U-Haul Holding Company (NYSE:UHAL) Q2 2024 Earnings Call Transcript

U-Haul Holding Company (NYSE:UHAL) Q2 2024 Earnings Call Transcript November 9, 2023

Operator: Good morning. My name is Cynthia and I will be your conference operator today. At this time, I would like to welcome everyone to the U-Haul Holding Company Second Quarter Fiscal 2024 Investor Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. [Operator Instructions] Thank you. Sebastian Reyes, you may begin your conference.

Sebastien Reyes: Good morning. And thank you for joining us today. Welcome to the U-Haul Holding Company’ second quarter of fiscal 2024 investor call. Before we begin, I’d like to remind everyone that certain of the statements during this call including without statements, including without limitation statements regarding revenue, expenses, and income in 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 risk and uncertainties, some of which cannot be predicted or quantified. Certain factors could cause actual results to differ materially from those projected for discussion of the risks and uncertainties that may affect the company’s business, and future operating results, please refer to the company’s public SEC filings and Form 10-Q for the quarter ended September 30, 2023, 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: Thanks, Sebastian. And thank you everybody for joining us again. As I’m sure you see from the numbers we’ve given back more of the U-move pandemic transaction gains, that I would like. The Safemove transaction decline impacts most of our product lines. All of our business lines remain competitive. However, I’m not cutting back on rental fleet CapEx due to being starved for new equipment in the 2020 to 2022 timeframe. Rental equipment acquisition and maintenance costs, unfortunately continue to outpace inflation. Disruption of the OE supply chain due to government mandates for electrification are a huge driver of these increased costs. The public is starting to push back on electric vehicle mandates that fail to meet nearly every metric of a sustainable vehicle strategy.

And this may cause some pause with the OEs. U-Haul is continuing to invest in self-storage and U-Box product, with the expectation of revenue over the next five years. Our typical project is about three years from acquisition to opening. Shutting down development now will cause a revenue low two to three years from now. This strategy clearly is causing increased carrying costs. We are also investing heavily in digital tools to enhance the customer experience. I consider this vital to our continued success. My focus remains on continued implementation of the fundamentals in our U-move and U-store businesses. I will now turn the call over to Jason for a run through the numbers.

Jason Berg: Thanks, Joe. Good morning, everyone. Yesterday we reported second quarter earnings of $2.74 or $234 million, compared to $350 million for the same quarter last year. From an earnings per share perspective, we reported $1.40 for non-voting share this quarter, as compared to $1.73 for non-voting share in the second quarter of last year. This brings our reported six month earnings to $530 million, compared to $688 million for the same period last year. We reported $2.71 per non-voting share for the six months compared to $3.41 per non-voting share last year. Starting off with equipment rental revenue results, compared to the second quarter of last year, we had a $93 million decrease or about 8%. Over the last five quarters now we’ve had a $320 million decrease in U-move revenue.

Once again remind everyone, of the eight quarters that we had before that starting with our second quarter of fiscal 2021 where we experienced a $1,428 million increase over that timeframe. Compared to our last pre-pandemic second quarter, which ended on September 30 2019, we’ve increased our second quarter equipment rental revenue results by over $265 million on a compounded growth basis, that’s about 7.5% annual rate. All of this to say that while we’re giving back some of the pandemic era gains were far from losing all of that. The trends that we’ve seen the past several quarters continued. Total transactions declined a little over 4%. Miles per transaction fell compared to last year, although we’re still ahead of pre pandemic numbers. And revenue per mile has continued to incrementally improve, albeit at a slower rate than what we’ve seen in the last couple of years.

October results continued to trend downward compared to last year. Capital expenditures for new rental equipment for the first 6 months were $974 million. That’s a $256 million increase compared to the same time last year. We’ve increased our fiscal 2024 full year net CapEx projection, so that’s net of sales, from $820 million to approximately $870 million. Proceeds from the sales of retired rental equipment increased by about $80 million to a total of $405 million for the 6 months. Sales volume has increased, while average proceeds per unit sold has declined. Switching to Self-Storage. Revenues were up $23 million. That’s about a 13% increase for the quarter. The improvement was split between increases in the total number of occupied rooms, combined with higher revenue per occupied square foot.

Our occupied unit count at the end of September was up over 35,000 compared to the same time last year. During that same time frame, we added nearly 53,000 new units to the portfolio. It’s this differential that’s leading to our all-in average occupancy rate during the quarter decline by 120 basis points to 84.2%. This same moderation in occupancy can also be seen in, what we’re referring to as, our same-store grouping in our press release where we had an occupancy decrease of about 170 basis points to 95%. From what I can read and hear other public firms in the self-storage space have been reporting a toughening market brought on by changing consumer behavior and perhaps rate actions that have been taken over the last couple of years. I can tell you that we are experiencing a slowdown in move-in activity as well compared to the last couple of years.

However, our asking rents for new customers on average across the entire portfolio are up a little over 3% year-over-year. Another metric to consider is our average new customer rents compared to the rents that are paid by people who are leaving. The incoming rates were a little over 1% higher than the rents paid by customers who have been leaving. It’s very likely that the downward pressure on new move-ins and the reported discounting by some of our competitors could slow our Self-Storage growth the rest of this year. During the first 6 months of fiscal 2024, we invested $633 million in real estate acquisitions. That’s along with Self-Storage and U-Box warehouse development. That’s a $49 million increase over the first 6 months of last year.

Most all of that is in the form of additional development costs. During the quarter, we added 872,000 new net rentable square feet, about 400,000 of that was the acquisition of existing Self-Storage. And we currently have a little bit north of 7,400,000 new net rentable square feet being actively worked on. Our operating earnings in our Moving and Storage segment decreased by $113 million to $402 million for the quarter, brought down by the slowing of U-Move revenue. Operating expenses were up $24 million for the second quarter. Fleet repair and maintenance was up $17 million. That’s a combination of costs associated with us prepping trucks for sale, along with costs associated with preventative maintenance work. Personnel costs were up $18 million.

Our headcount for this quarter compared to the same quarter last year was up about 2.5%, which is significantly down from the increase we saw last year at this time of around 16%. As a percent of revenue, this quarter was higher than what we reported in the last 2 fiscal second quarters. However, if you go back in time, personnel costs right now are not out of line in comparison to similar time periods in previous years. We’re continuing to place a premium on having access to cash and liquidity. At the end of September of this year, cash along with availability from existing loan facilities at our Moving and Storage segment totaled $2.555 billion. With that, I would like to hand the call back to our operator, Sindhu, to begin the question-and-answer portion of the call.

Operator: [Operator Instructions] Our first question comes from Steven Ralston from Zacks. Please go ahead, your line is open.

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Q&A Session

Steven Ralston: Good morning. Going through the numbers, it appears, at least to me, that the operations are being affected by the slowdown in moving activity. But it seems to be just like a step down to a lower plateau from your record year. I mean, I’ve gone through a lot of these segments. I’ve got a model that incorporates seasonality. And even in the Self-Storage business, it just seems to be step down to a slightly lower level, mid-single-digit level — a lower level. First of all, would you agree with that?

Joe Shoen: This is Joe. I would agree. I’m not accepting that. I’m looking for something different, but I think that is a number for sure.

Steven Ralston: Given that premise, at least from my point of view, the only aberration I see is that the cost of the self-moving equipment have increased more than expected. And also these products increased somewhat also. In — I guess, about 2 conference calls ago, you had plans to deal with this increased cost, primarily due to inflation. Could you expand on how that’s progressing?

Joe Shoen: So I’m not sure what you meant by other products, but I’ll address…

Steven Ralston: New self-moving products and services.

Joe Shoen: Okay. I think that any pressure there is give or take, inflationary, it’s not out of control. When you get into our motor vehicle fleet, there’s where you see what you read about in the newspaper, which is basically the — due to government mandates, all suppliers are subsidizing electric vehicles by enormous increases in gross margin on their internal combustion fleet. We’re stuck in that little bind right now. Buying electric vehicles isn’t the way out because they don’t really have product. I don’t — I don’t have any effective way to lobby the manufacturer to change course there. As you know, they have tremendous political pressure on them. So what’s really going to have to modulate this in my judgment is sales at the dealerships.

The point they can unload this stuff with the dealerships, they’re going to have to face the music. The retail customer does not have to buy the vehicle this year. We’re running a business. We kind of need to replenish stocks, but the retail customer can put a vehicle purchase off. And I think that until that happens, we’re not going to see any change in the manufacturer strategy, which is basically to subsidize their enormous losses on electric vehicles by charging people who drive a gasoline powered vehicle. What can we do given that we can’t influence that at least in the short term? We have to work on productivity of rental equipment, which is largely positioning. Now us having 32,000-plus retail outlets is a wonderful competitive tool, but it’s a very — goes just the other way on productivity of equipment to more outlets you have, the harder it is to maintain levels of productivity.

Over the years, we’ve been able to deal with this with improved electronic tools and more or less knowing where our equipment is on a real-time basis. There’s still some gains to be made there. And so I’m focused on that real hard. We’re investing real steadily in improved digital experience, the customer. Our customer just like pretty much everybody in the economy, a big percentage of our customer wants to have a digital experience, not a person-to-person experience. So we’re investing to improve that experience. Those gains are slow, but we’re — we see as we’re making some gains there, and we get the customer a little happier. So the position of the equipment is a big focus of mine at this time because that’s something we kind of control.

We don’t totally control it because customers go where they want to go. But we have ways to influence that. And that’s been my focus. I had all my direct field reports in about a month ago, we went through some ABCs of how we’re going to better position this equipment. That takes a little while, you can’t just move them. But we’ll make some progress on that and maybe dent these increasing costs a little bit. But right now, I don’t see how we’re going to get ahead of them in the near term.

Steven Ralston: Initially, you did not accept my premise that we just stepped down to a slightly lower plateau in the basic self-moving business. What is your view?

Joe Shoen: Well, I thought I said that, yes, we’re now as what Jason calls, at more historical growth levels. And you’re calling that a plateau, okay, I hear the same thing. And there’s no question that’s it. But of course, over my career, that’s just not my — I think that’s what I’m accepting will then what you want to call, you’ll be finishing in the middle of the pack. I don’t expect that. I expect us to go ahead. I think there’s always room in the capitalistic economy for someone who will hustle everybody else. And then eventually, if you work on a problem long enough, you’ll gain some advantage. But I don’t — other than digital tools, which I’m sure everybody you follow is working on. Other than that, I don’t have an advanced staring me straight in the face, okay.

But we’ve gone to sell dispatch on rental equipment to a great extent. We’ve gone to self-move-in to self-storage to a great extent. Those you can’t pull it from the numbers, but that’s baked into the numbers. And that’s not been enough to turn the thing. So you can say we’re right back where we started, although we’re well ahead of where we projected this out 5 years ago, we did project we’d be anywhere near this good on revenue. So all my life, we’ve been able to increase transactions at greater than the rate of population growth. You can argue that moving is a need, not a want. People do it because of fundamental things like births and deaths. And so then you could say, well, we should be performing at the rate of the population growth. Well, I’ve never accepted that.

And in fact, we have never performed at that lower level. And so what is it finding more customer needs, so we can satisfy with our self-move or our self-storage product. We continue to push hard on the U-Box product. And the U-Box product is — resonates with a significant number of customers. And I have an effort right now to make our digital tools much more customer friendly. Our transactions are still too awkward there in my — or to complicated, I guess, the way to say it. And we’re trying to get that simplified to where it’s an easier thing for the customer to execute.

Operator: Our next question comes from Keegan Carl from Wolfe Research. Please go ahead, your line is open.

Keegan Carl : Yes, thanks for the time guys. I guess maybe first, just trying to better understand what some of the moving parts in the moving business. So I understand it’s down 8% year-over-year, but obviously, you’ve grown your store count and footprint, too. So I’m just curious how much of your store count grow in the same period year-over-year? And I know Jason mentioned transaction is down 4%. I’m assuming it’s not on a comparable basis. I’m just trying to better understand because I’m actually a bit surprised how well it’s held in given what’s going on with the existing home sales on a year-over-year basis.

Jason Berg: Keegan, this is Jason. I’ll start with the distribution footprint. We’re about the same number of retail locations that we were last year at this time, like within 30. We’re at about 23,730 at the end of September. We did manage to grow the company-operated locations by about 66 from last year at this time to this point.

Joe Shoen: I’ll pipe in on that. I usually kind of company location is 10 independent locations. When I try to say where am I moving, which is kind of what your question is. So you could argue that if we’re up 60 locations, I’d say we’re really probably up 650 or something like that. Net effect on the consumer, which is disappointing because I’d like to have seen more transactions. Of course, some of the parties hardly — a lot of these things we kind of learn as we go, but I think we’re going to continue to see transaction growth. We have stabilized a little bit in what we call in-town transactions, which is the rent it here, return it here. And those are more — it’s like controllable. I don’t know the right number, but it’s — word for it, but it’s easier to work that number kind of than it is the one-way transaction.

And so — but that’s very positive for me because it’s still a move. We want to capture all the moves. We can’t self-move and so, yes, I think you’d have to say and we would say I think that our productivity per location is down a decimal point or something, not a tremendous amount, but a small change there has a big change in — ultimately into cash flow and profitability. So we’re always watching this and also the productivity of the equipment by equipment type and volume. And we’re doing some realigning there that we’re a little behind, I don’t know, maybe 4 months behind on sales, Jason, you say. Maybe we’re 4 months behind what we would like to have been on sales. But sales are now catching up after we didn’t sell trucks for about 2 years there because we couldn’t buy any.

So now we’re rotating some of those trucks out into the for-sale market, which will kind of help clear out our volume of repair because the oldest trucks obviously create the most repair.

Keegan Carl: Got it. And I think your commentary on one-way moves is interesting. I’m just curious, do you know what percentage of your moves or what percentage of your revenues you’d attribute specifically to the one-way moves?

Jason Berg: Yes. This is Jason. The one-way revenue is probably 46% to 47% of the total truck rent revenue.

Keegan Carl: Got it. That’s really helpful. I guess shifting gears here to Storage. On a relative basis in your portfolio, it’s performing well. I’m just curious, do you know what percentage of your customers are tied to movement more short term in nature? And I guess what sort of upside do you see in that business of existing home sales start to improve?

Joe Shoen: I don’t know that home sales will impact it at all. Roughly 40% of people live in rental arrangements and maybe it’s more than that if we knew the truth where people are multi-families under one roof. So I wouldn’t — we’ve never seen a high correlation between new home sales and the business. We’ve seen a very positive correlation between overall consumer optimism and moves, which kind of makes sense because if you kind of feel good about things, you’re more likely to take the risk of moving. So if that’s an answer to your question.

Keegan Carl: Okay. And then maybe on storage pricing power, I thought your commentary was interesting that you rent roll-up, which is much different than your public peers. I guess how are you thinking about rate increases in your existing customer base because you actually have a revenue tailwind if they move out?

Jason Berg: Sure. This is Jason. We have a very methodical approach to rate increases, which I think in the last year, the competition was much more aggressive than what you saw us be. So they’re kind of dealing with the effects of that, whereas I think we still have some upside now with them reacting to their situation could have an effect on us and could impact how successful our rate increases stick. Now we normally just go about working our plan regardless of what everyone else is doing. If we’re providing a good product and service to folks, we stick with it. So I think we still have opportunity that I look at kind of an estimate of our discounting, and that was not up appreciably, perhaps a couple of hundred thousand based upon my estimate.

So we haven’t gone that route. We don’t really do advertising outside of the U-Box product. So we haven’t increased anything there. So I would say I’m concerned based upon what I’m seeing, but our team is just forging ahead. And that’s worked for us in the past, and I have no reason to believe it will work for us today. I’ve looked at facilities we’ve opened in the last year, and they’re still filling up at the same rate or faster than what facilities have opened up in the last 3 to 4 years.

Keegan Carl: Got it. That’s super helpful. And then maybe just shifting gears here to the final topic, really focused on CapEx associated with your new fleet. I guess just any update on how they’re refreshing of the fleet is going? And then I know you mentioned sales are down on your used trucks from a pricing perspective. Just kind of curious maybe how down is it on a year-over-year basis?

Jason Berg: Sure. I’ll hit this first before Joe does because it’s important to look at our truck sales in 2 pieces, right? There’s the smaller trucks and cargo vans that sell in and out much more frequently. In that section, we’ve increased the pace of sales this year and the prices that we’re seeing at auction and wholesale have come down. So our average gain has decreased. On the trucks that Joe was referring to earlier about us kind of being behind in sales, that would be the larger trucks, the 10-foot trucks up to the 26-foot trucks. There, we’re about where we were at last year on truck sales, but we pulled a few more thousand from the fleet prepping them for sale. And that’s where we’re likely to get the benefit on the repair and maintenance side is by pulling those trucks out because those are the trucks that we’re holding 10 to 15 years in the fleet.

And throughout the strike, we have not had an issue as far as getting those new cabs and chassis, fortunately. So this has been a, I’ll call it, a pretty good year as far as bringing in new equipment, albeit at a higher price.

Keegan Carl: Got it. And I guess, is it fair to assume that as you guys work through replacing the fleet that your near-term CapEx will ramp, but there’s going to be a material decline in maintenance CapEx. Is that the right way to be thinking about it?

Jason Berg: Well, our — I’ve had this discussion with folks on the phone. The $1.6 billion gross that we’re going to spend this year probably on fleet, I don’t know which part was growth, which part was maintenance. At the point that we’re at in the cycle now, unfortunately, all of it is kind of maintenance CapEx and I think we have another year or so of that. And then we’ll settle back down and figure out what the maintenance CapEx number is going to be. It used to be kind of a net $600 million give or take, it’s climbed from the mid-500s to with today’s pricing and size of the fleet to maybe the mid-600s. I think we need the pricing environment to settle down and then where we’re going to settle on the size of the fleet to figure out a good run rate on where maintenance CapEx will end up.

Keegan Carl: Got it. That’s it for me. Thanks for the time guys.

Operator: Our next question comes from Jamie Wilen from Wilen Management. Please go ahead, your line is open.

James Wilen: Thanks. Joe, you’ve always mentioned that fleet utilization is one of the keys to profitability for U-Haul. I realize that during the COVID-related spike, we didn’t have enough product there. But given that demand is a little down, shouldn’t we reduce the fleet size a bit right now so we can increase utilization?

Joe Shoen: Absolutely. We have reduced the pickup advanced fleet roughly 4,000 units. And we will trim some out. You reduce the fleet, Jamie, as a tail end. Yes. That’s these trucks that we’ll take them to sale.

James Wilen: Okay. Okay. On the self-storage side, you have a chart in there for the various occupancy rates in metropolitan areas around the country. Does that guide you at all as to where you should put your resources as you grow your self-storage business? In other words, putting more units in the ones where occupancy rates run very high like Georgia and less in areas like Pennsylvania where they’re running lower?

Joe Shoen: Generally speaking, yes, a lot of the decisions get down to a micro market. So let’s say, 3 or 5-mile circle, not a state like Pennsylvania. So there are still opportunities in Pennsylvania. There are more opportunities in Georgia. So we kind of sort through that, it’s a little bit opportunistic because there has to be a site available, so you can find some places where the occupancy and the rate are great, but the sites are just very, very difficult, very, very cost prohibitive. I right now have 3 sites that we committed to and now we’re not going to get land use on, so I’m going to be stuck with 3 sites, but in the competitive real estate market within, we had to go hard before we can be absolutely certain land use that will bite you.

So they’re great areas, but they’re not going to let us build on them, but everything comes out on. So yes, you’re always looking for rate. And every time we do a project, we pro forma a rate, of course. And rates around the country can vary substantially. Certainly $0.40 a square foot per month is very much a — you can find that variance. And it’s not always explained by costs or whatever. So you’re trying to sort for places where you’re going to have a rate that at least is going to allow you to make any profit — forecast a profit and get some of these markets, they’ll kick on L.A. because it’s been a rough one. You can buy something in L.A. at the prices that stuff is selling for, very, very difficult to project the profit. I would say our movement in L.A. over the last 4 years has been largely driven by, we have to do something or we’re going to go out of business, not it’s a huge profit opportunity, okay?

In other words, we need some network here, and we got to get in, but are we going to make a money that’s going to make Jason and his team happy, hard to forecast that. Now with this inflation that’s been running, that may bail us out on some of these things. You don’t know for a fact. But yes, absolutely, we’re trying to go where the occupancy and rate combination would suggest that it’s a good thing to go there. Now of course, so are a lot of other people and over the last 20 years, there’s been a lot more of people accumulating information on these markets. So 1 time, I think we clearly had the best information on that with public storage very close to us. Now there’s third-party sources that have pretty good information on rates and occupancy.

So it’s not a big secret where these pockets are. Does that make sense? So we have to be careful.

James Wilen: Yes. In self-storage now, we’re doing on a run rate probably $900 million to $1 billion of revenues. And again, when you look at the publicly traded peers like CubeSmart and when LSI was public. I mean the market value for $1 billion of self-storage revenue was about $8 billion. How can we remove that value gap or close that value gap for U-Hauls with where the third largest self-storage, we’re a good operator, and we’ve grown at a faster rate of building new units than anybody else that I can see? And any thoughts for how we can close that value gap for shareholders?

Joe Shoen: We did a couple of things trying to make the shares trade a little bit better that we’re working, of course, with analysts, and you heard some of them on the call here today to try to get them on board. And then, of course, we’re stuck with our performance. So of course, at the end of the day, you have to perform. So I think we are building in some increases, but I don’t see us seeing those kinds of evaluations in the next 3 years. No, I just don’t — I don’t see that that’s going to happen. No. Of course, all of my family’s wealth is tied up in this operation, okay, 100% trust me. Yes. Yes, if this stuff trades at that, it’s a good deal for me. No question about it. I can add a subtract I have a cuisine of interest.

I maybe have a little bit different time line, but I got an interest in Europe, a very patient person with us. Much longer than normal time horizon in my experience compared to your peer group or at least what I’ve been exposed to. But it has to happen, and we’re working towards that.

James Wilen: And lastly, when you talk about disposal of vehicles, a lot of the equipment rental companies have gone from putting all their fleet at auctions to doing a bit of it themselves and feeling like they can gather a much higher price per unit if they can do it themselves. Does U-Haul send everything, all the vans to auction? Or do we have a mechanism ourselves where we dispose of them to try and get a higher revenue on disposal?

Joe Shoen: If you’re speaking of a van, they’re also like a Ford Econoline van, that sort of a thing.

James Wilen: Yes, I understood trucks would probably be a bit more difficult, but yes, the vans would probably be easier.

Joe Shoen: Trucks, we sell 90% ourselves. We have a vast sales organization. We sell 90% of our own 6-wheeled trucks. So with the vans, we do what we call, I don’t think the term they use, but I think it’s commercial sales. So we do a fair amount of commercial sales outside of the auctions, but the price is not a lot different here, just basically it’s someone who’s bought your truck for years, and they’re good medium-sized fleets, we have different people that run 200 plumbers and so they come to us, and they want to buy 12 or 15 trucks and they just deal direct with us. We have a central sales operation, Internet presence. And so yes, we do sell them ourselves. We have not been successful with getting that kind of volume, say, 30% or 40% go off of our own lots in those particular vehicles.

I think a little bit is our strategy is as we’re — we like to maintain a relatively constant sized fleet as we added the lead, which kind of needs you need to sell some trucks this week alone and that the auctions are great for that. They’ll clear out. You can clear out equipment in a week. And thereby, we hold our whole investment in that fleet or are at a level that we had forecast. So we have a whole detailed matrix where we’re going to pull 3 vans out of Booster, Massachusetts. Now we’ve got to get 3 new vans in and we got to get those 3 vans turned into cash. So it’s a — it doesn’t always correspond with where the market is to sell on the retail market. And it gets real extreme if you take some place like, let’s say, Anchorage or Juno, for instance.

I mean there’s 1 market in Juno. With those there, you have a harder time of really making this a seamless exchange, but there’s a ton of money involved. I don’t know, Jason, can you — we’re spending, I don’t know, $500 million or $600 million a year on these vans and pickups. And so we want to see — we’re kind of interested in moving them the day we want to move them and the auctions are — they’re a good vehicle for doing that. And yes, you don’t get retail price, no question about it, but we move it. We get on — we sell a lot of vehicles, but I don’t consider it a vehicle sales organization. The Penske organization, probably if you push them, they’d probably say, “Well, yes, we’re a vehicle sales organization. And I would say they probably are.

They’re retail and use both in cars and trucks and great, that’s a skill set they depend on. We’re more depending on how we rented them. I think is the deal. But we have to sell them for a profit. So if we need to get $28,000 per vehicle, we need to get $28,000 per vehicle, no baloney and we’ve had 1 or 2 times. There’s always a risk with resale. And we’ve had 1 or 2 times where it was — the prices were evident when we would rather they hadn’t been in that kind of pinch. So I guess we just put a premium over liquidity over price.

James Wilen: Okay, thanks for your time. Joe, appreciate it.

Operator: Our next question comes from Craig Inman from Artisan Partners.

Craig Inman: Quick question just on cash. I know we talked about this last quarter. How much liquidity do you all think you need? And I’m just looking at — it’s probably down $1 billion in terms of just cash on the balance sheet since September ’22. So just thinking about liquidity and particularly in light of the self-storage build and elevated fleet CapEx, where is your floor on cash? And are you in a good position there still?

Jason Berg: This is Jason. We have a way to work the cash balances down still. So pre-COVID, we had worked the cash balance down to about where we wanted it, which was, I think, in the $500 million to $600 million range. We’re working towards that. As you mentioned, we’ve net invested an extra close to $1 billion from last year at this time. And also of note, we’re building up a significant amount of liquidity in unfinanced real estate. So our net real estate borrowings, I think, have gone down $90 million or at $90 million from last year at this time to September 30. And we’ve been adding new real estate. So there’s — I don’t state it in our liquidity number. I’m just saying what’s actually available through existing facilities. But I would say that we clearly have over $1 billion of unfinanced of real estate proceeds that if we chose to finance, we could, we’re just sitting out of the market a bit right now.

Craig Inman: Okay. Okay. All right. So that’s — yes, that’s plenty there. Okay. I don’t really have any earth shattering questions. I mean, obviously, the cap rates have moved some in self-storage. You all have pivoted in the past from development to acquisition, anything on the acquisition front that looks interesting or is that…

Joe Shoen: So the big ones are still pushing. They’ve got investment bankers pushing them and they’re still going rope a sucker in my opinion. But we did though in the last, I think, 90 days, we did something. Jason said something like 400,000.

Jason Berg: Yes. Close to half of the square feet that came online in the quarter was from the acquisition of existing self-storage facilities. So the ones that are coming online for us are, you might call them tertiary markets or areas that, in some cases, we have a presence that we just wanted to expand the self-storage presence. Those are the ones that are presenting themselves today. But I think you’re right, the market is headed in that direction. And we will try to participate where we can.

Craig Inman: Okay. So if something did come along, I mean, obviously, between the development in an acquisition, you’ve got enough liquidity there, but you wouldn’t — you all talked about — I know, Joe, you’ve talked about just making sure you’re built for lean years, you’re going to keep plenty available in all times.

Joe Shoen: Yes. I think we’re kind of a little bit what we say, a birth childscare to fire. So we’re just — that’s — hopefully, we do that. Of course, nobody knows. Nobody knows, you don’t know if this is a 1-year deal or a 5-year deal, nobody knows. I say we make 12% for money. So okay, it’s unimaginable to my present staff, but I lived through it. So these things happen. And I think we just kind of have a little bit more of a cautious approach, I hope.

Craig Inman: Yes. No, that’s the way to operate long term. That’s all for me. I appreciate it.

Operator: [Operator Instructions] Our next question comes from Stephen Farrell from Oppenheimer. Please go ahead, your line is open.

Steve Farrell : Good morning. You talked about inventory management and removing vehicles at the tail end of the fleet. For the vehicles that have been harder to acquire and replace, is there an opportunity to do more extensive rehabilitation for vehicles sort of closer to the median age there that will help reduce CapEx in say 2 or 3 years down line?

Joe Shoen: We’ve already done some of that. We will continue to do that. But basically, other than this aberration, we have an aberration now where the OEs are just raising prices at 2 and 3x the rate of inflation, okay? Before when the pricing increases were about the rate of inflation, our experience was being that spending that money on vehicles would turn out to be about a push, okay. And you can argue now that it’s more attractive. Of course, I’ve had my guys on that subject for a couple of years now. And we have not seen a vehicle that we thought we should — I won’t — not really remanufacture, but substantially reinvest in midterm, okay? We haven’t seen that. And — but we’re looking at that constantly. And we have the capability to do that, I think, more so than most people.

We do the bulk of our own maintenance and repair. So we have an extensive network of repair facilities. We also build, I’d say, 70% of our cargo boxes. So we have a whole network of assembly plants. And we’ve — and before, we’ve converted them all and just basically rehab trucks and gone ahead. And that could be where this goes. We have a store of rebuildable engines and transmission drivetrains. We have a warehouse full of them that we’ve accumulated. All these are trying to hedge our bad, okay? But we haven’t seen that, but that’s a big opportunity right at this time, no.

Steve Farrell: That’s helpful. I do know how much more of an increase in — and you said it’s 2 to 3x inflation. Do you know at what rate it would make sense economically?

Joe Shoen: No, I don’t have a number on that. We’re just kind of — what do you want to call it, stumbling into it. One of the nice things about — I’ll pick on Ford, they simply have got this internal combustion engine dialed in. It’s not the engine that you and I knew about in high school. This thing is a finely designed engine. You don’t replace rings and valves. It just doesn’t happen. These motors run, run, run, run. They’re beautifully made. They’re very fuel efficient. So we’ve got some savings from that, which now, of course, they’re making us give back basically, okay? But the vehicles we bought 4 years ago were pretty much at this level. And we — and Ford is criticized on quality a lot in the press. And of course, they’re not perfect, but having dealt with them for 40 years, they got a considerably better quality product now than they sold us 20 years ago.

And so we enjoy that. That impacts a little bit. Would you repower it or do these sort of things? Before, you could see, you did a lot of repowering at 80,000 miles. Right now, we’re going to see 140,000 miles and more. We’ll have the occasional engine hand grenade, but no, they are not — they don’t — they’re not wearing out. The day of putting in valves and rings and just go on, it doesn’t happen. You don’t put in bearings. It just — it doesn’t happen. These motors are well built. Well, you can see it with oil, it drips out. They just don’t drip oil. It used to be every place we had, we had oil puddles everywhere, because the motor leaked. Well, the motors don’t leak today, they’re just so — they’ve got this manufacturing of the internal combustion engine just as close to perfect as I could even imagine.

It’s a beautiful operation, and so the vehicle runs. So the van boxes, we do some reuse of van boxes. We have a whole program there. We try to — we consider the truck has 3 lives, first live is in our One-Way fleet, second live is in our in-town fleet in the third life could be anything from we turn it into a storage room to we sell it to a plumber and that person carries on for 10 more years with a truck visiting your home and fixing your plumbing. So there’s — we’re keenly aware of these different alternatives, and we try to do them to optimize this, but it’s far from a calculation. It’s not a, I’ve got a model that just says, okay, to you today, we start doing x. No, it’s not that clear at all.

Steve Farrell: And you mentioned that the price per mile was up incrementally year-over-year. Do you know where we are compared to pre-pandemic?

Jason Berg: Stephen, this is Jason. I — we don’t disclose specific numbers, but I would say that starting during the pandemic, we saw those numbers increase for both one-way and In-Town that’s been steady throughout. This year, 1-way has increased, but that’s the 1 I was referencing. In-town is about flat with where it was last year at this time.

Operator: There are no further questions at this time. I will return the conference back to the management team.

Joe Shoen: Well, I want to thank everybody for joining us. We’re — everybody, I can assure you as busy and concentrate on doing work, and I would expect we will continue to progress and hopefully have results that everybody can live with.

Operator: Thank you. This does conclude today’s conference call. Thank you all for attending. You may now disconnect your lines.