Textainer Group Holdings Ltd (TGH) 2017 Q1 法說會逐字稿

Welcome to the Q1 2017 Textainer Group Holdings Earnings Conference Call. My name is Adrienne, and I'll be your operator for today's call. (Operator Instructions) Please note, this conference is being recorded.

I'll now turn the call over to Executive Vice President and Chief Financial Officer, Hilliard Terry. Mr. Terry, you may begin.

Thank you, and welcome to Textainer's 2017 First Quarter Conference Call. Joining me on this morning's call are Phil Brewer, TGH President and Chief Executive Officer. At the end of our prepared remarks, Olivier Ghesquiere, Executive Vice President in Leasing, 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 U.S. securities laws. These statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results.

Finally, the company's views, estimates, plans and outlook, as described within this call, may change subsequent to this discussion. The company is under no obligation to modify or update any or all statements that are made. Please see the company's Annual Report on Form 20-F for the calendar year ended December 31, 2016, filed with the Securities and Exchange Commission on March 27, 2017, 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 this call, we will use 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 directly comparable GAAP measure will be provided either on this conference call or can be found in today's earnings press release.

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

Thank you, Hilliard. I would like to welcome you to Textainer's 1st quarter 2017 earnings call.

The positive changes we are seeing in the market are reflected in our results. Our lease rental income increased quarter-to-quarter. We have recovered a higher percentage of Hanjin containers than we expected at the time of the company's default; impairments are down and gains on sale are up; utilization is high and increasing.

The increase in lease rental income reverses the consecutive string of declines in quarterly lease rental income for more than 2 years since the fourth quarter of 2014. This increase is a clear indication of the improvements in new and depot container lease rates and lease-out demand that we are seeing.

We continue to make excellent progress recovering Hanjin containers. To date, we have recovered or are in the process of recovering 88% of the containers leased to Hanjin and are actively negotiating the release of another 5%. The remaining containers are being recovered in small batches. We have $80 million of insurance after a $5 million deductible to cover unrecovered containers, lost revenue and recovery and repair costs. We believe our total claim will exceed our insurance coverage by $10 million to $20 million.

Impairments related to containers awaiting disposal have decreased significantly over the last 3 quarters. This reduction is due to several factors including an increase in used container prices, up approximately 50% since last summer, and a decline in the quantity of containers being put to sale due to the strong lease-out demand.

Additionally, the increase in used container prices also resulted in a sequential increase in gains on sale. We expect these trends to continue during 2017.

With the changes we made to our depreciation policy during the third quarter last year, we now have the lowest residual values of our peers for the major container types.

As a result of these changes, our quarterly depreciation this year increased by almost $10 million. As a point of interest, in many locations, current sales prices exceed our revised residual values.

In addition to increases in depreciation expense, our effective interest cost is also increasing due to the restructuring of several of our debt facilities as well as recent refinancings. Hilliard will elaborate on these points.

Utilization averaged 95% for the quarter and is currently at 96%. Since the beginning of March, our utilization has been increasing 0.1 to 0.2 percentage points per week. Our utilization benefits from the fact that 83% of our fleet is subject to long-term and finance leases, of which only 7% mature in 2017 and more than 40% of recovered Hanjin containers have been leased out.

Furthermore, the average rate of the expiring contracts in 2017 is $0.62 per CEU per day. New container rental rates are significantly higher, making it easier to extend maturing leases at attractive terms or, if the containers are returned, to re-lease them.

New container prices are currently above $2,200 per CEU, a slight decline from prices earlier this year, likely related to declines in steel prices. Steel prices have declined further recently, whereas plywood, paint and manufacturing costs have increased. Taken together, these factors suggest that new container prices will remain above $2,000.

Initial cash-on-cash returns are in the low double digits. Rental rates have increased much more than the increase in new container prices, demonstrating that margins have increased as well. Rental rates for depot containers remained strong, up to triple the level of last summer.

Current new container inventory at factories is approximately 500,000 TEU, which is higher than January to February but not excessive for this time of year. Part of the reason for the increase is that many orders were placed for delivery prior to the 1 April change to waterborne paint. There is not an excess supply of containers in the world. Utilization is high, new container and depot inventories are low and new orders are in line with market demand. Approximately 950,000 TEU have been built or ordered this year compared to production last year of 1.8 million TEU.

As already noted, used container prices have increased by 50% on average worldwide, with some locations, primarily Asia, showing even greater increases. We believe used prices will remain around current levels even if new prices decline slightly due to the reduced quantity of containers now being sold. Our adjusted net loss for the quarter totaled $9.1 million or $0.16 per diluted common share.

The outlook for the major shipping lines is more positive now than it was last year. Demand is strong, freight rates are above the record lows of 1 year but lower than they were 2 years ago. Operating costs are down, offsetting some of the long-term decline in freight rates. In May, the lines successfully introduced GRIs on the major east/west trades, but it's too early to know if these increases will stick.

The grouping of most major lines into 3 alliances should result in increased operating efficiencies. Interestingly, recent port congestion in Shanghai and other Chinese ports is attributed in part to the April start-up of the alliances. Such congestion is generally positive for container leasing.

Vessel fleet growth in 2017 is projected at only 3%, assuming ongoing demolitions. The vessel order book is small at only 16% of the existing fleet. No new vessel orders are likely, due in part to the limited liquidity available from banks or the capital markets for investment in vessels.

Although the major lines lost a combined $3.5 billion in 2016, we believe the credit outlook is better today than it was last year, due not just to the improved outlook for shipping lines, but also to steps that have been taken as a result of Hanjin's bankruptcy. Some of the lines considered to be greater credit risks have had their debt restructured and/or received injections of new equity. Lines are well aware that shippers will avoid them if they're considered unsound financially. The alliance went so far as to announce specific measures that will be taken if a member becomes insolvent.

We expect our performance will continue to improve over the course of the year due to the increase in new and depot container rental rates and used container sales prices. However, our earnings will continue to be negatively affected by the increased depreciation and interest expense I mentioned earlier as well as reduced but ongoing impairments. Nonetheless, each day we are more encouraged by the positive signs we are seeing.

I will now turn the call over to Hilliard.

Thank you, Phil. I will review the major drivers of our results this quarter and provide more color on the financial impact of the items Phil mentioned in his comments.

Lease rental income was $107.6 million. When compared to last quarter, lease rental income increased by 1%, marking the first sequential increase in more than 2 years. On a year-over-year basis, lease rental income declined by 12%. The loss of lease rental income from Hanjin accounted for approximately half or 6 percentage points of the decrease. The remainder of the change was due to lower per diem rates and lower utilization when compared to Q1 of last year.

Higher used container prices and a stronger resell market resulted in an increase in gains on sale and profits in our trading business. An additional benefit of a stronger used container market is that this quarter's impairment to write down containers pending disposal to their fair market value amounted to $7.7 million and was down year-over-year from the $17.3 million in the year-ago quarter and down sequentially from the $12.9 million we reported in the fourth quarter of last year.

We also recorded a $4.7 million reversal of previously recorded impairments on held-for-sale containers due to an increase in used container prices. We expect the monthly run rate on impairments to continue to decline.

Depreciation expense was $60.6 million for the quarter, up $8 million year-over-year. As you may recall, in Q3 of last year, we changed several aspects of our depreciation policy. These changes resulted in about $10 million of additional quarterly depreciation expense. This quarter's depreciation expense was partially offset by lower new container prices during 2016 in spite of an increase in the size of our own fleet of dry containers. Going forward, we expect to have approximately $39 million of incremental depreciation expense annually due to these changes. If you'd like more information or details on the changes to our depreciation policy, we've included a table summarizing these changes in our quarterly IR slide deck.

Annualized depreciation expense for the quarter was 5.2% of average container cost, and we expect it to remain at this level.

Direct container expenses increased $5 million or 34% year-over-year to $19.7 million for the quarter. Although storage costs decreased by about $1 million due to increased utilization, our repositioning expenses increased by $4.6 million, and $2.8 million of this increase was due to repositioning expenses of former Hanjin containers. We had small increases in handling, repair and insurance items, which also impacted direct container expenses.

For the fourth quarter, our interest expense including realized hedging cost, were $30.1 million, a $4.2 million increase from Q4 of 2016 and a $7.8 million increase compared to the year-ago quarter. We completed several amendments to our bank facilities to replace legacy covenants, which were focused on EBIT as opposed to more appropriate cash flow-related metrics. After the close of the quarter, we also set up a facility to retire existing asset-backed notes. The increase in our interest expense reflects the cost of these amendments and the revised financing costs resulting from our actions.

Our average effective interest rate, which includes realized hedging cost, is currently 4.03%, an increase of 100 basis points when compared to the year-ago quarter. More than half of the increase was due to an increase in the benchmark rate and incremental amortization of fees, while the balance resulted from an increase in the spread as several of our facilities were repriced to align with current market rates.

Sequentially, our effective rate increased 59 basis points. The biggest component of the increase was the increase in spread. As of quarter end, over 77% of our debt was fixed or hedged compared to 83% of our own fleet subject to long-term and finance leases. The weighted average remaining term of our fixed and hedged debt is 44 months, and the weighted average remaining term of our long-term and finance leases is 42 months.

While our access to our bank facilities was limited as we worked through our amendment process, I am pleased to report that we've successfully completed the amendments. Given the very favorable capital market conditions, we're now working to access the longer-term debt markets and expand our financing sources.

We continue to recover the final Hanjin containers and redeploy these containers so that they begin to generate cash as quickly as possible. We increased our cash position by $10 million from the beginning of the year despite the cash required and the expenses to recover the Hanjin containers. As you may recall, the 114,000 Hanjin containers represented 6.4% of our total fleet. Within 9 months after the bankruptcy, we've recovered a significant portion of the containers and still expect to recover more. To date, we've spent approximately $50 million recovering, repairing and reactivating former Hanjin containers. Given the strong market conditions, our expected repositioning expenses, which are not covered by insurance, have come in much lower than expected, and we believe the bulk of our Hanjin-related expenses are now behind us.

To date, we've put more than 40% of the recovered containers back out on lease at rates that reflect the improved market environment.

Lastly, we filed our initial claim and expect to start receiving cash payments from the insurance proceeds in the coming weeks. However, the final payments may not occur until much later.

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

(Operator Instructions) And our first question comes from Michael Webber from Wells Fargo.

This is Don McLee on for Mike. My first question is just around that incremental cost related to the insurance in Hanjin. Could you speak to what that incremental $10 million and $20 million above your insurance coverage consists of?

Thank you very much for asking that question, because I think we should have been a little clearer in our initial opening remarks on that point. That amount has been recognized already in the third quarter and the first quarter of this year. We don't expect it to impact us going forward. It is possible that we will have some additional repositioning expense with respect to Hanjin containers. Repositioning expenses aren't covered by insurance in any event, and we don't expect the amount to exceed a few million dollars.

Okay, that's definitely helpful. And then second will be just where do your current depot inventory levels stand? And in terms of your redeployment priorities, how do you prioritize redeploying the ex-Hanjin containers, your depot inventory and then the expiring leases?

Yes, Olivier Ghesquiere speaking. Just a quick word, since this is the first time I participate. Just to introduce myself, just to say I have 25 years' experience in asset management, where I've been involved with container, rail car and locomotive leasing businesses. And just to say I'm very excited to join the team at Textainer at a time when the market is turning now. Coming back to your question in terms of depot inventory, I would say our depot inventory is at its lowest, and our unbooked inventories is even lower. So we're really in a situation where we're maximizing our position and we're able to achieve increased rental rates on that depot inventory at the moment.

I mean, obviously, when our utilization is as high as it is, it's pretty clear that our depot inventory is not very large.

Got it. So it seems like the redeployment of the Hanjin containers is the priority.

That certainly has been our priority since the point in time at which Hanjin declared bankruptcy. It continues to be the priority, but we've also got depot containers elsewhere in the world. What we're finding right now is, because of the very strong lease-out demand that we see in Asia, we're often able to trade off pickup side of Asia along with pickup side of locations that are often harder to lease out. So that's the reason why our depot inventory is quite low.

Got you. And then one last one before I turn it over. I believe Hilliard alluded to this on an incremental basis with the commentary in the effective interest rate, but could you just provide some more color on the terms you were able to secure on that refi facility?

Sure, Donald. Basically, we refinanced -- or I should say, amended our bank facilities. And if you look at where they were priced, they were priced -- frankly, a while ago and priced below market. And so some of them were repriced. And I would say the incremental spread was probably in the 50 basis point range in general.

And our next question comes from Helane Becker from Cowen and Company.

So just on the containers now in the manufacturing level. So we've already converted, we're like 5 weeks into the process. Have you noticed the manufacturers have come back online? Can you just maybe give us some update on what you're seeing? Because I feel like the last time we talked, you thought that there would be slow orderings in April until people were certain that the containers that were coming out would -- the paint would adhere and so on.

Yes, Helane, Olivier. Just to say the first quarter, as you mentioned, has been extremely active. We estimate 750,000 containers was -- were manufactured. As from 1st of April, the production capacity was reduced as a lot of factories either shut down or reduced capacity to produce waterborne paint container. And the production volumes have come down to about 150,000 TEU per month, which is a lot lower as what it was in the first quarter. At this point in time, the number of orders has reduced, but it's also fair to say that the production capacity that is available is pretty much fully booked until the end of June.

Okay. So can you say when you think these facilities will be back online? If we assume like 750,000 is kind of a normalized month, when do you think we'll be back to that level?

Helane, the production capacity will be a very progressive thing. Actually, a lot of manufacturers are observing the situation. And depending on the orders they will get, I think they will decide to go ahead with the necessary investment. What we can see is that the overall production capacity will be lower and will never be -- the factories will never be as efficient as they were before the introduction of the waterborne paint. There's a few reasons for that. One reason is that some factories are simply shutting down and will not be opening again. The second one is that the factories that are -- have fully converted to waterborne paint are very limited. More so, the other factories are doing adjustment to their production line, and they will produce waterborne containers but they would produce fewer numbers than they were able to produce before, which would also have another impact in terms -- probably, in terms of productivity and total manufacturing cost for the manufacturers.

I mean, maybe there -- I'm sorry, Helane. This is Phil. Just to build on that a little bit. Some of the trends we are seeing, and I'm sure you've seen it too, is steel prices have come down. And in fact, new container prices have come off slightly from their highs of earlier this year. But apart from the fact that steel prices have come down, some of the other component costs of plywood to paint have, in fact, increased. And then you have the points that Olivier was raising about the manufacturing cost going up, and in part because of being less efficient. So you've got a few factors here playing into the -- I know you weren't asking specifically about new container price, although I think it was implicit in your question. You've got a few factors here, steel price going down, but other factors going the other direction, pushing up and helping support prices at around where their current level is.

No, I think that's very good. I mean, I think the point that we're never getting back to the old levels is pretty significant. So that's kind of a good-guy event. I just have 2 other questions. One is I'm kind of assuming that the fact that the Federal Maritime Commission rejected the Japanese merger for those 3 lines is like irrelevant to the container leasing business. Or is it relevant?

Well, I'm not sure that what they did was reject the merger. My reading of what happened is that the Federal Maritime Commission said that they are not allowed to exchange certain information until they are merged. While they're going through this merger process, they can't share competitively sensitive information. So it's fully expected that the merger will continue. It's just that the process of communication between the 3 lines prior to the point at which they merge will not be, what, as thorough as they had hoped.

Okay. So I mean the bottom line is that has no relevance to your business?

No. Not really, no.

Okay. And then my last question is on bad debt expense. Was there a carrier, or is -- I mean, is there another something out there that we should know about that caused that number to -- I mean, it's down year-on-year, or -- yes, it's down year-on-year, so that's a good thing, but I kind of was surprised to see that it wasn't 0.

No, there's no other major carrier that we're concerned about as of -- well, there are a few carriers that I think everybody is looking at, but there was not a major carrier that impacted our bad debt expense.

And it was very minimal, Helane, this quarter.

And our next question comes from Doug Mewhirter from SunTrust.

Just a couple of questions. First, on the liability side of your balance sheet, Hilliard, do you have any, I guess, pending maturities of ABS or bank facilities or term loans or anything like that, that you would need to restructure or pay off within the next 12 months?

No. We have a warehouse facility where the revolving portion is going to end in the September time frame, so we'll look to redo that facility. But we do not have anything that has a hard maturity in the next 12 months.

Okay. And on the asset side, it looks like you took a pause with CapEx, although all you could argue that the returning Hanjin containers gave you a fairly nice amount of supply without having to spend any money other than to get them back. Do you anticipate more CapEx? I know that the factories seem booked, but are you part of those bookings that you talked about in the second quarter? Or is it going to be remaining a little slow until the third quarter, all things being equal in the industry?

Thanks, Doug. Well -- this is Phil. A few things. One, you're right. Our CapEx was down. We were pretty focused on recovering the Hanjin containers, and a lot of our cash went into the Hanjin containers. Not just Hanjin, though. We've got a few other items, right? Every time that we have either impairments or the fact that our depreciation -- I mean, right now, we have the lowest residual values in the industry on the major equipment types. As a result of that, our depreciation expense has increased. Clearly, those that -- while depreciation itself might not be a cash item, it does mean that we have to pay down the related debt. So there's been demands on our cash apart from the CapEx. So our CapEx in the first quarter was, frankly, minimal. As we start to collect the insurance proceeds, which we expect to receive, at least the initial payments, over the course of May and further payments thereafter, and as we continue to wind down the Hanjin recovery, we do believe that our CapEx will increase going forward this year.

Okay. And a quick clarification. Where will we see those Hanjin payments show up? Would that -- Will that show up on your revenue line or in the -- as a contract expense?

No, Doug. If you look on our balance sheet, you'll see an insurance receivable. And basically, as we get the cash in, you'll see that receivable decline.

Okay. And so have you recognized -- but you haven't recognized any of those insurance recoveries as revenue, or have you?

Well, no. The expected insurance receipts were netted against the expenses.

Okay, thanks for that. And the last question, bigger-picture question. I noticed there was -- a couple of weeks ago, there were some rumblings in the container trade press about Yang Ming and Evergreen that neither of them were doing very well even though the environment was improving. I didn't know if you had any commentary on that situation. And also, are either of them active lessors? For some reason, I recall Evergreen owns most of its fleet, but I just didn't know if you had any commentary on any of that.

I -- well, I think what you're saying needs a little qualification. Generally, Evergreen is not considered to be a credit concern. And it does, in fact, lease containers. Both Evergreen and Yang Ming are strong customers of ours and strong customers of any of the container leasing companies. Yang Ming is the line -- probably the reason you're talking about both is because there were rumors that the Taiwanese government was looking to see if they could merge the 2 of them. The government owns -- has a substantial shareholding in Yang Ming, and Yang Ming's financial performance has certainly been a concern to some. But in the aftermath of the Hanjin bankruptcy, we have seen governments in Asia take strong steps to support other shipping lines, Hyundai being one, Yang Ming being one. And so currently, the view is that while Yang Ming's financial performance, and they would be the first to admit it, is not at the level they'd like to see, that the government's providing strong support for the company.

And our next question comes from Bob Napoli from William Blair.

Just wanted to kind of follow up. And obviously, your 2 public competitors have shown returns to profitability and some -- given some outlooks, for pretty good profitability improvement quarter-to-quarter, and you're behind that trend. And you talk about a slow return to profitability obviously affecting your stock price today. I guess that's the main thing. But what has caused you to be in a -- in a short term at least, a less attractive position? Is it the investment in reefers? What percentage are reefers of your business? Or is it -- I mean, the credit facility, the way it was structured, gave you less flexibility, more exposure to Hanjin? What is it and how long does it take? Assuming the market environment stays around like it is today, how long does it take for you to start generating reasonable profitability? Is it 12 months? 18 months?

Hi, Bob. This is Phil. I appreciate that question. I think it's an excellent question. Let me do my best to try to answer the question. The first -- the biggest impact in my mind is that we had a higher percentage exposure to Hanjin than our competitors did. And that's certainly been a big impact on our performance over the past couple of quarters. And although that impact is starting to -- has started to decline, we still will see some of that impact in the immediate near future. Beyond that, we had a very high level of impairments. I know some of our competitors did, too, but I think, perhaps some of our sales policies may have differed. There may have been decisions simply not to sell. We generally don't try to time the market. If you think about market conditions last year, early last year especially, sales prices were very low. There was certainly no expectation at that time that you would've seen resale prices coming up to the level that they've come up today when you were looking from last quarter. And I think we were affected by that high level of impairments as well. We also have, as I mentioned earlier, the highest level of -- the lowest level of residual values in the industry, which result in a very high level of depreciation expense. And then, finally, and you touched on this one as well in your question, is just the structure of our financing facilities differ. And I'm not privy to all the terms of the financing facilities of our competitors, but I believe, as we look back, perhaps some of the covenants and the way we structured our facilities were really not appropriate for the type of business that we are. So in my mind, those were some of the biggest reasons why we're underperforming.

And the timing of getting to -- theoretically, assuming you're making the right managerial moves, that as we go over the next year or so, that these issues should -- I mean, and actually having the lowest residual values should improve your profitability long term versus others because you're taking more expense. But how long does it take to get to reasonable levels of profitability? I mean, you're seeing some pretty dramatic changes in profitability at your 2 competitors.

Right. Well, as you know, we don't provide guidance. I want to be -- we want to be very open and indicate that some of these factors will continue for the short term. Certainly, the increase in depreciation expense and increase in interest expense we've seen are going to continue to impact us in the short term. But longer term, look, there's -- all of these positive factors that we're seeing in the industry are affecting us as well. I mean, you've seen that our revenue's gone up. Today's new containers are going out at double-digit cash on cash. If you calculate the ROE on these transactions, it's also in the double digits. So longer term, the same positive factors that are affecting our competitors will affect us as well.

Okay. Nothing on timing? And generally, when you should see a significant improvement to the -- I think it would be helpful -- I mean, to your stock price. And with -- I mean, with cash flow, when you look at cash flow versus, I mean, this stock price, you're probably better off buying stock than buying containers.

Bob, I'll -- we simply haven't provided guidance in the past, and we don't intend to start providing guidance at this point. But the same positive factors that are affecting our competitors are impacting our performance as well. And as you -- as we go forward through the year, we believe we'll be -- they will be demonstrated in our financial results.

Okay. And then just thoughts around stock versus containers, that there were some mix of both at this stock price, with the industry improving and your stock historically trading well above book value.

Are you -- is your question whether we're going to be repurchasing stock?

Yes, I mean, you should be repurchasing some stock now that you're at this stock price. So if you're looking at a long-term value, but that's -- I'll leave it there. (inaudible)

At the current time, Bob, I would just say that's not our priority.

(Operator Instructions) And our next question comes from Tyras Bookman from Park West.

I was just following up on Bob's questions and hoping that maybe we could quantify things a little more. So your competitors are saying they're going to get to pretty much double-digit ROEs pretty soon. You guys are saying maybe you'll get to net income-positive in the next couple or few quarters. I wasn't clear on that. But how much of your inability to make money is the difference between your depreciation and your competitors'? Because it seems like, while you have the lowest residuals, it's not such a giant difference that, that's going to be a huge driver. But I haven't done the math, so maybe you can help me with that.

Tyras, this is Phil. I think, as I answered to Bob, I believe there're several factors here that impact us relative to our competitors, and that's simply one of the factors. We've mentioned also that beyond just depreciation expense, really, the biggest factor over the past couple of quarters, and I believe it will continue for the very immediate future, is the Hanjin exposure. And we had over 6% of our fleet on lease to Hanjin, and that was pretty dramatic impact on Textainer. So we're (inaudible)

To your revenue line item?

Well, we've -- the cash that we had to spend to recover Hanjin containers at the time wasn't -- couldn't be spent in acquiring new containers because we had to pay repositioning, recovery costs, ransom costs, et cetera, related to Hanjin. Those costs are...

How much did you spend exactly?

Well, I -- we've been through some of those questions, Tyras. We've spent -- we said that our total cost exceeded our insurance claim by probably $10 million to $20 million, but those items have largely been recognized.

And so you're just saying, "Hey, if we had, had $80 million more bucks, we could have gone out and bought a bunch of containers and put them on lease, and that would have helped out the lease revenue"?

Well, yes, that's part of it, along with the fact that our interest expense is increasing because of the refinancings that we've been going through as well.

How much has the interest expense increased compared to your competitors' cost of debt? Like how much money is that worth?

Tyras, it's hard to compare to the competitors' cost of debt. What I would just say is our facilities were priced a while ago, and so you could say that they were below market. So as we went through some of the amendments, they were repriced to market. For us, that added, in terms of spread, above benchmark roughly about 50 basis points or so. On top of that, we have to amortize the fees associated with those activities, and that added additional costs as well. So for us, it's roughly about $8 million per quarter of incremental interest expense on the depreciation side at a...

Real quick. When you said incremental, is that incremental to your historic numbers or what it would be at competitors' rates?

No, I'm talking...

Because I think (inaudible) historic numbers is kind of irrelevant.

I'm comparing it to the historic run rate.

Because I think that's less relevant because you guys -- and the reason why people keep talking about competitors is that you all own the same type of assets. And so people want to think about, under a constant financing structure, how -- what kind of ROEs do these companies earn? And clearly, you guys have some issues that are making it so that you're not earning any money. And I think people are trying to level set and normalize this to understand where the holes are in your business, and how long that will take to fix.

So then let me answer -- yes.

Because I'm (inaudible) trying to quantify this, but then I feel like you guys keep trying do this based upon last year, which is just not really relevant to this analysis.

So let me see if I could clarify it for you. It's hard to compare it to one of our competitors because we hedge and one of our competitors doesn't. So if you look at the funding cost that they have, it's going to be lower. If you look historically, some of our bank facilities have been priced tighter than others. And so we benefited in some sense. And when we reprice to market, I think we're pricing things where everyone else would be pricing. So I wouldn't say that on a go-forward basis, with incremental financing that we do, that we would be at any disadvantage vis-a-vis our competitors.

Okay. And then I think you were going to talk about quantifying the depreciation difference. Because I know that you guys are lower....

Yes, the depreciation...

(inaudible) how much money that's worth. Is that $1 million a quarter or $5 million compared to if you look at the average of residuals across the space?

Well, again, you're asking relative to our competitors. What I would say is it's difficult to compare. But if I look us, our run rate now versus our run rate previously, that's an incremental $10 million a quarter or $40 million a year. So again, the reason why I'm looking at it on a year-over-year basis is because if you look at the run rates, depreciation expense, $40 million; interest expense, roughly about, let's call it, $30 million to $35 million of incremental expense that we have that we did not have.

I understand, and I hear that, and I appreciate you disclosing that. I think the issue is here's where you are, you do have that cost of debt, you do have that depreciation schedule. So people are trying to figure out, what do you need to do to be able to make -- one, to be able to make money; and two, to be able to make it, let's say, a double-digit ROE? And maybe it's just, "Hey, we need time to go out and spend a lot of money and buy new boxes and put them on at double-digit cash-on-cash yields." Is that really the answer?

Well, Tyras, that is certainly part of the answer. Our cash has been deployed -- focused on Hanjin. As we start to get these insurance recoveries over the coming weeks, that will certainly enable us to increase our investment in new containers going forward. We're benefiting from what we've seen in terms of strength in used container prices. Interestingly, used container prices continue to increase, not so much in Asia where they've reached peaks, but we see them continuing to increase in Europe and in North America, and that also is providing a benefit.

So it sounds like it might take until 2018 for you guys to start putting up GAAP profits, is that right?

Well, Tyras, I've answered the question a couple of times, I'm going to answer it the same way. We haven't given guidance in the past, and we, frankly, don't intend to give guidance now. We had -- we have said that the same positive factors that are affecting our competitors are impacting us as well, and we expect that to be demonstrated in our results as we go forward.

And this concludes the question-and-answer session. I'll turn the call back over to Mr. Terry for final remarks.

Thank you, and I appreciate everyone joining our call this morning. We look forward to talking to you throughout the quarter. Thanks a lot.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.