Textainer Group Holdings Ltd (TGH) 2012 Q4 法說會逐字稿

Welcome to the Textainer Fourth Quarter Earnings Conference Call. My name is John and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Hilliard Terry. Mr. Terry, you may begin.

Thank you, John. And welcome to our 2012 year-end earnings conference call.

Joining me on this morning's call are Phil Brewer, TGH President and Chief Executive Officer. And at the end of our prepared remarks, Robert Pedersen, TEM President and Chief Executive Officer, will join us for the Q&A.

Before I turn the call over to Phil, I'd like to point out that this conference call contains forward-looking statements in accordance with US Securities laws. These statements involve risks and uncertainties, are only predictions and may differ materially from the 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 statements that are made.

Please see the Company's annual report on Form 20-SA for the year ended December 31, 2011, filed with the Securities and Exchange Commission on June 27, 2012, and the Forms 6Ks, 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, measures are not prepared with accordance with generally accepted accounting principles, a reconciliation of the 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'd like to turn the call over to Phil.

Thank you, Hilliard. Welcome to Textainer's fourth quarter earnings conference call. 2012 was an incredible year for Textainer. To put our 2012 performance into perspective, I would like to go back in time and read my opening lines to Textainer's fourth quarter 2011 earnings call.

"By every meaningful measure, 2011 was the best year in Textainer's history. We set new records for revenues, profitability, fleet size, percentage of the fleet subject to term and finance leases, utilization, capital expenditures and dividends."

With the exception of utilization, the same thing can be said about both our fourth quarter and year-end 2012 results. Let me review some of the highlights.

Most significantly, during 2012 we invested a record of almost $1.2 billion for 548,000 TEU of new and used containers, included $192 million for purchases from our managed fleet. In 2011, we invested $935 million. At that time, a record by several hundred million dollars, yet 2012 has bettered that record by more than 25%.

Record revenues of $127 million for the quarter and $487 million for the full year -- increases of 9.4% and 15.2% from the prior quarter and year, respectively.

Third, net income attributable to shareholders was $61 million, or $1.07 per diluted common share for the quarter, an increase of 10.3% from the prior year quarter and $207 million, or $3.96 per diluted common share for the full year -- anew record. Increases of 9.1% and 4.2% from the prior quarter and year.

Fourth, at the start of the year, we owned 59% of our fleet. Today we own 73% of our fleet -- the highest percentage in the Company's history due to several factors. First, 91% of our CapEx was for our own fleet. Second, we have an aggressive new build program. Third, we continually seek opportunities to purchase managed containers, which, since the containers are already on lease generating cash, are immediately accretive.

Fifth point, in September, we accessed equity markets for the first time since our IPO, raising $282 million via the sale of primary and secondary shares.

Our significant investments in new and managed containers and purchase-lease-back transactions during the fourth quarter demonstrated that we were able to rapidly invest the proceeds of the offering to the benefit of both old and new shareholders.

Next point, Textainer's return on equity for 2012 was 26%, exceeding our average annual return on equity of 24% since we went public in 2007. This result is even more impressive when you consider that we are the least highly-levered of all of our public competitors. And, finally, Textainer paid a $0.44 per share dividend in the fourth quarter and declared a $0.45 per share dividend in the first quarter of 2013.

This is Textainer's 12th consecutive quarterly increase and continues our record of stable increasing dividends every quarter since our IPO.

I noted at the beginning that we did not set a new utilization record. Nonetheless, utilization continued at very high levels, average 96.7% during the fourth quarter and 97.2% for 2012. Utilization is currently 95.8%.

We expect utilization to be lower on average during 2013 and 2012. However, with 82% of our fleet subject to term and finance leases, we do not expect a significant change in utilization this year.

Utilization included, we are extremely pleased with our 2012 results. Looking forward, there are many reasons to be optimistic about 2013. Following are some of the reasons why the outlook for our industry remains compelling.

First, manufacturers expect to produce 2.7 million TEU in 2013, versus 2.5 million TEU during 2012. Lessors expect to purchase 70% or more in total production in 2013, versus 65% in 2012.

Container prices are expected to behave similarly to 2012, and are current around $2,300. Prices at these levels not only encourage leasing instead of buying by shipping lines, but also help to support our residual values. Shipping lines were, at best, marginally profitable in 2012, meaning cash available for container purchases remains limited.

Bank lending to the shipping industry continues to be restrained. Shipping lines are expected to continue their recent increase in disposables. This means that they will need to lease replacement containers, and also provides opportunities to purchase-lease-back in trading deals.

It is also true that yields on new containers remain under pressure. We do not expect that to change before the end of the first quarter. And, as a result, are being selective in determining which deals to pursue.

While the overall outlook for our industry is good, we need to recognize that the uncertainty facing shipping lines could have an impact. It is important to monitor the following factors. The shipping line focus on profits over market share is precarious. If one major line tries to grow market share it could upset the apple cart.

The outlook for improved freight rates is mixed. Shipping lines are expected to have more difficulties enforcing freight rate increases this year than last year. The problem with excess vessel capacity remains. Idle vessel inventories currently at 5% to 6%.

New vessel capacity equal to 10% of the existing fleet is coming online in 2013. Compare that to the projected growth in trade this year of 4% to 6%.

On balance, we are very optimistic that 2013 will be a very good year for the industry in general, and Textainer in particular. Indeed, we are already off to a good start with over $95 million invested in new and used containers. And we will have the benefit of a full year of cash flow for the managed containers we purchased late last year.

I will now turn the call over to Hilliard.

Thank you, Phil. The fourth quarter marked the close of a phenomenal year for Textainer. And, as Phil mentioned, this year marked a number of milestones in the history of the Company.

Turning to the quarterly results, we recorded $127 million of total revenues, topping the quarterly record we set last quarter. Revenue growth was 9% above the year ago period. The primary driver of our revenue growth was the increase in lease rental income as the result of the 26% increase in the size of our own fleet, as we continue to purchase new and used containers.

We made a number of managed fleet acquisitions and executed several purchase-lease-back transactions as we continue to successfully deploy the capital raise during our recent equity offering. This quarter's revenue growth was partially offset by lower management fees because of the decrease in the size of our managed fleet.

Total operating expenses were up 13% year-over-year, primarily driven by the increase in depreciation expense, which is the largest component of total operating expenses. Also, direct container expenses increased by 37% as storage costs increased due to slightly lower utilization rates in the quarter.

Depreciation expense was $34 million for the quarter, up $12 million, or 56%, as a result of our larger owned fleet, and in line with the 53% increase of the book value of the container assets on our balance sheet. Our bad debt expense was a recover of $1.6 million as we recorded a settlement and the successful collection of previously reserved items.

In general, the environment remains challenging for our customers, but we believe they are better off than in previous years. We continue to believe our bad debt expense should remain within the normal range of 0.5% to 1% of revenue.

Below the operating income line, interest expense was $20 million for the quarter, versus $15 million in the year ago quarter. The $5 million increase was primarily due to $536 million of additional debt used to fund the expansion of our fleet.

At the end of the year, we were very pleased to acquire a majority interest in TAP Funding, Limited, a company that owns a 99,000 TEU fleet of containers that we currently manage. Because of the fair value portion of TAP net assets we acquired exceeded the cash we paid for the company, we recognized a bargain purchase gain of $9.4 million on the acquisition. We expect the returns on this investment to outperform our investments in new containers.

Adjusted EBITDA of $115 million represents another quarterly record, and was up 29% year-over-year. This is a clear indication of our strong and increasing cash flow. Adjusted net income, which excludes unrealized gains on interest rate swaps for the quarter, was $58 million, up 10% year-over-year, resulting in adjusted EPS of $1.03 per share.

Based on the stability of our results, we have increased our dividend to $0.45 per share, representing 44% of our adjusted net income. Dividends have averaged 44% of adjusted net income since our IPO, enabling the company to retain capital for growth and return cash to our shareholders. We have paid increasing dividends for 12 consecutive quarters. It's an important part of our total return that we provide to our shareholders.

The board has targeted a dividend payout of 40% to 50% of adjusted net income, but it takes a fresh view every quarter and sets the dividend subject to our cash needs and the investment opportunities that are available to us.

We maintained a strong balance sheet during the quarter. As of December 31, 2012, our cash position was $100 million, which stand by our available liquidity in excess of $573 million. Total assets were $3.5 billion. And our leverage ratio was 2.2 to 1.

We completed approximately $2.4 billion of financing in the debt and equity market this past year, resulting in over $1.3 billion of incremental net funding. We are extremely confident in our ability to access the capital markets to make sure we remain in a position to manage the market opportunities to grow our business.

Financing spreads have continued to tighten throughout the year. And growing investor interest in container asset investments continue to translate into more liquidity for container ABS issuances. We are continuously working to optimize our capital structure for growth and opportunistically expand our financing alternatives.

In closing, Q4 concluded a spectacular year for Textainer. We're very proud of the annualized return on equity we've been able to deliver, as a public company, over the last five years.

I want to thank you for your attention. We look forward to seeing many of you at the upcoming conferences and investor meetings throughout the quarter.

At this point, I'd like to open the call up for questions. John, can you inform the participants of the procedures for the Q&A?

Thank you. We will now begin the question and answer session. (Operator instructions). Our first question comes from Justin Yagerman from Deutsche Bank. Please go ahead.

Good morning. It's Josh Katz for Justin.

Good morning. How are you?

Good. I just wanted to start off on looking at 2013 in growth. 2012 was certainly a big year with $1 billion or purchases for your own fleet.

How shall we think about 2013, compared to 2012? I know you guys don't give specifics, but are you expecting to potentially -- or is there a possibility -- to outpace 2012 in 2013? Or you trying to kind of meet 2012 levels?

Well, I know we get asked that question every call. And our answer tends to be the same, which is we really monitor the market conditions as the year progresses and invest when (inaudible) the opportunity to make a return that we feel is attractive on our cash. At this point, I'd say it's very difficult to predict how much we're going to invest this year.

The first quarter, although we started off the year strongly, I think we're going to see a little bit of a slowdown in the very immediate future. There is a supply of new containers sitting at factories that will likely go out over the first and into the second quarter. And I think we'll se CapEx start to pick up after that.

So, it's very difficult to predict right now what level of CapEx we might see over the course of this year.

Fair enough. I definitely appreciate the color. As far as kind of the breakdown of what you're seeing in the market -- you mentioned the week-end yields. I guess, how much of what you've spent already has kind of already been in the second-hand market versus new containers? I guess, how do you view the second-hand portfolio going forward this year? Do you expect it to be as strong as last year?

You mean the purchases of purchase-lease-back or trading containers?

Yes. Yes.

That business picked up pretty strongly towards the very end of last year -- in the third and fourth quarters of last year. We expect to see an increase in that business this year. We've already seen a lot of activity in the first quarter as well.

So, our expectation is that over the course of this year, that will be a big part of, not just Textainer, but, frankly, all the container leasing companies will be looking at those transactions.

And was that a big part of the year-to-date spending, that $95 million?

Yes. It was roughly the majority of it.

Got it.

Two-thirds.

Two-thirds?

Yes.

So, I guess you're not expecting such a big run-up in the [dry box] season going into peak season this year? Or do you expect to see a lot of activity? And can you maybe talk to where yields are? Or where you're seeing yields of the market -- I'm not sure where you're doing them. But where they're being priced on the market?

We think this year is progressing more or less like the last two years where it appears that the second quarter is actually the peak season. And while the time, up tot Chinese New Year, which is right now, was not as strong as we've seen in the past.

The inquiries for later deliveries have actually been very significant. So, we do expect a strong second quarter going into the third quarter.

And then, just one more. Sorry. Sorry.

And on the yield side, as you mentioned, the yields are under pressure. But it's just a matter of how many deals are out there versus how many containers are available at the time of operations, supply and demand issue. And our strategies on yield have not changed since earlier calls.

And then just one more before I turn it over. You mentioned utilization. If I heard correctly, it was 95.8% right now?

That's correct.

And then you expect it to be pretty flat this year. I mean, are you guiding toward -- are you expecting to see a run at that 96% level for utilization this year?

I think that's a pretty fair assumption. You know, when you have 80%-plus of your fleet on term and financed leases, it's difficult to see a dramatic change in utilization in any direction, frankly.

I think right now what we're seeing is a fair estimate of where we might see it. We actually do expect utilization to remain around this level. It's been around this level now for several weeks. We expect it to remain around this level for the immediate future. But into the second quarter and third quarter, we expect to see utilization to improve slightly.

I appreciate the time this morning. Thank you, guys.

Thank you very much.

Our next question comes from Michael Webber from Wells Fargo. Please go ahead.

Hi. Good morning, guys. How are you?

Hi, Michael. How are you? Good morning.

Good. I just wanted to follow up on a couple of Josh's questions. Maybe just kind of sticking high level here before we start talking about -- kind of -- incremental Q1 numbers.

But I think, Phil, in your remarks I think you mentioned 2.7 million containers produced -- maybe in the release -- 2.7 million containers produced this year. And 5% to 6% growth. And you kind of layer on a 70%/30% split that kind of points to eight to eight-fifty in CapEx for you guys. You guys have clearly been doing more than that.

I'm just curious as to whether or not -- you know -- you guys are obviously gaining share. Are you, as an individual lessor, gaining share away from other lessors in this space because of your access to capital? I mean, there's a pretty big delta between where the numbers would imply what you do, versus what you guys have been able to spend year-to-date? And if that is the case, what do you think is driving that?

Well, I think we made that argument or we made than point in past discussions that we've had. Some people look at us and say, "Well, you're the largest in the industry that's very difficult to grow."

But if you look at our CapEx relative to our position in the industry year-on-year, we have outspent our competitors relative to our position in the industry. We certainly expect that to continue to happen.

The number that you calculated earlier -- sort of back of the envelope -- was really based on, Michael, was, I think, was based just on new CapEx, new containers. And don't forget, we do have other alternatives such as purchasing purchase-lease-back containers, which we mentioned just a while ago. And it will be a big part of business for everybody this year.

And continuing to purchase containers from our managed fleet, which, to preempt any questions on that, is something that is extremely difficult for us to project because it depends on the needs and desires of the individual owners of the containers. But when those opportunities arise, as we've demonstrated in the past, we're very eager to pursue them.

Got you. Now that that makes sense. And just in kind of thinking about the assets like over the last year or two, I'll stop short of saying it's been predictable. But it seems like it's kind of settled into a bit more of a normalized pattern.

And I'm just kind of looking at that $1.2 million spend for 2012. And then [what you guys have done] year-to-date in 2013, is it safe to say you guys are kind of pulling forward a little bit of CapEx from the first part of the year, just based on the economics of being able to cheaply store those assets, kind of in anticipation of what you might need later on in the year?

And if so, how big a chunk of containers are we talking about that you guys think you've been able to pull forward, just based on a bigger comfort level with where asset values are going?

Well, as to one part of your question, when container prices fall towards the end of the year, if you look at purchasing containers at that time, you'll see that it often makes sense to pay the less expensive prices and carry the containers for a while versus waiting until later in the year when the prices may run up. It's a far more attractive proposition to pay the lower prices.

So, yes, some of the containers that we purchased toward the end of the last year are containers that we fully intended at the time that we purchased them to hold them for a while and put them out on lease later this year.

All right. That's helpful. Just to dive in, though, you mentioned -- I want to make sure I got this right about $95 million year-go-date and roughly two-thirds were sale lease-back. At what point in the quarter did that actually hit your all's fleet?

Well, let me be clear. Roughly, about two-thirds are used containers.

Yes.

And then a third were purchase of new containers.

Okay. So, the used containers, which, I'm assuming, are going to mean immediately accretive at what point? Very early in the quarter or more kind of where we are today?

Well, we're only a month and two weeks into the quarter, Michael. I think it's fair to assume that the transactions were spread out over the beginning of the year.

Okay. All right. That's helpful. Just a couple more and then I'll turn it over. I think Josh mentioned, or he talked a little bit about the lack of a peak season. And it certainly seems like we're -- 2013 is shaping up a bit like 2012 into not really seeing a kind of peak volume materialize. Are you guys seeing that play out in terms of what your expectations are for CapEx spend throughout the year, that maybe this year it's going to be a little bit more steady in terms of what the third party capacity needs are for the container line?

Does that kind of permeate it the way you guys think about buying containers? Or do you still think we're going to get a pretty decent ramp coming here in the next couple of months?

We think end 2012 and early 2013, which is actually more active than we saw a year ago. We thought it would be even better. But it's certainly better than it was a year ago.

Basically, if you look at 2012, the market didn't take off before April. And -- you know -- kind of ramping up a little bit in March. But April was the big boom last year. And we see that happening again. But part of that has already started to happen right now with people clearly booking ahead.

Okay.

I think the thing, Mike, when you look at it over, there's no global surplus of containers. If you look at it underlying, there is no global surplus at this stage here. There is a need for fleet renewal. There is growth. And there will be opportunities to grow both our fleets, but also leasing company fleets in 2013.

And if I could just add to what Robert is saying -- when you look at the vessel capacity that's coming on line this year, that's clearly going to lead to a demand for containers, as well.

And there certainly not been anything that's happened to change our perception that the shipping lines are relying more and more on the leasing companies to provide containers.

So that change continues this year. We expect it to continue for the foreseeable future. And that the percentage of containers being purchased by leasing companies will increase. So, you have a higher level of production and a higher level of purchases by the industry as a whole. We think that this year looks -- a very positive outlook for our industry and Textainer.

Sure. And then just kind of a related question to that -- Robert, you mentioned that the oncoming vessel supply and (inaudible) box-to-slot ratio has fallen considerably, probably sub to now.

Is there a floor there where you think we'll actually see just an up tick in box purchases simply because that ratio has gotten too low and the lines are just uncomfortable how low it's gotten? Or is that the wrong way to think about it?

Well, Michael, it's tough to talk about the slot-to-box ratio right now because the (inaudible) are not full.

Yes.

We really need to see a different environment right now. You need a stronger Europe before you can come with a good strong guess in that regard. Clearly, the lines are out to control costs. And improve efficiency is a very incremental part of that. But I think it's difficult to dwell too much on those numbers right now with the different trades -- the way they are going.

Okay. Fair enough. One more for me and I'll turn it over. And I think I'll ask Hilliard about this last quarter as well. But -- you know -- you guys have been very active in the ABS market. You've got some [probable] issues out there. And potentially re-fi those and have some meaningful savings from an EPS perspective. What are your thoughts on potentially refi-ing some of that ABS debt in the first half of the year?

I think everything you've stated is correct. We do have a particular note that is callable. If we were to refinance it, we'd save a lot in terms of the coupon that we'd be paying.

So, we are looking at that. And the bottom line is that in the ABS markets, spreads have continued to tighten. So, every deal that's gone out there, you've seen an improvement in terms of financing. So, we will do what's appropriate.

Okay. All right. Thanks for the time, guys. I appreciate it.

Thank you, Michael.

Our next question comes from John Mims from FBR Capital Markets. Please go ahead.

Hi. Good morning, guys.

Morning, John.

I think most of my questions have been answered. Let me just go back. Phil, when you look at the fact that 73% of the fleet is now owned, I would guess intuitively that means the pool of managed acquisitions that are possible is shrinking. Right?

And I know you don't know the timing, and understanding that that could happen at any point, of those that are left, that are still managed, what percentage are you at least actively talking to that are potentials that you could bring on, if it's not this year, the next year or so?

100%. So, anybody we manage containers for, we're in a dialogue with over the course of the year about whether or not they're interested in selling their containers, when they might be interested in selling their containers. So, that's ongoing.

And then just to reiterate why it's so hard to predict these sales, is that this has happened many times where we've had discussion with one of the owners who said no they're not interested. And literally, within two weeks later, called us up and said, "You know, actually now might be an interesting time to sell." So, it's very difficult for us to give any projections. We really don't know.

But it is a very attractive business. You're right. The pool is smaller. Nonetheless, we do expect to find those opportunities over the course of the year. They're immediately accretive. The containers are all out on lease. We don't have to put them out on lease. So, it's a very nice business for Textainer.

Sure. That makes sense. But just in terms -- you know -- of potential contract spend or how that may look next year -- if you were to grow at the same rate that you did in 2012, or even as the industry backdrop would suggest, you'd have a little bit strong '13 than '12.

Does that mean that -- you know -- on a pound-for-pound basis, you would have to put more money to work buying new containers just because the managed pool is that much smaller? Does that make sense?

Let me see if I understand your question correctly. Are you say that as our managed pool shrinks and as we're growing our fleets as more of them are our accounts, then our CapEx spend is larger because less of the cash is coming from the owners ...

No. No. No. I'm saying, purely, to get the same amount of fleet growth, are new containers more expensive than buying the managed fleet? So, you could, theoretically, put more capital to work for the same amount of the absolute TEU growth -- correct?

Yes. Correct. If we're buying used containers, clearly, that we're paying a price that's below the price of a new container. And that applies not just to buying containers out of our managed fleet, but buying purchase-lease-back containers from the shipping lines.

Purchase-lease-back opportunities, as we've said, are up. We think that they are going to continue to be up this year. We literally see opportunities coming to us every single week. And that started in the fourth quarter last year. Prior to that, we hadn't seen this type of activity in the purchase-lease-back market for a few years.

Okay. Fourth quarter. That's good. Thank you. And just as far as on the new build market, can you comment on kind of where container box prices are now, how the back log lead times look? And when [Singa Moss] and [CMC] and everybody else goes back to work after -- you know -- how long of a break they take for the Lunar New Year?

Well, it's probably different from manufacturer to manufacturer. But they will probably take a two to three-week break. Lead time is still about one to two months. And prices are about $2,300 per cost equivalent. And that is slightly up compared to where we ended last year and [thought] early this year.

And I would add on that, only because I know Robert and I discussed this recently. Once they come back from Chinese New Year, we think the manufacturers are likely to put in a pretty concerted effort to bring prices up further beyond that level.

But still within that kind of one to two-month lead time. So, they're not quoting out to -- you know -- April or May now?

No, not to our experience.

Right. Right. Is there any particular changes in mix as far as -- you know -- what you're ordering or what the market is looking for in terms of -- you know -- [driver] versus refer?

No. The mix is very similar. You know, typically, in the beginning of the year, we buy a little bit more 20-foot containers. And later on we do add more high cubes and the refers are pretty steady. So, no big surprises there.

Okay. I think that's all I got. Thanks for the time.

Thank you.

Our next question comes from Helane Becker from Dahlman Rose. Please go ahead.

Thanks very much, operator. Hi, gentlemen. Thanks for the time. Most of my questions were answered. I just kind of wanted the mix between refers versus dry, if you have that. Because I don't see that in the press release.

And then, I just had a question about yields. I thought I heard you say that yields had come under pressure. But maybe I misheard that because that doesn't make sense if utilization is over 95% and things showed some signs of improving that yields would be under pressure. Thank you.

Well, let me answer the first question. I mean, we allocated plus-minus 20% of our total CapEx to refers. And that has been that level in the past two years. And we see that approximate level going forward. It can change a little bit from month-to-month and even quarter-to-quarter, but throughout the year it's about 20% of our total CapEx.

And on the yield side -- yes. There is a difference between utilization and the competitiveness of new transactions. When we talk about utilization, that's obviously about new production in our in-fleet, while -- you know- when various people are loading up in the beginning of the year and there are only so many deals, then you have more players attacking the same transactions. And so, those modulated transactions become more competitive despite a high fleet utilization.

Okay. Have you noticed -- I don't know that it really matters for you guys -- but have you noticed any diversion away from the port of Long Beach and L.A. to other ports on the west coast?

Not really. We have not seen that at this stage here.

Okay. Thank you.

Thank you, Helane.

Our next question comes from Kenneth Hoexter from Bank of America. Please go ahead.

Great. Good morning. Phil, the trading containers -- the proceeds dropped almost in half sequentially. Is that kind of a sign of what you're seeing in the market? Or is something driving that?

Well, we actually didn't -- the opportunities we've been seeing have been more purchase-lease-back oriented than trading deals. The main difference is the trading deals, somebody's selling you the containers straight away. The purchase-lease-back you buy them and they return them to you over a period of time, which can vary from a few months, a year, to several years.

Most of the deals we've seen lately have been purchase-lease-back transactions not trading transactions. As a result, the proceeds from trading deals has declined.

Okay. And then I guess, sticking to that, the -- you know, you mentioned that the storage costs are going up. Is that because -- I think Phil mentioned before you're taking delivery early knowing it's going to be a weak first half? Or are storage costs going up because of your utilization declining? And then where do you see that going forward?

Well, again, it was purely a comment on the fact that utilization had declined slightly, so therefore, storage costs were going up. So, if we expect utilization to be about the same, then we'd expect that to sort of be consistent.

I'm sorry. You said utilization would be consistent so then your costs stay similar?

Correct.

Okay. And then -- I think on my last question you noted the price is about $2,300 per cost equivalent. Has that changed much over the last couple of months. Has it been pretty stead?

It's increased about $100 since the new year.

Oh. Just since the beginning of the new year?

That's correct.

And then you mentioned you expect that to go up. What pace -- is there an annual rate increase? Or have they talked about a rate increase that they're targeting?

Well, we can't really comment on how much they talk or don't talk. But we would be surprised if there's not some sort of combined effort to get prices back above $2,500.

Okay. And then the D&A, Hilliard, you mentioned that it, obviously, increased because of your higher asset base, but it looked like D&A outpaced your book value growth. Is that because of the mix or is there something that's driving that faster? And should that kind of come back in line?

Well, I mean, in my eyes -- you know -- we had, roughly, about a 56% increase in the D&A expense. And the booked [ID] assets were up 53%. So that was pretty much in line.

The only thing that I would add to that is that, obviously, as we buy more expensive containers you'll have higher depreciation expense.

Okay. And then -- I'm sorry. As you buy more -- which container?

If you look at the containers we're buying today versus several years ago, the depreciating expense would be higher. Just because --

Because it's a more expensive asset?

Correct.

Okay. And then you mentioned the direct container expenses also increased. That was due to the storage costs, right?

Correct.

Okay.

Again, can we just get some clarification here because I'm not sure if this was what you're getting at. Are you implying that purchasing new containers and them at factories leads to increased storage costs? Because if that's what you're implying, then that's not the case. We don't pay storage costs for new containers at factories.

No. No. Hilliard already mentioned that it was because -- I thought one of you mentioned that it was because you buy the containers -- you're buying them and then knowing you're going to hold them for a little while until you put them back on lease.

We buy them and they remain at the factory. We don't pay storage. The storage costs go up because as utilization goes down, containers are returned to depots around the world. And we have to pay storage on those containers because if they're not out on lease they're sitting in a depot. That's the reason why storage costs go up. But it's not related to the acquisitions of new containers that maybe yet haven't gone out on lease.

And you're expecting a similar utilization. So, it shouldn't change too much from these levels, right?

Right.

The other thing is that we do have a larger owned fleet. So, indirect storage costs are higher the larger the owned fleet as well.

Okay. And then just to step back. I guess, Phil, looking at, obviously, a lot of CapEx questions and your target.

So, maybe a little bit of a different angle. But how do you view, I guess, debt levels and turnover? How much more levered do you feel comfortable getting given the environment of the 70%, moving toward less orders and an increased manufacturing build? You know, just to get an idea of how fast you feel comfortable growing that base?

I don't see that our growth will, in any way, be constrained by our ability to finance that growth. We're not highly levered at the moment. I mean, we're less levered than any of our other public peers.

We clearly have the financing lines in place. And if we needed to, we believe we could put additional capacity in place. So, I don't see our -- we have room to increase the leverage of the Company. We have access to the financing. And that will not be a factor in constraining the growth.

Wonderful. Appreciate the time.

Thank you.

Our next question comes from Sal Vitale from Stern Agee. Please go ahead.

Good morning, gentlemen.

Good morning, Sal. How are you?

Good. Very good. Just a few housekeeping questions first. I look at the G&A expense that crept up about a half-million dollars, sequentially. How do we think about that the next few quarters? Should it stay at that $5.5 million or close to $6 million?

I think that's reasonable. It just depends on some of the, sort of, professional services costs and things of that nature, which really don't change that much quarter-to-quarter. So, it's reasonable to think it'll be around that level.

Okay. And then you talked a little bit about what new box prices are. Where are used box prices currently for the 20-foot dry?

Used box prices over the course of last year remained relative stable until the very end of last year when they came down a little bit, which, frankly, is not surprising -- that we often see that happening.

They are still at very attractive levels. I mean, they're not at the levels that we saw, say, a year-and-a-half ago when they were hitting all time highs. But we're seeing used box prices, seeing 20-foot containers, for example, being sold around the world in the $1,400, $1,500 range, which on any sort of historical basis, remains a very attractive level.

Okay. So, if I think about the volume of containers that you'll be selling out of your fleet over the next year or so, do you expect that to be static, stable relative to, say, 2012? I'm just trying to get a sense for gains on sale [get go].

Well, as utilization is likely to be lower this year, on average, than it was last year, you can expect that we'll sell a few more containers this year than we did last year.

Okay. So, your gains on sale could be relative flat to possibly slightly up. Right?

Right.

Okay. And let me just back of the envelope, based on the numbers that you mentioned early. So, your expectation is for global container production of 2.7 million TEU in 2013. And you said that you expect lessors to account for over 70% of that.

So, if I just use 70% of that 2.7 million, that's about 1.9 million TEUs purchased by lessors. Then if I just assume roughly $2,000 price per TEU on that, that's about $4 billion of lessor spending on new containers.

Then if I just use your current market share -- you know -- just maintaining your current market share, that implies roughly -- you know -- somewhere in the ballpark of $500 million to $600 million -- actually, closer to $600 million of spending on new containers spending by Textainer. Is that roughly the right way to think about it? Just really high level.

The only caveat I would make is we generally spent more than what our market share is. I also think that your dollar figure of $2,000 per TEU, which I think you mentioned, you used in your quick analysis, is low. I mean, container prices are clearly about that already. And we expect container prices to increase over the course of the year, similar to how they've behaved the last two years. But conceptually, the way you've approached it I think is a fair way to approach it.

Right. So, if anything, I'm actually a little bit too low. So, if anything, your new container purchases could be closer, say, to $700 million based on that math. Right?

Yes, or, frankly, higher than that as well.

Okay. And then if on top of that we layer on -- you now -- just, say, a few hundred million dollars of combined purchase-lease-backs and managed deals, you could easily approximate that to a billion if not a little bit more than that?

And, Sal, we're always looking for opportunities to grow this company. And that certainly won't change over the course of this year. What you're talking about is exactly the way we approach it. We will look at all those opportunities. And we're quite optimistic that this will be a very strong year for the industry.

There's growth in our -- and I think we have to also step back a second and say, "Look, the industry is growing." There's been a drag, which has been the Asia-Europe leg, but even that is expected to be slightly better this year than last year.

I was just reading something, in fact, this morning talking about the dramatic improvements in the northwest trade, and then some of the other trades. For example, Asia-Africa or Asia and the Middle East.

I think the outlook for this year is actually quite attractive. And when you combine that with the observation that more containers are going to be produced and more purchased by the leasing companies, the outlook for this year is good. And we expect to have a strong year in terms of CapEx.

Okay. Great. And then just one last question. What is the current market forecast for containerized trade growth? Is that roughly about 6% right now -- 6% or 7% for 2013?

I think it's slightly less than that. You can find as many sources for that data as you like, and as many different numbers in each source. But the range that I've seen is in the range of 4% to 6%.

4% to 6%, which is still well above -- you know -- assuming, roughly, 5% of the global fleet is sold this year, 2.7 million TEUs produced implies, roughly, 3% to 4% growth in the fleet. So, still we have trade growing well above the fleet growth. So, that should maintain utilization for 2013, correct? Which is consistent with what you said.

Right. I think that Robert made a point earlier on that's really important to keep in mind. And that is there is not an excess supply of containers in the world. There's not. And then combine that with the fact that we all have a large percentage of our fleets -- in our case, it's 80% -- it's term lease or finance leases. You're not going to see dramatic change in utilization. There's not an excess supply. Many of the containers are locked up on leases, in any event.

Right. I think we're on the same page. Just one last question. You probably don't disclose -- when you said sales have weakened a little bit on new container purchases, you probably can't disclose what the absolute level is. In terms of -- you know -- basis point decline versus, say, last year, versus 12 months ago, can you give any color on the magnitude of how much they've come down?

You know, we've discussed that question many times in the past. And our response has been that yields are down in the low double-digit range in a cash-on-cash basis. And that's where yields have been -- in that neighborhood.

We're trying to be very selective and find those opportunities where we think we can get a slightly better yield. And we're also quite optimistic that you're going to see a stronger market, in any event, as we come a bit later in the year.

Okay. Thank you very much for your time.

Thank you.

Our next question comes from Bill Carcache from Nomura Securities. Please go ahead.

Thank you. Good morning. First, Phil, I have, I guess, a big picture question for you on your capital return policy. Can you talk about how you and board think about potentially including some element or component of buy-backs and capital return?

I know there's a lot of focus on the dividend. And that's the consistency of that over time has been, obviously, very, very good, and very much appreciated by your investors.

But, I wonder, looking at your stock chart, you're at all-time highs. And, clearly, in retrospect it would have been very accretive to at least have had some buy-backs -- not just earnings -- but to real fundamental value to investors.

Is it really just a function of -- you know -- the fact that a relatively smaller portion of the Company is not public. And so, therefore, you wouldn't want to reduce the share account. Or is there something else at play? Can you just give some general thoughts on that?

You know, Bill, all the senior management here spends quite a bit of time talking with investors around the world, in the US, Europe and Asia. And I have not heard much of a desire when we speak to our investors that we pursue a share buy-back strategy.

We recently issued additional equity. I think it would be odd to start buying back equity after we've recently issued it. We view that issuance that we just did as being quite successful. Certainly, the shares have traded up. And our liquidity in our shares has increased dramatically.

That was a point that many investors did raise with us when we met with them. And one of the things -- not simply just to provide money for the Company but to increase the liquidity was a goal that we had with that issuance. And we believe that we've achieved those goals. So, a buy-back strategy is not something we really are considering at the moment.

Okay. That's interesting. Okay. I appreciate that color. And then, also, finally, can you guys give me -- Hilliard, can you talk a little bit about -- I guess -- just the nature of the bargain purchase gain? I guess from what you said, you acquired assets at less than fair value. Normally, I think, a bargain purchase gain is something that you would see kind of in more of a distress scenario.

Is that the case here? You know, I'm just trying to get a sense for why a seller would sell to you at less than fair value. I know you guys have a relationship with them. But was it a competitive process, maybe? Any color on that would be great.

Sure. I'll give you a few factoids here and Phil will add more color. The bottom line is you should view this just like any other managed fleet that we've purchased. The difference here is that we're buying a company. And when you buy a company, you basically need to, instead of assets, use sort of business combination accounting.

And, as such, you have to fair value the assets. In this particular case, the assets that -- the fair value of the assets were greater than, basically, the purchase price that we paid for the assets. And so this is something that is real. These are assets that we believe the returns are going to be outperform investments and new containers. And it was, the bottom line, a very good deal for the Company.

Let me just add to what Hilliard says. We had someone we had a relationship with. We were already managing the assets. They could not sell the assets directly, as Hilliard mentioned. But it needed to be done, in terms of purchasing, shares in the company. And as a result, all these needs, we were able to obtain what was, frankly, a very attractive price for the assets.

And just to be clear, it wasn't really a competitive process where there were other buyers. It was essentially -- there were no other buyers -- potential buyers involved?

No, honestly, that was not the case. They could have done the transaction with others as well. And they did speak to others. But in this particular instance, we had -- there were things we could do being the current manager of the containers in handling the transaction that perhaps another buyer wouldn't have been able to do.

And as a result, we were able to negotiate a transaction that -- let's be clear -- I believe it was a win-win. I am not by any means that the sellers were disadvantaged. I think they're quite happy with the transaction as well.

Okay. Thanks very much, guys.

Thank you.

Our next question comes from Doug Mewhirter from Sun Trust Robinson Humphries. Please go ahead.

Hi, good morning. Just about all of my questions have been answered. I just had one question regarding the production forecast. So, that 2.7 million TEU forecast, I assume that you built that out from a more top-down look from forecast amortization of third parties and not, maybe, conversations with the manufacturers where you're looking at how many shifts they're planning, or that sort of thing. So, it's more of a top-down economically-driven forecast than what you're actually seeing. Is that correct?

That number is really based on discussions we have when we meet with our customers and we meet with the manufacturers.

I'm not sure if you're implying that we've done a deep analysis starting at the top. That's not the case. But we feel that this year there will be more containers produced than were produced last year, based on -- frankly -- based on the fact that we're often out in the market meeting with the market participants.

Okay. Thanks. That's very helpful. That's exactly the kind of answer I was looking for on this. That's all my questions.

Thank you, Doug.

Our next question comes from Daniel Furtado from Jefferies. Please go ahead.

Good morning, everybody. Thank you for the opportunity. I just have one quick one. And that's are you seeing any new entrants from a competitive standpoint into this space?

Well, there have been one or two companies that have started up operations and entered the container leasing business. We haven't seen them as strong competitors as of yet. But we have seen that happen. Yes.

Okay. That was really my only questions. Thank you. Take care, everybody.

Thank you very much.

Our next question comes from Brian Hogan from William Blair. Please go ahead.

Thanks. Direct finance leases on the balance sheet have some significant growth. Is that personally due to the acquisition? Or is that customer-driven? Or is any strategy shift on the direct advance leases?

It was really due to the fact that we had a lot of opportunities to do finance lease business last year, especially toward the end of last year.

I know we announced in 2011 that we entered into a new joint venture to do finance leasing business. And it took a while, frankly, for us to get traction with that joint venture. But we really in last year started to gain that traction and we were able to do several deals towards the end of last year. And we're optimistic about further growth in that part of our business over the course of 2013.

All right. Thanks. And then, kind of bigger picture on things. You've got a lot of investment opportunities in your existing business, whether it's from the managed fleet, or new containers or purchase-lease-back transactions. Have you spent any time looking at any other asset classes, rail, or whatever? Have you?

We think opportunities for growth within our own industry at the moment are actually very attractive. We know our industry. We know it very well. We believe we've proven that we can continue to grow in this industry that we know. And for the time being, that's really where we're focused.

And then one last one. Several years ago there's been a lot of private equity activity in the container leasing space. How have those players been acting? Are they still rational from your eyes? Any comment there would be helpful. Thank you.

Well, there's been private equity activity in the industry. There's companies going public, companies that are public are going back private.

Let's be honest. We've got a lot of players in our industry. And many of us are looking to grow our businesses. So, our feeling is people are doing what is attractive from their competitive point of view.

We don't see people behaving enormously irrationally. But we are aware that in our industry every once in a while you'll hear somebody comment about one or another player. That happens in any industry.

We think we've got several strong competitors in our industry who are looking to grow their business.

All right. Thank you.

Thank you.

We have no further questions at this time. Mr. Terry, do you have any closing remarks?

Well, I just wanted to say again thanks for your attention. We look forward to seeing many of you at upcoming conferences and investor meetings throughout the quarter. Thanks for listening in.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.