May 25, 2017
Executives
Sebastien Reyes - Director, External Communications, U-Haul International, Inc. Jason Berg - CFO
Analysts
James Barrett - CL King & Associates Ian Gilson - Zacks Investment Research James Wilen - Wilen Investment Management Corp.
Operator
Welcome to the AMERCO Fourth Quarter Fiscal Year 2017 Year-end Investor Conference Call. [Operator Instructions].
I would now like to turn the conference over to Sebastien Reyes. Sir, please go ahead.
Sebastien Reyes
Good morning, everyone and thank you for joining us today. Welcome to the AMERCO Fourth Quarter Fiscal 2017 year-end investor call.
Before we begin, I'd 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 AMERCO's business and future operating results, please refer to Form 10-K for the year ended March 31, 2017 which is on file with the U.S.
Securities and Exchange Commission. Participating in the call today will be Jason Berg, Chief Financial Officer of AMERCO.
I'll now turn the call over to Jason.
Jason Berg
Thanks, Sebastien. Good morning, everyone.
I'm speaking to you today from Phoenix, Arizona. I have a few prepared remarks and I want to make sure that we touched on and then I'll go ahead and open it up for questions.
Yesterday, we reported fourth quarter earnings of $0.49 a share compared with $2.68 per share for the same period in fiscal 2016. For the full year of fiscal 2017, we reported net earnings of $20.34 compared with $24.95 per share in fiscal '16.
I think it's worth noting that included in the results of fiscal 2017 was an after-tax benefit of $0.79 per share associated with our settlement of the PEI litigation which resulted in a reduction of operating expenses of $24.6 million. If you exclude this after-tax benefit, the full year EPS number was $19.55 for this year.
Equipment rental revenues increased a little over 2% or about $10 million for the quarter and we finished the full year about $65 million which is nearly a 3% increase. I wanted to point out that the fourth quarter of last year included the extra leap day.
If you exclude that extra day, U-Move revenues increased just over 4% for the fourth quarter of this year and a little over 3% then for the full year. During the course of fiscal 2017, we increased our independent dealer network with about 500 net additions which brings this portion of our distribution network to 20,000 dealer outlets.
Company-operated locations also increased to right around 1,750 at March 31. Over the course of fiscal 2017, we've increased the number of trucks and trailers in our fleet.
Now for the fourth quarter and the full year, we experienced transaction growth in both our In-town and one-way markets. On a percentage basis, transaction growth was right on top of revenue growth this year.
Last month, in April, we launched our U-Haul truck shared 24/7 program which allows our customers to do pickup and dropoff of their rental equipment according to their schedule, not our schedule. We've completed several thousand of these transactions now at nearly 3,500 different locations.
We're excited about the opportunity that this will present itself and we better master the technology. For the first 1.5 months of fiscal 2018, we're continuing to see U-Move revenue growth trending a little bit better than what we saw in the fourth quarter.
Capital expenditures on new rental trucks and trailers for fiscal 2017 was $1,179,000,000 as compared to $881 million in the previous year. Proceeds from the sales of retired rental equipment decreased from $517 million to $475 million.
Along with that, we saw net gains from the disposal of property, plant and equipment decrease by a little over $7.5 million for the quarter and a little over $62.5 million for the full year. Our initial projections for rental equipment CapEx in fiscal 2018 are $900 million that's before netting any equipment sales proceeds against them.
We're projecting a decrease in proceeds from the sales of equipment. So our current expectations on that net CapEx for the fleet next year will be approximately $440 million comparing that to this year's number which was $705 million.
One significant factor that lead into our reduced GAAP earnings is rental equipment depreciation. For the quarter, depreciation associated with the rental fleet increased a little over $18 million and -- which brought our year-to-date increase to nearly $67 million.
The 26-foot trucks we've been adding over the last 17 months continue to be a significant driver for these increased depreciation costs. These new trucks contributed about $12 million of fluctuation in the fourth quarter and for the full year accounted for about $46 million of the increase.
For the year, slower sales of pickups and cargo vans resulted in about an $8 million increase in depreciation but did not affect us during the fourth quarter. Moving on to storage revenues, they are up a little over $9 million or 14% for the quarter and nearly $39 million or about 16% for the year.
We recognize revenue growth from additional rooms rented. On average, throughout the year, we filled approximately 23,000 more rooms than we've filled last year.
That's an 11% increase. We're also recognizing revenue increases from rate increases on existing storage customers.
During fiscal 2007, we added about 3,400,000 net rentable square feet, with nearly all of that except for about 825,000 coming from our development program. And nearly 1 million of that number of the 3.4 million came during the fourth quarter.
Spending on real estate-related CapEx was $485 million in fiscal '17. That's down $108 million from the previous year.
Over half of that decline is coming from a decrease in the number of existing storage facilities that we acquired. As with our rental fleet, a significant amount of CapEx that we've invested in buildings and improvements and related non-rental equipment is leading to increased depreciation costs.
So depreciation associated with I guess everything except the rental fleet was up a little over $7 million for the quarter and, for the year, up over $25 million. Over the last 24 months, we've added nearly $1.1 billion of buildings and improvements and non-rental equipments to the balance sheet.
Operating expenses at the moving and storage segment increased $52 million for the fourth quarter. I wanted to comment on a few of the largest drivers of this increase.
Approximately 1/4 of the increase or just over $14 million is due to personnel costs. This is from increased headcount and about 1/3 of that is from the higher-than-expected medical plan expenses.
We've added more people in the field to cover our new locations and at the home office, we've continued to invest additional -- in additional information, technology and human resources. The larger rental fleet has also resulted in added maintenance and repair costs which increased our operating cost by nearly $14.5 million for the quarter.
We made a concerted effort to catch up on all of our preventative maintenance checks across the truck and trailer fleet in the quarter. These drove the larger than usual increase in maintenance and repair costs.
Property taxes, building maintenance and utilities increased by about $7 million for the quarter and I attribute most of that due to the new locations and projects under development. The last significant item contributing to the increase in operating cost was our change in accounting for the expensing of smaller items which we've been talking about all this year.
This increase caused by approximately a little over -- almost $6.5 million for the quarter. During the fourth quarter of this year, we declared a $1 per share to cash dividend that was paid in March.
This brings the total amount of cash dividends paid for fiscal 2017 to $3 a share. So while our reported GAAP results have been down and our operating margins have pulled back during the year, we believe that we're positioned to improve upon these measurements.
We're seeing revenue growth across all of our major programs including equipment rental, self-storage, U-Box and retail sales. Speaking of U-Box, in May, we just completed the acquisition of all the portable storage containers a former competitor door to door, to further build on our economy of scale that we have in this business.
Our capital investments in the fleet self-storage and technology set the stage for future accelerated revenue growth. Many of you have been following us for years and you've seen time periods of investment which resulted in reduced GAAP earnings largely from depreciation.
Our philosophy of growing operations while maintaining a conservative balance sheet at times can lead to these temporary dips in our earnings which is part of our longer investment horizon. With that, I'd like to hand the call back to Steven for the question-and-answer portion of the call.
Thank you.
Operator
[Operator Instructions]. And our first question comes from Jim Barrett with CL King and Associates.
James Barrett
Jason, if you could discuss further capital spending. Certainly, it's been elevated over the last several years.
How does the management look at the expected return from those investments? And I recognize, certainly, some of it is maintenance capital spending, but how should we look at the growth capital that has been put into the fleet and into the real estate?
Jason Berg
I'll start off with the fleet, Jim. On the fleet side, the spending has been elevated.
That's part of '16 and throughout '17 and part because of the the rotation of the 26-foot trucks. We've discussed that's added well over $400 million of CapEx because we were behind the curve because the product just wasn't available for us to buy.
Going into fiscal '18, we're not planning currently on investing significantly back into the 26-foot truck right now. I think we've added a significant number of those.
We're going to see how it goes. If there is variability in our fleet projections, I would say it would be to the upside if we decide to buy some more of those trucks.
We've also been investing in some of the smaller trucks as we prepare for a model change there. We thought that accelerating some of those purchases in fiscal '17 and then into '18 is a prudent thing to do.
So we've front-loaded some purchases on the fleet side. The fleet has grown.
Average trucks available throughout the year are up approximately 7% and we haven't seen a corresponded increase in revenue, so there's room for improvement when it comes to utilization of the fleet that we've acquired. On the storage side, we've been talking about the last several years about this shift to acquiring more ground-up and conversion projects versus existing self-storage.
And I think we're seeing a more pronounced effect there than perhaps I'd expected as far as the cost associated with those. We have -- just to update you, we have about 120 projects that are under development with plans and some form of construction taking place.
It's going to take probably about $450 million, $500 million to close those out and close out the deals that we have in escrow currently, but that's going to add somewhere around 6.5 million square feet of self-storage, probably another 0.5 million square feet of U-Box warehouse space. So it's going to give us more opportunity there.
So our opportunity is in execution on a couple of fronts, first, execution on the operating front as far as renting the equipment and renting the storage rooms. And then secondarily, we have the challenge of executing on the development side.
So we have, I would say, somewhere around north of $800 million to $900 million of investment in projects that we're really not renting storage rooms at yet. So we need to execute on finishing those projects, bringing them to market and start getting some revenue from those.
James Barrett
That was helpful. And in the operating expenses.
I mean historically, the company has controlled operating expenses very well and I did look into the components of the current drivers of increased operating expenses. After the accounting change, are we operating in a new normal in terms of growth in operating expenses?
And then secondly, is the company exercising more pricing power to offset what are higher costs?
Jason Berg
I would not characterize the fourth quarter as representative of what we'd expect on the expense side going forward. The 2 largest pieces of this, the personnel expense, you have medical plan costs.
We're self-insured on the medical plan. Those tend to go up and down over time, work out kind of a reasonable increase.
We just happen to have a larger increase during this quarter. I think our overall location count over the last couple of years is up a little over 5%.
So kind of as a baseline, you'd expect personnel cost to increase somewhere along that line. We're investing in additional programmers here.
So if you add 30 programmers, there's a cost that's associated with that and whatnot and we would expect to see a return on that. So we have seen -- this quarter, I think we're going to see we've been able to launch this program we've been working on for years, the 24/7 program.
I think that's going to -- that has -- that's a direct benefit of us having programming resources on staff. We just launched this year a redesigned version of our self-storage operating platform which we expect to improve our ability to operate -- create operational efficiencies at the center level and also, hopefully, attract more storage affiliates to our business model which, at the end of the day, is one of our major pushes.
On the capitalization or the lack of capitalization of these smaller costs, this year, I think, we improved our tracking of those costs here in the fourth quarter. And I think for the year, that number is close to $26 million that we expensed versus capitalized.
So going into next year, I think we're going to be comparing against the same treatment and then we'll pick up some nominal amount. If you take that $26 million and spread it over 3 years, that's what the depreciation would have been, generally speaking.
So we'll recognize some savings there. As far as pricing power, a lot of the costs that we're seeing on the OpEx side, we can fix if we start renting out some of the flat in the rooms.
If we fill another 21,000, 22,000 rooms next year over what we have this year, that's going to be another $40 million increase in revenue. If we get to 85% occupancy just on the portfolio we had in place at March 31, that would be I think somewhere close to $50 million of additional storage revenue without a whole lot of significant other costs increasing.
Property taxes go up every year, but our underlying, I guess what you call, same-store property tax increases has only been about 2% this year. The majority of the property tax increase is from these additional properties that we have.
And we just need to generate some more revenue from them. But when we buy these facilities, normally, the first thing that we do is we open up and immediately begin renting trucks.
So you have to have kind of the scale to improve there to do that. But you have to have the lights on and then you pay the property taxes and so we recognize those costs right away.
And the truck revenue isn't going to be enough to cover all of those costs.
James Barrett
Okay. And then finally, there's an indication in the financials that your rates per room have continued to improve.
With the amount of capital that has flowed into the self-storage industry over the last few years, can you reconcile those 2 developments? I assume you still believe that, at least locally, the market is not fully developed and, therefore, can support the higher pricing?
Jason Berg
Yes. Our numbers, it's an aggregation of -- whether we have 25 million, 26 million square feet of self-storage.
In any particular market, someone may have opened up next door and we were not seeing rate increases or maybe we're seeing rate decreases. But overall, just looking at a blended rate for the average of last year and the average of this year, I think we're seeing an increase somewhere a little bit over 3%, probably closer to 3.25%.
Operator
Our next question comes from Ian Gilson with Zacks Investment Research.
Ian Gilson
I have a few questions. First of all, going back to the OpEx.
The number you gave added up to about $41 million some [indiscernible] trucks, $41million from the reported number and then look at that as a percentage of the rental revenue and a percentage of overall revenue, you'll actually fall back to what you were a year ago. So my question there is we've got probably $28 million to $30 million of added expenses that will continue through this year.
Is that about right?
Jason Berg
Well, let me look at it in pieces. On the personnel expense, I think we're going to see that continue at a certain rate.
I don't think it's going to be the same quarter-over quarter jump. I think we saw that probably a little bit higher than what we would have seen.
But for the most part, I think we're going to see some of that continue. The maintenance and the repair number over a 12-month period is probably fairly representative of what we're looking at.
I think our expectations right now is that, that cost next year isn't going to increase at nearly this rate. We're projecting a much smaller increase in the fleet next year, probably a couple thousand units versus what we saw this year.
So that should have an effect of slowing the growth or flattening out the growth in the maintenance and repair costs. The expensing of the capitalized items of those, it is what it is.
It's about the same each year, probably not going to be increasing. And then the location-specific build, the property taxes, the utility costs, the building maintenance, you're right, but those are something that are likely to continue at a certain rate.
That's why we have to start renting storage at those facilities. Because when we invested in those facilities, over the long haul, we expected storage revenues to be offsetting those.
So this is -- in essence, the first year to this is kind of -- even though we don't capitalize, it's kind of part of our acquisition costs for those facilities.
Ian Gilson
About the medical expenses, they're continuing to go up, I presume?
Jason Berg
Yes. But just last year, I think the overall increase in medical cost was -- I think we were somewhere between 6% and 8% which, for medical cost, that's not crazy but we saw a lot of that just happen in the fourth quarter.
We were doing pretty good up until that point. In the medical plan, there are 2 things that are going to get you.
It's either going be the frequency of claims or the severity and the severity is something you really can't plan for. Over time, it tends to even out, but this year, we had some severity in the plan and you just -- you swallow that, then statistically speaking, next year probably isn't going to be that bad.
Ian Gilson
Okay, okay. The trucking at 24/7, how does that actually work?
If I want to use it? Do I go on my smartphone and call out?
And what do I do to get a rental truck under this program? And how am I sending money?
I'm presuming that that saves me on personnel costs because you have the location you're concerned.
Jason Berg
Well, for the customer, what it does is it's part of the normal rental process. So you go online or you go on your smartphone or you call into one of our places and the primary difference is that when we do put in a time for when you want to pick up your truck, now there's, depending upon the location, a much wider variety of times to pick up the truck.
Ideally, it's going to be -- once we get it fine-tuned, at any time of the day, so you can say, I'd like to pick up the truck at 4 in the morning, you put that into your reservation and then when we go ahead and finalize the schedule as part of our normal process, we'll tell you where to pick up the key when you go to the location, what the code is in order to access the key. You can go ahead and pick up it there and then go out and do your business and then bring it back even during business hours are off.
Business hours, our phone application has a way for people to check in the equipment without anyone there. You drop off the key.
We charge you, e-mail you the receipt and you can really do the entire process without ever seeing a U-Haul person. So that's the benefit to the customer -- is that there should be a wider availability of equipment.
The benefit to U-Haul, part of it is it's personnel costs but then we still have to go ahead and when the truck comes back in, check out the truck to make sure it's ready for the next person to go. But it expands the availability of the fleet and this is important, particularly in kind of the high-intensity period.
In the end of the month, we can -- over the summer time periods where you're trying to schedule as many rentals into a 24-hour period as you could, this now gives our team the ability to expand the number of hours that they can schedule equipment and with the idea that it's also going to be able to expand the ability of the dealer network to better serve customers. We don't control the hours in any of our dealers.
Many of them are closed, if not the entire weekend, at least on Sunday. And this will allow us to advance some rentals to those locations even when they're not open.
Ian Gilson
So the logical place would be your storage units was presumably on rent to 24/7.
Jason Berg
Well, we have a few locations that have apartments on site where we do have 24/7, a presence there. But from a customer service perspective, our opportunity at the storage locations for 24/7 is the security system, so individually alarmed rooms, electronic code or key access which then allows us to track people going in and out which then can open up availability to the storage rooms on a 24/7 basis.
So I think your question takes us to what would be a fantastic scenario which is someone could move in into our U-Haul storage facility with a U-Haul truck and they may never actually come across a U-Haul person in that process. Now I don't know if we're necessarily there yet, but the technology that we're deploying should be able to give us those options.
Ian Gilson
Okay. The flip back in maintenance and repair, isn't that a lag on a truck?
When you buy a new truck, presumably it's under warranty and your maintenance repair doesn't necessarily relate to account purchases but the purchases made maybe 12 months ago or 24 months ago?
Jason Berg
The big push here was more for preventative maintenance. So yes, it wasn't -- there wasn't massive problems of the truck's and engine failures or something like that severity.
It was pushing through all of our equipment to make sure that we've hit the standard for preventative checks which aren't covered by warranty, the oil change and doing a check of the tires and all those other pieces, we're running it through the shop. So there's a big push to get everything through the shops checked out and then we're sitting in pretty good shape here as we approach this and we're really kind of into the busy season now.
Ian Gilson
Okay. The door-to-door acquisitions, are you just buying the containers and door-to-door itself is going out of business?
Or what is this? How does this work?
Jason Berg
That's correct. We're buying the assets which is comprised primarily of just boxes, the majority of them being filled.
Our opportunity in this purchase was buying filled boxes and then taking them to our existing storage locations to help fill up our storage locations and we think that it provides a value proposition to the customer because we're going from kind of the a limited network of locations from which they had a very limited ability for customers to access their goods to taking it out to our and making it part of our U-Box program which gives them many more options to pick up their goods, visit their goods, drop off their goods. And ideally, we should be able to maybe get these boxes closer to the customer at the end of the day as well.
So we thought it was a unique opportunity for us to improve customer service and at the same time give us some more scale and at our own another revenue stream with these filled boxes. We didn't buy it for the boxes.
We bought it for the revenue stream attached to the boxes.
Ian Gilson
Okay. Are these containers a standard sort of on-demand portable type systems?
Jason Berg
Yes. They actually look very much like our existing containers, the 5 white wooden boxes that -- it did seem like a pretty good fit for us logistically.
Ian Gilson
Okay, okay. Now on the buying cycle and the fleet, when do we move down from the big trucks to what you might as well call an average size that a -- that cycle of big truck purchases ending in the current calendar year?
Jason Berg
Well, the projection that I put into the 10-K does not assume any significant purchases of the 26-foot trucks. So I think we made -- we started in October of '16 I think it was and I don't want to call the exact number that we purchased several thousand of those, I think we're going to let that be for a little bit right now.
And the current plan is for a rotation of the other 3 size box trucks that we have and we'll probably grow -- combine those 3 sizes a couple of thousand trucks this year. So not as significant amount of growth is what we saw this last year.
Operator
Our next question comes from Jamie Wilen with Wilen Management.
James Wilen
Yes, just one further question about the acquisition. Can you give us any of the metrics as far as either revenues, number of boxes, what you paid, will it be accretive?
Jason Berg
Great question, Jamie. So I think the number of filled boxes is somewhere around 12,000 to 13,000.
We paid somewhere along the line maybe 3 or 4 months of revenue for it. So I would expect that to begin working for us fairly soon.
I think we only have to carryover leases on 4 of their store warehouse locations that we didn't have the coverage for otherwise. I think in the other 16 markets or so, we have the capacity to take this on.
There's some cost associated, obviously, with us moving these boxes into our places, that's kind of a onetime cost. And so I can't give you the specific amount that I think it will be accretive this year, but I don't think it's going to be a drag in fiscal '18 and it may actually be a little bit positive for us.
We're not adding on a whole lot of additional incremental cost with that.
James Wilen
And why did they sell the business?
Jason Berg
They were in bankruptcy and it's a tough -- what we've been saying is it's a tough business to be successful at. Now they were successful at it for many, many years.
And then for whatever reasons, they chose to get out of it and did that in a controlled fashion and we thought there was an opportunity here for us.
James Wilen
Okay. On the self-storage side, you've got, it's always interesting to read the ground-up facilities you do by buying -- Kmart has been abandoned for 10 years in some bloated part of town and turning things around.
And obviously, when you do those units, you go -- it takes you a while to build them. You're at 0% occupancy for a while.
And could you guys do a little bit of a progression? You've added millions of square feet of new units over the last couple of -- in each year over the last couple of years.
And in the first year, it is obviously going to impact negatively earnings. In the second year, is it neutral?
All these things that we've done over the last 5 years, do they start to come into play and really contribute in year 3? Or could you tell us how that sequencing should work on average?
Jason Berg
Sure. First, I'll start off with where we think that we're going to end up.
We think we're going to end up at a stabilized number somewhere around year 4 or 5, so close to 80% to 85% occupancy in about a 5-year period. We see some of these projects will extend to 6 years, but generally speaking, that's the sort of ramp-up that we're hoping to get.
It's pretty evenly distributed across those first 5 years. So usually, by about year 2, you'll start to see the program begin -- or the store begin to help cover many of the cost or at least it isn't a big drag on the operations.
Part of what we're seeing right now is that we have some of these -- we have these locations open but we're not even at the point where we're starting to rent the storage rooms. So there are many of these rooms that are unrented that we need to start renting out.
But then we also have this cohort of I think I said 120 properties that we're developing on, that the majority of them we haven't rented a single storage room. In some of them, we may be into the Phase 2, so I have them listed as development.
But for most of them, it's a Phase 1 type deal and we're recognizing those costs and the equipment rentals aren't enough for us to cover those costs. Now we planted our flag day 1 in order to get the community familiar with us and know that this is a U-Haul location and get used to coming and visiting us there.
But I think what we're seeing is the reason that a lot of our storage competitors at least don't do development or do some sort of financial engineering to kind of picked us up at the end phase. I think there's a lot of costs associated with this that if you throw it right on to your balance sheet, it kind of harms the income statement for a while.
James Wilen
And when you report occupancy, you include anything that's up and running as opposed to normal retailers with -- if they were -- had a new store, they would not include it in the same-store sales base for 12 or 18 months, yet you don't separate them out when you report occupancy numbers. Is that correct?
Jason Berg
No, we don't. That's right.
And actually, we put the rooms in it as soon as we built them and the facility is ready to go based upon our administrative work. So it's into our self-storage system.
It's ready to rent. But there is some of these rooms that actually we're planning which we don't have a certificate of occupancy for.
So actually -- we couldn't rent the room but it is built and it's ready and we just need to finish off getting the certificate of occupancy and then we'll be good to go on those.
James Wilen
And with all the new facilities that have come onstream, your occupancy levels for existing facilities is obviously significantly higher and doesn't it kind of skew the numbers artificially well when that's not really a good indication of what's happening within your self-storage basic business?
Jason Berg
Absolutely. So I'll use it as an example.
The off-balance-sheet facilities that we manage, that's kind of a stable group of storage facilities and those finished the year. Where we had 12 months of occupancy that was in the 90% range.
James Wilen
Okay, very interesting. And lastly, could you go over the -- you filed an 8-K about the potential sale of your New York property.
Could you go over the -- how it occurred, why the gain and how you record that?
Jason Berg
Sure. We've been approached -- I've been doing this job since 2005.
We've had people approaching us ever since I've been here. So I'm sure it was happening before that wanting to purchase the location that we have at 23rd and 11th out in Chelsea.
A little over a year ago, whenever we made a strategic decision here to pursue one of these opportunities, there was one that -- it was the one that we've seen. So we entered into an arrangement with the development outfit.
We had our doubts as to whether or not we would clear zoning and everything would get finalized. So we thought that there was a lot of uncertainty as to whether or not it would finish, but a couple of days before we filed the 8-K, they received final zoning approval from the city.
So we feel pretty comfortable now that this is a deal that will close probably sometime in August through September of this year. The gross amount is $200 million.
Our operations there consists of several buildings. We'll maintain -- we're keeping one of the buildings which will be enough space for us to continue our equipment rental operations in Chelsea.
The remainder will be developed. Our bases in the property that we sold which we've held for, I think, plus 30 years is about $5 million.
So the difference between that and the sale price is what would be recognized as a gain. The last time I reviewed this with our accountant, I believed that's how it's going to be presented when the deal actually closes, but I'm not going to say that for certainty right now.
And then from a tax perspective, we have 10 31 entity set up and we're attempting to acquire enough storage or conversion type projects to offset that gain from a tax basis.
James Wilen
So you'd record the gain on a taxable basis on the income statement in the September quarter but would be on a deferred tax basis on the cash flow statement.
Jason Berg
Yes. It would certainly push up our deferred provision.
But from what I see right now and again, it's not finalized yet, but it would be reported as a gain in our reported earnings.
James Wilen
And there are no other sales of real estates kind of contemplated unless there's these one-off things that happen along the way?
Jason Berg
Yes, nothing along the size of this. Anything that we have grown right now is either surplus property that isn't the U-Haul center.
And again, it would be minor compared to this or we have some sort of eminent domain issues with the Department of Transportation somewhere trying to take part of one of our facilities.
Operator
Our next question is a follow-up from Ian Gilson with Zacks Investment Research.
Ian Gilson
Is that the building on Broadway, is it? I'm not familiar with the locals of New York City.
Jason Berg
It's on 23rd and 11th and I'm not the most familiar either. I show up there once a year for Jim, but it's right across -- for people who are familiar with New York, there's a development called Chelsea Piers.
That's kind of right across from that.
Ian Gilson
That's the city block that you've earned since so many years?
Jason Berg
Yes.
Ian Gilson
I wouldn't have thought it was worth more than $200 million but anyway, that's just a comment.
Operator
And this concludes our question-and-answer session for today. I'd like to turn the conference back over to management for any closing remarks.
Sebastien Reyes
Thank you, Steven. I'd like to thank everyone for your participation in today's call and your continued interest in AMERCO.
I look forward to speaking with you again probably the second week of August when we file our first quarter fiscal 2018 earnings. Thank you very much.
Operator
The conference has now concluded. Thank you for attending today's presentation.
You may now disconnect.