Textainer Group Holdings Ltd (TGH) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Textainer Group Holdings fourth-quarter and full-year 2010 earnings call. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Ernie Furtado. Please go ahead.

Thank you, and welcome to our fourth-quarter 2010 earnings conference call.

Joining me on this morning's call are John Maccarone, President and Chief Executive Officer; Phil Brewer, Executive Vice President; and Robert Pedersen, Executive Vice President.

Before I turn the call over to John, I would like to point out that this conference call contains forward-looking statements within the meaning of U.S. securities laws. These statements involve risks and uncertainties, are only predictions, and may differ materially from actual future events or results. It is possible that the Company's future financial performance may differ from expectations due to a variety of factors.

Any forward-looking statements made during this call are based on certain current assumptions and analyses made by the Company in light of its experience and current perception of historical trends, conditions, expected future developments, and other factors it currently believes are appropriate. Any such statements are not a guarantee of future performance, and actual results or developments may differ from those projected.

Finally, the Company's views, estimates, plans, and outlook as described within this call may change subsequent to this discussion. The Company is under no obligation to modify or update any or all of the statements that are made herein despite any subsequent changes that the Company may make in its views, estimates, plans, or outlooks for the future. For a discussion of such risks and uncertainties, see the risk factors included in the Company's annual report on Form 20-F for the year ended December 31, 2009, filed with the Securities and Exchange Commission on March 17, 2010.

I would also like to point out that during this call, we will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures will be provided either on this conference call or can be found in the Company's February 11, 2011, press release.

I would now like to turn the call over to John.

I'd like to start with slide three, and welcome everyone to our fourth-quarter and full-year 2010 earnings conference call. I'll begin today's call by reviewing Textainer's fourth-quarter and full-year highlights, as well as the current market overview and strategic focus. I'll then turn the call over to Ernie to discuss our financials and quarterly dividends, before we open up the call for questions.

Turning to slide four, simply stated, 2010 was the best year in Textainer's 31-year history by every measure that we track. Net income, excluding unrealized gains and losses on interest-rate swaps, was $35.7 million in the fourth quarter, or $0.72 a share, and $123.5 million, or $2.50 per fully diluted common share, for the year.

Based on our results, Textainer's Board declared a fourth-quarter 2010 dividend of $0.29 per share, which was an increase of 7.4% from our previous-quarter payout. Since our IPO in October 2007, we have increased our quarterly payout a total of seven times, including each of the past four quarters, and declared cumulative dividends of $3.29 per share.

Utilization averaged 98% for the fourth quarter and 95.4% for the year, compared to 86.4% in the fourth quarter of 2009 and 87.2% for the full year of 2009.

We purchased 214,000 TEU of new containers at a cost of $503.7 million, the highest CapEx in Company history. We also bought 40,000 TEU of containers that we were managing for a third party. As we often note, owning containers is considerably more profitable than managing them, although managing has many benefits. We now own 51% of our total fleet, compared to 45% at the end of 2009.

As previously mentioned, we increased the size of our main credit facility from $475 million to $750 million, extended it for two years, and added five new banks to our lending group.

Next, on slide five, some comments about the market outlook. According to Nomura International and other industry sources, new container production is forecast to be about 3.5 million TEU in 2011, which would be a 46% increase from 2010. Older containers, which would normally have been retired last year, are expected to be retired this year, requiring replacement of about 1.3 million TEU. Vessel capacity growth of about 6.8% and cargo volume growth of about 9.7%, forecasted by Clarkson Research, will require another 2.2 million TEU, according to Nomura.

Similar to 2010, lessors will be major suppliers in 2011, with about a 60% market share as forecasted by Credit Suisse. New container prices continue to increase, due to higher steel prices, labor costs in China, and the appreciation of the Chinese currency, as well as strong demand. We expect used container prices to remain strong, and finally, we expect utilization to remain in the high 90% range, based on positive industry fundamentals.

Moving to slide six, we provide an overview of our strategic focus on increasing net income. Several analysts feel that there is no additional earnings upside through utilization. Since utilization averaged 95.4% in 2010, if we can maintain a 97% to 98% average utilization in 2011, that represents a nice boost to earnings, since 1% utilization annualized is about $4.5 million of pretax income for Textainer.

Fleet growth will be the main driver this year. Following last year's record $503.7 million in CapEx, our budget is larger in 2011. Furthermore, the Board has indicated a willingness to increase the CapEx budget as long as there is profitable business available. We are off to a great start with orders for 94,000 TEU for delivery through April.

We expect to increase our reefer purchases significantly in 2011. In fact, we've already ordered 5,200 TEU of new reefers for delivery through May, compared to 6,800 TEU of reefers that we purchased in all of 2010.

Unlike some of our competitors who own most or all of their container fleet, Textainer currently owns 51% of the fleet, so we are replacing managed containers as they are retired with owned containers.

And finally, we continue to search for other accretive transactions, including buying containers we currently manage, as we did in 2009 and 2010, acquisition of competitors, as we did in 2009, and used container purchase leaseback and trading deals.

Now I'll turn the call over to Ernie.

Thank you. Turning to slide seven, I'd like to take this opportunity to review our financial performance for the fourth quarter and the full year.

Total revenue for the fourth quarter of 2010 was $84 million, an increase of 25% from $67.3 million in the prior-year period. For the full year, total revenue was $303.9 million, compared to $239 million for the prior-year comparable period, an increase of 27%.

Net income, excluding unrealized losses on interest-rate swaps, net, was $35.7 million for the fourth quarter, which was an increase of $13.6 million, or 61%, compared to $22.1 million for the fourth quarter -- for the prior-year quarter. Net income, excluding unrealized losses on interest-rate swaps, net, for the full year was $123.5 million, an increase of $41.9 million, or 51%, compared to $81.6 million for the prior-year comparable period.

Please note that in 2009, it included a net gain of almost $16 million on the early extinguishment of debt, so excluding that from last year's results, we had an 88% increase in net income, excluding unrealized losses on interest-rate swaps, net, for the full year.

Income from operations for the fourth quarter was $50.5 million, which is a 74% increase over the prior-year quarter. Income from operations for the full year was $171.8 million, which is a 64% increase over the prior-year period.

Utilization has been above 98% since June 2010, and this has been the most significant factor contributing to the improved results. Utilization for the fourth-quarter 2010 averaged 98%, compared to 86.4% in the fourth-quarter 2009. Utilization for the full year averaged 95.4%, compared to 87.2% for the prior year. The increasing utilization, along with an increase in the size of the owned container fleet, contributed to an increase in lease rental income of 34% in the fourth quarter compared to prior-year quarter and 24% for the prior year.

One of our goals has been to increase the size of our own container fleet, which we've been able to accomplish through the purchase of new containers, as well as used containers that were already under management. During the fourth-quarter 2010, we purchased 40,000 TEU that were under management and added them to our own fleet.

The owned container fleet was 1,177,000 TEU as of December 31, 2010, which represents a 16% increase compared to December 31, 2009. The portion of the total fleet that was owned by Textainer as of December 31, 2010, was 51%, compared to 45% as of December 31, 2009.

Management fees increased 23% in the fourth quarter compared to the prior-year period, due to improved fleet performance. Management fees for the full year increased by 15%, primarily due to a full year of management fees from the Amficon and Capital Intermodal fleets in 2010, compared to a partial year in 2009, as well as improved fleet performance.

Gains on sales of containers for the fourth quarter increased by $2.3 million, or 58%, primarily due to an increase in the average proceeds per unit, offset by a decrease in the number of units sold compared to the prior-year period. Gains on the sale of containers for the full year increased by $15.5 million, or 128%, due to an increase in used container prices and a $5.9 million increase in the amount of gains on sale type leases, partially offset by a decrease in the number of containers sold compared to the prior year.

Despite the increase in the size of the owned container fleet, direct container expenses declined by 64% for the fourth quarter compared to the prior-year quarter and 35% in 2010 compared to 2009. This was primarily the result of decreased storage expense as utilization has increased.

Depreciation expense increased for both the fourth quarter and the full year due to the increased fleet size. Bad debt expense decreased by $3.2 million in 2010, compared to 2009, due to collections on accounts that had previously been included in the allowance for doubtful accounts and our assessment that the financial conditions of our lessees and their ability to make required payments has improved.

EBITDA for the fourth-quarter 2010 was $65.3 million, $23.6 million higher than the prior-year quarter. EBITDA for the full year was $219 million, $50.3 million higher than the prior year, which included a $19.4 million gain on early extinguishment of debt.

Moving to slide eight, you will see we have maintained a strong balance sheet during the third -- fourth quarter of 2010. Of note, as of December 31, 2010, our cash position was $57 million, total assets were $1.7 billion, and leverage remains an attractive ratio of 1.3 to 1 debt to equity.

Turning to slide nine, based on our strong financial results, significant contract coverage, and industry outlook, Textainer's dividend for the fourth quarter will increase by $0.02 per share, or $0.74, to $0.29 per share, which will be our fourth consecutive quarterly increase. Since going public in October 2007, we increased our quarterly payout a total of seven times and declared a cumulative dividend of $3.29 per share.

Our fourth-quarter 2010 dividend represents 39% of net income, excluding unrealized losses on interest-rate swaps, net, for the three months ended December 31, 2010. Dividends have averaged 46% of net income, excluding unrealized gains or losses on interest-rate swaps, net, since the IPO, enabling the Company to retain capital for growth. We have paid dividends for 21 consecutive years, and it's an important part of the total return that Textainer provides to its shareholders.

That concludes our opening remarks. I would now like to open the call for questions.

(Operator Instructions). Gregory Lewis, Credit Suisse.

John, you mentioned that year to date, Textainer's ordered about 94,000 TEU through delivery into April. Do you have any sense, as 2011 -- as the orders for 2011 have unfolded, roughly how much ordering has happened thus far? I mean, I saw that you made a projection estimate of about 3.5 million TEU.

Yes, Greg. We had -- from our marketing intelligence, we have seen some projections for January and February orders, and I don't have that report in front of me, but I think that the total for January and February was somewhere north of 350,000 TEU. And that consisted of about 60% to 65% leasing company, and the remainder, shipping lines.

Okay, great. And then, just so -- I mean, as we are into February right now, is it still like a two- to three-month lead time, so if Textainer were to order more boxes today, they'd be taking delivery of those in May?

I'll let Robert comment on that. Robert?

That's correct, Greg. You can probably pick up a couple of open slots in between, but if you wanted to place a significant order, you would be talking about May now.

Okay, great, and then I'll just ask one other question. Ernie, when you think about the fleet value from a book perspective, given where steel prices are, given where the market is, is it possible that we could see Textainer sort of write off its existing box fleet in the next, say, one to two quarters? Is that something that you're thinking about doing, or is that something that you might not be comfortable with until maybe the year unfolds?

By writing off, you mean changing our depreciation policy?

Yes.

Yes, that's certainly something that we'll be looking at this year. As we do periodically, we've changed it -- a couple of times. I think the most recent was in 2009 where we believe there was a -- what appeared to be a permanent increase in residual values, or maybe 2008. So, yes, we will be looking at that again.

And just sort of to follow up on that, do you sort of have a sense for maybe where you are -- the value of your fleet is, versus where, potentially, if you were to mark to market today, do you sort of have a sense of the magnitude that that write-off could be? Or is it too early to tell?

It's too early to tell. If you look at the gains on sales we're reporting, you can see that it's quite a large number, which would indicate that, just based on today's sales prices, there is quite a bit of depreciation that's being taken that's in excess of what we are selling containers for.

Bob Napoli, Piper Jaffray & Co..

Thank you and good morning. Nice job. A question on the purchases for the year. Just your outlook and thoughts. How much is considerably higher? I think last year, you guys as a percentage of the purchases in the industry were maybe a little bit less than your industry market share. Maybe not, but are you looking for -- is -- I don't know if you could quantify, given a $3.5 million -- 3.5 million TEU manufacturing -- TEUs manufactured, what your share you think you would look to maintain.

When we made up our budget, Bob, which is typically about September when we make the budget, container prices were significantly lower than they are today.

So, if I looked at the budgeted number of CEU today, it would require a lot more money to buy that same number. So I think if we were to buy what we budgeted at today's prices, we would probably be looking at somewhere in the neighborhood of $700 million of CapEx. I don't know if that answers your question or not.

And that excludes reefers?

No, that includes reefers.

Okay, that's helpful. As far as the information on the private-equity firms buying Triton, what are your -- I think it was suggested in an earlier industry call that maybe the [writer] didn't have the right valuation. Is -- I think maybe just some thoughts about kind of the valuation, if you guys were looking -- I know you guys certainly look at M&A opportunities, and what do you think is -- you've had now two separate significant players being acquired by private equity. I guess that Triton isn't -- obviously isn't done yet. Do you think -- is that a concern or does it -- do you think that means Triton will be more rational in the future?

Let me just preface it by saying that we think Triton has always been rational. They are an excellent company, and we actually consider them our toughest competitor. So, I don't think that's going to change.

As far as the -- what's been happening in Kronos, and now Triton if that deal goes through, I think actually it's good because it's potentially going to put more container leasing companies in as public companies. There will be more exposure in the market. People will understand better what it is that we do. So, I see this as positive. Phil, do you have any thoughts on that?

I agree with you, John.

Any thoughts on the valuation -- that was paid? Do you think --

Well, Bob, I think you know that Triton was -- the sale of Triton was only open to financial buyers, not strategic buyers. So, we were not given the opportunity to look at Triton, and therefore we don't really know, other than what we read in the Financial Times and The Wall Street Journal, although we do think that The Wall Street Journal article was not accurate, but there is a Financial Times article that I can send you later on if you don't have it that seemed to be a little bit more accurate.

Okay. Your fleet mix right, now 51% owned. Is that -- what kind of target mix would you look for? Obviously, it's a lot more profitable to own, but it is lower return. On equity, if you will -- ROE (multiple speakers)

Well, yes, true, but we look more at how many dollars hit the bottom line. And it is significantly more profitable.

We don't have a specific target. In other words, we're not trying to get to 55% or 60% by the end of the year. But we are interested in buying as many new containers as we can profitably put on lease, and whatever that number comes out to be at the end of the year, I think it will be a significant increase from the 51% we're at right now. I'm hoping it will be.

And my last question, what is -- things obviously -- for this industry, you're going extremely well. What can go wrong from here? What do you see as -- what is your biggest concern that you see in the market? Is it just pure economic? Is it -- do you think -- are you concerned about the manufacturers or new players coming into the market -- on the container leasing side with more aggressive pricing? What is -- what could derail the trends that we've been seeing?

Well, in my mind, and some of the others might have a different opinion, but in my mind, what we're watching very carefully is to see how well the shipping lines maintain the discipline of not adding too much vessel capacity to the system, thereby driving down freight rates and creating some of the problem that they had in 2009.

So far they seem to be doing a good job of that, and so, at this point I'm not particularly worried about new container leasing companies coming in. If anything, I think we're going to see the consolidation continue to be a trend. So, yes, anybody else have any thoughts about what could go wrong?

Well, I think that, unlike last year where every container was produced went on hire immediately, that does not seem to be the pattern this year. The shipping lines are booking ahead, and the build-up periods are stretched somewhat compared to what we saw in the past. So, we obviously need to keep some discipline in not allowing the build-up at the factories to be too great before we can convert those bookings into on hires.

Justin Yagerman, Deutsche Bank.

So if I read between the lines, Robert, it sounds like utilization, while at a high 90s rate, probably decelerates a little bit from here if you are getting some time lag between lease-outs and -- between the demand from a production standpoint and the lease-out period here? Is that what's going on? Just wanted to see where in the high 90s guidance you guys expect 2011 to fall out on a relative basis.

We think the more important number is what actually happened to the containers we already have in play out there, and utilization is incredibly high, and we actually forecast that it will continue to be so throughout the year.

Our in-fleet containers are still relatively inexpensive for a shipping line to book, compared to the booking new containers on the long-term lease rates at rates that correspond to the higher purchasing prices. So, when we look at that, that is the more important parameter, and there we expect utilization to remain absolutely on top.

So the high per diem that you reached on the assets last year, that should be a boost because you're getting the full-year impact of that utilization. Is that [being] right?

Well, it's a combination. The new containers that we bought last year and that we're buying this year are significantly more expensive than, as you know, the five- or six-, seven-, eight-year long-term lease rates as a function of the price of the container, the interest rates, and the profit margin.

But I believe that, you recall, Justin, that we don't count new containers at the factory waiting to go on lease in the utilization, similar to, I think, all of our competitors. So, even if we have containers at the factory that have been booked but not physically picked up, they are not in the numbers that we quote. So, that -- as far as the in-fleet utilization, that remains high.

The few containers that are being returned now are primarily very old containers that go almost immediately into the secondhand market. So, we're not seeing -- the new containers don't count in utilization. The ones that have been put into disposal status don't count. So the core or operating-fleet utilization continues week after week to remain about 98.8%, 98.9%, 98.7%. That's been very consistent. We haven't seen any change to that pattern for quite some time.

That's impressive. When I think about, John, per-diem rates this year, you guys were in the fortunate position last year of seeing, I think, some of your renewals that took place actually renew at higher per-diems than the leases that they had come off, which should be beneficial from a tailwind standpoint this year. With industry capacity still building, you guys talked about higher CapEx and most of your competitors are, too, do you think that that's a phenomenon that can continue this year because of demand being as strong as it is?

Well, Robert, you want to address that?

Certainly the container prices and the high utilization will support us going out asking for rate increases for expiring long-term leases or mock lease and very short-term lease products. With the fundamentals the way they are, we're going to be pushing on -- from all angles.

Maybe one for Phil. Have the liners as their boxes begin to age out a bit here, have they been looking to you guys for increased trading opportunities in terms of selling them so that you can trade them into the secondhand market? I know that that in the past has been a really big business for you guys, and you are probably the best at it. Is that something you see ramping up as that fleet ages out a bit?

Yes, we do. Last year, many of the containers we were selling in the -- that were purchase-leaseback and trading containers were containers that we actually acquired from transactions entered into in the previous year, and our supply of purchase-leaseback and trading containers was dwindling because there simply wasn't much coming into the market. So far this year, we've already received opportunities to bid on several transactions, and I expect that to continue to accelerate as we go into the year.

That makes a lot of sense. That should hopefully be a nice tail wind for you guys.

The last question -- you touched on the private-equity large-scale acquisitions that have taken place in the industry, or rumored now to be taking place. Any thoughts on acquisitions at Textainer? Are you guys looking at one-off sale-leasebacks any more? Are you looking at larger scale, albeit not as big as a Triton but maybe something in the number 20 or down type of range, in terms of ability to acquire? I know that there is a huge scale advantage in terms of layering that kind of an acquisition for you guys.

Yes, we are always looking at trading deals, purchase-leaseback of in-fleet containers, buying containers that we manage, and we did a very nice transaction toward the end of last year for a 40,000 TEU that we were managing, and acquisitions. It's a constant search, Justin.

So all I can say is that, while I don't have any specific thing I can tell you about, we are constantly looking at each of those areas because they tend to be immediately accretive, every one of those types of opportunities.

Fair enough. Thanks, guys, for your time. Much appreciated.

Michael Webber, Wells Fargo Securities.

I just wanted to kind of jump back to utilization, and John, you talked about this a little bit, but maybe you can get maybe a little bit more specific in terms of how utilization actually trended throughout Q4, and then maybe through Q1, either on maybe a month-by-month, or maybe in Q1, a week-by-week basis.

It hasn't -- just looking at year to date this year, I don't think it's changed at all. I think it's been 98.8% every week (multiple speakers)

It's been within 0.1% all year.

Yes, within 0.1 of 1%, and that is pretty much for the reasons that I just mentioned it to Justin, like, is that -- the new containers -- we're buying a lot of new containers, but the new containers sitting at the factory are not in that number, and the [turn ends], the few redeliveries that we're getting are, I would say, a very high percentage of those are 13-, 14-year-old containers that go right into the resale division, and they get taken out of utilization.

And that's one of the reasons that we've seen this steady state. Going back to the fourth quarter of last year, it was more of the same good news. It was pretty much 98.8%, 98.9% for the whole fourth quarter.

Right, okay, so it's been flat Okay.

Flat but high.

No, no, no, flat but high. That's a good problem to have.

Jumping back to, I guess, the earlier question on your 2011 CapEx, you mentioned you did a little bit more than $500 million last year, and you think you can significantly beat that in 2011. How much of that, without -- I know you can't get too specific, but how much of that is just going to be actual increase in capacity or maybe an increase in boxes year over year, versus just the inflation on the assets? You kind of touched on that earlier, but maybe just a little bit different way to look at it. Just from a pure capacity standpoint, from a pure box standpoint, do you think we'll see an actual increase in added capacity this year over last year, or do you think it will be about the same?

No, I think it's going to be a significant increase because -- two reasons.

One is that the resale, or the return, numbers are running at a very low annualized basis. I don't know if they will stay at that level, but I can tell you the annualized retirement right now is at a run rate of about 40,000 units, which is way below the 77,000 units that we sold in 2010 and even way below the 101,000 that we sold in 2009. So, if this trend continues, more of the new additions will result in an overall size of the fleet growing.

The other important thing to keep in mind is that for every 10 containers that retire from the fleet right now, five of them were managed containers. But for every 10 replacement containers, nine of them are owned containers. So, even if the total size of the fleet didn't increase, which I believe it will increase, but even if it didn't, we are adding significantly more topline and bottom-line revenue with the same fleet size because we own more containers.

So, we have two ways we are going to be growing, more ownership and absolutely bigger size of the fleet.

Yes, your mix is becoming more profitable. That's interesting.

Correct.

I guess one more company-specific question. You mentioned that current debt to equity ratio at about 1.3 to 1 and you spent a lot of time talking about the CapEx. Where are you comfortable taking that ratio without additional kind of reconfiguration of the balance sheet?

We are so far from any Board covenants or Board guidelines or bank covenants currently that increasing our leverage isn't a real concern. We certainly feel that we would be comfortably leveraged in the 2.5 to 3 times range. However, we haven't been leveraged at that level for many, many, many years.

Right. That's helpful just to have a range there.

And then, I guess, finally, just kind of a more of an industrywide question. You mentioned two-thirds of container production last year with purchase from lessors. And the number you threw out of 3.5 million boxes is about 1 million boxes up from -- on a year-over-year basis. How do you think that mix changes this year versus last year? Do you think it stays around 66%? And if it comes down a little bit, where do you really see kind of the new normal being between the lines and the lessors like yourselves?

I'm going to quote my friend Greg Lewis of Credit Suisse. He's forecasting 60% lessor share this year. I think that's a very good number.

Then, if you go much beyond that, I can't really say whether we'll ever go back to the period of 2004 through 2008 where credit was so easy that the shipping lines were buying 65% of all the new containers. I would see maybe gradually getting down to a 50-50 mix over a three-, four-, five-year period and maybe staying at that level, but again, I'm just speculating like anyone else would at this point.

Fair enough. That's helpful. Thanks a lot for the time, guys.

Sameer Gokhale, KBW.

I think at this point, most of my questions have been addressed. But just a couple of quick ones. In terms of your liquidity, I know your press release said that you have current liquidity of $292 million with a $1 billion in total credit facilities, but I just want to reconcile that to the increase in your revolving credit facility, along with the available cash. I mean, that number seems closer to $700 million. So, are you just talking about based on the existing collateral, how much liquidity you have access to, and you have a much higher number that you could go to with additional purchases? But can you just help us think about how much access to liquidity you have with your current credit facilities?

Right now, we are looking to increase our existing warehouse facility, exercising and [coring] it, taking it from $750 million to $850 million. The liquidity that was mentioned earlier was based on keeping the warehouse at its current size, not based on simply looking at the total assets that we have to borrow against, but what we've been borrowing against relative to the size of the lending facilities.

We also are anticipating refinancing some, all, of the warehouse line in the term market in the coming months.

Okay, so as of now, you have access -- the current liquidity is $292 million, but then you look to actually get additional funding in the term market. But as of now, it's $292 million of liquidity you could use to purchase containers.

Yes, that's correct. But again, we're increasing the size of one of our facilities. We're in the process of doing that right now, and we expect that to happen in the near term. That would increase that number by $100 million.

Prior to doing the term deal, which would then open up a significant amount of additional liquidity.

Okay, and then, just in terms of your depreciation expense for the quarter, it was a little bit higher, or actually quite a bit higher than we had modeled it, and I'm assuming that's a function of just the layering effect of your purchasing coming in over the course of a year and the higher box prices working their way through the depreciation expense. Is that pretty much it, or did you have any other sort of adjustment to the depreciation expense in the fourth quarter?

Yes, that's correct. It just reflects the additional containers we've purchased. There are no adjustments of any kind.

Terrific. That's all I had. Thanks a lot, guys.

Derek Rabe, Morgan Keegan.

Congrats on the year. I just wanted to spend a little bit of time, real quick, looking at your dividend. So, we've seen some nice increases over the last several quarters. That kind of puts you in that 40% of payout ratio range.

Looking out, as you invest more in your business or look to kind of conserve capital to potentially acquire fleets or purchase back the managed equipment or that kind of thing, should we be looking at more of a low to mid 40% range as a target ratio, or is that 50% target still intact? Just kind of walk me through how we should think about that.

I think our goal is to increase it at a steady rate. It hasn't been keeping up with the pace of earnings growth, but I think over the long term we've paid out about 50%. I think we'll eventually return there, but we're just increasing it at a more steady pace at this point. But I think 50% over the long term is probably kind of where we are headed.

Okay. That's helpful. And then, when we look at the 40,000 TEU that you guys purchased, can you just remind me when you guys did that? When it was in the fourth quarter, and then how we should think about management fee income looking out into 2011, relative to Q4 levels, considering this purchase?

That transaction was effective November 1. So, we are -- the management fees will just tend to decline gradually over time because we are not adding managed containers, except for a small amount. So, it's just -- although the performance we expect to remain high, the fleet is shrinking over time.

And then, one last one, just a housekeeping. What were your gains on lost military equipment in the quarter?

Well, you may have noticed we no longer report that as a separate line item. It's just included in regular gain on sale because it's become a de minimus amount, so it's a very small number now.

Perfect. Thanks for the time, guys.

Sal Vitale, Sterne, Agee.

It's actually Kanchana Pinnapureddy in for Sal Vitale. Just a quick question. Do you guys plan to make any revisions to your residual value assumptions?

Yes, we addressed that earlier on the call. And we will be looking at that later this year.

We need to take a long-term view. If you can't base it strictly on just what you're selling containers for today, which is largely a function of the shortage in containers in the world, and that's why prices are so high, but we need to take a longer-term view. But it's certainly plenty of support based on the -- both the sale prices and the prices of new containers that would most likely support an increase in residual values.

And then, are you seeing any change in the willingness of your customers to increase their purchase of new boxes?

I would say yes. On the specific shipping lines, they are being more active right now, purchasing containers as well as banks are being a little bit more willing to open up credit lines for them.

Could you update us on what percent of your own leases will be renewed in 2011 and 2012?

Yes, it's about 10%. It's in our -- we have an updated investor presentation, which should be on our website right after this meeting. And in that one, we update a lot of the figures, including the rollovers for 2011.

Got it. Thank you very much.

Daniel Furtado, Jefferies & Company.

Thanks for the time, guys, but all my questions have been answered. Good job on the quarter.

I'm showing no further questions at this time.

All right. Then we'd just like to thank all the participants, and we look forward to talking to you again next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the conference, and you may now disconnect. Everyone, have a wonderful day.