Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Textainer Group Holdings Limited (NYSE:TGH)

Q1 2013 Results Earnings Call

May 7, 2013 11:00 AM ET

Executives

Hilliard Terry - Executive Vice President and CFO

Phil Brewer - TGH President and CEO

Robert Pedersen - TEM President and CEO

Analysts

Michael Webber - Wells Fargo

Josh Katzeff -Deutsche Bank

Anthony Sibilia - Credit Suisse

Steven Kwok -KBW

Derek Rabe - Raymond James

Sal Vitale - Sterne Agee

Doug Mewhirter - SunTrust Robinson

Ken Hoexter - Bank of America

Operator

Welcome to the Textainer Group Holdings Limited First Quarter 2013 Earnings Conference Call. My name is Ellen, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

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

Hilliard Terry

Thank you, Ellen. And welcome to our 2013 first quarter earnings conference call. Joining me this morning is Phil Brewer, TGH President and Chief Executive Officer, and at the end of our prepared remarks, Robert Pedersen, TEM President and Chief Executive Officer will join 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 risk and uncertainties are only prediction 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, 2012 filed with the Securities and Exchange Commission on March 15, 2013, and 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 measures to the most directly comparable GAAP measure will be provided either on this conference call or can be found in today’s earnings press release.

Lastly, we will host an Analyst Meeting on Monday, May 13 at the New York Stock Exchange. I think many of you have already received a formal invitation via e-mail and if you have not, please us know. And if you have not RSVPed, please do so by the end of this week and we look forward to seeing you in New York.

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

Phil Brewer

Thanks, Hilliard. Welcome to Textainer’s first quarter 2013 earnings conference call. Textainer’s start to the year provides a firm foundation for further growth over the course of 2013. Our lease rental income of $113 million increased 29% and our adjusted EBITDA of $190 million increased 20% both compared to the prior year quarter.

This increases are resulted to the significant increase in our owned fleet over the last year as a result of investments in new containers, purchase leaseback transactions and purchases of managed fleets. At the beginning of 2012 we own 59% of our fleet. Today we own 73% or more than 2 million TEU of our fleet of more than 2.8 million TEU.

Utilization, while lower than last year remained strong. Our utilization has grown 1.1 percentage points since beginning of the year. However, has remained above 95% and average 95.5% year-to-date. Utilization appears to have bottomed and the last two weeks have shown indication that we will see improvement in the near-term.

We increased our dividend for the 13 consecutive quarter, continuing our record of having maintained or increased our dividend every quarter since going public. We continue to invest heavily in new containers at very attractive prices.

In additional to the $198 million we spent in the first, excuse me, fourth quarter of 2012 solely for new containers, we have invested $232 million this year for both new and used containers.

The result that we have purchased more than $140,000 TEU of new containers, since the beginning of the fourth quarter of 2012 for lease outs in 2013. Approximately 90% of this amount was for our owned fleet. Furthermore, the majority are either already on hire or are booked for pick up prior to end of the second quarter.

Now outstanding this strong investment container prices have not increase during the second quarter to the same extent as they did in the last two years. Newbuild prices today are in rate region of $2,250 per TEU or approximately $100 below the level of one month ago. Containers order today can be delivered in less than two months.

There has been pressure on rental rates, due in large in part to the large amount of funds raised by the container leasing industry and the easy availability of new production at the factories. We have seen aggressive pricing for new business, which has served to compress yields. As a result, we are being selective in determining which deals to pursue.

Nevertheless, we believe we are well-positioned as we move through 2013 given our strong investments in new containers over the past six months at very attractive prices below those that are prevailing today and our recent refinancing which Hilliard will discuss later.

A handful of shipping lines, primarily from Asia, have ordered more container this year than was expected. Total purchases to date appear to be relatively evenly split between shipping lines and leasing companies.

We believe increase buying by shipping lines is reflective of container prices not having increase during the beginning of the year to the same extend as they did the last two years and an improved excess to bank financing for certain lines.

We believe total production of new containers in 2013 will be less than the 2.7 million TEU of drys and refurbs produced in 2012. And leasing companies will purchase about 50% of that production. At this time, it is very difficult to predict container demand for the reminder of the year.

Freight rates have trended down over the year and recent attempts to enforce GRIs generally have not been successful. The problem of excess vessel capacity remain with idled vessel inventory at approximately 4%, the new vessel capacity equal to approximately 10% of the existing fleet coming on line in 2013.

However, containerized trade is expected to grow 4% to 6% in 2013. We currently expect new container demand to increase in June or July have remain strong thorough the third quarter.

Consistent with what we have seen year-to-date we also expect to see an increasing number of purchase leaseback opportunities. With our strong liquidity and access to attractively priced new containers, we believe Textainer is well-positioned to take advantage of market developments in 2013.

I will now turn the call over to Hilliard.

Hilliard Terry

Thank you, Phil. Turning to the quarterly results, we recorded $129 million of total revenues topping the quarterly record we set last quarter. Revenue growth was almost 10% above a year ago period.

The primary driver of our revenue growth was the 29% increase in lease rental income as a result of the 34% increase in the size of our owned fleet when compared to last year as we purchase new and used containers through PLBs and managed container acquisitions in the later half of 2012.

The increase and lease rental income was partially offset by decrease in utilization of our owned fleet. This quarter’s revenue growth was also partially offset by lower management fees because of the decrease in the size of our managed fleet given the number of managed fleet acquisitions.

We also saw decrease in the sales of trading containers due to a smaller number of containers we were able to source and sales at lower prices. We are seeing a continuation of the trend whereas shipping lines are executing PLBs for containers near the end of their marine life, instead of executing direct trading deals.

PLBs provide shipping lines immediate cash for their containers and allow them to use these containers until they are ready for disposal. However, as we depreciate these containers while they are on lease unlike trading container inventory which is not deprecation -- depreciated the result is higher depreciation. Fewer containers flowing through the trading container line item and more containers impacting the gain on sale of container line item in the future.

Gains on sales of containers decreased 34% or almost $4 million due to the decrease in day one gain on sales type leases when compared to last year when we saw significant number of containers placed on sales type leases.

As you may recall, the non-cash day one gains on sales type leases represent the difference between the fair market value of containers and their book value at the inception of the lease. If you exclude the day one gains from last year, you will see that the gain on sale of containers were up 6%.

Total operating expanses were up 6% year-over-year well below our 10% increase on the topline. They remain the lowest OpEx among our periods based on our percentage of revenue or as a percent of total assets.

Operating expanses growth was primarily driven by the increase in depreciation expanse, which is the largest component of total operating expanses. Also direct containers expanses increased by 49% as storage cost increase due to lower utilization rates versus last year.

Deprecation expanse was $33 million for the quarter, up $11 million or 51% as a result of our larger owned fleet. During the first quarter, we increased the useful life of our non-refrigerated containers from 12 to 13 years based on trends of shipping lines leasing containers for longer periods and internal data showing the average age of containers at the time of their disposal. The 13-year useful life is consistent with our public company peers.

Refrigerator containers remain at 12 years given our limited disposals to date. This change resulted in approximately $6 million lower deprecation expense for the quarter.

I think it’s important to point out a few facts about recent trends with respect to our deprecation expense. As I noted, PLBs are becoming more of the source of trading containers for us and we depreciate these containers over shorter deprecation period which results in slightly higher deprecation expense initially.

Much of a PLBs expected value is in the residual realized when we sell containers. The net result is that although PLBs are expected to provide a good return overtime, we may see GAAP losses or minimal contribution in the initially year and profits thereafter.

Moreover, the average original equipment costs of our fleet is lower than the prices at which we have been purchasing containers over the last few years. The older units we are selling are at lower costs with lower deprecation and in some cases fully depreciated. While the remaining higher cost units and purchases of new containers result in higher depreciation.

Lastly, when you compare dry containers, higher percentage of refrigerated containers prices is depreciated annually. This percentage of refrigerated containers in our -- as a percentage of refrigerated containers in our fleet increases so does depreciation expense.

If you look at our overall annualized depreciation expense as a percent of gross container value it is 3.75% this quarter more than our peers. Over the past two years, our annualized depreciation has ranged between 3.25% to 4.5% of gross value. Depending on the mix of dry and refurb business going forward and new container prices, we expect depreciation to trend upwards in this range.

Moving on, we reported a bad debt recovery of $750,000 due to the successful collection of previously reserved account receivable and a slightly better economic environment to some of our customers. We continue to believe our bad debt expense should remain within the normal range of 0.5% of revenue.

Below the operating income line, interest expense was $22 million for the quarter versus $15 million in the year ago quarter. The $7 million increase was primarily due to $800 million of additional debt used to fund the expansion of our fleet.

Our debt balance increased by 52% from Q1 of last year, however our interest expense was up by a lower amount. As Phil mentioned earlier, we have been very successful in lowering our financing costs.

We close the refinancing of the TAP facility reducing the spread on that facility from LIBOR plus 375 basis points to LIBOR plus 200 and we increase the size of the facility from $120 million to $170 million. I’m also very proud to report that yesterday we close the extension of our $1.2 billion warehouse facility which was repriced from LIBOR plus 263 down to LIBOR plus 195.

Our average effective interest rate including swap is currently 4.18%, down 36 basis points over the last 12 months and with these recent financings, I expect that the number will come down further.

The refinancing of our warehouse facility and the TAP facility are two examples subsequent to the close of the quarter of how we are diligently working to lower our funding costs.

The refinancing of the TAP facility saves us around $1 million per year and the refinancing of the warehouse saves us in the range of $4 million to $6 million annually depending on the amount borrowed.

Given the continued low interest environment and other options available to us, we see additional opportunities to further lower our funding costs and improve our competitive position.

Income taxes for the quarter were little over $4 million which results in a rate slightly higher than our expected run rate in the mid single digits. Our effective tax rate varies quarter-to-quarter due to discrete one-time.

As a result, the effective rate recognized on the single quarter as in this quarter is not necessarily indicative of the effective rate for the full year. We do not expect our annual rate for 2013 to differ significantly from historical effective rates.

Adjusted EBITDA of $109 million was up 20% year-over-year, a clear indication of our strong cash flow and increasing cash flow.

Adjusted net income which excludes unrealized gains on interest rate swaps for the quarter was $46 million, down 6% year-over-year resulting in EPS of $0.81.

We have increased our dividend to $0.46 per share, representing 57% of our adjusted net income. While this is higher than normal of our 40% to 50% of adjusted net income, given our outlook for the remainder of the year, we believe this is an appropriate -- this is appropriate and will likely be in the normal range as business picks up and adjusted income increases in the later half of the year.

We remain -- we maintained a strong balance sheet during the quarter, as of March 31, 2013, our cash position was $77 million. Our total assets were $3.6 billion and our leverage ratio was 2.2:1.

Again, I thank you for your attention, we look forward to seeing many of you at our upcoming Analyst Meeting in New York. And now I’d like to open the call up for questions. Ellen, can you inform the participants of the procedures for the Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question comes from Michael Webber with Wells Fargo. Please go ahead.

Michael Webber - Wells Fargo

Hey. Good morning, guys. How are you?

Phil Brewer

Good morning, Mike.

Michael Webber - Wells Fargo

Okay. Just wanted to, the handful of questions, let start kind of with some of the operating metrics, and Hilliard, I want to talk a bit about the debt. But you guys started more competitive pricing environment, it’s kind of in line with what your competitors are talking to.

Without getting into specifics, Phil, maybe, can you give some color around, where yields are right now relative to their historic range, are we moving down in the single digits, maybe just a little bit more color around, maybe just what you are seeing in the pricing environment?

Phil Brewer

Mike, I think that‘s the first question everybody ask in these conference calls no matter which lessor you are speaking too.

Michael Webber - Wells Fargo

Yeah.

Phil Brewer

I think you get a very similar response from each one of the lessors, but let me try to answer that question. There is no doubt that market is extremely competitive at the moment. We are doing transaction generally within the low double-digit in cash on cash, which is I believe what you are asking about.

Michael Webber - Wells Fargo

Yeah.

Phil Brewer

Yeah. We have seen transactions done in the single-digit level. We try to be extremely selective and avoid those transactions, but there is no doubt that the market is an extremely competitive market at the moment.

However, we feel we are very well-positioned to compete in this market due to our low financing costs, as Hilliard mentioned we’ve been very successful bringing down our cost of financing over the -- over just the past few weeks and the portfolio of containers we have available to lease out which we have purchased many of them towards the end of last year or the very beginning of this year prices has been lower than today’s price.

Michael Webber - Wells Fargo

Got you. No. That’s really helpful. Good color. I mean, kind of around that competitive pricing environment. I mean, the opportunity seems like a bit smaller with market share kind of coming into start the year and part of that I guess driven by the restart of some of these container purchasing programs for container lines.

I guess, and this just might be tough for you to answer, but just in your view, how much of that is driven by strategic aim about some of these container lines versus and looking to take advantage of this kind of expensive boxes?

And I guess, when you look at that market share shift kind of easing back a little bit towards kind of 55% range, it seem like the firm number, and I think so they can move around quite a bit, how do you think that plays out the remainder of the year?

Robert Pedersen

Hey, Mike. This is Robert here.

Michael Webber - Wells Fargo

Hi. Robert.

Robert Pedersen

I don’t really think there has been a huge shift, yes, the percentage is different, but you got to remember that, many leasing companies including ourselves, we started loading up in the fourth quarter, those numbers are clearly not reflecting in the 2013 stats, but there are containers that we are offering to the market this year.

When -- I just spent two weeks in Asia and I kind of asked the question that you just raised. And I think in general shipping line they consider current container prices attractive.

Michael Webber - Wells Fargo

Yeah.

Robert Pedersen

There is no doubt and when you look at the shipping lines that are buying there, probably seven, eight shipping lines, only that are really buying the numbers, and the rest are still relying on leasing.

For those stronger operators they do have attractively priced funding available and I also learn that a lot of them have sold container by PLBs and they actually like to replenish that container pool with new containers bought at attractive prices.

So, again, I don’t think there is really a fundamental shift here right now, it just a matter of timing, total purchasing has been lower in the first part of this year and it just so happen that shipping lines have taken their share of that.

Hilliard Terry

Thanks, Robert. I might just add one thing to it. Robert said, some of the cost of funds that these Asian shipping lines in particular are able to access are extraordinarily attractive, lower than what any of the container leasing companies can access, sometimes in their 1.5% range, less than 2% for example.

It is starting to appear to be a limited sources of funds we’ve seen in past years. For example, availability of that finance exists the beginning of the year, towards end of the year may not and they then start to look for even finance leases at higher returns than that. So, I think that’s another reason why it speaks to the beginning of the year and we are seeing the shipping lines take advantage of these opportunities.

Michael Webber - Wells Fargo

Got you. All right. That makes sense. A couple for Hilliard here. I guess, one, you talked about the refi opportunity and certainly seems that you guys have been very active there I and that could be a nice tailwind for you all and the group this year kind of against a bit of slower growth backdrop. I guess you mentioned that the all in effective interest rate now at 4.18% that excludes what you guys just did with your warehouse facility kind of, I guess maybe and if you don’t have this, we can take it offline. But maybe kind of forward-looking effective interest rate just including that new warehouse facility and excluding any sort of kind of callable ABS refis.

Hilliard Terry

And this is excluding like you said in the callable ABS refi. I would say we would be able to reduce our rate by about 30 basis points based on the financings -- refinancings that we just completed.

Michael Webber - Wells Fargo

Great. That’s really helpful. And then one more, this is more to kind of Hilliard and still but your payout ratio just kind of moved up to, I think 57% in the quarter, a bit about your normal range of 40% to 50%. But looks like that’s relatively temporary, should drift back down. But just curious maybe with the payout ratio a bit more alleviated, Q2 demand looking a bit softer to start and ‘13 looking a bit more like a jumble. Does that kind of change the way you guys think about kind of the ways you guys think about the dividend and I guess with 13 consecutive increases and just maybe just how you think about it?

Hilliard Terry

Mike, the message that has always been consistent about our dividend is that we take a fresh look at every quarter. And I think that is the important message to keep in mind. We started bringing -- we brought up our dividend from a much lower payout ratio over a period of time, so it is now in the region of 40% to 50% where it’s been. I wouldn’t say that there is a ceiling at 50% for example. We will look at our dividend payout ratio every quarter and do what we feel is appropriate for the company given the desire of our shareholders as well as our own CapEx needs going forward.

Michael Webber - Wells Fargo

Right now, I think it’s just that you guys are coming to the same inclusion for 13 quarters in a row. So the idea is anything materially different now and I can take it off-line but that’s helpful. All right. I’ll jump back in the queue. Thanks for the time, guys.

Hilliard Terry

Thank you, Mike. Have a nice day.

Operator

The next question comes from Justin Yagerman with Deutsche Bank. Please go ahead.

Josh Katzeff -Deutsche Bank

Hi. Good morning. It’s Josh on for Justin.

Robert Pedersen

Hi, Josh. How are you?

Josh Katzeff -Deutsche Bank

Good. Good. I just want to -- just maybe go over some of the second -- the sale leaseback opportunities. You mentioned that you saw an increasing amount of some of these older container boxes being sold kind of maybe instead of scrapping. Is that what we should be expecting for the majority of sale leasebacks for this year, or are you still expecting this kind of lumpy 5 to 10-year old box transactions as well?

Robert Pedersen

I’m not sure what you are comparing to what, Josh. Could you be a little more specific in your question?

Josh Katzeff -Deutsche Bank

I guess you mentioned that you have seen a lot of these kind of really old boxes being sold, maybe instead of just kind of your trading containers. Are you also expecting to see maybe bigger, newer boxes transactions that might be bigger inside?

Robert Pedersen

I would say I’m sorry, I misunderstood. Well, first let me even take a step before what you are asking and that is over the years, we would see transaction that we are generally trading containers. Simply when a container would get to the end of its useful life, the shipping lines would sell the containers we pay on a monthly basis as we took delivery and the containers would be immediately sold once we received them.

What we’ve seen over the past couple of years is a transition away from the trading type deal to these purchase leasebacks. What we've also seen is a transition from purchase leasebacks generally of older containers, where perhaps the purchase leasebacks was almost like a trading deal and the containers came back very shortly after you purchases them.

So once where you might have those containers on your balance sheet for several years, which I believe is the cracks of your question. So, yeah, we are seeing those types of transactions where the containers is being purchased, might have been manufactured six years ago or seven years ago as opposed to just 13 or 12 or 11 years ago.

Josh Katzeff -Deutsche Bank

Got it. Yeah. That was helpful. And then I guess with regards to your managed containers, I guess any kind of new opportunities there? I know it is kind of difficult to project the pipeline of deals there, but maybe if you can provide any more color there that would be helpful?

Robert Pedersen

We’ve gotten away from trying to give any projections on purchases of our managed suites. It has happened several times in the past where one week, we would contact an honor who wasn’t interested in selling and a week later that they would contact us back and say actually they were. So, honestly, we really can’t give you any indication of what we see. But we’ve certainly remained as we always are interested in buying containers that we managed.

Josh Katzeff -Deutsche Bank

Can you provide any color on the Q1 CapEx and maybe how much were sale leasebacks of that $232 million and maybe if any were from the managed fleet as well?

Robert Pedersen

Basically, what I have is new and used and basically 36% of the CapEx was for used containers.

Robert Pedersen

And very, very little of it was from our managed suite. I would just say it was an almost immaterial now.

Josh Katzeff -Deutsche Bank

Got it.

Robert Pedersen

If we do our material managed suite transactions then we would likely be public with it. But when we buy very, very minimal amount of managed containers, there is no reason to announce that publically.

Josh Katzeff -Deutsche Bank

Enough. So, I guess kind of maybe taking a step back to my first question with regard to container trading revenue and expenses, those were down in Q1, is that would you are looking, is that you were expecting for the remainder of the year?

Robert Pedersen

It will. It doesn’t mean that we are not making money by buying older containers. It’s just a little shift to different line items in our income statement. When we buy a purchase leaseback deals then the containers becomes a container in our fleet, unlike the trading deals which become simply inventory are sold. So if we still expect to make money, trading containers, they will show up in different line items in our income statement.

Josh Katzeff -Deutsche Bank

Got it. And I guess one more question before I turn it over. With regard to kind of seasonal trends in the dry box market at the peak seasons, has ordering slowed yet or I guess how do you expect kind of the rest of Q2 and Q3 to play in the kind of dry box demand market?

Robert Pedersen

Well, ordering has definitely slowed down. I don’t think many people are making forward orders at this stage here. There is quite a lot of inventory on the ground, waiting to move and I think both shipping lines and leasing companies want to see those stops a little bit lower before we start filling up the tanks again.

Josh Katzeff -Deutsche Bank

Great. Well, thank you. I appreciate the time.

Robert Pedersen

Thank you, Josh.

Operator

The next question comes from Gregory Lewis with Credit Suisse. Please go ahead.

Anthony Sibilia - Credit Suisse

It’s actually, Anthony Sibilia for Greg this morning. I just have a few questions. I guess one, kind of following up on the liner companies ordering boxes this year, do you guys have any sense of whether those specific liners have historically relied upon the lessors in the past or whether or have they historically purchased boxes on their own?

Phil Brewer

I would say the bulk of them have relied on greater ownership in the past. Several of them have concluded significant, say, leaseback transactions in the course of the last two, three years. And their own ratios are lot lower than what they historically were.

Anthony Sibilia - Credit Suisse

Okay. And there, like you kind of said, but just replenishing what they have sold into the market?

Phil Brewer

That’s correct.

Anthony Sibilia - Credit Suisse

And then just another question on the trading containers. It looks like the containers held for sale over the past few quarters. It’s kind of been spiking up. Is that just a result of purchasing older containers and not having -- being able to clear them out or is there some kind of -- has it been more difficult selling them into the market?

Phil Brewer

Our inventory of unused trading container has not increased dramatically over the past year. So I’m sorry, I don’t have an immediate answer for your questions. Let us get back to with that.

Anthony Sibilia - Credit Suisse

Okay. And then I guess, just like -- final question is just like on the OpEx. Obviously, it spiked up a little bit this quarter. And it is mostly attributed, I am assuming to lower utilization. Do you expect that to kind of retreating as we pushed through Q2 and Q3 and utilization starts to pick up?

Hilliard Terry

Well, yes, we do, this particular quarter. And when you talk about OpEx, I mean the biggest…

Anthony Sibilia - Credit Suisse

Just direct operating expenses.

Hilliard Terry

Yeah. We do but again when you have -- assuming utilization rate, say, sort of whether they are or we would expect it to trend down.

Anthony Sibilia - Credit Suisse

Okay. All right. Thank you guys so much for the time.

Hilliard Terry

Thank you.

Operator

The next question comes from Steven Kwok with KBW. Please go ahead.

Steven Kwok - KBW

Hi. Thanks for taking my question. I just wanted to talk about little bit about more of the competitive landscape. And I was just wondering, who are the players that are kind of being a little bit aggressive and do you see that kind of coming back down a little bit as we go further out of the year as demand picks up?

Phil Brewer

With the total requirements, the quantity is required for each shipping line have been somewhat smaller than we’ve seen in the past, means, that there are more leasing companies that they can cater to those requirements. So instead of having two three leasing companies compete for transaction, we have seven to eight leasing companies and that clearly increases the competitive landscape.

One thing that is useful to keep in mind is just look at what’s been happening in the ABS market for example. Several years ago, you would see the top couple of container leasing companies raising finance in the market. Today, everybody is raising financing in the asset-backed market.

So the competition level among the container leasing company has absolutely increased. There is a tremendous amount of liquidity in the market from all the funds that have been raised and you can go down the list of all of the container leasing companies and see that many of them have newer owners or are public companies or maybe designed to become public companies. And for those reasons, maybe, looking also to grow beyond the access to liquidity.

Steven Kwok - KBW

Got it. Thanks for taking my question.

Phil Brewer

Thank you.

Operator

The next question is from Art Hatfield with Raymond James. Please go ahead.

Derek Rabe - Raymond James

Yeah. Good morning everybody.

Phil Brewer

Good morning, Art.

Derek Rabe - Raymond James

Good morning, everybody. This is Derek Rabe in for Art. Thanks for taking my questions.

Phil Brewer

I’m sorry. Good morning, Derek.

Derek Rabe - Raymond James

Yeah. I just wanted to look at your thought process, kind of, for the first quarter investment levels. It’s a fairly healthy start to the year just relative to what we’re seeing going back a few years in the first quarter. On the last conference call, you did say it was roughly $95 million investment. It appeared to pick up slightly after that. Can you guys just talk about what went on in the quarter to get you more comfortable, kind of, mid-quarter, start putting more capital to use, even though we’ve been hearing the pickup activity has been relatively slower than expected?

Phil Brewer

I’m not quite sure, I understand your question. I mean, we’ve mentioned what our CapEx was the first quarter. We think the container prices are extremely attractive at the moment. And so we’ve been aggressively buying container.

I will say that we had expected that there would be a bit more of a demand for containers prior to Chinese New Year or shortly after. That demand didn’t materialize the extent we expected. That also explains some of the level of investments we made in the fourth quarter 2013. In either case, the prices that which we’ve been buying containers are both for last year and early this year, we think are extremely attractive prices.

And if we’re holding these containers, this level of CapEx that we’ve made, we’re quite happy with it. It’s completely within the range of our normal level of inventory that we do hold and the prices are very attractive. So for those reasons, we have been shy about investing in containers.

Derek Rabe - Raymond James

Okay. Now, that’s great. Just switching gears here, looking at the non-controlling interest line item, reverse trends from recent quarters, anything going on there that we should be thinking about going forward?

Hilliard Terry

Basically, we have two joint ventures. One is the TWCL joint venture as well as the TAP JV that we announced. And I think effectively what you’re seeing is last year, the TWCL JV didn’t have any in that income, this year, it does. We have to consolidate those into our books and then that is just a line item where you see the adjustment being made so. Effectively, the JVs are doing well and so you get more flow in through that line item this year versus last.

Derek Rabe - Raymond James

Okay. So we should expect some sort of income going forward?

Hilliard Terry

Yeah.

Derek Rabe - Raymond James

Okay. Thank you. And then my last question, can you just remind what level of renewal activity this year and next year?

Phil Brewer

About 5.6% of our leases will renew this year. Generally, year-to-year, it’s within the range of 6% to 8% of our leases rollover on an annual basis.

Derek Rabe - Raymond James

Okay. Great. Thanks for the help guys.

Phil Brewer

Thank you very much.

Operator

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

Sal Vitale - Sterne Agee

Good morning gentlemen.

Phil Brewer

Good morning, Sal.

Sal Vitale - Sterne Agee

Just, first a quick one for Hilliard, what is the current amount drawn on the $1.2 billion facility -- warehouse facility?

Hilliard Terry

It’s a little less than $900 million.

Sal Vitale - Sterne Agee

Okay. About $900 million. Okay. And then, one question for Phil, you mentioned that some of the Asian lines that are stepping up purchases or they stepped up purchases in 1Q, have access to 1.5% to 2% funding. What is the source of that funding by the way?

Phil Brewer

Why don’t you ask them? Honestly, if I could borrow at those rates, obviously would be very interested. I believe some of them are structured financing, leverage leases et cetera that are doing in the Asian market. In some cases, they are able to work with state banks in their countries of origin and obtain very attractive financing as well. Opportunities really wouldn’t be available to us for example.

Sal Vitale - Sterne Agee

Right. So is that a phenomenon that you believe will continue through the rest of the year?

Phil Brewer

Wait a minute, I think it’s important to understand that’s a phenomenon that has existed for years. It’s not as though this is -- it's something that just arose right now. We’ve seen this is in the past. At the beginning of the year, we’ve also seen container shipping lines, some of them mainly Asian ones have accesses to very attractive financing. It generally doesn’t last for the entire year. Perhaps, I should have been clear when I first stated that but this is not a new event. We’ve seen this in the past.

Hilliard Terry

That is the key though, Sal, if I could add that. It is not unlimited numbers that they can raise at those interest rate levels. That’s what I was referring to earlier when I say, I think this is kind of a window of opportunity for some of the healthier shipping lines to buy containers.

Sal Vitale - Stern Agee

Okay. So then 1Q might have been a kind of unique situation in terms of the breakdown of purchases between lessors and the ship owners and the shipping lines?

Hilliard Terry

Well, it’s not just 1Q because we’re basically putting numbers that are based on what we know and actually prove to date. So basically the numbers that we referred on lease ratios, whatever is for production through May.

Sal Vitale - Stern Agee

Okay. So it’s through May. And then going forward, I think in the release you had mentioned that you expect for the full year the lessor share to be 50% to 60%. And then I thought I heard in your comments you mentioned 50% or that’s not, is that right?

Phil Brewer

At this point, I think it’s extremely difficult to predict where we’re going to end up by the end of the year. It will depend on the level of demand that arises over the summer for example. Right now, we are thinking that it should be around 50%. We expect lessors to buy little more than half but it’s very, very difficult to predict right now where that will end up.

Sal Vitale - Stern Agee

Okay. That’s fair enough. Just switching over to the CapEx you’ve done year-to-date, you said roughly two-thirds of it was on the new side. And you mentioned that the rates at which you are doing that were low double digit. And you’ve also seen some high single digits in the marketplace although you seem to be avoiding those types of transactions. Given what you’ve done and given what your outlook is, what would you say is a realistic CapEx number for the year? Just understanding that managed deals and purchase lease backs they were kind of a wildcard so they’re kind of hard to predict?

Phil Brewer

Sal, I’m going to have to give you the same answer that I did to the previous question which is it’s really impossible to predict that at this point in the year. It will depend on where container price is going, to what extent demand picks up towards the end of the year. And I don’t think there is anybody who has got a crystal ball clear enough to figure out the answers to either one of those questions right now.

Sal Vitale - Stern Agee

Okay. And then just the last question is can you just refresh my memory typically from say 1Q or from the spring to the fall what is the typical increase in the price of new box seasonally?

Hilliard Terry

Well, if we look at 2011 and 2012, there was basically a $500 price differential for cost equivalent from the low to the high. We have not seen that range this year at all and don’t expect to see that in 2013.

Sal Vitale - Stern Agee

Okay. Thank you very much.

Phil Brewer

Thank you, Sal.

Operator

The next question comes from Doug Mewhirter with SunTrust Robinson. Please go ahead.

Doug Mewhirter - SunTrust Robinson

Hi. Good morning. I just had two questions. The first one looking on the supply side of the box factories, at what point do you think that they’re interested in maintaining production levels back. I mean, $200 to $250 still was fairly attractive price. But I mean is it getting close to the point where they might take a shift off or cut back on their production rate or do we have ways to go before it got there?

Robert Pedersen

Doug, they are already producing one shift. Clearly, lead times for new orders are relatively short probably four to six weeks max. They still have orders and let’s face it, when you look at the fact that the market has not taken off yet, which seems to indicate that there will be a more traditional times peak season this year.

Everybody expects global cargo volumes to increase by 4% to 6%. And since it really has not happened as of right now, you would tend to believe that the peak season is going to go back to where it used to be June through August, maybe September. And I think that that’s what they will speculate on at this stage here. I think they will make sure that they have sufficient orders to keep them going to be able to capitalize at a possible peak, in which case both leasing companies and some shipping lines will continue to buy.

Phil Brewer

Yeah. One thing to add to what Robert said. Last year, the shipping lines were quite successful enforcing GRIs. And as the shipper saw that success occurring, they started moving their orders earlier in the year or moving their shipments order earlier in the year to move goods prior to the next GRI increase that cause there to be not a significant peak in the third quarter but much of the transactions happened earlier in the year.

This year the shipping lines have not been successful in enforcing those GRI increases. And as they have not been, the shippers feel less of a need to move their goods earlier in the year which is one of the reasons why we and I think many of the people looking at the industry are expecting that, as Robert said, you may see that peak season or the increase in demand occurring in the more traditional part of the year towards the late second and third -- going into the third quarter of the year.

Doug Mewhirter - SunTrust Robinson

That’s a very interesting insight and thanks for the color on that as well, Robert. My second and final question, when you talk about yields, you also talk about financing cost. I mean if you would adjust your yields you are getting in the marketplace now but you adjust them for sort of your marginal cost financing, does that actually make the trend flatten out a bit or actually it appears more competitive. But actually if you look at financing cost, the economics -- bottom line economics still kind of washout to be the same.

Phil Brewer

Well, yeah, there is no doubt that because of the competitive financing costs we have we can do transactions with lower cash-on-cash yields than we would have been able to do two years ago for example but still having said that, when we look at a transaction, we have to look at all aspects of that transaction. On these earnings calls, we speak really just about the cash-on-cash yield but there is other aspects too, the return provisions of the containers, et cetera, et cetera.

So whether we are competitive or not, might depends on how we view the transaction as a whole and not just the cash-on-cash yield. Short answer to your question though, yeah, we can be more competitive, if we can be equally as competitive with yield being lower given our lower financing cost and our operating efficiencies.

Doug Mewhirter - SunTrust Robinson

Okay. Great. Thanks. Thanks very much for your answers. That’s all my questions.

Phil Brewer

Thank you.

Operator

The next question is from Ken Hoexter with Bank of America. Please go ahead.

Ken Hoexter - Bank of America

Hey, good morning, gentlemen. It’s actually Wilson on for Ken. If I just start first with kind of more simplistic modeling question. Given the increase you saw in life estimates that that you guys referenced on the depreciation expense, I mean on a full year -- the $6 million that you referenced in the press release a good benchmark for kind of the savings going forward, or are there more puts and takes that we should be factoring and kind going throughout the full year?

Phil Brewer

I think it’s a good benchmark for the savings going forward, assuming things are at this level.

Ken Hoexter - Bank of America

Got you. And I guess most of my other questions have been answered. But if I could dig a little bit deeper on the question from the gentleman before about the yields. I mean, in terms of you’re being competitive on the deals that you’ve seen, has that precluded you from being included -- well, I guess a better way of rephrasing my question would be if you are not stepping in for some of these kind of higher single digit yield deals, I mean would you expect that the yields eventually will normalize toward a kind of double-digit return, that’s more in line with what you are thinking, or if not, then would you be much more and to kind of put CapEx to work at that point on new boxes?

Phil Brewer

Our industry is a competitive industry. I don’t see any reason to expect the level of competitiveness in our industry to decline going forward. And we’re going to continue to act the same way we’ve always acted, which is be a prudent manager of the capital we invest. When we think the returns are justified on an all in -- looking at the deals including all its aspects, we will obviously invest in those deals.

Ken Hoexter - Bank of America

Great. Thank you for the answer.

Phil Brewer

Thank you.

Operator

The next question is a follow-up from Michael Webber with Wells Fargo. Please go ahead.

Michael Webber - Wells Fargo

Hey, guys, I just had one follow-up question for you and for Phil, or only for Phil. We spend a lot of time talking about kind of the noise in '13 and kind of slow seasonality and things like that. But longer-term in terms of kind of mix shift and your ability to grab share, we’ve seen a lot of these container lines of CFCO UFCC placing orders for 18,000 TEU container ships is a big push to allocate capital towards a more fuel efficient tonnage in order to compete for price in the next 5 to 10 years.

I guess in terms of the opportunities at longer term and kind of outside of just ‘13, is that stronger now than it was last year. We’ve really been surprised with the level of capital that’s been allocated towards vessels. I would suspect that’s moving away from box of the navy. Any sort of color there kind of outside of just what we’re seeing kind of this season or this year?

Phil Brewer

I think there is one big point that’s probably not being emphasized enough in this during this call. So, I’m going to make it now, which is that there is not a shortage --here is not an excess of containers in the world. Our utilization has come down, our competitors have come down but we’re talking about utilization at 95%.

The world does not have too many containers and when these big vessels as these big vessels come online, yeah, we do believe that you are going to see the demand for containers -- that that will stimulate further demand for containers. There’re excess vessel supplies. They are not going to help solve that problem, but there is not an excess supply of containers in the world.

Michael Webber - Wells Fargo

Yeah. Any sort of incremental shift I guess in market share, I mean that’s the shorter and midterm phenomena, longer term you guys, do you think that opportunity that is there or stronger now and what’s kind of a year ago?

Robert Pedersen

Well, Mike, if I could just ask you know if we’re talking about a relatively slow beginning of the year and we’re still sitting in the position we are right now, it’s not the worst spot. We’re dealing at a time where imports into Europe are at a very low point. Just wait until the trade between Asia and Europe peaks up and these big container vessels get to 90-95, maybe higher slot utilization ratio. You are going to see an enormous demand for equipment well beyond what we’ve sitting on the ground of depot inventory and well beyond the new production that we have sitting on the ground waiting pick up.

So exactly that when that happens, well, that’s a macro economic question, we have a hard time answering that. But is it going to happen? Absolutely, it is sometime in the future.

Michael Webber - Wells Fargo

Got it. All right. That’s really helpful, guys. Thanks for the time again.

Robert Pedersen

Thank you, Mike.

Operator

We have no further questions. At this time, I would like to turn the call back to the company for closing remarks.

Robert Pedersen

Well, thank you for attention. We look forward to seeing many of you in New York next week and we will speak with you soon. Thanks, again.

Operator

Thank you, ladies and gentlemen. This concludes Textainer Group Holdings Limited first quarter 2013 earnings conference call. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Textainer's CEO Discusses Q1 2013 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts