Textainer Group Holdings Ltd (TGH) 2018 Q1 法說會逐字稿

Good morning, and welcome to the First Quarter 2018 Textainer Group Holdings Limited Earnings Conference Call. My name is Michelle, and I will be your operator for today's conference. (Operator Instructions) Please note that this conference is being recorded.

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

Thank you, and welcome to Textainer's 2018 First Quarter Conference Call. Joining me on today's call are Phil Brewer, Textainer's President and Chief Executive Officer. At the end of our prepared remarks, Olivier Ghesquiere, Executive Vice President, 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 after this discussion. The company is under no obligation to modify or update any or all of the statements that are made. Please see the company's annual report on Form 20-F for the year ended December 31, 2017, filed with the Securities and Exchange Commission on March 14, 2018, 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 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 directly comparable GAAP measure will be provided either on this conference call or can be found in today's earnings release.

We've also included slides to accompany our comments on today's call. The Q1 earning call presentation can be found on our IR website next to the link for this webcast.

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 First Quarter 2018 Earnings Call. The positive momentum we've been seeing both in our industry and in our financial results continued into 2018.

Lease rental income during the first quarter increased 3% to $120.2 million compared to the fourth quarter of 2017. This marks our fifth consecutive quarter of revenue growth. Compared to the first quarter of 2017, lease rental income was up 12%. Adjusted net income was $17 million for the quarter or $0.30 per diluted common share, an increase of $2.2 million or 15% from the prior quarter. Utilization averaged 97.8% for the quarter and is currently at the same level.

Further significant increases in utilization will depend primarily on new container lease outs as our depot inventory remains very low. Our utilization continues to benefit from the fact that 83% of our on-lease containers are subject to long-term and finance leases, of which only 7% will mature in 2018.

We are continuing our strong CapEx. Last year, we were the second-largest investor in new containers among leasing companies. To date, this year, we have either ordered or taken delivery of $428 million of new containers. The majority of these containers are already on lease or committed to be picked up by the end of June.

We are focusing our investment in dry freight over refrigerated containers as we believe the risk-adjusted returns are better. We will only invest in new containers whether dry freight, tanks or refrigerated containers when the returns justify doing so. The first quarter is traditionally our industry's weakest quarter. This year, however, market fundamentals remain strong. Prior to Lunar New Year, we leased out more than 100,000 TEU of new equipment. While demand temporarily declined post Lunar New Year, which is usual, lease-out bookings were stronger than expected and container returns were below the level seen in past years.

New container prices have been stable since early last year and are currently around $2,200 per CEU. Containers ordered today will be delivered in June or later. Due to increases in some component cost and strong demand at the factories, we expect new container prices to remain around their current level or trend up as we approach the summer.

Resale prices have remained high and are expected to remain around their current level as a result of the relatively low level of turn-ins, the limited quantity of containers being put to sale and stable new container prices.

Cash-on-cash yields on new containers remain in the low double digits. Perhaps more importantly, we have started to see a slight increase in yields on recent deals. We expect recent and possible future interest rate increases to put upward pressure on rental rates and cash-on-cash yields. The average term of deals done year-to-date is close to 7 years. The rental rates on new container lease outs are above both the average rate on our fleet and the average rate of the term leases expiring this year, which is $0.55 per CEU per day. These conditions not only make it much easier to renew maturing leases, they will also continue to positively impact our performance in future quarters.

The inventory of new dry freight containers at factories is approximately 900,000 TEU, 2/3 of which belong to leasing companies. While this quantity represents an increase of approximately 200,000 TEU compared to last quarter, we do not consider it to be excessive. Many of these containers are already committed to leases, and we are about to start the traditional peak season. Worldwide depot inventory remains very low.

The higher rate of container trade growth seen in 2017 has continued into 2018. Our shipping line customers are seeing year-on-year growth in loaded container moves of around 6%. Throughput figures from leading ports around the world indicate 6% to 7% growth during the first quarter of 2018 compared to the first quarter of last year. Additionally, idle containership capacity is below 2% and vessel scrapping has declined, further indications of strong trade growth.

Notwithstanding this growth in volumes, freight rates have trended down while bunker costs have increased, depressing carrier margins. Nonetheless, the financial condition of most major shipping lines has improved over the past several years due in part to increased consolidation. Furthermore, many analysts are predicting an increase in freight rates during the second half of the year.

Given our CapEx year-to-date, we are well positioned for current and projected future demand and have the liquidity to place additional orders as demand dictate. New and used container prices and rental rates are at very attractive levels. Leases maturing this year have average rental rates below current rates, providing an opportunity to improve cash flow going forward.

Our economies of scale and ability to provide large quantities of containers in demand locations worldwide enable us to benefit from shipping line consolidation. We have positive momentum and are well positioned as we head into the peak season.

I will now turn the call over to Hilliard.

Thank you, Phil. Last quarter, we said we expect to show growth and further improve profitability as we move through 2018. The key drivers of our growth continue and were off to a solid start.

With that, I'll review the major drivers of our earnings for this quarter.

The $3.9 million sequential increase and $12.6 million year-over-year increase in lease rental income were both driven by higher utilization, increase in per diem rates and increase in the size of our owned fleet, offset by 2 less billing days this quarter. Most of our new CapEx has been picked up or will go out on lease by the end of June. As more new CapEx is delivered and goes on lease through the next 2 quarters, we expect lease rental income to increase further.

Gains on sale of containers from our fleet were $6.6 million, down $1.7 million or 20% from the fourth quarter of last year. But on a year-over-year basis, gains on sale were up $2.6 million or 64% due to strong used container prices despite reduced sales volumes. We highlighted last quarter that gains on sale would decrease as we expected volumes to continue to moderate as fewer containers were likely to be available for sale. However, we expect gains on sale to continue at a healthy clip.

Direct container expense was $13.7 million, down $1.1 million or 7% compared to the fourth quarter, and down $6 million or 30% versus the year-ago same quarter. We expect that the ongoing normalized run rate would be lower compared to the fourth quarter of last year given the higher-than-normal repositioning expenses during that quarter. The year-over-year decrease reflects our higher utilization level, resulting in lower storage and repositioning expenses. Assuming utilization remains high, we expect direct container expenses to remain between the current and last quarter run rates.

Depreciation expense was $56.3 million, slightly higher than the previous quarter, primarily due to a 3% increase in the size of our fleet and the timing of our new CapEx coming online. Depreciation expense was down $4 million or 7% year-over-year, primarily due to our depreciation policy update midyear, partially offset by an increase in the size of our owned fleet. Annualized depreciation expense for the quarter was 4.6% of average container cost. Dry freight containers have lower depreciation rates than refrigerated containers. We expect the run rate to remain close to this level as our recent CapEx comes online, and we continue to invest substantially more in dry freight than refrigerated containers.

For the quarter, our interest expense, including realized hedging costs, was $30.4 million, a $1.6 million increase from the fourth quarter. Our average effective interest rate, which includes realized hedging costs, is currently 3.99%, an 8-basis point increase when compared to the fourth quarter. The quarter-over-quarter increase was due to higher borrowing cost resulting from higher LIBOR rates and increased debt balances from our recent CapEx, partially offset by the impact of 2 fewer days in the quarter.

During the quarter, we issued a $300 million 7-year fixed-rate term loan to free up additional borrowing capacity on our short-term facilities, enabling us to benefit from further container investments in a strong lease-out market in support of our customers. The net impact was an increase in the fixed portion of our debt by 2 percentage points. As of quarter end, over 74% of our debt was either fixed or hedged compared with 78% of our total finance container fleet subject to long-term and finance leases. The weighted average remaining term of our fixed and hedged debt is 33 months. The weighted average remaining term of our long-term and finance leases is 43 months. We will continue to be opportunistic in our approach to the financing markets and look to increase the fixed percentage of our debt.

Our tax expense for the quarter was $560,000, reflecting a 2.7% tax rate for the quarter. Going forward, we continue to expect our annualized income tax rate to normalize in the mid-single digits. Adjusted net income for the quarter was $17 million or $0.30 per diluted common share, excluding unrealized gains on interest rate swaps and noncontrolling interest.

Adjusted EBITDA was $105 million for the quarter, up 28% or $23 million compared to Q1 of last year, and up $5 million or 5% when compared to last quarter. In fact, our adjusted EBITDA has increased for 4 quarters. Our cash position has increased by $87 million when compared to the same period last year.

Last year, we were focused on recovering containers from a bankrupt lessee which consumed cash. Today, we are no longer incurring recovery expenses and our business has started to generate more cash. Our first quarter was a solid start to the year. As we look forward, assuming current market conditions continue, we expect expenses will remain stable with depreciation and interest expense increasing consistent with fleet growth. Continued resale gains, fleet growth and high utilization support our expectations for improved net income and revenue growth over the course of 2018.

Thank you. 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) The first question in the queue comes from Helane Becker with Cowen.

I was looking at the one slide. I think it was Slide 10, where you talk about your forecast. I'm not sure it's your forecast actually -- and that's my question -- for GDP growth and so on. Is that 10% number -- is that a worldwide number? You say 2018 GDP growth. Yes, on my presentation that's Slide 10 of approximately 4%. So is that -- whose number is that, I guess?

Boring question, Helane, next question. I'm sorry, Helane, for a moment there I thought I was manufacturing electric cars. This is Phil. I'm looking at the slide right now. Actually, we've seen that figure come from the IMF and from other sources. I think the last number I saw was actually slightly below 4%, probably the high 3% projected growth in world GDP. Trade growth last year, and we expect it to be the same this year, container trade growth should be slightly higher than world GDP growth. As you know, we used to have a multiple of in excess of 2x, then it fell down to 1x and even slightly less than 1x. But last year, it was something like 1.7x. And many analysts are expecting some level of a similar multiple of world GDP growth in terms of container trade growth this year.

Okay. And then I think you said that most of your containers will be picked up by the end of the current quarter. So can you say -- maybe question A is, how long are you holding containers in inventory for? And B is, how quickly are your customers picking them up?

Interesting that I noticed you asked a similar question of one of our competitors. And I'd have to answer in a similar fashion because the time when we enter into agreements to lease out containers with a shipping line, there can be many different types of conditions associated with that agreement. For example, you might agree to a pick-up schedule that extends over several months. You also might agree to a pick-up schedule where they're picking up containers starting the very next day. So it's very difficult to say over what period of time somebody is picking up containers. The more appropriate question is, are they picking up containers in accordance with the terms that you agreed with them at the time of the lease? And indeed, that's what's been happening.

Okay. Well, what can I say, Phil. I'm not very creative. And in fairness, not that it has to be fair to me, but in fairness to me, that's a question that I get a lot from clients. They want to know, how fast are companies picking up their containers? What's the inventory level in the depots? How fast can you get a container? So my questions aren't really clever, they're just designed to kind of answer questions that I'm getting when I might not know the answer to.

No, I appreciate. I'm sorry, Helane. I appreciate that. What I -- the point is that sometimes, indeed, you will enter into a lease where the shipping line has a scheduled pickup that extends over a period of several months. And indeed, at the time you enter into the lease, there may not be any pickups for a period of time until sometime in the future. So it's very difficult to say. In that case, they are not picking up the containers late, but to say that they're going to pick them up in a month, while that may sound bad, indeed it's not. That's entirely what was agreed.

I think, Helane, if I may add a little bit. I think Hilliard said earlier on that we expect all our inventory to be picked up by the end of June. I think that's a very straight and fair comment. What we have seen is, typically, there was a buildup with the Chinese New Year. And normally, we would have expected a bit of a slowdown. And what we have seen is, we have seen a lot of shipping lines actually coming in and trying to secure inventory in preparation for the seasonal activity. So over March and April, we have seen activity in terms of actual pick ups being just slightly lower, but we've already seen over the last 2 weeks now that the activity is picking up. And as Phil mentioned, our customers are honoring their commitment. And if we compare this year to the previous year, I would say that the number of containers that are being picked up at this time of the year is certainly higher than what we have seen the last 2 years.

Okay. That's hugely helpful. And last, I just have one other quick question, and that's with respect to the demand. I think, Hilliard, you mentioned that you raised some capital in the quarter. And I'm just wondering, that was a private sale, I think, right? So you can't really say whether the demand of your paper is higher?

Well, Helane, yes, that was a private transaction. But my sense is that there is really good demand for container paper in the fixed income markets today.

And the question in the queue comes from Doug Mewhirter from SunTrust.

This is Michael filling in for Doug. So any change to the direct expense trends? We noticed that utilization had a nice improvement from fourth quarter, but the direct expenses didn't seem to drop proportionally. We understand the lower direct expense can be attributed to the higher utilization rate which contributes to lower storage, repairs and handling costs along with possibly lower redeliveries and possibly lower available inventory. But is there anything else we're missing in this number?

I would not say there's anything that you're missing on that front. If you look at where we were in Q4, I think we're close to $15 million. It dropped down to $13.7 million. I would say that the run rate where we are today we will probably see that, assuming utilization stays where it is. The only thing that could change that is if there's additional repositioning expenses or things of that sort. But I would expect the trend to stay about the same.

Okay. That's helpful. That was actually part of our follow-up as well for the run rate. I guess, let's see, on yield, can you please give us an idea of the yields attached to the leases coming off expiration over the next 12 months, I guess, from the leases signed 3 or 4 years ago. And what do you believe is the probability that these expiring leases are not going to be extended at favorable rates to the customer rather than renewed at higher current rates?

That's a multi-part question. Let me step back a little bit and note that the average rental rate on leases that are maturing this year, as I mentioned in the opening comments, I believe $0.55 per CEU per day. That number drops over the next 2 years. And it drops pretty significantly. We expect that as these leases mature and as we see repricing over the next several years, assuming we have market conditions somewhere similar to today, even they could fall, decline somewhat, but as long as they are reasonably similar today that there will be a strong positive improvement in revenue and on our performance on those particular containers that are maturing over the next several years. I can't tell you what the yield will be next year or the year after because obviously that will depend on new container prices, on interest rates, et cetera, on trade growth, on demand. None of us know those figures. Right now, yields on containers that are new containers being rented out are in -- the cash-on-cash yields are in the very low double digits. Did I answer all of your question or not? I'm sorry.

I think you did. That's helpful. Speaking of the cash-on-cash returns, we noticed they've ticked up in the past few weeks. Do you believe there are still major competitors on the sideline right now?

Well, right at the moment, the conditions that we saw last year, the beginning of last year, as you know, we were not aggressively investing in containers the beginning of last year. We don't see those conditions today. You have most of the major leasing companies buying containers. There are a few. I would probably say maybe one example of a competitor that doesn't seem to be quite so aggressive. But the larger point is, there are enough leasing companies buying equipment and participating in the market today that every transaction that comes to market is a competitive transaction.

Okay. Great. Thank you for that. And then maybe just the last one from us. Seems like CapEx is still attractive at current levels. Can you give us an idea of your capacity for CapEx this year without raising any equity?

We don't see the need to raise any equity for at least a year. I don't want to get into what our budget number is, but it's -- budgeted CapEx for the year, but it is significantly higher than what we've already committed for this year. And we don't foresee any problems in financing that level of CapEx nor whatever we need over at least the next 24 -- 12 months.

And the next question in the queue comes from Michael Webber with Wells Fargo.

You touched on a couple of other these topics. I wanted to go back real quick. Before I touch on the industry stuff, just on Slide 18, that was a well laid out capital structure slide. And it's interesting how even your sourcing funds are now with the new facility. Hilliard, like if you were to look forward the next 2 to 3 years, how do you think this evolves? Do you think you'd end up leaning more heavily on the term loan market or the secured -- the typical bank debt market or do you think it stays pretty evenly split?

I would say, I would expect it to stay pretty evenly split. And really, Mike, I would say just in the short term, you'd probably see us do more fixed-rate debt basically approaching the ABS market and things of that sort. Over time, we may diversify into other funding sources as well.

Got you. Okay. That's helpful. Just a reference on your deck, again, the Trifleet tank container partnership. And I apologize if I missed commentary on this earlier. Can you give it a little bit more color around that, what the commodity exposure there, not that you would necessarily take commodity exposure, what commodities would be used there. And then just maybe some sense of scale and cost and just a bit more color around that it seems like it's relatively important if you guys called it out in your deck.

What do you mean by commodity exposure, Mike?

What are you hauling? Is this something that's going to be -- is this crude products, LPG, NGLs?

Mike, Olivier. As you know, we're pretty much a sleeping investor in Trifleet. We're investing alongside what they do, but they're in control of what kind of equipment that they wish to purchase and who they want to lease them to. More to your second question, is there any exposure? Well, when you're dealing with chemicals, you are definitely a little bit more exposed to something happening. But I would point out that even in our traditional business, we are also not in control of what our customers are loading into our containers. And the same situation applies really to tank containers. It's essentially the end user that is responsible for using the equipment.

I guess the question is, are they pressurized or refrigerated because that would determine the product.

Well, there's no -- the balance is typically, there's about 80% of the containers that are being used for liquid chemicals. Most of those are flammable and they're dangerous to various degrees. And there's about 20% that are liquefied gases. But most of those gases are actually refrigerant gases that are used in air conditioning devices that are not typically highly explosive or flammable gases. That's roughly the split. 20% is liquefied gases, 80% is liquid chemicals. And there's a little bit of food, but that's really, really marginal.

And then in terms of the scale within your fleet, is there something that would be -- which actually show up as kind of a discrete investment or would this kind of blended into kind of the other specialized containers you guys have?

I mean, at the moment, it's not a significant investment that we have in tanks relative to our other asset classes, but it's one that we intend to continue growing over time.

Okay. All right. We'll keep an eye on it. Phil, I guess the last question, just kind of bigger picture, box prices kind of hovering around $2,200. We feel like we've been there for a little while. And so a couple of interesting dynamics. In one sense it might be the best thing possible for the space, right, to get an extended period of time kind of at or near mid-cycle levels so people wanted to chase kind of more expensive equipment and you've got an attractive cost basis on a big chunk of assets. But we're also hearing about some margin compression at the manufacturers and maybe they start looking for -- to kind of pass that along in terms of firmer box prices. So I guess, one, how do you think about that? Do you think that we -- are we, a crystal ball, but do you think it's reasonable to think we'll be relatively range-bound for the rest of the first half and then into the summer? And then two, if we do see movement in box prices, is that going to be more of a margin pass-through or is there some other factor, maybe just kind of sweeping inflation or something like that, that gets the ball rolling on moving towards the peak of the cycle?

All right. That's okay, Mike. Let me see if I can have a go at it. Actually, I listen to some of our competitors' calls, and they mention that steel prices have trended up, which is true over time, but recently, they've actually trended down. So the margin compression that had been happening at the manufacturers, it's probably more due to some of the component costs that have increased. Our expectation, well, first let me say, we've seen a very -- as you noted, a very decent period here of stable new container prices, probably the longest period of stable new container prices we've seen in a long time. Really since a year ago, they've been relatively -- they've traded within a range of probably no more than about $100 per CEU. Right now, we figure that the greatest likelihood is that container prices will actually head up over the year. And whether that's due to increases in component or steel cost or paint cost, now with petroleum likely headed up as well or perhaps even just financing costs heading up. All of which -- and we believe a strong demand during the peak season. All of which is likely. It's more likely than not to push container prices up as opposed to see container prices decline. As you know, increasing container prices tends to be a positive thing for the leasing industry, right? The shipping lines tend to prefer to lease over buy. It tends to support residual values of resale prices. And as rental rates increase, it just gives us that greater margin over whatever is maturing at that time and ability to maintain or extend or improve the performance of maturing leases. So the outlook in terms of container prices, in my opinion, is actually very positive.

Is it fair to say that maybe the pace of the early recovery in box prices was maybe a bit faster than you would have wanted in the sense that it was tough to really fill in, layer in a ton of capacity at those really tougher prices just given how quickly they escalated and that the -- it just seems like kind of settling in here is probably what the space needed considering the kind of the pace the recovery had early that it was just really difficult to actually layer in a lot of boxes that are going to help with breakeven levels the rest of the cycle?

I'm not sure I understand the question.

I can take it offline. It's around stepping into mid-cycle boxes. But I can take it offline, you've already been very helpful.

Okay. Well, let me just note this, Mike, because I do think it's an important point to note, especially with respect to Textainer. When container prices were very low, we were a very strong buyer of containers at that time. I suspect the strongest among any of the leasing companies. And in retrospect, it's fair to say that one impact that has shown up in our performance is that those containers were put out a relatively low rate and it has negatively impacted our revenue performance. But those containers are the ones that are going to start rolling over the next few years. And we paid less for those containers than used container prices today. We could sell those containers in some cases for more than we paid for them. And the room between the rental rate on those containers and where current container prices and current rental rates are is significant, in some cases, $0.30 per CEU per day or more. So assuming container prices stay somewhere where they are or even trend up, we see a very positive impact on Textainer's performance starting next year and the year after. We've seen some of it this year, but the more dramatic effect we'll start seeing next year and the year after.

Yes. That's fair. It was really a question around layering in cheap capacity to kind of help facilitate like a multiyear ROE expansion trade. So the idea of just kind of buying cheap basically, which I think you addressed. I appreciate that and I will turn it over.

And the next question in the queue comes from Scott Valentin from Compass Point.

Just a couple of questions. One, just a number or accounting question. On tax rate, it dipped this quarter, but it sounds like you're keeping the full year tax rate guidance the same, so it sounds like it was one-off items during the quarter that drove the tax rate lower?

Correct, Scott. I would say, as I said earlier, I expect our tax rate to normalize in the low single digits basically, mid- to low single digits.

Okay. So pretty much unchanged from the prior guidance. I think the prior guidance was a little bit?

Correct. Correct.

Okay. And then just referring to seasonality utilization rate. I think you guys said you ended the quarter, I think, around 97.8%, if my memory is right, my notes are right here. Is that -- should we expect it to trend higher given supply-demand dynamics and again entering the seasonally strongest part of the year?

We expect our utilization will trend higher as we go into the peak season, yes.

Okay. All right. And then just a capital management question. I know you guys are obviously -- CapEx is the focus right now. You guys have said $428 million, I guess, is what you've done in the first 5 months in terms of orders and deliveries. But the stock is trading 87% of book or below book value. How do you guys approach -- will there be some point in time where you think maybe the CapEx won't be as attractive and therefore, you switch to more of a capital management strategy, maybe look at the stock depending on, of course, where the stock is trading?

It's a very fair question, Scott. But right now we believe container prices are attractive and the returns on container prices -- the return on container investments are attractive and our focus is on growing our fleet. But if conditions change, that's a question we always have to ask.

Okay. Fair enough. And Hilliard, I think on the gain on sale, you mentioned it will be healthy. Is there kind of a range you'd point between like 4Q and 1Q in terms of what could be a healthy gain on sale, the dynamic being, of course, the margins are very good to sell, but there's less volume to sell because of the inventory?

Sure. So remember in 4Q, it was $8.3 million. This quarter, it was $6.6 million. My comment was, it would trend somewhere in between that number. And again, used container prices remain very, very healthy. And with high utilization, we expect the used market to continue as it is. The only issue is, there isn't a lot of supply out there. And so volumes could wane a bit. But again, when I say a healthy clip, I'm suggesting that it's somewhere at or above where it was this quarter.

And the next question in the queue comes from Mike Brown with KBW.

So all of my questions have been asked and answered, but just wanted to do a quick follow-up on the funding mix there. So looks like the duration of your funding ticked up to 33 months from 31 months. And then given the duration of your long-term leases is more like 43 months, would do you kind of consider terming out your debt a bit more high proportion of that fixed-rate debt so that it closely matches the duration of the leases? Is that something you would eventually target?

Mike, I would expect us to continue to term out more debt. We and others are looking at the ABS market to term out debt. So I would expect that to continue to increase.

Great. And as the utilization rates have kind of ticked up near these high historical levels, what is kind of the calculus there between deciding which containers to kind of sell off? Obviously, gain on sales have been strong, the resale values have been strong, versus seeing if you can actually redeploy those containers?

We try to keep that very agnostic, right, very unemotional. We have a model that when a container comes off lease, it looks at that container and it makes a determination as to what's the best way to maximize the present value of the cash that we can generate off that asset. And is it to sell it where it is? Is it to sell it in another location and move it to that location and incur the cost? Or sometimes potentially revenue of moving it to that location. Is it to repair it and keep it in our fleet? Is it to do that and move it to another location to lease it out? So it looks at all these alternatives and decides which is the best one to do. As demand is quite strong right now for containers, especially in Asia, what you find is a lot of containers that turned in are kept in our fleet and not sold. But also with a very high resale price, the other effect is sometime you say, wow, it just simply makes sense to sell this container. So just trying to make sure you understand that we don't sit there and look at each container on an individual basis. It's simply a calculation of what's the best way to maximize the present value of the cash flow of that asset.

Great. Just a quick follow-up there. What regions are you kind of seeing -- where you're kind of selling off the containers more? Is it -- sounds like Asia is very strong so it's not there. Is it more in Europe?

Well, see, the interesting thing is, the highest resale prices tend to be in Asia as well. So although you have the highest lease-out demand, you're also going to have the highest resale price, which is the other side of that equation when you're making your determination. The lease-out demand in Europe or in North America is not as strong. The resale prices tend not to be quite as high either. But again, it's simply a matter of where the math comes out, where you decide to return the -- which is the way to maximize the present value of the cash flows. Having said all that, it's more likely that a container in North America or Europe is going to be sold because the lease-out demand generally tends to be lower.

We have no further questions at this time. So I'll turn the call back over to Mr. Terry for closing remarks.

Thank you, Michelle. Thank you, everyone, for joining us for the Q1 earnings call. We look forward to speaking to you as we move through the quarter. And thanks again for joining us.

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