Textainer Group Holdings Ltd (TGH) 2014 Q1 法說會逐字稿

Hello and welcome to the Textainer Group Holdings first quarter 2014 earnings call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Executive Vice President and Chief Financial Officer, Hilliard Terry. Mr. Terry, you may again.

Thank you, Daniel. Welcome to our 2014 first-quarter earnings call. Joining me on this morning's call are Phil Brewer, TGH President and Chief Executive Officer. 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 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 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-F for the year ended December 31, 2013 filed with the Securities and Exchange Commission on March 19, 2014, and going forward any subsequent quarterly filings on Form 6-K 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 the call we will discuss non-GAAP financial measures. As such measures are not prepared in accordance with generally accepted accounting principles, a reconciliation of the non-GAAP financial measure to the most closest directly comparable GAAP measure will be provided either on this conference call or can be found in today's earnings release.

At this point I would now like to turn the call over to Phil for his opening comments.

Good morning and welcome to Textainer's first-quarter 2014 earnings conference call.

Our first-quarter results marked a solid start to the year. The quarter started with unexpectedly strong lease-out demand and improvement in lease terms prior to the start of Chinese New Year. Demand declined in February as expected. Demand then picked up again in March and further accelerated in April, which was not only better than February and March combined but was our best bookings month in two to three years. In fact, January was perhaps the best second best booking month during that same period.

Lease rental income grew by 7% to $121 million compared to the year-ago quarter due primarily to our larger owned fleet. Adjusted net income was $59.1 million for the quarter. This result included a one-time $22.7 million discrete income tax benefit following the completion of an IRS examination. Excluding this one-time benefit, adjusted net income decreased 21% from the prior-year quarter.

We began the quarter with utilization of 94%. Our utilization is 94.7% currently. Much of this increase was due to the bookings made in January. As I already mentioned, April was not only better than January but was the strongest bookings month we have seen for a long time. The bookings made in April should increase utilization by approximately 1% once the containers are leased out, which we expect to happen largely within the next two months. Our depot inventory has declined for five of the last six weeks and is at its lowest level since last summer.

On the other hand, rental rates remain under pressure for the same reasons we have discussed in the past. One of the primary ones being that all lessors, regardless of size or experience, have easy access to financing at very attractive terms. Surprisingly, the credit markets do not seem to differentiate between larger experienced lessors and smaller, less experienced lessors, notwithstanding the fact that industry knowledge and international presence are critical to properly managing operating leases.

New container prices have fallen from around $2,300 earlier in the year to around $2,100 currently. Some container factories, primarily in Southern China, are operating multiple shifts and are sold out through June. Factories in other locations; however, have quicker turnaround times. We estimate the current new build inventory at factories to be approximately 640,000 TEU, approximately three-quarters of which is owned by leasing companies and one-quarter by shipping lines.

Used container prices continue to decline. They are down approximately 25% from the year-ago quarter and 5% this quarter year to date, which negatively affected gains on sales of our own containers as well as our trading business.

We invested more than $284 million during the quarter purchasing more than 143,000 TEU. This includes $31 million invested in purchase-lease back transactions and $35 million to purchase 30,100 TEU of previously managed containers. Our fleet size has grown by 9% since the year-ago quarter. The percentage of the total fleet that is owned increased to 76% to date, the highest in our history.

We declared a quarterly dividend of $0.47 per share. Current dividend level reflects our comfort with the stability of our business and strong cash flow and enables us to balance investing for growth with providing an attractive return to shareholders. The Board will continue to evaluate our dividend strategy each quarter keeping in mind the desire to deliver a strong, total, shareholder return.

We believe that some of the strong demand we saw in April was related to a desire by shippers to ship their cargo prior to new freight rate increases taking effect at the start of May. Nonetheless, we are cautiously optimistic that we will continue to see increased seasonal demand through the end of the second quarter and into the beginning of the third quarter.

We do not expect new container prices to increase significantly, if at all, above their current levels. We believe used container prices are close to bottom, although further declines are possible and are unlikely to increase significantly given the large quantity of containers for sale or being returned under existing purchase-lease back transactions.

This year we have seen fewer purchase-lease back opportunities than expected and the market remains very competitive. Even though we expect shipping lines to rely on lessors for more than half of their container needs in 2014, container rental rates will remain under pressure. Assuming that pick-up in demand we are currently seeing continues through the second quarter, we expect our normalized performance to show a quarter-to-quarter improvement.

With 84% of our fleet subject to long-term and finance leases, less than 4% of our total fleet subject to long-term leases that will expire this year, and the strong bookings we experienced in April we predict utilization will increase. We believe we are well positioned for 2014 with a conservative 2.3 times leverage ratio and access to additional financing if needed to provide operational flexibility.

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

Thank you, Phil. Turning to the quarterly results, we recorded $135 million of total revenue. Revenue grew 5% compared to the year-ago quarter. Lease rental income grew 7% as a result of the 16% increase in the size of our owned fleet when compared to last year. This was offset by lower per diem rental rates and utilization.

Management fees were lower year over year given the managed fleet acquisitions and disposal of managed containers. Gains on sales of containers decreased 53% due to the decreasing averaged sales proceeds as a result of lower used-container prices, as Phil mentioned earlier, in spite of the larger volume of containers sold versus last year.

Excluding the cost of trading containers sold, total operating expenses were up 27% year over year, primarily due to increased depreciation expense, which is the largest component of operating expenses. Additionally, direct container expenses increased as storage costs, handling and maintenance expenses increased due to lower utilization rates and a larger fleet size in the quarter.

Depreciation expense was $40 million for the quarter up $7.7 million or 24% year over year. Annualized depreciation expense increased from 4.2% to 4.4% of average gross container asset value.

As I mentioned last quarter, this increase in expense is due both to fully depreciated older containers being sold and replaced by more expensive new containers, the fact that PLBs have become the major source of supply for our resale business, and while PLBs are depreciated trading containers are not. A final factor is the increasing percentage of reefers in our fleet. Between 1% to 2% more of a reefer's original equipment cost is depreciated annually compared to dry freight containers.

Bad debt expense was $1.4 million or about 1% of revenue. We saw 16 day improvement in DSO versus last year, reflecting continued diligence over our credit and collection processes.

Our interest expense, including hedging costs, was $24 million for the quarter, almost flat versus the year-ago quarter in spite of a 14% increase in our average debt balance. This reflects our ability to again lower the Company's funding costs. Our average effective interest rate, which includes hedging costs, is currently 3.68% or down 50 points when compared to the year-ago quarter.

Last week we announced the execution of a new $500 million term loan and the redemption of the TMCL ABS notes. This financing will further lower Textainer's funding costs and free up cash for additional container investments. This transaction marks the completion of a multi-year plan to restructure the Company's financing facilities, which will increase our financial flexibility.

As a result of this financing, we record a write-off of $6.5 million of unamortized bank fees associated with the debt requirement in Q2. However, going forward we will benefit from the reduced cost of financing in the second half and beyond.

About 80% of our debt is fixed or hedged, consistent with the percentage of our total fleet subject to long-term leases. The weighted average remaining term of our fixed or hedged debt is approximately five years or slightly under five years. Under our interest rate hedging policy, we matched the weighted-average terms of our debt, including the duration of our hedging contract, with the remaining lease terms. The weighted average remaining term of our long-term leases is about 45 months.

Income taxes for the quarter included a one-time, $22.7 million discrete income tax benefit due to the completion of an IRS audit. Our reported net income was reduced in previous years by an equal amount. Excluding this one-time item, our tax rate was in the mid single digits and going forward we expect our tax rate to be in the low to mid single digits.

Adjusted EBITDA was $103 million in Q1, slightly lower than last year due to lower utilization and gains on container sales. However, in absolute terms, our EBITDA remains a clear indication of our continued, strong cash generation.

Adjusted net income, which excludes unrealized gains on interest rate swaps, for the quarter was $59 million resulting in adjusted EPS of $1.04. Excluding the one-time tax benefit, our adjusted net income would have been $36 million resulting in adjusted EPS of $0.64.

As Phil mentioned earlier, our dividend was $0.47 per share. We recently announced that beginning this year the Company will calculate earnings and profits under US federal tax principals for purposes of determining whether distributions to shareholders exceed the Company's current and accumulated earnings and profits. As a result, some or all of such distributions may be treated by US shareholders as a return of capital rather than dividends. We expect this will be a positive benefit to our shareholders that are subject to US tax.

Finally, turning to the balance sheet, as of March 31 our cash position was $91 million. Total assets were about $4 billion. Our leverage ratio was 2.3 to 1.

Thank you for your attention. Now, I'd like to open up the call for questions. Daniel, can you inform the participants of the procedures for the Q&A?

Yes, of course, thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Michael Webber, Wells Fargo.

Just a couple questions for you. Hilliard, I'll start with you and the IRS adjustment. I missed a portion of your comments. Is that adjustment confined to the first quarter or any of that going to bleed through to the second quarter?

No, it's confined to the first quarter.

Okay. That's helpful. Bigger picture, Phil or Hilliard, around box prices, mentioned they moved lower -- I guess I'll start the quarter, so we're off from $2,300 to $2,100. Do you think there is a meaningful catalyst to the back half of the year that we could see an uptick in box prices? It seems like we are in for another year where we're going to look at a narrow range for new box prices hovering in that level. Do you see a meaningful catalyst that maybe drive those prices higher in the back of the year? We have been thinking about it and we can't come up with any.

Mike, it's Robert here. We have doubts about prices increasing in second half of this year. While the new production market is very strong right now, demand is hot, it seems like our visibility is only into July. I think, both from the way we look at it and the way manufacturers look at it, the second half is a little bit open at this stage here. Global trade will dictate how pricing works out in the second half of this year. Right now, if we were betting people, we would probably say we doubt it's going to happen.

Right. Along those lines, Robert, and we've talked about this earlier, but it seems like CIMC got a bit more competitive throughout the quarter in terms of pricing some of their boxes relative to Singamas and even CIXE. Do you guys look at that as a worrying sign that maybe that there is a bit more pricing pressure, as those guys start fighting over share? Or is that something that's been going on behind the scenes for a while and maybe we shouldn't read too much into?

I don't think you should read too much into it. CIMC caters a lot to the shipping lines and there were seven shipping lines placing pretty large orders in the first half of this year. They got a very large percentage of those orders. The other manufacturers have been concentrating more on the leasing industry. Quite frankly, if you look at it right now, they're all more or less full through the end of June, in South China actually well into July. I think the overall situation is somewhat different. Big picture, what you saw is the effort to increase prices after the shut down after Chinese new year. Remember, the manufacturers shut down for six weeks. They were successful in getting prices up to about $2,300, but prices fell down and dropped pretty quickly there after. Probably faster than they wanted. While we did anticipate that price drop and were fortunate enough to order at the peak, they also fell a little faster than we had anticipated.

Got you. Okay. That's helpful. One or two more for me and I will turn it over. Phil, this one's for you. We've heard a lot recently and there has been a lot written about the container alliances with P3 and the G6 and the implications to their lease capacity and whether or not it leads to just a lower top-line demand figure for new capacity. In our end it certainly seems like it's going to have a much bigger impact on ships rather than boxes. When you guys think about that environment and that landscape over the next couple years, if you do see some more consolidation or quasi consolidation in the liner space, how do you think about that in conjunction with demand for new boxes? Specifically, from a slot-to-box ratio perspective are we low enough now that we're basically hitting systemic floors and really we're not going to get too much lower in terms of simply having enough boxes to handle the amount of capacity out there that we need it at certain threshold of boxes? Just some color on that?

Sure, Michael. First, it's important to keep in mind that alliances have been a factor in our industry for years and years and years. So, you read about the P3. You read about some of the other alliances adding new members. None of that is new. This has been going on in the industry for a long, long time. We are not looking at what's happening right now and thinking, oh, this is something new, a new dynamic that's dramatically going to change our industry.

Secondly, frankly the alliances as they grow, we feel that the larger the lessor you are, the better positioned you are to deal with these alliances as they grow in size anyway. It's not something that we're concerned about. We are the largest lessor in the world.

You mentioned about the slot-to-box ratio. It is pretty low. I know I have traveled around in Asia and met with many of our customers. Robert has done the same thing. He may have thoughts on this as well.

In speaking with them I'd say it is getting to a level that it certainly would be hard to decrease significantly below the levels that we are seeing right now for some of the lines that I have spoken with. Others I know have plans to try to further increase the ratio and we'll see how successful they are. Robert? I think I had mentioned the last earnings call, you always have to be careful with these slot-to-box ratios because you generally tend to pick a time and you really have to look over a longer period. I think to see sustainability in slot-to-box ratio you have to see vessels operating at full level for a longer period. That's when you will see the true picture, and we haven't seen that for a while. I do believe they are on the low side right now. In a normal operating environment I think they would be somewhat higher.

Got you. Thank you, guys. I appreciate the time. Thanks.

Steven Kwok, KBW.

Did you guys have any -- our could you talk about any portfolios within your lease that's up for renewal or just curious around the lease rates? It seems like the lease rate for the average portfolio ticked down a bit sequentially after being fairly consistent last year. I was wondering were there anything that came off or that were renewed or rented our at that lower rates?

Keep in mind that all the containers going out are going out at significantly lower rates than they would have been on prior to being returned to the depot, and the extension of LTLs that we are doing right now they are being extended at rates below the rates at which they were previously. As we noted in our opening remarks, this year in particular, we only have about 4% of our fleets that's up for renewal in 2014. The rates on the leases that are coming up for renewal today are not dramatically different. They are higher, but they're not dramatically different from where the market is today.

Great. Thanks. Then in terms of -- can you provide a little bit more color around your expectations heading into the peak season? It seems like there is a little bit of cautious optimism. I just wanted to get a little bit more color on that?

The optimism is because of the demand that we've seen in the last two months. March was a strong month and April was an extremely strong month. That, we do believe that part of that demand was driven by the desire to ship prior to the GRIs taking effect in the beginning of May, but we also believe that we're going to continue to see a strong demand as we go into the second quarter. Right at this point it's difficult to predict how long that will stay and whether we'll make it to a third quarter peak as we used to see several years ago but certainly did not see last year.

Great. Thanks for taking my questions.

Taylor Mulherin, Deutsche Bank.

I wanted to start off by asking about the secondhand market and how it might be impacting your utilization so far? Basically, just with the weakness in the secondhand market and how that's been going on for a fairly sustained period now? Is it fair to say you are keeping some of those would be sale candidates back into the fleet, so essentially, negatively impacting utilization that way? If that is the case, just how that is going to affect or is affecting expenses at the moment?

Actually, Taylor, I read your report this morning and saw that comment and I thought, it's not really accurate. So, I am glad you asked the question because it gives me an opportunity to comment on it. First, if a container is slated for disposal, then it is actually not included in our utilization figures anyway, so it would not have an -- to not sell containers, is not something we would be doing to affect our utilization figure. More important, let's look at it from an operational point of view. Our attitude is when a container is in a situation where it should be sold then we try to sell the container. Yes, container prices have come down. We've seen it, I think, across all lessors have seen the same effect, but we're not stopping the sale of containers simply because container prices have declined. Once a container is slated for disposal, I can tell you that we put every effort we can into selling that container as quickly as possible.

Okay. That's great color. I appreciate that. Then, I just wanted to talk more generally about rates, and then the goal of continuing to maintain or even gain market share? Rental rates remain under pressure, of course. Given that new container prices are also weak, I imagine and you've shown that you're going to continue to be aggressive expanding your fleet. Just from a general sense, do you think that some of that growth in the industry is part of the problem with rental rates or is it a more of just a broader economic issue?

We've noted several times that one of the factors, actually you didn't touch on, I think you're well aware of it, is simply the access to financing and inexpensive financing. You've seen the cost of funds going down for all lessors in the market. Frankly, as we have noted, pretty much every lessor seems to have access to equal cost financing. That certainly has been a big factor in bringing down rates, because the cost of financing for the leasing companies has dropped significantly. You combine that with falling new container prices, so both of those have contributed to a decline in rental rates over the past two years.

Then one more quick one. I just wanted to ask about the management fees. It looks like it's coming down, if you look at it on a per TEU basis. I just wanted to get a little color on what goes into that line item and how to think about it going forward?

The management fees are going down largely because our managed fleet is declining in size. That's one factor. Certainly the other factor is the management fee is the percentage of the operating performance of the managed fleet. As the performance of the fleet declines with lower rental rates, you are going to see management fees declining as well. The bigger factor simply is that as we continue to buy containers from our managed fleet, the size of the fleet shrinks.

Okay. Guys, thanks for your time.

John Mims, FBR Capital Market.

This is Kris Kerry on for John. Just on outlook, you guys mentioned that you saw a pick up of container demand in April that exceeded the February and March levels, just given that you thought some shippers were front running the rate increases. I was just wondering how those are trending? How activity is trending here in May so far? Because I know that the GRIs in the trans-Pacific lanes have been less successful, and I was just wondering if you have seen a continuation of that dynamic going into May here?

Hi, Chris. It's Robert here. Yes, we actually do. We thought there would be a little bit more of a slow down after the May 1 holiday, but it seems like it is taking off at a fast pace. Maybe not April level, but at a very strong level that we're taking anytime. We feel good about our outlook for the next two to three months here. That's what we have visibility of. That goes for both moving our new production, but also converting inventory depot inventory into one hirers, which is very important for our profitability.

Right. Just to get a feel for how we're looking so far in May relative to January. If April levels were exceeding those in January and February and March combined and you think that May is off to a slightly better start than you had initially envisioned, are we tracking January levels currently?

It's still early to say, but that's what we're trying, but it's still early to say. I think what we're seeing right now, which is interesting, is that the timing between booking and physical pick up is a lot shorter than what it has been in the past. We used to say that it takes anywhere from 45 to 60 days for conversion and right now when we are getting bookings the containers are moving more or less right away. That's a positive sign.

Okay. That's really helpful. Thanks. Then just my last question here, then I'll turn it back over. I just wanted to circle back on the new container prices. Obviously, the new container prices are down about $200 from the January levels. I was just wondering what you thought was driving that 10% or so decline given that on the manufacturing side it seems like to start the year they were making a concerted push for price and certainly a bit of margin stability. Understanding that you'd mentioned on the call a couple times already that the cost of funding for a lot of these other lessors was still incredibly cheap. I was wondering if you could provide any additional color on what you thought was driving those prices given what we're seeing on the manufacturing side?

Chris, I don't think we should focus too much on that $2,300 price, because, quite frankly, without that six-week shut down and the four manufacturers sitting down together, prices should not have -- there was no demand to justify the price of $2,300 during that period. It is true that prices have certainly dropped down to a lower level at a time where demand is pretty peak. You can then ask, why is that? I think it's because there is a little bit of a murky outlook in the third quarter. As I mentioned, the manufacturers are pretty full through mid July but they're actually wide open after that. I think they're a little bit concerned about that situation. Knowing that, clearly, I don't think you see the same extent of speculative orders from the leasing industry either. I think that's the psychology of that led prices to drop faster than expected. Basically, all manufacturers saying, we better get our market share right now rather than wait.

Okay. If I could just squeeze one last one in here, related to that point. I think you mentioned that approximately 3/4 of the current inventory is dedicated to the lessors, but you still believe that that 50/50 split for the full-year container lessors to the shipping lines is probably a reasonable assumption?

If we look at the statistics through the end of April, leasing companies bought 55% of new production through then. I don't see that situation changing rest of the year. Quite frankly I think that the leasing industry could have a higher percentage at the end of the year.

Okay. Well, thank you very much for the time.

Doug Mewhirter, from SunTrust.

Most of my questions have been answered. Just a couple ones. The rate compression, is that more exacerbated or more extreme in the dry box realm? Have reefer and special prices held up better in terms of rates or yields, however you want to characterize it?

Doug, I think we can say that all product types are incredibly competitive now. There is just more capital following fewer deals, and for every deal, even every reefer deal, there are three, four, five vendors that can provide that equipment and so every deal, small or big, is a battle.

Okay. Thanks for that. I noticed that if you look at your trading revenues and trading costs you actually had a small operating loss in that operation. That actually surprised me a little bit because I imagine that you have a little bit of flexibility in that operation to adjust the timing of your purchases and sales. I just wondered if you could -- was there anything unusual that happened in that quarter where your costs were higher than your sale volume in the trading department?

Thanks for asking that question, Doug, because I actually wanted to provide a bit more information on that. First, these trading boxes that we buy in many cases were purchased over a year ago. Then, they're often -- the shipping line will take them similar to a purchase lease back and continue to use the containers for a period of time before returning them to us, so the prices we paid were prices that were higher than today's prices. It's not as though we bought these containers yesterday and then turned around and sold them today and sold them at a loss.

Each one of the deals that are involved on an individual basis is significantly profitable and remains profitable over its life. However, the last residual bits of containers we're getting back are being sold at prices below the prices we initially paid for the containers and we do not depreciate trading containers unlike a purchase lease-back container, which we would depreciate. Finally, as we saw this happening we actually took an impairment on the remaining inventory of these older trading containers. Had we not taken that impairment, which was about $560,000, had we not taken that impairment, we would have shown a slight profit in the trading business. But, we decided to recognize that this quarter, which should obviously help as the remainder of these containers come off lease and are sold over the subsequent months. They're our only -- there are less than 2,000 such containers left.

Okay. Great. Thanks. That's a lot of really good information. Going back to maybe bigger picture level, it looks like we're looking at -- or various forecasters are looking at between 4%, 4.5% maybe 5% world-wide containerized trade growth forecast for this year. Is that seem to be tracking now? I realize that you have limited visibility. What would it take beyond that to really start to push yields or rates or box prices back in a positive direction? Are you going to have to out strip that by 100 basis points? 200 basis points? If you just get in line with the forecast, is that going to have good results?

That's a bit of a challenging question to answer. Let me make a few observations. One, I don't think from our vantage point we can say, gee, do we expect trade growth will be 4.5% or 5.5% this year. However, I have read plenty that would indicate that figures over the past several years, especially coming out of China, were inflated and that the throughput in container terminals in China currently this year is greater than what had been anticipated, so I think that level of trade growth is realistic. I don't have any special insight other than what I've just noted to make that observation.

At that level of trade growth, no, I don't think we're going to see a dramatic change in rental rates. It would take more than that to see rental rates go up. There is an awful lot of liquidity among the container leasing companies, availability to buy containers as well as, remember, the factories are producing at a level that is certainly well below their potential output. If there was an increase in demand, I think containers could be produced and purchased. If there is the liquidity in the capacity do so, I don't think that we would see it 4.5% or 5% growth a dramatic effect on rental rates.

Thanks. That's all my questions.

Salvatore Vitale, Stern Agee.

A few questions, first one for Hilliard. Given the refinancing you did earlier, this I guess it was in April, can you give me a sense for your first full quarter? What's the full-quarter run rate interest savings? How do I think about that?

Sure, Sal, let me just walk through it. There is an immediate impact of $6.5 million that you will see in Q2. This is a non-cash write-off of unamortized bank fees, so these were fees paid in previous quarters. If you look at the net impact of that, which includes some savings, it's about $0.09 per share negative impact in Q2. On a go-forward basis, the annualized savings is about $0.12 annually, or I would say about $0.03 a quarter.

Okay, so $0.12 annually and that $0.12 excludes, obviously, the $6.5 million write-off.

Yes. We'll see, like in the second half for instance, about a benefit of about $0.06 per share and then $0.12 thereafter.

Okay. Great. That's helpful. Phil, if I could just follow up on the last comment you made? I think the number that was mentioned was something like 4.5% container trade growth, and given the excess capacity or the availability capacity at the manufacturers to ramp up production to meet any increased demand, you thought that 4.5% trade growth level wouldn't be enough to increase market rental rates. Is there a level you have in mind where you think it would have that beneficial impact where it would increase rental rates significantly?

Sal, I'm struggling for an answer. I don't know what level would have a big impact on rental rates. As I noted, we have a lot of liquidity in our industry. We have the capacity to buy the containers. I think the bigger impact would be really if there was a turn around that was dramatic and happened in a short period of time.

Right.

Then you would see a bigger effect on rental rates. Any kind of demand increase that happens over a period of time I think can be accommodated within reasonable bounds. Certainly if demand were to increase something like the level we saw in 2010, that would impact rental rates. I don't believe anybody is expecting that that will happen this year.

Okay, so you're saying that you'd basically need to see some kind of short-term demand shock type of situation where demand really ramped up in a short period of time over a couple of months where production wasn't able to keep pace immediately and then therefore the rates would rise.

I think what we're talking about here is the dramatic increase in rental rates, and yes, I think right now, that something like that would be required if you wanted to see a dramatic increase in rental rates this year.

Right, so it's really more a -- it's not a function of demand being that weak necessarily. It's more a function of the competitive pressure because like you said liquidity is so readily available amongst all your competitors.

Yes.

Okay, that's helpful. Just to follow up on something you mentioned earlier. You said that about 4% of the portfolio is expiring this year and the rates on the expiring leases are not dramatically higher than the current rates. Can you give me a sense for number one, in 2015, that 4%, is it significantly higher than that? If you can give any color over next couple years? Then, if you can give any color on the delta between say the current market and the expiring leases next year and 2016 maybe?

Hey, Sal, in our IR presentation, which is on the web right now, we go year by year through 2018. It provides the long-term lease expirations as well as the average per diem rates for those expirations, so it gives you an outlook for the next couple of years.

Okay. Perfect. I will take a look at that. When was that published? Just curious.

Probably about an hour before the call.

Okay. Great. I'll take a look at that. Then, I think that pretty much answers all my questions. Any additional questions I'll call offline with you. Thank you very much.

Daniel Furtado, Jefferies.

I just had one quick question. The last couple years residual values have been increased on the portfolio, which has had a benefit to depreciation. What's the risk that these residual values will have to be revisited considering the current box environment?

We review our residual values relative to container prices every year. Generally, we do it a little bit later in the year and we will certainly redo it again this year. Right now, the average prices that we're seeing on most container types are still above our residual values, but there are a few areas that we are paying attention to. Clearly, if the data indicates, support a change, we will pursue a change. However, it would have to be something that we see happening over a period of time. It's not just because prices have changed for one month or even say four or five months. We'd like to see that change happen over a period. It's similar to when we have raised residual values in the past. We have gone through extended periods of gains for a while before we make that change. It's not something we generally do lightly.

Understood. Is that a multi -- like two to three years? Is that how to think about that timeframe that you prefer to see?

I would say two to three years might be on the far end, but certainly it's a longer period of time than several months.

Understood. Okay. Thank you for the commentary.

Tulu Yunus, Nomura.

Just getting at the rental rate question from a different angle, if I can? Do you guys have a sense as to what type of returns some of these smaller new entrants are generating? Given the fact that they have such a lot less skill, I am just wondering what the delta is in their returns and whether that may be approaching a reasonable bottom or not? I am just curious if you had any idea?

Tulu, we really don't know how our competitors are looking at the business. We simply focus on our own business, our own cost of funds. We are the most efficient operator of, at least certainly what we can tell from the public companies, on a cost per unit basis and these are the items we focus on when we are doing business. We really don't know what our competitors' costs are or how they're pricing their business.

Okay. Got it. Just going back to a comment I think you made in the prepared remarks. Correct me if I am wrong. Just on used prices, was there a reference to an outlook there that used prices may be approaching a bottom? If so, how are you thinking about that? Is that based on a percentage of new box prices and the relationship that that has held historically? Just wondering if there are any insights there?

No, we have seen a slow down in the rate of decline of used container prices. We're also entering the season when the demand for used containers often starts to pick up as we go through the summer and into the fall. These are the factors for that. Having said that, I did note that used container prices were continuing to fall through last month. I am not saying that they've absolutely reached the bottom. They may fall more.

Got it. Yes, I think you said year to date they've fallen 5%, right?

Yes.

Okay. Got it.

If I can just add to that answer. We're not convinced that our residual values and disposable prices follow new production prices. They probably follow utilization more. With fleet utilization increasing pretty dramatically right now, that certainly won't hurt our residual value.

I see. That's interesting, thanks. Lastly, a quick one on the CapEx number that you provided for the quarter $284 million. I went back to the year-ago press release and I think the data you had back then was, as of the call. Do you have a comparable stat for the $284 million year-to-date CapEx relative to last year?

That is as of the call.

Oh, that's as of today. Okay. Got it. Cool. Thank you very much.

Those are all the questions that were in the queue.

Well, thank you, everyone, for joining us for our Q1 conference call. We look forward to talking to you as we progress through the quarter. Thanks, everyone.

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