U-Haul Holding Co /NV/ Q4 FY2024 Earnings Call

Hello, and welcome to the U-Haul Holding Company Fourth Quarter Fiscal Year End 2024 Investor Call. Please note that this call is being recorded, and I'll be standing by should anyone need assistance. I would now like to turn the conference over to Sebastien Reyes. Please begin.

Good morning. And thank you for joining us today. Welcome to the U-Haul Holding Company fourth quarter fiscal 2024 year end investor call. Before we begin, I'd like to remind everyone that certain statements during this call, including without limitations, 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 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. I'll now turn the call over to Joe Shoen, Chairman of U-Haul Holding Company.

Good morning. Thanks for joining the call today. The huge price increases that Ford and GM put in over the last three years are manifesting themselves in less gain on sale. There's abundant product in the resale market, and resale pricing increases have so far failed to parallel new vehicle pricing increases. How this will go into the fall is still a guess. Positively, repair has come down and has the potential to come down more as we trade vehicle depreciation expense or vehicle repair expense. Ordinarily, this is a positive trade-off. Recent consumer confidence reports indicate some chance for an upturn in miles traveled per rental. So far, consumers remain cautious in our experience. Personnel costs are up due to a combination of government wage mandates and inflation. Our best way to combat this is through increased productivity, primarily at the retail level. This is through better IT and whatever product improvements we can achieve. We continue to expand our footprint in self-storage. We are still filling rooms, but at a slower rate than we are adding them. We have the broadest footprint in the self-storage business, and yet there are still many markets where I believe it is smart for us to expand into. Both moving and storage are need-based businesses. We, of course, aim to be the customer's best choice. I encourage you to patronize our products and services and encourage your friends to do the same. I look forward to talking to you in the Q&A section.

Thanks, Joe. Yesterday, we reported a fourth quarter loss of $863,000 compared to earnings of $37.4 million for the same quarter last year. And for the full fiscal year 2024, we reported earnings of $628.7 million compared to $924.5 million for fiscal 2023. The most significant factors leading to the quarterly decline center around the continuing decline in gains on disposal of retired equipment and increases in depreciation costs from both the fleet and real estate. To highlight this, if you look at our quarterly operating cash flow or income statement proxy EBITDA, you'll see that we actually had a slight improvement for the quarter. I'm going to start off with equipment rental revenue results. Compared to the fourth quarter of last year, we had a $10 million decrease or 1%. March was the first time in 19 months that we experienced a year-over-year improvement in equipment rental revenue. Looking at combined April and May, we’re seeing revenue results flatten out compared to last year. To put this fourth quarter into context, we're $200 million better than we were in the fourth quarter four years ago. That translates into an average compounded annual growth rate of a little above 8% for the four-year period. Average miles per transaction continued to decrease but less than the previous nine-month rate. For the year, total truck transactions were down 3% while the fourth quarter was down 1%. And revenue per mile was positive for the quarter and for the 12 months. Capital expenditures for new rental equipment for fiscal 2024 were $1.619 billion; that's a $320 million increase compared to last year. Our initial fiscal 2025 projection is for about $100 million increase in this number. Proceeds from the sale of retired rental equipment increased by $40 million to a total of $728 million in fiscal ‘24. The increase in proceeds is coming from additional truck sales. Average sales price per unit has been steadily declining. As we've both mentioned, a large component of the decrease in earnings for the quarter stems from a $32 million decrease in gains from the disposal of equipment compared to the fourth quarter of last year. As we have previously commented, we expect these gains to continue to recede over the course of the next 12 months. We've made progress on our backlog of rotating new trucks into the fleet and our estimate for fiscal 2025 projects further progress on getting us back to where we need to be on the fleet side. We've increased the number of trucks sold by nearly 20% compared to the year before. At the end of this year, we reported 188,700 trucks in the fleet, which is down about 3,500 from March 31, 2023. Now if you compare that to March 2020, we still have over 12,000 more trucks in the fleet today than we did four years ago. For self-storage, revenues were up $17.5 million or 9% for the quarter and a little over $86.5 million or 12% for the full 12 months. The quarterly increase was a combination of a 6% increase in the number of units rented combined with about a 2.5% increase in revenue per occupied square foot. The year-over-year improvement in revenue per foot has been coming down as we've progressed through the year. Our total portfolio, so all of our locations combined, the occupancy ratio decreased 140 basis points to just under 80%. That's largely due to the addition of 55,000 new units that we've constructed, while we increased the number of occupied units by 31,000. If you narrow this group down to the same store pool, we saw a 190 basis point decrease in occupancy to 92.3%. During fiscal 2024, we invested $1.258 billion in real estate acquisitions along with self-storage and U-Box warehouse development, that's down $83 million from the year before. Spending on the acquisitions of new properties has declined, while investment in the development of these properties has increased. During the quarter, we added 2,424,000 new net rentable square feet, which brought our 12-month figure to 5,475,000 new square feet. Our pipeline of active and pending projects remains robust at 7.8 million and 9.2 million square feet respectively. Operating expenses at moving and storage were up $10 million for the fourth quarter and $100 million for the fiscal year. We've now had our second consecutive quarter of fleet repair and maintenance improvement with a decline of $11 million. Now the year was still up $33 million, but I would expect to see these costs continue to move down over the course of fiscal 2025. As we've been able to rotate in new trucks and begin to remove the oldest ones from the fleet, this has been a positive for repair and maintenance. I mentioned in the press release the $9 million quarterly increase in personnel for the quarter and $50 million for the year. We've also seen our liability costs increase $14 million in the fourth quarter as we had some negative development on accident claims this last year. Property costs including utilities, building maintenance and property taxes were up $5 million in a quarter and $26 million for the year. We are filing our 10-K later today, and that will be available both on the SEC website and on our investor website. This is our first financial statement audit with Deloitte, so you will see some slight changes in our presentation. Sebastien and I are always available if you have any questions about this. With that, I would like to hand the call back to our operator, Gian, to begin the question and answer portion of the call.

And we'll take our first question today from Keegan Carl with Wolfe Research.

Maybe just starting on the fleet CapEx, because we kind of ended on that. I guess what I'm just trying to understand is obviously we can expect more improvement as you refresh the fleet, but at the same time, we'd expect at some point the utilization also improves over time. So could you help us just understand sort of the puts and takes there on how an increase in utilization may offset some of the CapEx improvements?

I believe you're correct; our goal is to continue driving utilization. From my experience, utilization tends to increase gradually, and that's typically the most we can achieve. We do face a challenge in our strategy because we aim for broad distribution, which can hinder utilization. Generally, our stores have significantly higher utilization than our dealers, but we plan to maintain and expand our dealer program in the coming year. As we see a slight decrease in maintenance, that is associated with increased uptime, making vehicles more available for rent. Over the past 90 days, we have managed to keep the number of down vehicles under control fairly well. When a vehicle is scheduled for maintenance, we remove it from the rental register, and we have improved our management of this compared to last year, primarily by refreshing the fleet, as you mentioned.

I mentioned in my prepared remarks that we currently have over 12,000 more trucks than we did before COVID. This increase is largely due to us retaining trucks longer than usual. Last year, we entered with a backlog of almost a year for truck rotation, and we reduced that by about two-thirds this past year. This reduction is allowing us to remove more of those older units. The number of trucks we are currently holding is a key factor in this equation. Joe discussed utilization, which can be measured in decimal points, and these points are significant for us. As we continue to remove older trucks, we expect to improve utilization or create more opportunities for it. I wouldn't be surprised if the total fleet remains about the same size or reduces by a few thousand trucks by the end of next year.

I would like to shift focus for a moment. The commentary in the press release indicates that the results are still below expectations. Can you help us understand the context as we enter the peak leasing season? What percentage of your moves are typically one-way moves? Additionally, any insights on one-way moves for April and May would be very helpful.

I'll start off with some of the figures. Over the last 10 years, our revenue has generally been split about 55% in-town and 45% one-way. If we look back a little over 15 years, it was closer to a 50/50 split. The transaction breakdown is even more distinct. During COVID, that narrowed by a couple of percentage points. The amount of one-way revenue increased several percentage points, while the transaction breakdown remained roughly the same. This means we had longer moves and were able to charge a bit more per mile. That summarizes our transactions and revenue, and I'll hand it over to Joe for any forecasts.

When I mentioned that I believe the consumer remains quite cautious, this leads to fewer miles per rental. People still move because it is a necessity, influenced by events like marriage, birth, and death—things that generally proceed smoothly without significant fluctuations, increasing steadily over time. However, the distance people choose to move and the resulting transaction amounts often relate to their feelings about their circumstances. For instance, if someone feels optimistic about their situation, they might decide to embark on an exciting adventure by relocating to San Diego for a new career, which would benefit us. Conversely, when they feel more conservative, they may choose to move to another house in the same neighborhood to maintain their children's school situation and keep their current job. This tendency shortens the length of the move. As a result, we must cover costs based on mileage, as our expenses vary significantly with mileage. I don't anticipate a major change; I expected a quicker pickup than we have observed, but I remain hopeful for an eventual shift. We're not lagging behind last year, but we are somewhat trailing historical trends or at least what I had anticipated. Additionally, the ongoing turbulence in the housing market may have a modest impact, but from our experience, the overall economic sentiment and people’s life situations have a greater influence than new home sales.

I guess, let's shift gears to storage. I thought commentary in the press release, calling out competitive pricing really stood out. I guess I'm just curious twofold, what's changed in the past few months to cause you guys specifically to put that in the press release? And I guess second, how has this impacting your decisions around what you guys are doing with your street rates?

We have a different rate strategy than most of our larger competitors claim they have. Now, of course, the only way you really know rates is to just call out and make calls. It's not enough just to survey the internet. But all our competitors have some sort of a demand pricing model where when they think demand is up, they jack prices significantly. And when demand is down, they cut prices or reduce prices, whatever you want to call it significantly. We don't pursue the demand model; we're one of the few people who posts room prices in our stores. If you were to go to our competitor, it would be nothing for the next person in line to be quoted at a rate 20% to 40% different than the person right ahead of them, kind of like motels and hotels do sometimes. We've not followed that strategy, and I think what we've done has proven to at least be reasonable given our ability to maintain some modest rate increases over the last 18 months. Now, there's a lot of factors that go into this. And whether our competitors will do what the demand pricing model would say, which is increased prices now that they're in the summer. I don't control any of that, and I have no window into it other than monitoring pricing. So this, in my experience, jumping around pricing confuses the customer. They don't know if they're getting a good deal or a bad deal. And we have a much steadier approach to pricing. So if we offer a discount, it's really a discount. It's not that we jack the rate and then lower it again; you kind of see that in how department stores used to price. They inflate the cost and then they discount off of it and tell you you're getting a sale, and all they're really doing is charging you what they would've charged you in the first place. But they're confusing it. So we don't subscribe to that process. Our competitors are adamant that they believe this drives revenue per square foot for them. It's very difficult for me to give you an honest appraisal of that. But it does confuse the customer if they go see a competitor in, let's say, February, being 40% lower than us. And so, we have to deal with that, and we've been dealing with it. I'm a little bit less confident that they're going to increase their rates going into this demand season. In other words, they successfully reduced prices when demand was down. Are they going to do the other? Really, I don't know. And we are kind of having to proceed ahead and have to explain it to the customer that if they do business with us, they're not going to see a great increase in price. And so yes, we're in some markets, in some size rooms, it might be a little bit stronger price than the competitor, but we're generally able to explain it to the customer. It's a constant concern, because we're all impacted by income per square foot. And of course, we're impacted by rooms rented, but we're impacted by income per square foot and we try to maintain that.

I guess just on that two-parter here. I mean, I guess, are you seeing any change in your average length of stay just given what appears to be some macro concerns? And I guess on the rate increase side of things, are you seeing any difference in how your customers are reacting to the rate increase you're sending out?

The ongoing conversation about rate increases is significant. Regarding some changes in the macro environment, the storage business has become somewhat more challenging to compete in compared to 36 months ago and likely even compared to 24 months ago. I'm not entirely sure if it's tougher than last summer as we haven't fully experienced that yet. However, the scarcity mindset among consumers has shifted; they no longer perceive storage as a scarce resource. Now, they want to discuss the value. We have a longstanding tradition of being a value pricing operation, which we manage without implementing large discounts. Essentially, we don’t inflate our prices, and we also refrain from discounting them heavily. It’s a balancing act; my competitors are well aware of this as they are all intelligent and pursuing what they believe is the best approach, even if our strategies differ.

Just to get to your average stay question, I just looked at that our year-end numbers compared to what they were last year. In a couple of the buckets, maybe there was a 1% change from what it looked like last year. Otherwise, we're not seeing anything dramatic on that front.

And then last one for me, just because it was also brought up in the opening remarks. Just on supply in general. I guess, what are your views on the supply outlook in the space and I guess how should we think about your deliveries in the next 12 months impacting that?

You're talking motor vehicles storage?

No, on self-storage.

Well, we're likely to introduce more rooms than we can fill, at least that's my assumption. Naturally, I am focused on filling those rooms and I have pressured everyone to do so; they are aware of this. However, we are currently engaging in more new construction rather than acquisitions, and new construction can take up to 24 months, or even 36 months in challenging locations like California or New York. So, I'm not planning to halt that process. I see good prospects in the storage market. As I mentioned earlier, I believe there are markets where it makes sense for us to expand. As we grow in these markets, we'll rent out even more rooms. I plan to maintain that trajectory. With rising interest rates, Jason is facing higher financing costs and is understandably advising me to exercise caution. You can count on that.

Our next question comes from Steven Ralston with Zacks.

I observed your top line results when they were announced, and they precisely matched my estimate. Since I was the only one providing an estimate, the top line was right on point. I based my analysis on your previous statement indicating a return to the historic growth rate, excluding some pandemic gains, while also considering quarter-to-quarter trends and seasonality; the top line appeared solid. However, your tone suggests a potential shift. Therefore, I am inquiring about your outlook for fiscal 2025 and whether I should reconsider my initial assumptions.

I'm focused on truck rental, an area I'm quite familiar with. I anticipate we will see increases rather than decreases in the upcoming year. This expectation is straightforward; it's not a trick. The demand is there, and we need to engage with our customers effectively. In self-storage, I expect growth in the total number of rooms rented, although we may see a slight decrease in the percentage of occupied square footage. Regarding self-storage rates, our goal is to maintain prices, if not achieve a small increase. In truck rental, we're currently earning slightly more per mile. If we are careful and treat our customers well, we might achieve the same again this year, as those small increases in mileage add up. If we can accomplish this, I believe both truck rental and self-storage can achieve a net gain over the next year, recovering from the setbacks we've faced. Profitability, however, is less certain due to significant government increases in entry-level wages. The pressure from inflation is substantial, and these workers will require higher pay, especially in California where wages can reach $20 or $25 an hour depending on the sector, excluding government entities. U-Haul does not receive similar exemptions, meaning wage costs will rise. Therefore, we must focus on improving productivity, which is inherently uncertain. We have initiatives in place, but many require IT investments, which often take longer than anticipated. Progress has been made with customer self-dispatch and self-return options, boosting our personnel's productivity. I expect we will keep advancing in this area. The extent of our progress is uncertain, but since this is a do-it-yourself business, customers are generally happy to handle returns and dispatch themselves.

You mentioned the bottom line and various costs. Depreciation is expected and has been part of your cycle for as long as you've operated. You also talked about personnel costs related to productivity improvements with IT and liability insurance, which I believe are not significant drivers for U-Haul. Are there any other costs that you find concerning?

Our gain on sale is currently negative, and the future looks uncertain. Over the past two years, automakers have implemented significant price increases, some exceeding 50%. While they have achieved these prices retail, it hasn’t matched the increase in costs, which has kept resale prices from rising proportionately. There's a lot of confusion surrounding Ford and Chevrolet promoting electrification while still relying on gas, which has led to substantial price hikes specifically targeting fleet customers like us. We are essentially subsidizing their electrification efforts without reaping any rewards. A recent study by Ryder indicated that full electrification of the truck classes they rent could cause costs to users to rise by at least 50%, and in some cases, up to 100%. They estimate this could contribute an increase of 50 basis points to inflation across the country. While I don’t entirely agree with their findings, and our truck rentals differ, these trends are affecting the entire transportation sector. The push for electrification persists despite the lack of cost-effective solutions, with significant spending occurring without addressing the existing customers of internal combustion engines. This creates uncertainty. I am hopeful that inflation will continue, which could slightly elevate vehicle prices. However, since we typically hold vehicles for 24 months or less, inflation may not be sufficient to offset the price increases we've seen. Two years is a short timeframe for inflationary gains. We're committed to this industry long-term and will keep our customers engaged. I believe the electrification landscape will become clearer in the next few years, allowing for more accurate predictions. Ryder, being a leader in electrification, released a study stating costs could rise significantly, which isn’t good for their customers. Ultimately, these insights are all based on assumptions, and we lack a clear outlook, which is evident in our declining gain on sale.

Just one more quick question, and a comment. You said you are using Deloitte, I guess that's why I saw a new line item out there, other interest income. I'm assuming that that's the interest on your cash balance. Could you just verify that and where was it previously?

We have two insurance companies, and we have always reported a line called net investment income that includes their interest income. Historically, the interest income from moving and storage cash balances has been minimal, so it was included in that line. However, as we have maintained higher cash balances and short-term rates have increased, this amount has grown significantly. The rationale is that interest income is not considered part of our core operations. Therefore, this year, it has been reclassified below operating earnings. There will be some additional work required to achieve a direct comparison, but the additional interest income pertains to the moving and storage interest income from our short-term investments, which include government money market funds and some short-term treasuries.

And now for the comment, and I wouldn't have brought this up unless you mentioned it to use U-Haul products and services and recommend it. I've used U-Haul three times over the last two years, two different products. And I have seen productivity enhancements. I mean, most of the things are done on the telephone, on iPhone. And the interactions with the employees have obviously been reduced, and you just pick up your truck and/or call for the U-Box and it just shows up and everything works smoothly, and your employees are very accommodating.

Thank you. We're focused on this and believe that in the long run, achieving this result is crucial for staying ahead of our competition. We are working very hard to accomplish it.

Our next question comes from David Silver with CL King.

I just had a couple of questions that I think you've touched on. But maybe just if you could flush out things a little more. But as you look to fiscal '25 with your projected capital spending, just however you look at it, could you maybe just point us qualitatively where you think you'll be increasing capital spending, or which buckets may where you'll see the CapEx spending decline. So just kind of, from your perspective, where is capital most needed or not needed as in the past year or two?

I'll start off and then let Joe clean up. Our primary focus for capital expenditure each year is typically on fleet maintenance. Looking ahead to next year, we anticipate a gross expenditure of approximately $1.7 billion, compared to around $1.619 billion this year. Due to the shortages experienced during the pandemic, most of this will be for delayed maintenance rather than growth initiatives. We saw a slight decrease in real estate expenditures, about $83 million, but given we spent over $1.2 billion, that amount is relatively small. Of the real estate spent last year, around $925 million went towards development construction, while the remainder was for acquiring new land or buildings. For next year, I expect our cash projections for real estate spending to be similar. On net fleet capital expenditure, we're looking to increase from approximately $880 million or $890 million this year to nearly $1 billion. We will need to secure about $350 million to $400 million in working capital to support this. Joe, do you want to add anything?

Yes, I think you're pretty right on there, and I don't expect it to be a whole lot less than that.

And then the last question is just maybe more of a big picture question. In your prepared remarks, I heard a number of references to current conditions versus four years ago, and this question is in that spirit. So in the post-pandemic environment here, I'm kind of wondering how you look at your business opportunity as your customer demographic now, let's say, versus pre-pandemic? I'll just throw out a couple of things. But certainly, the trend towards remote work kind of affects where people live their lives. And I'm just wondering what implications that might have for your logistics or your strategies to take advantage of that trend? And it’s been mentioned here, but digitalization or other productivity enhancements tied to labor and I guess just the ongoing digitalization of things is probably something you think about quite a bit. But as we sit here kicking off your fiscal year '25, I mean, what big differences or what features or priorities have shifted, let's say, from four years ago?

I think we didn't anticipate the shift to remote work. It led to a surge of new customers who were previously not U-Haul users. I noticed from customer feedback that many of them were unfamiliar with our processes, which was understandable since they hadn't engaged with us before. That influx has diminished now, although there's a slight rebound effect, though I can't quantify it. Some individuals are returning to their workplaces as employers insist on it, which you can read about in the news. Regarding digitalization, it's a long-term trend that I'm trying to grasp better, as there's a lot of misinformation and misconceptions about what drives success—this is just my perspective. I can’t demonstrate it, but I'm working hard to understand it. Digitalization has the potential to simplify transactions with U-Haul, which is important because customers prefer ease. I am focused on reducing complexity in our operations, especially with one-way moves that involve different dispatch and return points. Digitalization can help us predict and manage these complexities better, offering customers more certainty. We're making steady progress, and I believe customers will respond positively. If you have a more specific question, I’d be glad to address it.

Not at this point. I mean, I guess I'll follow up with some more specific ones offline. But no, just wanted to hear your big picture views about certain evolutionary, I guess, trends in your business. So thank you for that.

Our next question comes from Jamie Wilen with Wilen Management.

A couple of questions, first on fleet. Did I hear you say that we have 188,000 trucks in the fleet and that is near the optimum level, and what's going to happen in the future is we're just going to be more in the replacing of some of the older vehicles with new ones and that is a number we'll probably hang flat at as we move forward?

No, if we said that, I apologize.

I think maybe what I said might have confused. I said most of our CapEx this last year and maybe even going into the next year is maintenance CapEx. So from a purchase perspective, we're buying more trucks, but we're also going to be selling more. So I think that there's the likelihood that the fleet overall size could be coming down.

So if we see a little...

It's more complicated because a truck with 120,000 miles simply cannot produce at the same level as a truck with 35,000 miles. Over the past three years, we've postponed replacements, leading to an excess of trucks with 120,000 miles. There exists a gap between 140; it's not a straightforward mathematical trade-off and is somewhat complex. It depends on the size of the truck available for purchase because we've been on allocation, and what the automakers provide doesn't necessarily meet our needs in quantity. I aim to enhance the fleet's capability, but this may not increase the fleet's total numbers in the next 18 months. In fact, we might see a slight reduction in total numbers as we phase out higher mileage vehicles and bring in newer ones. We can't bring in four trucks for every five we sell without affecting our transaction growth, which may decrease the fleet by about 3,000 or 4,000 trucks. It's somewhat opportunistic; we don't have commitments for the upcoming year's production yet. Those will begin to solidify around mid-July, which will clarify what the automakers can and want to produce. The business will grow simply due to population growth, and we should benefit from that increase.

So as we grow the rentals, hopefully over the next year or so, fleet utilization should increase by those tenths of percents that are important?

That's exactly what we're looking for, yes.

On the U-Box side, could you talk about the health of that business and where it is profitability-wise as you look through 2024 and then moving forward in 2025?

The U-Box tends to have more one-way moves compared to local moves, with significantly more journeys exceeding a hundred miles than those under that distance. This aligns with the product's nature and our focus. We have been exploring ways to offer an appealing economic option for customers looking for short-distance moves, which currently are quite expensive due to freight contracting. Essentially, using common carriers for moves around a hundred miles can become quite costly, whereas for longer journeys, like 3,000 miles, the costs become more manageable. Our main strength has centered on longer distances with the U-Box, but we recognize the demand for shorter moves as well. We aim to tap into that segment while still maintaining profitability. Our pricing has typically been aligned with common carrier rates, which have decreased over the past year. Although I don't track them daily, I've noticed our rates have dropped too, leading to transaction growth, albeit with only modest dollar growth. However, our margins remain stable or slightly improved. Does that make sense?

And how would you characterize the market share gain or loss within that business for U-Box?

We don't have firm numbers on that at all. If anybody has them, I'd love to hear them, because I just don't have them. We see what we do relative to ourselves. Then of course we can go down to micro-markets there really easily, and we can see all that information. I see places where somebody's up substantially, and other places where someone is down, and then there's cause and effect—it's usually something we've done stupid or something we did correct. But overall comparing us to, let's say, PODS, we have essentially no market share information on them; I would say it is very speculative. We attempt to find that, but we haven’t yet found a reliable source of that that we're willing to trust. Of course, my team all says they're doing great next to them. It's a big business; there's a lot of potential there, and we're calmly tapping into it. We're getting more satisfied customers, and that's what builds our base. We're working on how to crack into this, what we call, shorter zones, just less distance markets. We need to get a model that we can recover our costs with some certainty rather than we just go out there and deliver this stuff for free. So we're pushing on that, and we've made some progress.

As you build out your self-storage, a lot of the places have U-Box storage within it. Does that give you any sort of competitive advantage in the business?

I think it does. Right now, we're somewhere in the middle 600s on warehouses over the United States and Canada, which gives us a tremendous footprint advantage over anybody else in the business, and that we can be near the customer. Very interestingly, some people want to be close to their things. I don't know a better way to see it, and that’s an advantage with those customers. Now, there are customers who could care less. But you'd be shocked to how many people, if you tell them you're going to have it at Central and Adams, they're very committed to you having it there. So you need to have enough warehousing you can actually make good on that representation.

If you have any idea how many PODS might be in the 600s?

No, I couldn't give you a number, but I wouldn't be surprised. I mean...

And lastly on self-storage, could you tell us what your annual depreciation charge was in 2024 and how that deferred from 2023?

Let me find the exact numbers for you. The fleet depreciation over the last 12 months was about $565 million. For buildings, real estate, and what I also refer to as service vehicles, it was $253 million.

Could you tell us what those numbers were compared to the previous year?

It was $520 million and $213 million.

Our next question comes from Stephen Farrell with Oppenheimer + Close.

The last two quarters, fleet maintenance has decreased. But looking back farther before that, fleet maintenance increased about $300 million since the end of 2021. As you rotate the fleet, how much of that increase do you expect to get back?

I don't have a specific projection, but I'm dealing with a lot. Expenses are always affected by inflation; costs for parts and labor have increased. A significant part of our expenses was due to not having trucks to depreciate, so we ended up spending more on repairs. Typically, repair costs per mile exceed depreciation costs once a truck reaches a certain mileage. While maintenance is always a factor, there comes a point where the trade-off turns negative. This is why we need to refresh our fleet. If we consider the $300 million increase I mentioned earlier, I estimate that around $250 million of that was likely due to keeping trucks longer than optimal. I aim to recover a substantial portion of that amount. However, we are contending with rising repair part costs and labor costs in our efforts to recoup this. We are in a good position to recover it. A significant portion of that increase has gone to third-party providers. We usually handle a lot of our own maintenance, but that percentage has declined over the past three years. We will continue to rely on third parties for remote locations or emergencies, but I believe we can shift that balance back in our favor. My focus is on how much I can reclaim, and the results remain to be seen. There is considerable money to be recovered if we can get the trucks back on the road. According to Jason, we've made some progress in addressing this issue, and it will take a few years to fully recover; it won't happen in just one year.

And just based on your other comments around personnel and liability, which are the big moving parts of operating expenses—as a certain extent, it sounds like we should just expect the elevated levels moving forward?

I believe that regarding personnel, it's a safe assumption for the near term, looking at the next 12 to 18 months. Inflation is likely to rise a bit, and the government is imposing significant mandates. States like California and New York have a lot of regulations that are affecting salaries for salaried personnel. Although it may not be apparent to everyone, they are increasing the minimum pay for these positions. The standards they are implementing could theoretically apply nationwide, but there is a significant discrepancy between states like Mississippi and New York, with over a $20,000 difference in acceptable base salaries for salaried personnel. The same metric being applied nationwide seems impractical. We'll have to adapt and deal with it. There's no stopping these developments, though there is an opportunity to vote in November, which is my perspective.

And moving to self-storage, last year you guys had commented that you were targeting about a million square feet per quarter. Given your cautious outlook and comments around self-storage, do you think that'll be lower moving forward?

I don't think so. Right now, we're committed to that. As I mentioned, once you start construction, it takes at least a year. However, you're likely committed six months before breaking ground because you've already acquired the property and made land use commitments. You've made commitments to the city to obtain your building permits, and there's a significant amount of money already invested in it. Most of these projects are better to move forward with. To finalize the deal, you typically need around 18 months to see results—unless, of course, you make the mistake of partially building the project and leaving it unfinished, which we know isn't wise. Unfortunately, people might do that if funds are tight, but we don’t anticipate that happening. We're well-funded and matched carefully. We don't expect those types of situations to arise in the next 18 months. We're continuing to move forward. I believe there are many markets with opportunities, and I'm focusing on those rather than just competing broadly. The availability of storage varies widely across different regions. In the right micro-market, you can still perform well and perhaps even better than expected, which is my hope.

And are there any geographic areas that you can highlight where you are seeing those pockets of opportunity?

No, I won't even talk to them, hardly. I’m very careful with a small circle of friends because I don't need any more people rushing in there besides me, okay? There's plenty of sharp real estate people out there. If they know where we're going, well, that just gives them one more bit of information to compete with us. I'm keeping that quiet. But we slug it out in all these major metros. There's a ton of business available in L.A., but do you really want to slug it out there in L.A. You may find L.A. is a four-year term from acquisition to completion. I'm thinking of one project right off the top of my head that was actually four years, and will we ever make any money because we don't capitalize that cost; most of it we don't capitalize, but you pay it, okay? You don’t want to incur any more of that than you have to. Other markets that are more business friendly. The competition is entrenched, so we're heading for those. We have the largest footprint in the business. We're the only people in all provinces in all states. In fact, we're the only people in all states that lets us see a market, because we're there already, but maybe isn’t as apparent as it would be for one of our REIT competitors. Although, they're very savvy people, they're constantly running the numbers.

Thank you. We have no further questions at this time. I will now turn control of the conference back over to our presenters for any additional remarks.

Well, thank you, everyone so much for the support. As a reminder, we plan to file our 10-K later today, and we look forward to speaking with you after we file our first quarter results in August. Thank you.

Thank you, everyone. This concludes today's conference. We appreciate your participation. You may disconnect at any time.