, the sum of the parts = $556 per share.  In addition, there are hidden assets.  For instance, the company recently monetized 170K sq feet of air rights in NYC (near the High line park) where these air rights would be worth in excess of $100MM or roughly $5 per share.  I believe that the company has plenty of facilities that can be be put to more profitable use in places like NY, and other major cities. 

So I believe that on the sum of the parts basis, the stock is worth in excess of $556 per share versus today's price of $335.
For those who would argue that since self-storage business is inside of a C-corp and the company is not planning to spin it off, I would say in that case, let's look at the free cash flow in a steady state, assuming no expansion.  Company claims that its maintenance cap ex is around $275MM per annum, while depreciation and amortization is around $415MM per annum.  Hence, net income + depreciation/amortization less maintenance cap ex was = $629MM in fiscal 2016 (ended 03/31/2016).  I expect this figure to decline in fiscal 2017 before recovering to at least fiscal 2016 levels in fiscal 2018 as newly opened self storage facilities ramp up and company rectifies the mistakes made in the moving business.  So, if we are using $629MM in free cash flow as a steady state figure, then it translates into $32 per share in fcf or a 9.5% fcf yield on a $335 stock price.
Thus any way you slice it, I believe that the stock is extremely cheap.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.



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