Textainer Group Holdings Ltd (TGH) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Textainer Group Holdings Limited fourth-quarter earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, today's conference call is being recorded.

I would now like to turn the call over to Mr. Hilliard Terry, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Ali, and welcome to our 2011 fourth-quarter and full-year earnings conference call. I'm excited to join the Textainer team and participate on my first earnings call with the Company. Joining me this morning on the call are Phil Brewer, TGH President and Chief Executive Officer; Robert Pedersen, TEM President and Chief Executive Officer; and Ernie Furtado, Senior Vice President and Chief Accounting and Compliance Officer.

Before I turn the call over to Phil, I would like to point out that this conference call contains forward-looking statements in accordance with US securities laws. These statements involve risk and uncertainties, are only predictions and may differ materially from actual future events or results.

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.

Please see the Company's annual report on Form 20-F for the year ended December 31, 2010, filed with the Securities and Exchange Commission on March 8, 2011, and the Form 6-Ks the Company files quarterly with the SEC for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.

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

Now I would like to turn the call over to Phil.

Thank you, Hilliard. I couldn't be more excited about the year we just finished and the opportunities for Textainer that lay ahead. By every meaningful measure of performance, 2011 was the best year in Textainer's history. We set new records for revenues, profitability, fleet size, percentages of fleet subject to term and finance leases, utilization, capital expenditures and dividends.

Starting on slide 4, revenues of $422.8 million, an increase of 39% over 2010. Total lease billing on owned and managed fleets of almost $600 million in 2011. Net income attributable to common shareholders of $189.6 million, or $3.80 per diluted common share, an increase of 56% over 2010. A container fleet consisting of 2.5 million TEU, an increase of 7% over 2010. If containers ordered thus far in 2012 are included, our fleet now exceeds 2.5 million TEU.

78% of our fleet under long-term and direct finance lease compared to 73% at the end of 2010. Long-term leases reduced utilization volatility and provide greater revenue stability adding value for our shareholders. 59% of our fleet owned compared to 51% one year earlier. We have a goal to increase the percentage of the fleet which we own. Owned assets earned Textainer considerably more income per TEU than containers that we manage.

Average fleet utilization of 98.3% for the full year, an increase of 2.9 percentage points over 2010, which was our previous best year. Utilization exceeded 98% for nine months of the year. Due to having more than 78% of our containers on term or finance leases and a continuing demand for Depot inventory, utilization declined only 1.4 percentage points from its peak in July to the end of the year and now stands at 97%.

It is worth noting that due to the very high level of utilization, few of our containers were returned from lease last year. As a result, we disposed of only 42,000 containers from our fleet, less than half the number sold in 2009.

Total capital expenditures for both our owned and managed fleets of $904 million, an increase of more than $350 million compared to 2010. We purchased 215,000 TEU of new standard dry freight containers and 18,000 TEU of new refrigerated containers. We also purchased 250,000 TEU of used containers, the majority from our managed fleet.

While purchases of manage containers do not increase our fleet size, they do contribute to earnings given the increased return generated by owned containers.

We just declared a dividend of $0.37 per share, a 5.7% increase from the prior quarter. Since our initial public offering in October 2007, we have maintained a stable or increasing dividend. This is our eighth consecutive quarterly increase and 11th overall increase since our IPO. Dividends have averaged 43% of adjusted net income since the IPO enabling the Company to retain capital for growth and provide a consistent payout to our shareholders.

More than half of new container production in 2011 was purchased by leasing companies, continuing the reversal started in 2010 of leasing companies purchasing more new containers than shipping lines. We expect this trend to continue for many reasons including number one, shipping lines which have not fully recovered from 2009 are suffering again from the poor freight-rate environment of the last half of 2011. To the extent that shipping lines need containers, the expectation is that they will be more inclined to lease than buy.

Two, trade is projected to grow 6% to 8% in 2012 compared to 2011. Three, many of the European banks that are among the primary lenders to the shipping industry are under pressure to meet capital ratios by, in part, restricting new lending. We understand they also are finding it difficult and/or expensive to borrow US dollars, all of which means shipping lines may find it more difficult to obtain bank financing.

Four, new container prices remain in the range of $2200 to $2300. Manufacturers are expected to press for additional price increases as the year progresses. Higher prices generally increase the preference of lines to lease.

Having said that, we cannot ignore several areas of concern, including the unsettled global economic environment and the losses being reported by many shipping lines due to excess vessel capacity and the current low level of freight rates.

On the positive side, some steps have been announced recently aimed at improving the financial performance of the shipping lines such as freight rate and bunker surcharges of $700 to $900 on the Asia Europe trade and $300 on the trans-Pacific trade. Additionally, the formation of new alliances are intended to improve efficiency and reduce excess capacity.

Taking all of these factors into account, we expect container utilization to remain at historically high levels and sales prices for older containers to be lower than 2011 but high relative to both book values and the average prices achieved over the last five years.

Turning to slide 5, we will continue to pursue our strategy of aggressive organic and strategic growth, increasing the percentage of owned containers and seeking purchase leasebacks and opportunities to purchase managed containers and fleet acquisitions.

We have already started the year with robust purchases of new containers. We have ordered 32,000 TEU of dry freight containers for delivery in early 2012. As was true during 2010 to 2011, we also expect that leasing companies will purchase more than 50% of all new container production.

During 2011, we dramatically grew our presence in the reefer industry, purchasing, we believe, more reefers than all but one other leasing company. We are continuing this rapid growth in 2012 having already ordered 5000 reefer containers or 10,000 TEU for delivery this year. I would like to note that the earnings release that we issued as well as the slides accompanying this presentations state 5000 TEU. I apologize for the error. It is 5000 units and 10,000 TEU of reefer containers that we have purchased and ordered for delivery this year.

Although we only reentered the reefer industry in 2008, we now have a young fleet of almost 44,000 TEU and believe we are viewed as one of the leaders in the industry. Overall, we believe these factors predict a strong year for container leasing companies and for Textainer.

I will now turn the call over to Hilliard.

Thank you, Phil. Turning to slide 6 and diving immediately into the numbers, you will see a summary of key financial performance highlights for the quarter and for the year. I will focus most of my comments on the quarter and conclude with general comments about the year.

Starting with the top line, we had total revenues of $116 million up 39% when compared to $84 million in the year ago quarter resulting in the highest revenue quarter in the Company's history. The quarter-over-quarter increase in revenues were driven primarily by a significant increase in lease rental income with a 28% increase in the size of our own container fleet and a 1.7% increase in average per diem rental rates.

We also saw an increase in the container trading activity with more shipping lines making units available for purchase by Textainer. We sold almost 10 times the number of trading units in the fourth quarter compared to last year's comparable quarter. The net gain in trading containers sold increased by 2.3 million to 2.5 million compared to the prior year quarter. The demand for containers has also created a shortage of supply in the used container market which has resulted in historically high prices for used containers as reflected in the fourth quarter's $7.9 million gain on sale of containers from our fleet.

As mentioned in the press release and similar to what we discussed during the conference call last quarter, an increase in the estimated residual values used to calculate the depreciation expense resulted in $4.8 million less depreciation expense in the quarter than would have been recorded under previous residual value estimates.

General and administrative expenses at $5.5 million for the quarter were down slightly year-over-year in spite of the 39% increase in our topline reflecting strong incremental leverage and the efficiency of our team.

Average bad debt expense for the quarter and full year was at 0.7% of revenue which is within the normal range of a 0.5% to 1% reflecting our continued prudent risk management processes.

Interest expense was $14.6 million for the quarter versus $6.7 million in the year-ago quarter. The increase was primarily due to the additional debt used to fund the expansion of our fleet.

We also reported a tax benefit in the fourth quarter due to our re-measurement of uncertain tax positions. Adjusted net income, which excludes unrealized gains and losses on interest rate swaps and other one-time items for the fourth quarter was $53 million which is 48% higher than the fourth quarter of 2010 and 7% higher sequentially.

As you can see, our fourth-quarter results marked the end to a great year for the Company and as Phil commented earlier, 2011 was the best year in Textainer's history by every meaningful measure, performance measure.

We continue to add significant quantities of new containers in keeping with our goal of owning a greater percentage of our total fleet. As Phil said, we now own 59% of our total fleet compared to 51% a year ago.

It is important to again point out that during the year we spent $904 million of CapEx on both our owned and managed fleet and in particular made opportunistic container purchases in Q4 which positioned us for a good start to the new year.

Moving to slide 7, you will see that we have maintained a strong balance sheet during the fourth quarter. As of December 31, 2011, our cash position was $75 million, our total assets were $2.3 billion, and our leverage ratio was 2.2 to 1. As you may recall, we issued $400 million of term debt earlier in the year. We will continue to opportunistically look to access the debt markets as we move through the year.

Turning to slide 8, based on these continuing strong results, we have increased our next dividend by 5.7% to $0.37 per share, which is our eighth consecutive quarterly increase and 11th overall increase since our October 2007 initial public offering.

Dividends have averaged 43% of adjusted net income since the IPO enabling the Company to retain capital for growth. We have paid dividends for 22 consecutive years and it's important -- it's an important part of the total return that Textainer provides for its shareholders.

Historically, Textainer has paid about 50% of adjusted net income and dividends but the Board takes a fresh view every quarter and sets the dividend subject to cash needs for opportunities that may be available to us.

In closing, I would just like to reiterate my excitement in joining the Textainer team and I look forward to meeting many of you as I hit the road to meet with investors in the coming months.

At this point, I would like to open up the call for questions. Ali, can you provide the appropriate instructions for Q&A?

(Operator Instructions). Justin Yagerman, Deutsche Bank.

Good morning. This is Josh Katzeff on for Justin. I just wanted to start off with kind of the CapEx spend so far in Q1. I guess it looks that it was a bit more weighted towards reefers and if you could maybe talk to dry box demand in Q1 and kind of maybe where you think it is going to be going in Q2? And also, can you provide dollar figures for the amounts that you purchased so far?

This is Robert here. I can certainly answer the questions in relation to the various quantities. I mean, we view ourselves being aggressive both in the dry container sector and the reefer sector. We have been active in 2012 placing orders, but our ordering process actually started in November/December 2011. And we bought considerable quantities of dry containers and reefers during that period as well. So we certainly -- we don't differentiate between the two. We try to maximize them both and believe that we have done so.

As to the outlook, actually the beginning of the year has been more active for new production than we had anticipated. That does not mean that we are going through the roof at this stage here, but certainly all our activity has been more promising than we could have hoped for. We are in the aftermath of Chinese New Year and there is a slowdown after Chinese New Year, and -- but we do expect the market to pick up again when we get into the second quarter.

This is Phil. I think you had asked what the total CapEx for the containers that are purchased so far this year, it is certainly in access of $150 million.

Got it. Thanks, and I guess with regard to yields for what you are seeing out in the market right now, can you maybe talk to how they are comparing year-over-year, or I guess maybe to count it towards peak season last year? I would assume that they are still up from the kind of trough in Q4?

I would say yields were probably better during the first half of 2011, but they are certainly no worse now than they were in the latter -- in the second half of 2011. And we see yields tightening as demand picks up heading into the second quarter.

Got it, and just one more question before I turn it over. I guess you guys have historically been pretty active in the secondhand market, and I guess I was a bit surprised to not see too much going on with portfolio acquisitions in Q4. Are you seeing more RFPs out there or more opportunities currently in the market? Are they coming more from the lessors, like the KGs or from the liners themselves?

Hi, this is Phil. I think there is a distinction here. Obviously we are always looking to acquire container fleets and fleets that we manage or other container fleets at any time. But it is a very opportunistic process so not having seen anything in the latter part of 2011 doesn't mean that we are not interested. We are certainly always looking.

As far as containers from the shipping lines, we have been buying trading containers and purchased leaseback containers from the lines last year as well as going into this year. We expect to see that business increase. There has been a shortage of containers sold into the trading market over the last few years. We expect that that number will increase as the shipping lines are looking to offload some of their older containers and that we are already seeing RFPs for purchase lease backs this year as some of the shipping lines are looking to raise CapEx.

Thank you for your time.

Gregory Lewis, Credit Suisse.

This is actually [Anthony Sebilier] for Greg this morning. Good morning, everyone. I just have a quick question. You mentioned that in the first half of 2011, the lessor share of new box purchases was about 50%. I didn't know -- I just want a clarification whether in the back half of 2011 that was consistent with purchases of 50%?

Just to clarify, I didn't say 50% but in excess of 50%. I am sure you know that historically the split has been 45% container leasing companies, 55% shipping lines and in fact in the mid 2000s that number -- those numbers were diverging and the shipping lines were buying an even higher percentage than that. But for the last few years we have seen a different trend where the container leasing companies are buying more than half of the container output.

So just to be clear, I didn't say 50% but more than 50%, and dry freight production pretty much stopped midway through last year. Reefer containers were continuing to be produced. Dry freight production only picked up at the very end of last year, and yes, we have seen that trend continue.

Okay, and then I guess, could you also talk about the customers that you manage containers for, their kind of an appetite for new purchases?

We are not aggressively seeking money from the parties that we manage containers for as we have been focused primarily on growing our own fleet. Having said that, we do have a few third-party owners for whom we continue to manage containers and invest some level of CapEx and we have seen every indication that they continue to be interested in investing in containers.

So, I guess -- are you kind of trying to shy away from that a little bit, or -- how should we think about the managed kind of fleet growing?

Well, we are not actively looking to add to the parties for whom we are --

(multiple speakers) okay.

Yes.

All right. Thank you, guys, for your time.

Michael Webber, Wells Fargo.

Hey, good morning, guys. How are you? Phil, I wanted to just jump back to comments earlier on what you guys CapEx has been year to date. Do you think -- you threw out $150 million and just kind of quickly breaking it down, it looks like the spend looked like it was 50-50 between dry and reefer. Surely there is some seasonality in that. How should we think about that going forward? I know you guys kind of -- you don't have to give nominal guidance which is understandable but in terms of that mix, how should we think about that going forward?

I think you should probably be looking at one third of our CapEx being reefers.

Okay. And where are those lead times? I know for a long time those leads have been out pretty far, kind of been into the mid-Q1 timeframe. Are you still seeing a lot of pretty long lead times in terms of getting new reefer boxes in?

Yes, I would say there is at least a three-month lead time right now.

Got you. And then, Phil, I think in your opening comments, I believe you said you still have new box pricing holding in at about $2200 to $2300, if memory serves with an expectation you could see that -- it could inch higher over the course of the year.

One, I guess looking at the deals you're doing right now, where do you think the next incremental pricing point would be for new boxes? Do you think it is towards the lower end of that $2200 to $2300?

And then I guess can you talk a little bit about what sort of mechanisms would drive higher pricing given that steel prices are still -- seem to be relatively -- still seem relatively new to -- relative to where they were I guess at the midpoint of last year?.

Well, just like shipping lines are pretty determined to raise freight rates, I think the container manufacturers are pretty determined to increase their prices for dry boxes. And we have certainly seen an upward pressure on prices, after Chinese New Year.

So you've seen an uptick in pricing post Chinese New Year but you are still within that $2200 to $2300 band?

Right now, we would, yes.

Okay. I guess touching on utilization, I know you touched on this in your prepared comments. Can you give an idea about how that has trended throughout the quarter?

Our utilization decline has been less than we had expected, to be honest. We are pretty fortunate in as much as the shipping lines have generally going through fleet renewal programs, or planned fleet renewals and the containers we are getting back are predominantly older boxes so they don't actually hurt utilization that much in as much as they end up being disposals. So we haven't seen any -- we have seen a very small week by week decline but nothing that stands out at all, Mike.

I think there is one other point worth keeping in mind is that the containers generally that are coming up for renewal off term leases at this point in time were purchased at prices that are below today's container price levels. And so the per diem rates on those containers tend to be lower than if you were to replace them with a newer container and we believe that some of the shipping lines have been reluctant to return some of the containers knowing that should they then need to go back and pick up additional containers a month or two from now, that the per diem rates would likely be higher.

Got you. All right, that's makes sense. I know you guys for a while kind of threw out a number in terms of operating income driven by 100 basis points change in utilization. I guess it seems at this point in the cycle maybe that that incremental -- that delta on operating income might be a little bit smaller just given the quality of boxes that are coming back. Is that pretty accurate?

No, that number is mainly driven by the size of our fleet. So I think that number is still a good metric.

Okay, all right. Fair enough. I guess one more question and I will turn it over but just in general, can you talk a little bit about where your dry powder is now? And obviously you guys have been super active in the ABS market historically. Are you still thinking about funding yourselves the same way. Any change at all in terms of new avenues of financing or can you just maybe a little bit of color there?

This is Hilliard. I think you will see us do more of the same. As I said earlier, we are going to opportunistically look to access the markets as we move through the year.

Where's your dry powder today?

Right now we feel very comfortable where we are, and I think that is probably -- we will leave it at that.

All right, all right. Fair enough. Thanks a lot for the time, guys. I appreciate it.

John Stilmar, SunTrust.

Yes, good morning, gentlemen. Nice quarter. Real quickly, as you talked about lease utilization and actually, it was a little bit of a surprise to me in which you talk to utilization is actually going to be higher in the second quarter. Can you talk to me about how you see that unfolding then for the rest of the year? And what really that driver is? Is that because you have already contracted lease rates when they are going to be coming on in the second quarter and you are continuing to have the same trends like you talked about with shipping companies holding onto their boxes longer.

I was wondering if you could kind of take me through the ins and outs of that comment? And then a couple follow-ups after that.

Let me make sure I understand what your question is. Are you asking about the trend in utilization over the course of 2011 -- I mean, I'm sorry, 2012? (multiple speakers)

You made the comment -- I think you made the comment that you expected that utilization may start to improve in the second quarter of '12 and I was just curious in your press release, I was just curious if you could take me through the comment a little bit more about how that utilization rate is actually going to continue to improve and what the driver is of that continual efficiency of your balance sheet?

Well, it is -- traditionally the cargo movement in the second quarter do rise above the first quarter, so that's more or less year after year. When you get to the end April, May, you see more cargo being shipped. Many shipping lines have been sitting on the sideline right now.

Slot utilization has not been in the 90% range, so they have able to move their empties back to their demand location. So they are pretty well prepared for the shorter-term but eventually as slot utilization increase -- improves and loadings improve, those inventory levels will diminish and spot requirements will occur. Also as we believe new building prices are going to firm up, it enables us to price our in fleet inventory competitively to that which means we can stimulate utilization in that fashion.

Okay. That is actually a very helpful answer. And then just with regards to leveraging capital markets access, you alluded to potentially being opportunistic. Can you talk to me about the current condition of capital markets for your business? Clearly the European banks have transitioned out of a lot of global assets and demand to finances assets. How would you characterize the depths of liquidity and the pricing of that liquidity and your market relative to what we had in 2011? Thank you.

Well, we've recently attended the ASF conference in Las Vegas probably about a month ago. And I would say it seemed as though the markets are good today. For us in particular, there are a lot of existing investors that we met with but more interestingly, we met with a lot of potentially new investors or investors who are very interested in the container market in particular. They call it the esoteric product. But nevertheless they are very interested in understanding and learning more about the market.

So as far as we can see, obviously, I am sure your debt capital markets folks have a lot more insight into this but from what we can see, the markets seem pretty good today.

Great, thank you.

Helane Becker, Dahlman Rose.

Thanks very much, operator. Thanks, gentlemen, for taking my question. So just a couple of things here. How should we think about your bad debt expense going forward? Do you think it is stable at this point in time or should we look for adjustments there?

I think, as you can see or at least what I try to note is that it is really in line with what I would describe as the normal range that it's in. I think we are at 7% both for the year and for the quarter. And I would say kind of that normal range is within 0.5% to 1%. In some of our investor presentations that are on the website, you will see sort of where our bad debt expense got in the worst kind of scenarios or what have you but I don't think we are anywhere close to that today.

Helane, this is Phil. I would just add that our average days outstanding has not increased dramatically over the course of the year. We did see a slight increase towards the very end of the year. We have had some of our shipping line customers approach us and talk about their current situations, but frankly, we haven't seen anything dramatic and this is -- for those of you who may be expecting otherwise, this is nothing like 2009, not even close.

Okay, that's certainly good to know. And then my next question is, we estimate that your year-end market share in reefers is about 6% up from about 4% at the end of the year. Do you have just a number in mind about where you want that share to go or I think in response to a question earlier, the answer was about a third CapEx to be in reefers. Should we think about that as the investment rate going forward?

Well, the investment percentage is not fixed. Of course, it is completely opportunity driven and if there are greater opportunities, we will buy more. If the opportunity is not there, we won't. You know, our biggest competitors in the reefer sector have 18% to 20% market share while we don't have a specific goal in percentage terms, we see no reason why we shouldn't try to approach those numbers as well.

Okay, okay, so would you do it all organically or are there opportunities to acquire additional capacity in the marketplace?

Well, let me put it this way. We see certain advantages to having a very young reefer fleet. I think that has proven beneficial to us and it would have to be quite an attractive opportunity for us to look at an acquisition. But certainly, anyone who knows Textainer knows that in the past we have looked at opportunities to acquire other fleets and we would consider that but the opportunity would have to be very attractive.

Okay, and then just in terms of keeping the Company the same size every year, what is your maintenance CapEx?

Historically, we have retired about 5% to 6% of our fleet a year. And the dollar amount, Helane, I'm sorry, I don't have that number but if you would like, we could get back -- have someone get in touch with you later.

As Ernie said, we generally retired about 5% to 6% of our fleet on an annual basis.

Okay, well, that is certainly very helpful. Thank you. Those are all my questions.

Derek Rabe, Morgan Keegan.

Yes, thanks. Good morning, guys. As we look at your renewal risk, certainly manageable this year and last year at roughly 10%. Do you have the number for 2013 offhand yet?

The number on an annual basis generally varies between about 9% to 12% -- 9% or 13%, 14%, and each year is within that range.

Okay, great. Also, wanted to look at your management fee income line. Really saw an accelerated drop-down in that over the last two quarters in particular just as you have been focusing on really just ramping up your own portfolio and buying some of those managed containers. How should we think about that line item going forward? Is this kind of a good base level that you see this leveling off here or how much more of a step down should we see to get to kind of a normalized level?

Just a reminder, the reason you saw that drop off in the last two quarters is because we did the acquisition of the BGC fleet from the second quarter. So that was 170,000 TEU that went from our managed fleet to our own fleet. But going forward, we are not adding significant quantities to the managed fleet. Most of the new container adds are going into or own fleet.

Right, so most of the impact from the Q2 purchases has been worked through the model here?

Yes, it has.

Okay, perfect. As far as your inventory supply levels, are they currently still at one to two months or have we seen that come in a little bit?

No, it's still at about a month and a half.

A month and a half? Okay, great. And just one modeling question here, what kind of tax rate should we use as a placeholder going forward here?

I think it should probably be in the mid to low single digits.

Okay, perfect. All right. Thanks for the time, guys.

Sal Vitale, Textainer.

Good morning, gentlemen.

Hey, Sal, I didn't know you were working for us.

That's right, that's right. Thanks for the job. I appreciate it. (laughter) Great position.

(inaudible)

A quick question. So can you please provide a breakdown of the $904 million? How much of that was for managed containers?

The cost of what we paid? The primary purchase of managed containers was the purchase Ernie alluded to earlier, the purchase from the (inaudible) fleet. We had a press release that contained that number. I believe it was -- probably something like $170 million. $170 million on that fleet, but I will confirm that number shortly.

Okay, so then the difference is -- so $904 million minus the $170 million is all for your own fleet, correct?

Well, we were also purchasing -- purchased leaseback containers from the shipping lines. But if you are asking did we have any other major purchases of managed containers in our fleet, no we didn't.

Okay, that's fine. So just also trying to get a sense for -- just want to make sure -- I understand the CapEx you have done so far this quarter, you said it is in excess of $150 million. Some of the CapEx that you said you did in November and December of 2011, is that already in the fleet? Has it already been delivered and is it generating revenue yet?

The containers are certainly already in the fleet. I don't have the percentage of those generating revenue at this point of time. I could say that they are mostly booked. I don't know for sure right now if they have actually been picked up, those particular containers. But I would say a good chunk of them have already been picked up.

You think a good chunk have been picked up, right?

Yes, I do believe so.

And can you give a sense for during the fourth quarter, November and December, what the dollar amount of the CapEx you have done is? Could probably just compare it to the last earnings release, right? $904 million minus the last earnings release?

I'm sorry, Sal, I don't know exactly the amount that was invested in November and December. We provided you the amounts for the entire year.

Right.

You know, much of our CapEx after June, we really didn't buy any dry freight containers until the very end of the year. Refrigerated containers were being purchased throughout the whole year. Then we started buying dry freights in December and then through the beginning of this year.

Okay, I guess what I am trying to get a sense for is if I look at the sequential increase in the lease rental income from 3Q to 4Q, it was about 2.3%. So I would expect, given that you did some CapEx in 4Q and it is in the fleet now and it is probably generating revenue, you might get close to a full quarter of revenue in 1Q. You should see a more substantial sequential increase in 1Q. Is that the right way to think about it?

Yes, I think that's correct, but I think we were also successful in increasing long-term lease extension rates in the first half of last year, and obviously, that effect -- the effect of those increases came predominately in the fourth quarter going forward.

Okay, understood. And then just one last thing and I apologize if you already gave this information out, but, Ernie, can you just tell me what the end of the period TEUs are?

Yes, it is just under $2.5 million, (multiple speakers) both owned and managed.

Okay. Could you tell me (multiple speakers)?

Of which 59% are owned.

That's great. And then just one last question. In terms of the box prices, the seasonality of box prices, I assume there is normally a tick up from 1Q going forward into 2Q and 3Q? Is that -- correct?

Peak prices have generally appeared in the third quarter, but that rule of thumb does not always apply. Right now we believe that there is some price manipulation that could force prices up sooner than that.

Typically, and I know it always varies, but if you look out over say the last 10, 15 years, the median or the average, what is the usual increase from say 1Q to 3Q in terms of box prices?

It is completely driven by supply and demand. We could look at average for the entire period, but the variations year-by-year have actually been considerable in that regard.

Okay. Outside of (multiple speakers)

We do consider that prices are on the low side at this stage here certainly compared to where the manufacturers would like prices to be. The percentage increase could be bigger than historical numbers indicate. But again, that is also depending on supply and demand.

Okay, great. Thank you very much.

[Brian Hogan], William Blair.

Thank you. Can you comment on the competition? Are you seeing any spike in increase from smaller players? Just comments around that and then the impact that it has on spreads that you are seeing in lease rates?

This is Robert again. I mean there is no doubt that competition is pretty fierce out there at this stage here. Probably the reason being that the requirements for the shipping lines have not been huge which means both the bigger but of course also the smaller providers can actually service the demand level at this stage here which means you have more players quoting for the same business and that has caused margins to tighten.

And if I could (multiple speakers)

Until that happens, until we see considerable demand, it is probably going to remain at that level.

Are the new smaller players, are they -- I guess what share of the market do they have? Or is it still dominated the majority by the top five, seven players?

We see it dominated by the top three players.

Top three. Switching gears slightly, the secondary market, you mentioned in the press release and in the comments earlier that it has softened somewhat in certain regions. Can you say it based on demand or is it just there is more supply coming back? And then what regions?

Hi, this is Phil. We have been able to find demands for containers in new and different locations year by year. So right now there still remain strong demand for used containers in certain regions of the world, especially developing parts of the world, like in Asia, Latin America, and in the Middle East, we find strong demand for containers.

Some of the decline in prices are actually due to things such as in Europe we have been selling containers in euros and then because of the decline in the value of the euro, we have seen the dollar revenues on those containers decrease.

But there also has been general price reductions throughout the world. I do think, though, it is very important to keep in mind that last year resale prices were at what were more historically very, very high levels, and the levels to which they have come down -- I'm sorry -- let me just make a point.

For example, last year we were often selling 13, 14 year old containers for more than we had paid for them originally. So it gives you some sense of the level of resell prices last year. And so the fact that they have come down, they are still very attractive at any sort of historical measure.

What is the average sale price is like $1300 or so?

It's really a number that is impossible to say because the sales price differs so dramatically from location to location. And obviously also depends on the condition of the container. But 20 foot containers in general are selling quite a bit above the figures you just gave.

And is that down slightly from last year? What does it peak out at on kind of an average basis?

The prices hit a peak last summer and they're down probably 10% to 15% from last summer until today, probably closer to 15%.

All right. Shifting gears here, dividend payout structure. Historically you have kind of targeted -- or at least you've said target around 50% payout ratio and the last couple of years ran below that as earnings digressed but a lot of economic uncertainty out there, so understood.

Has your dividend payout target ratio philosophy changed? I know you review it every quarter with the Board but just kind of big picture perspective?

No, it has not changed. We -- since we have been public, we have maintained a dividend that has either been stable or increasing. We have never cut our dividend. That is a record, we certainly intent to continue going forward, want to do everything we can to see that that happens. As the earnings of the Company improve, I suspect our dividend will increase but again, the Board looks at that every quarter.

Thank you.

Bill Carcache, Nomura.

Yes, hi, guys. This is actually Tulu Yunus for Bill. Just a question on -- if you could put a finer point on cash on cash returns, where those are right now? And I guess given the commentary around box pricing perhaps rising, where that could go in the next, I guess, three to six months? Just any perspective on that?

Generally we don't really give direct guidance on cash on cash returns on containers. I think Robert has already given a pretty thorough explanation that the market has become somewhat more competitive since last summer and the yields on container investments have come down somewhat. So you can certainly assume that that would be the same with a cash on cash return. But we don't like to be more specific than that.

Got it. And then, just if I could ask, in terms of -- since the beginning of the year, I guess freight rates have -- seemed to improve somewhat and given the alliances that are going on at your customers, how -- can you give us some sense as to what that -- if that's translating into any shift into lease versus buy decision? Or you also threw in the fact that financing is difficult so I guess is that trumping any improvement in lease rates -- sorry, freight rates that your shippers are seeing?

I think it's important to keep in mind that these freight rate increases have been announced, but not necessarily implemented as of yet, first. Second, notwithstanding whether they are successful or not, there is -- most observers and including most of us at Textainer feel that there is still a heavy bias to lease against -- by containers for the shipping lines for all the reasons we mentioned earlier.

Got it. Thank you.

I'm showing no further questions at this time. I would like to turn the conference over to Mr. Philip Brewer for any closing remarks.

Thank you very much, Ali. I would like to thank everybody for taking the time to join us on our fourth-quarter earnings call. Appreciate it, and we look forward to speaking to you again next quarter. Thank you.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.