Triton International Limited (TRTN) CEO Brian Sondey on Q3 2018 Results - Earnings Call Transcript

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About: Triton International Limited (TRTN)
by: SA Transcripts

Triton International Limited (NYSE:TRTN) Q3 2018 Earnings Conference Call November 2, 2018 8:30 AM ET

Executives

John Burns - CFO

Brian Sondey - CEO

John O'Callaghan - EVP & Head, Marketing & Operations

Analysts

Michael Brown - KBW

Ken Hoexter - Merrill Lynch

Scott Valentin - Compass Point

Helane Becker - Cowen & Company

Michael Webber - Wells Fargo Securities

Operator

Good day, ladies and gentlemen, and welcome to the Triton International Limited Third Quarter 2018 Earnings Release Conference Call. [Operator Instructions] Please note, this event is being recorded.

At this time, I would now like to turn the conference over to John Burns, Chief Financial Officer. Mr. Burns, please go ahead.

John Burns

Thank you. Good morning, and thank you for joining us on today's call. We are here to discuss Triton's Third Quarter 2018 Results, which were reported this morning. Joining me on this morning's call from Triton, Brian Sondey, our CEO; and John O'Callaghan, our Executive Vice President and Head of Marketing and Operations.

Before I turn the call over to Brian, I would like to note that our prepared remarks will follow along with the presentation that can be found on our website in the Company's Presentation section. I would also like to point out that the company will be making statements on this conference call that are forward-looking statements as the term is defined by under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements made on this call are based on certain assumptions and analysis made by the company and are not a guarantee of future performance. Actual results may vary materially from these expressed or implied in the forward-looking statements.

The company's views estimates, plans and outlook, as described in this call, may change subsequent to this discussion. The company is under no obligation to modify or update any of these statements that are made despite subsequent changes. These statements involve risks and uncertainty and are only predictions. A discussion of such risks and uncertainties is included in our earnings release, presentation, as well as our SEC filings.

In addition, certain non-GAAP financial measures will be discussed on this call, reconciliation of these non-GAAP financial measures to the equivalent GAAP financial measures is included in our earnings release.

With these formalities out of the way, I will now turn the call over to Brian.

Brian Sondey

Thanks, John, and welcome to Triton International's Third Quarter 2018 Earnings Conference Call.

I'll start with Slide 3 of the presentation. Triton achieved outstanding results in the third quarter of 2018. Triton generated $94.8 million of adjusted net income in the third quarter or $1.17 per share, an increase of 6% from the second quarter and an increase of 46% from the third quarter of 2017. We also realized an annualized return on equity of 16.9%.

Our excellent results in the third quarter were given by favorable market conditions, outstanding operational performance and continued value-added investment in growth. Leasing demand was supported by solid trade growth and a continued shift toward leasing. Net container pick up activity was strong. Our utilization remained over 98% and we continue to win more than our fair share of new leasing transactions due to our many market advantages.

We're now entering the slower season for dry containers and market metrics have slowed seasonally. However, the supply containers remains well-controlled and we're carrying significant financial momentum due to the growth in our equipment on hire that we achieved throughout the third quarter. We continue to use our strong and stable cash flow to create shareholder value in multiple ways. We continue to drive strong organic growth at our business.

Our Board of Directors has authorized a dividend of $0.52 this quarter and through October 31, we have repurchased [Technical Difficulty].

John O'Callaghan

Turning to Slide 4; as Brian mentioned, we've had another good quarter which caps a very strong season for us in terms of business performance and investment. Utilization remains with continued pick up activity and demand for both our depot stocks and reproduction inventory. Turnings remain at the low level.

Due to continued steady container growth, we did well in part because of our competitive strength and position in the market, but also because our customers are not buying containers in meaningful numbers, and therefore mostly rely on leasing.

We're heading into the time of the year where business activity actually slows down and we're seeing that. But overall, the fundamentals are solid. There's a restricted supply of containers, utilization remains high and statutory inventory has been coming down as both leasing and shipping companies curtail purchases now that the peak season is over.

Turning to Slide 5. As I mentioned, the metrics mainly show that the third quarter was strong. With high pick up activity, utilization was over 98%, box prices remain solid, the average lease rate continue to drift upwards and used container sale prices remain strong. As you can see in the lower left hand chart and the pickup drop off, the net pick up activity was close to the record levels of 2017. Each of these metrics have come off a little as we move into the slow season.

Slide 6 looks at the key measures of containers' supply and demand. The top charts look at our key demand drivers, trade growth and leasing share. Note in the upper left chart, the container trade expectations from our customers and forecasters have been steady this year, with trade growing around 45%. Through 2018, we continue to see shipping lines rely heavily on leasing as they focus their capital investments elsewhere. The upper right chart shows the growth and evolution of the global fleet. You can see that the share for leasing went from 40% to 50% over a 10-year period. We estimate that the leasing share for new container additions in 2018 is over 60%.

The incremental demand for our containers from the line as well as taking share from the leasing companies enabled our strong growth and we anticipate the shift and mix from owing to demand for leasing containers to continue. The bottom two charts are measures of supply. On the left, statutory inventory decreased in the rush to pre-Golden Week to just over 600,000 TEU, which is only 1.5% of the total global container fleet; and the chart on the right is Triton's availability of used containers in Asia.

Even though the times have created uncertainty, there's a general expectation that the global economy and freight growth will be in about the same place next year. Overall, the combination of trade growth, control supply and an increased shift to leasing creates a strong backdrop to the overall fundamentals to remain positive.

Turning to Slide 7. We've had another great investment year. We bought over 680,000 TEU, we're taking more than our fair share growing about twice as fast as the market. The levels that have got to stay are trade growth in the range of 5%, leasing taking ownership from the lines of another couple percent, we continue to take market share from within these things and we continue to invest in specialized container types, which also gives us some extra growth. These investments remain attractive. The initial duration of leases are long and the structures are protected by robust and defensive logistics.

I'll now hand you over to John Burns, our CFO.

John Burns

Thank you, John. Turning to Page 8. On this page, we have presented our consolidated financial results. Adjusted net income for the third quarter was $94.8 million or $1.17 per share, up over 6% from the second quarter and over 46% from the prior year quarter. These strong results represent an annualized return on equity of 16.9%. The increase in earnings was driven by continued strong fleet growth, high utilization, strong disposal gains and lower operating cost. I will expand on these key profitability drivers on Page 9.

Leasing revenue for the third quarter is up 16% over the prior year quarter, driven by nearly 12% year-over-year growth in our revenue-earning assets. The increase in leasing revenue has also been driven by continued high levels of utilization. Utilization on the third quarter averaged 98.7%, up 1.1% from the prior year quarter and this was the fourth consecutive quarter a utilization has been over 98%.

In addition to the revenue benefit, these high levels of utilization keep our direct operating expenses very low. Operating expenses which are largely made up of storage for Alphaliner units and repairs for containers we delivered were $11.5 million in the third quarter, down $2.3 million from the prior year quarter. Our combined trading margin and gain on sale was $12.9 million in the third quarter, an increase of $1.2 million over the prior year. These gains were largely result of a 13.5% increase in average dry container selling prices.

Also there are two non-cash items that are benefiting our year-over-year results. The first, the purchase accounting adjustments related to our merger in 2016 provided a $5 million net benefit in the third quarter, compared to a $2.2 million net benefit in the prior year quarter. The second is a reduction in our effective tax rate to 10.3% in the third quarter from 16.8% in the prior year. This change is largely due to the reduction in U.S. corporate income tax rate last December. Over time, we expect our effective tax rate to trading down below 10%.

Turning to Page 10. This page highlights our strong and stable cash flows that enable us to grow the fleet and maintain a strong balance sheet while paying a substantial dividend. The graph on the top left shows our annual cash flow before CapEx which is EBITDA less interest expense plus container disposals and principal payments on finance leases. The chart shows strong growth on these cash flows as we've grown the fleet over an extended period.

This cash flow metric was $1.2 billion based on annualized third quarter financial results, which is generally in-line with prior peak levels despite significantly lower disposal volumes in the current period. The graph on the bottom left highlights the significant discretion we have in timing our fleet investments and therefore our ability during market downturns to quickly curtail capital expenditures, enabling us to delever during these periods.

The graph on the right demonstrates the benefit of these strong cash flows. Over the last 12 years, we have grown a market-leading business while paying a substantial regular dividend. If you combine the growth and our net book value with the cumulative dividends, we have generated over $45 of value per share representing a compounded growth rate of 15% even without compounding the dividend cash flows.

Turning to Page 11. This page highlights our well-structured and conservative approach to financing our business. We limit our exposure to rising interest rates by focusing on long term fixed rate debt and using interest rate swaps to lock in interest rates on our floating rate facilities. And we focus on staggering our debt maturities to avoid significant maturity cliffs. This approach, together with our strong cash flows gives us access to multiple debt markets to fund our container investments.

In August, standard imports revised the outlook on our BB+ corporate rating from stable to positive. With this positive outlook, we have made achieving a BBB- investment-grade rating a high priority as we believe it would provide significant benefits including increased access to debt markets, increased financing flexibility, lower overall cost of funds over time and we'd further distance ourselves from our competition.

I'll now return you to Brian for some additional comments.

Brian Sondey

Thank you, John. I'll continue the presentation to Slide 12. Before wrapping up, I thought it would be useful to make a few comments on IMO2020. In 2016, the International Maritime Organization passed new regulations reducing the amount of sulfur allowed in vessel emissions. These rules go into effect January 1, 2020. There are three main ways our customers can comply with the tighter regulations: they can purchase more expensive low sulfur fuel; they can install scrubbers to clean the emissions from burning standard fuel; or they can install engines that use alternative fuels notably LNG.

While these regulations and the actions required by our customers do not impact us directly, the cost associated with the tighter regulations could further challenge the financial performance of our customers. In particular, there is concern about whether the shipping lines will be able to increase their freight rate to recover the higher cost of low sulfur fuel and the investments required to outfit vessels of scrubbers would likely require shipping lines to take on additional debt, while many are already highly levered.

That said, we believe several factors will mitigate the impact on our credit risk. First, the increase in cost associated with the tighter rules are known in advance and their permanent. It should be easier for our customers to pass these costs on than it had been for them to recapture the normal unpredictable changes in fuel prices. In addition, the ongoing consolidation of the shipping lines has strengthened the credit quality of our lease portfolio and over time, the tighter rules could actually help solve the core problem of excess vessel capacity by accelerating the scrapping of older vessels with poor fuel efficiency.

The new rules could also have some secondary benefits for leasing demand. The higher cost of lower sulfur fuel should encourage further slow steaming and the additional capital requirements for scrubbers should encourage our customers to continue to rely on leasing for containers. I will now wrap up the prepared presentation with a few summary comments on Slide 13.

Triton achieved outstanding results in the third quarter. We generated $94.8 million on adjusted net income, an increase of 6% from our strong second quarter results. Our profitability in the third quarter represented an annualized return on equity of 16.9%. We have invested over $1.5 billion in our container fleet this year and a highly expected lifetime return and long initial durations on our new container leases will provide a long tail of enhanced profitability in cash flow.

We're entering the slow season for dry containers, but market fundamentals remain sound and we expect our fourth quarter profitability will remain in the same range as the strong third quarter results. Looking forward to 2019, increased tariffs or goods traded between the United States and China are reading uncertainty to our market. We have an optimistic outlook.

Our customers and market forecasting continue to expect trade growth will remain solidly positive next year. We expect our customers will continue to rely heavily on leasing. We continue to have significant advantages in our market and our strong and stable cash flow gives us many levers to create shareholder value including strong organic growth, a high dividend and share repurchases.

I would now like to open up the call for questions.

Question-and-Answer Session

Operator

We will now being the question-and-answer session. [Operator Instructions] The first question today comes from Michael Brown with KBW. Please go ahead.

Michael Brown

Hi. Good morning.

Brian Sondey

Hi. Good morning.

Michael Brown

I just wanted to start off with -- could you give an update on how the new container prices are turning in the fourth quarter?

Brian Sondey

Yes. New container prices are down some. For most of the year they were in the range of $2,100 or slightly above. I'd say beginning toward the end of the third quarter and continuing into the fourth quarter, they have been trending down gradually. New container prices now are somewhere probably in the mid-$1,900s. I think the change has been a combination of slight decrease and steel prices in China, coupled with just the seasonality that we've referred to coming off the peak season, now into the slower season for dry containers.

Michael Brown

Okay, thanks. It's been why the report at HNA looking to sell Seaco. I know the merger is still relatively recent for you guys, but is it a business that one will look to purchase? If so, would you expect to receive any regulatory push back given your leading market share?

Brian Sondey

I don't want to talk too much about any specific transaction. I think we've talked before that the merger of Triton with TAL was a huge success for us in terms of just the cost synergies, building out a competitive distance in terms of our operating capabilities and scale, supply capability and so on. We think M&A generally speaking, will continue on our industry as either our competitors look to try to catch up to us or as we continue to look to extend our advantages. I don't want to comment specifically about regulatory matters or anything like that, but again, I think generally speaking, crawling through mergers makes sense in our business. We look at deals as they become available, but we also tend to be very disciplined that we've got a great availability to grow our business by investing organically. If we wanted to increase our deal share and our growth rate, we could do so, I think very quickly just by adjusting the way we approach leasing transactions. We have a great look at almost every deal that's out there. Again, we look at these kinds of deals, but we look at them very carefully with a disciplined eye.

Michael Brown

Okay, great. And just one more regarding your commentary on IMO2020. They believe the shipping lines will be able to pass on the pricing to customers. What are your views on the shipping industry? You see really any cracks out there? Or do you expect consolidation to continue as well?

Brian Sondey

Yes. I'm certain we have been pretty clear I think in our calls, in our filings that our customers, that the shipping lines are under a lot of financial stress. The business has been characterized by excess vessel capacity and freight rates that aren't providing a real return on their invested capital and that has been true for a long time. But here, we've got a lot of insulation from credit risks, we've got a lot of very good tools to make sure people pay us on time and to the extent that customers go through financial restructuring and want to use their assets while they're doing that. Generally speaking they have to pay the container leases and we've experienced very few credit issues over time. The hunching back of saving the one real exception to that.

As I mentioned in our notes or in our call, the prepared part, that the consolidation of the shipping lines we view as positive for the credit of our portfolio. It makes the shipping lines stronger and it also means that the shipping lines are just more significant in terms of the cargo that's moving around the world, in their vessels, in their containers where it would need to be utilized by someone to handle that global trade that's out there. In general we look at IMO2020 as certainly a challenge for our customers. All of them are very focused on it, but for the variety of reasons that we talked about, we don't think it's going to likely lead to significant credit issues for us.

Michael Brown

Okay, great. Thank you. That's it for me.

Brian Sondey

Thanks.

Operator

Next question comes from Ken Hoexter with Merrill Lynch. Please go ahead.

Ken Hoexter

Hey. Great. Good morning. Brian, in the past you've been really good at calling market turns. I just want to understand, when you step back and think, what should we be looking for? I just want to know because as I dig in, obviously you talked about utilization rolling over. It was 98.7% for the third quarter, now it's 98.4%. I don't know if that's minor, if that's part of the seasonality you talked about. But I just want to understand how we should think about looking at the difference between seasonality and kind of the market turn?

Brian Sondey

Sure. Seasonality is a typical feature of our business. I'd say in eight of 10 years or something like that, you see a seasonal pattern where generally speaking, you're getting net container off hire on fourth quarter of the year and the first quarter of the year and that contain our on hires in the second and third quarters of the year. It's been a while since we've seen the normal seasonal pattern, just 2015 was just a year that was challenging throughout the year while the fourth quarter of 2016 right through now, we've seen nothing but positive on hires as we've experienced a very strong market conditions right through both the strong and slower seasons.

As we look at the fourth quarter of this year, it feels like a normal seasonal pattern to us that as we've outlined in our presentation, there's still a very tight supply and demand balance for containers. But it just passed October and if the goods aren't done, the ship, they're not going to get on the shelves for Christmas and most of the shipping lines are generally speaking, looking to reduce capacity over the next quarter or two, therefore to start really looking to pick up containers other than spot requirements, particular container types, their locations, just where they're operationally quite short.

When we think about 2019, it just feels to us that the things that have made the market attractive for us over the last few years are likely to remain in place. The trade growth -- I'm just talking with our customers and reading market forecasters, seems widely expected to remain in maybe the 4% to 5% range. We think that our customers are going to continue to be very cautious about buying containers, meaning that leasing will continue to take share. We feel our advantages in the market every day as we gladly compete for business and just run our business. So all those ingredients, they still very much feel like it should make 2019 another good year for us.

Ken Hoexter

I don't know if this is for Brian or John, but how have lease rates changed more recently? I guess returns on the lease rates adjusted?

Brian Sondey

Maybe I'll start and if either John wants to jump in, they can. In terms of market lease rates, just because it's the slower season, you don't have as good of a handle on that right now than as we typically do, say in the second and third quarters when we're doing deals literally a few a week. But we've seen a few deals out there, even as it is the slower season. Container prices have come down as I just mentioned, but in terms of returns on investment against that lower container price, I think they're pretty similar. So the market lease rates are down because container prices are down. But generally speaking, returns are the same.

Ken Hoexter

Okay. I guess that's key for you in terms of seeing a shift. Right? It's the returns more than the lease rates?

Brian Sondey

Yes, for sure. For our new investment, that's what really matters. For the existing fleet, we do like to see lease rates staying higher. But again, the change we've seen in container prices and lease rates, we see really it hasn't been that significant and mainly we think it's a seasonal thing where right now when you look at the margins that the manufacturers are getting, in terms of the container price versus the steel input cost, it's very low right now. Again, to me that's just kind of a seasonal thing and as more demand returns, more containers are needed that ought to reinflate.

Ken Hoexter

Okay, good. Just two quick ones. I think it was John toward the slides on Page 6. Is the dried depot lease inventory starting to creep up through 2018? That seemed like a longer term chart than just seasonal call. Am I reading that one right? Or is that...

Brian Sondey

It's just really what you mentioned earlier that utilization has gone down slightly from 98.7% to 98.4%. Just given the size of our fleet these days of 6.2 million TEU, that 30 basis points of utilization change adds up to 10,000 to 20,000 containers. But those containers the way we run our business and our key export market locations -- again, we still look at that as a very tight level of inventory for us.

Ken Hoexter

Okay. And then last one for me. You're buying back shares. It look like that was I guess post quarter close. I think the press release said in October or by the end of October -- the 30 million in purchases. Maybe just some thoughts on the timing of the program? I know you've undertook 70 million or so less to the program. But maybe just some thoughts on timing.

Brian Sondey

We announced I think on our last conference call that we have authorized -- or our board have authorized up to $200 million of share repurchases. As you pointed out, I think we started buying September 30, even, or something like that and most of the purchases that we made of that have now probably including yesterday is slightly over a million shares. We're done from the end of the quarter. But also corresponds to when our share price came down and when we announced the share repurchase plan, we said we're going to purchase opportunistically frankly because it was the timing. We had to do it through a tentative [ph] buy plan. We have one in place that varies purchases both the overall amount to the purchases, but also the pace of the purchases by the share price and I think that's really the main driver rather than trying to choose the days of the time.

Ken Hoexter

So it remains opportunistic, not -- okay. Got it. That's really helpful.

Brian Sondey

Very much opportunistic.

Ken Hoexter

Appreciate the time, Brian and John. Thank you very much.

Brian Sondey

Thanks, Ken.

Operator

Next question comes from Scott Valentin with Compass Point. Please go ahead.

Scott Valentin

Good morning, everyone. Thanks for taking my question. Just with regard to the quest for investment-grade range will be modest from SMP. Is that hamstring capital management at all? Do you guys have to limit your ability to buy back stock? It doesn't seem like it, but I just want to get your thoughts on any constraints that going after BBB- might have on capital management?

Brian Sondey

I'll start and then John Burnes can maybe jump in. First, Standard & Poor's in their communication to us, it was indicated that our financial ratios, our leverage ratios, our interest coverage ratios are already consistent with where they would expect them to get an upgraded rating. There's nothing that we need to do for example to tighten down our capital structure from where we are to try to make ourselves eligible for that. Similarly, we've talked many times in the past that we generate a lot of equity cash flow. Typically we prioritize, making sure we have a very strong and flexible balance sheet as so the first use investing to support our customers; and maintain pace with the market as perhaps the second use; covering our dividend as the third use; and then above that, we then typically look at do we want to grow faster than the market? Should we be buying back shares? Should we be increasing the dividends? Should there be a special dividend even? And given our profitability, we have a fair bit of cash that's in that last bucket as we sort of think through those other alternatives and all those things we can do at our current level of profitability without increasing our leverage.

John, you want to...

John O'Callaghan

Yes. I'll just add that when SMP issued the upgrade to the outlook to positive, they indicated -- I mentioned it all on metrics BB, BBB- investment grade were in place, but I think one, it's a normal course to go through a positive period, an outlook upgrade before a full upgrade; but also they pointed to the uncertainty relative to trade and said that I think they wanted to see how that played out certainly over the next quarter, or two, or three.

Brian Sondey

Yes. I think certainly just with the trade tariffs what they're pointing to.

Scott Valentin

Okay, thanks for that. And just on tariffs, there has been some speculation of fourth quarter typically seasonally slower, but with tariff rates had to go up on January 1 from 10% to 25% onto our billing of goods, there's been some speculation that you're seeing some pull forward? I don't know if you guys are seeing it or hearing it from your shipping customers?

Brian Sondey

We certainly think there are some of that. We of course just see the pickup activity, so don't really know exactly why or what it's for, but I think generally speaking, the Trans-Pacific trade has been performing pretty well this year somewhat ironically as perhaps goods are being brought forward ahead of the increased tariffs. But as I said earlier, it doesn't feel like an unusual seasonal pattern generally speaking for us. One of the things we keep pointing out on these calls is that while Trans-Pacific trade, and the China to U.S. trade is very important, Trans-Pacific trade overall is something only like 16% or 17% in vessel capacity and China-U.S. it's just a piece of that. While probably there are some bringing forward of cargo on that particular trade, it's just a part of the overall global trading network and our business is driven by what happens globally.

Scott Valentin

Okay, fair enough. One final question. Just speaking about per diem rates and [indiscernible]. You mentioned you focused on the return-on-investment and return-on-equity. Are current leases you're entering to, are they ROE accretive or ROI accretive to the portfolio or they're stable with what the portfolios are earning?

Brian Sondey

I guess it depends with what you mean by accretive. We're pretty disciplined when it comes to how we evaluate new leasing and new container investments. As I mentioned earlier, just given our position in the market, we see and have an opportunity to win a large share virtually every leasing deal that's out there and the transactions we win are much more governed by are we willing to match the best terms or not that have been offered by others? We've said that the deals we're doing this year we think generally speaking are going to give us lifetime equity returns somewhere in the mid-teen kind of range. Right now our return on equity is 16.9% for the quarter. Those things are pretty consistent. We think from a value standpoint that we're building value by -- into deals that give us mid-teen returns, but again, those returns are fairly consistent with returns we have right now.

Scott Valentin

Okay. All right. Thanks very much.

Brian Sondey

Yes, thanks.

Operator

Next question comes from Helane Becker with Cowen & Company.

Helane Becker

Thanks, Operator. Hi, everybody. Thank you for the time. I just have a question. Brian, I don't know if it was in your presentation, but there was a comment made about investing in specialty containers and I was wondering what containers that you're renting out into and is it because you're seeing improved returns in that area? I have thought earlier this year, refers for example weren't returning the returns you would want to seek. I guess that's a bad way of asking the question, but I'm going to give it a go.

Brian Sondey

We have a pretty long tail of specialty container types and for most of those container types, we're not the number one player in those sub markets, but we've gotten into them because we can leverage our operating network that we have around the world. We can typically use our base financing structures to finance these specialty types. And because of the fact that we have the operating network already there, we think it into these new products with very little incremental cost. And with a fair bit of operating scale, we feel that we again can compete above perhaps our punching late in those products. The add dice incremental returns to us. Things that we do there, it's not all new to this year. It's just continued investment that we've been doing this year. Our things like tank containers that carry specialty chemicals, Europe pallet wide containers -- European pallet-wide containers that are used for intra-European cargo -- things like road trailers that carry cargo on and off roller vessels, things like that. Collectively, there are probably less than 5% of our assets, but they do give us just interesting value-added extra little bit of growth.

Helane Becker

Okay. And then my other question is this, are you seeing a shift in where your customers want to pick up containers? And I ask because I was in Hong Kong earlier this week and I was at the port and it seemed like activity at the port was not as robust as it has been in prior years. I go every year this week and just didn't see the level I just saw like last year or the year before and I'm just wondering if it's like a seasonal thing or if you're seeing customers really shipping into other markets and not like your traditional southern China ports?

Brian Sondey

I'd say a couple of things there. First, certainly seasonal impacts are large that once the peak season pass, it's typically before Golden Week, [indiscernible] season anything after that, after the first week of October typically slows quite a bit. That's probably part of it. We have seen increased intra-Asian bookings from customers that trade within Asia and the speculation that is that are we seeing some relocation of supply chains outside of China into Southeast Asia? Could it be some kind of triangulation where we're trying to have a stop some place outside of China before moving the goods on? We don't really know. But we've seen some of that and I wouldn't say it's gigantic in the context of our overall business, but it's certainly been noticeable. I think also one thing that we see every year is that really the hot location in China shifts around sometimes. We see most demand coming from the south, sometimes more to Shanghai, sometimes at Ningbo, or sometimes more to the north. It does also change seasonally, but all those things were into the mix. But that said, if we look at where our container pickups came from this year, the vast majority came from China right up through the end of the third quarter.

Helane Becker

Okay. And then my last question is as you look ahead to the first quarter, I think we have a relatively early Chinese New Year. I think it's like October 5, or 6 or something. But then we have a very late Easter. Something like April -- I don't know, 15th, or 20th, or somewhere in that time. That distance, is that going to affect -- will there be a shift from first quarter into second quarter containers? Or how should we think about like that February? Because when the ports close or when the manufacturers close for that week or two, you would normally see a rapid pick up getting ready for Easter. So how should we think about that March-April this year versus other years?

Brian Sondey

That's a very good question and I had to guess about. Certainly Chinese New Year see has a very large impact on the rhythm of our business. Sometimes we see a rush rate before Chinese New Year as shippers look to get whatever they need ahead of the factory closures. I'd say just in my personal experience, I haven't seen as much of an impact for Easter. In terms of the correlation between the timing of Easter and just the way that trajectory plays out in terms of on hire growth through from the first through the second quarter. I'm not exactly sure. I think I don't know. We'll see.

Helane Becker

Okay, fair enough. Thanks. I appreciate all the help. Have a nice weekend.

Brian Sondey

Yes. Thanks, Helane.

Operator

[Operator Instructions] Next question comes from Michael Webber with Wells Fargo. Please go ahead.

Michael Webber

Hey. Good morning, guys. How are you?

Brian Sondey

Hi, Mike. How are you?

Michael Webber

Good. First I want to report that I was stuck in traffic near the turn bike [ph] last week and activity at Elizabeth [ph] looked pretty robust.

Brian Sondey

Good. Just get them out of there.

Michael Webber

I wanted to circle back to earlier question on pricing. Obviously, it's all tethered [ph] box price. I'm going to trying to think about the right order to think about this. But a couple of quarters ago, or last quarter, I think I asked you guys why we weren't seeing a bit more upside to box prices and it's a bit perplexing. I just thought it might have been kind of the Q1 time frame. We're seeing like there were an awful lot of tail winds and we didn't really seem to break through maybe that mid-cycle level. It eased off a little bit to $1,900 or $1,950. So I'm just curious, maybe just start off, but what do you think of the realistic range for boxed prices? Maybe the next couple of quarters. I won't ask you longer than that, but is the true box price something north of $2,000 and we're just seeing a seasonal low here? Or is there something else going on and if the prices have been weaker? It certainly seems like given the pace of this year, that I continue to make the price -- there's not a bit more support for box rate.

Brian Sondey

It's a good question and I recall talking with you about that. I think we have made a comment probably right all the way from the first through probably the July-August that we were surprised that box prices were higher. We always typically think of box prices in two components: the first being the cost to the steel input and the second being the margin the manufacturers get above this cost of the steel to cover things like the floor, the paint, labor, their return on capital et cetera. And the thing that was particularly strange in our minds at least about 2018 box prices is that fuel prices have been clearly high throughout the year, but the margin over steel prices has been very low. Typically we see that there's a range of maybe $850 to $1,200 on top of the steel input cost. So with steel being say somewhere around $650 for most of the year. We would have expected box prices to be $2,300, $2,400, maybe even a little on top of that in the second quarter building toward the peak. But instead they were hanging in the $2,100. And despite the fact that that production of dry containers was fairly high this year -- so there's a lot of chatter within the industry on just why is that? Why are the manufacturers feeling such competitive pressure to price that margin down?

And then as I mentioned earlier, we've seen that margin go from the low end of the typical range to kind of break below the typical range as it gone toward the fourth quarter. Frankly, that actually makes us feel okay. That sort of margin over steel cost for container prices is one of those numbers on our business that seems to have a lot of gravity around it and you may break out a little bit to the upside and particularly a great market. It may break out a little bit to the down side, but generally speaking, container prices trend back towards that kind of margin level. And steel prices, they have come down with their remaining upper third of where they are and where they are or where they have been historically. We look at that and say, yes, container prices have come down, but all else equal, we would expect it to go back up as you move toward the busier time of the year, certainly by next year.

Michael Webber

Do you think like a realistic range the next couple of quarters? Have you guys started thinking about your early investment for 2019, $1,900 to $2,100. Is that reasonable? I don't want to put words in your mouth. I'm just trying to get -- I was a bit -- I'm honestly bit surprised that we backed up a little bit and it would be tough outside of more inflationary pressure I guess on steel prices, I'd assume it inches up a little bit. I'm just trying to think about the range. Is that about right, do you think?

Brian Sondey

Again we never think we're particularly great at forecasting steel prices and we obviously spend a lot of time looking at it because it matters for our container purchases. But forecasting steel is like forecasting oil prices. It's very tough. So you said to me that steel prices, let's assume they stay around where they are and maybe a little bit under $600 a ton for hot rolled in China. I would tell you I would bet the container prices are going to go back up. The margin is too low by a few hundred dollars. But again, that's just if you believe in terms of their version to the mean and in terms of the margin pricing and if fuel prices hold flat. Generally speaking, we do believe, yes, there's probably a long term inflationary trend in steel and box prices, but you're going to need to think about it in these two components.

Michael Webber

In terms of yields, someone addressed this with an earlier question, but can you maybe characterize where yields have trended with box prices sliding a bit underneath business and are you seeing any material divergence between maybe the historical norms between where you're able to price new business versus the real-life business you're seeing right now?

Brian Sondey

As I mentioned earlier, we just don't see a lot of business in this time of the year and so just say what's the market yield or what's the market deal was a little bit misleading just from the sense that there's not a lot of market activity. But we have seen some deals and the deals that we've seen, again, I'd say the cash on cash returns and the investment IRRs are not how to the range from where we saw them over the course of the year. But with box prices being lower, that means the lease rates are lower.

Michael Webber

Great. Okay. Just in terms of -- and actually thinking about maybe the yield on the new box and you kind of given asset curve and you've -- the pricing of the yield-based, kind of fix that yield and you effectively get a pricing curve across the entirety of -- the asset life. If I think about that curve relative to where you guys see, it's a repricing tailwinds based on where your average boxes are priced, how wide is that range on a percentage basis for ballpark? I won't expect you to know on top of your head, but are we talking 5% to 10%. If we will look at a 10% yield on $1,900 and $1,950 versus where you guys would see a repricing -- you may be seeing a bit of a headwind. How close are we right now to that marginal price point?

Brian Sondey

Yes. I'm not sure I fully understand the question, but I think when we forecast our investment returns over the container life, we look at the three different periods: the initial lease rate which we know of course; the releasing period; and the resale value and that forecast at second period, the releasing returns were typically we're looking at a range of forecast for what container prices might be in the future in the range of say, ratios of lease rates to container prices at that time as well as sort of we typically think of a factor of how productive are our used units relative to our new units from a revenue standpoint.

And I'd say right now, where new container lease rates are, and is probably somewhere around the same range of what we think the net productivity would be of our used equipment when the first leases expire. I'm not sure if that's what you meant, but when we're writing leases today, we wouldn't be baking in a tremendous amount of inflation on the rate in the future. But that said, we typically look at it like I said, it's a range of outcome. So we look at what might happen in the future from low to high future container prices, low to high future productivity of the assets and just the deals that are just proportionally weighted to outperforming our cost of capital compared to the opportunities to under-perform the cost to capital.

Michael Webber

Yes. I kind of jumbled the question. I can take it off on -- it's pretty close to not enough to go on [ph], so I appreciate the answer. Just one more and it's around M&A and obviously you guys can't comment on it specifically, but historically, there has been a pretty healthy margin or kind of spread between where financial buyers, what they're willing to pay on a multiple basis to couple of turns related to say, operators. It hasn't always been sort out well in some cases and obviously not well in other cases considering HNA, the Seaco and Cronos are back on the block. Has that dynamic changed at all in terms of when you guys are looking at those kind of deals? Is it more competitive now where to be realistic for you guys so you can keep with PE Money that's coming in? Is there are still a couple of turns north. I know it's still a bit direct but has the dynamics changed versus the last cycle?

Brian Sondey

I could tell you maybe just a couple of different things. One, our approach hasn't changed. If we're looking at consolidating acquisition, we look at the value of the lease portfolio. We look at the value of the containers at the end of their current leases. We try to assess the current state of the lease portfolio or whoever we're looking at and just to what extent are we going to incur positioning cost if the leases aren't well written from a logistical standpoint, what kinds of repairs [ph] have been given away to the lessees and just some assessment as to how box quality compared to ours has a credit quality compared to ours? Just look at it as almost like a dying chunk of container acquisition, at least portfolio acquisition, really rather than say a business investment. That's the way that we would look at this transaction.

I think we've seen enthusiasm from PE firms come and go in our space as they spend times where there was a number of PE firms invested including through us and through others. The other times for the PE firms are not that [indiscernible] as business. Generally speaking, PE firms typically at least they say they have a higher cost of capital than we believe we have and obviously they don't have -- if they're new to the space or don't currently have a business, they don't have the synergies that we would have. It's hard to say in what instances would it be outbid by PE firms, but I can tell you the way we approach it again, as I kind of bottom up fundamental space analysis and again while we're very strong believers that the significant synergies available in an acquisition like that, also we have a ready opportunity to go out and grow faster on our business if we decide that's what we want to do. So we're very disciplined and how we look at the value.

Michael Webber

Sorry, one more follow up. Along the lines where there are these bigger blocks of containers or lessors that are out there. When you're looking at stuff like that, to what degree do you get concerned about deterioration of a footprint or neglected a strong word but -- the kind of some erosion in terms of the quality of the asset base, if they haven't been in the market and is active over the past couple of years, is that something that would be pretty high on your radar, or is that something you're considering given the minimum of moving pieces in this space that it's less of an issue if you're talking about a year or two?

Brian Sondey

Something we would look at very carefully. Fortunately, we know what lease agreement should look like, how we consider the credit quality of the shipping lines in our business. And even from a container standpoint, how containers should look at various ages and compare those things to how our lease portfolio and our containers and our credit quality looks. I think we've mentioned few times, they're probably the most important buying factor for our customers is reliability of supply and consistency of business approach. It's very important to then be able to rely on us to adjust their operations to take a leasing into account and generally speaking when you have that reliability and consistency, you're getting a preference to win transactions and so typically you can be relatively firm like we are, relatively disciplined like we are on our lease structuring, credit decisions and so on. For sure, we would have increased concern for situations where we thought maybe and for a variety of reasons shipping lands might need to stretch to win business because of their position.

Michael Webber

All right. I appreciate your time, guys. Thank you.

Brian Sondey

Yes, sure.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Brian Sondey for any closing remarks.

Brian Sondey

Just like to thank everyone for your continued support and interest in Triton and looking forward to speaking with you soon. Thank you.

Operator

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.