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Good morning and welcome to the First Quarter 2018 Textainer Group Holdings Limited Earnings Conference Call. My name is Michel and I will be your operator for today's conference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded.
I will now turn the call over to Executive Vice President and Chief Financial Officer, Hilliard Terry. Mr. Terry, you may begin.
Thank you, and welcome to Textainer's 2018 first quarter conference call. Joining me on this morning's call are Phil Brewer, Textainer's President and Chief Executive Officer. At the end of our prepared remarks, Olivier Ghesquiere, Executive Vice President of Leasing, will join us for the Q&A.
Before I turn the call over to Phil, I'd like to point out that this conference call contains forward-looking statements in accordance with U.S. securities laws. These statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results.
Finally, the company's views, estimates, plans and outlook, as described within this call, may change after this discussion. The company is under no obligation to modify or update any or all of the statements that are made. Please see the company's Annual Report on Form 20-F for the year ended December 31, 2017, filed with the Securities and Exchange Commission on March 14, 2018, and going forward, any subsequent quarterly filings on Form 6-K for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.
I would also like to point out that during this call, we will discuss non-GAAP financial measures. As such measures are not prepared in accordance with Generally Accepted Accounting Principles, a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure will be provided either on this conference call or can be found in today's earnings press release.
This quarter we've also included slides to accompany our commentary on today's call. The Q1 earnings call presentation can be found on our IR website next to the link for this webcast. At this point, I would now like to turn the call over to Phil for his opening comments.
Thank you, Hilliard. I would like to welcome you to Textainer's first quarter 2018 earnings call. The positive momentum we've been seeing both in our industry and in our financial results continued into 2018.
Lease rental income during the first quarter increased 3% to $120.2 million compared to the fourth quarter of 2017. This marks our fifth consecutive quarter of revenue growth. Compared to the first quarter of 2017 lease rental income was up 12%. Adjusted net income was $17 million for the quarter or $0.30 per diluted common share, an increase of $2.2 million or 15% from the prior quarter.
Utilization averaged 97.8% for the quarter and is currently at the same level. Further significant increases in utilization will depend primarily on new container lease outs as our depot inventory remains very low. Our utilization continues to benefit from the fact that 83% of our unleased containers are subject to long term and finance leases of which only 7% will mature in 2018.
We are continuing our strong Cap Ex. Last year we were the second largest investor into containers among leasing companies. Today this year, we have either ordered or taken delivery of $428 million of new containers. The majority of these containers are already on lease or committed to be picked up by the end of June.
We are focusing our investment in dry freight over refrigerated containers as we believe the risk adjusted returns are better. We will only invest in new containers whether dry freight, tanks or refrigerated containers when the returns justify doing so.
The first quarter is traditionally our industry's weakest quarter. This year however, market fundamentals remain strong. Prior to Lunar New Year we leased out more than 100,000 TEU of new equipment. While demand temporarily decline post Lunar New Year, which is usual, we saw bookings were stronger than expected and container returns were below the level seen in past years.
New container prices have been stable since early last year and are currently around $2200 per CEU. Containers order today will be delivered in June or later. Due to increases in some component costs and strong demand at the factories, we expect to container prices remain around their current level or trend up as we approach the summer.
Resale prices have remained high and are expected to remain around their current level as a result of the relatively low level of turn ins, the limited quantity of containers being put to sale and stable new container prices.
Cash-on-cash yields on new containers remain in the low double digits. Perhaps more importantly, we have started to see a slight increase in yields on recent deals. We expect recent and possible future interest rate increases to put upward pressure on rental rates and cash-on-cash yields. The average term of deals done year to date is close to seven years.
The rental rates on new container lease outs are above both the average rate on our fleet and the average rate of the term leases expiring this year, which is $0.55 per CEU per day. These conditions not only make it much easier to renew maturing leases, they will also continue to positively impact our performance in future quarters.
The inventory of new dry freight containers at factories is approximately 900,000 TEU, two thirds of which belong to leasing companies. While this quantity represents an increase of approximately 200,000 TEU compared to last quarter, we do not consider it to be excessive. Many of these containers are already committed to leases and we are about to start the traditional peak season. Worldwide depot inventory remains very low
The higher rate of container trade growth seen in 2017 has continued into 2018. Our shipping line customers are seeing year-on-year growth in loaded container moves of around 6%. Throughput figures from leading ports around the world indicate 6% to 7% growth during the first quarter of 2018 compared to the first quarter of last year. Additionally, idle container ship capacity is below 2% and vessel scrapping has declined further indications of strong trade growth.
Notwithstanding this growth in volumes freight rates have trended down while bunker [ph] costs have increased, depressing carrier margins. Nonetheless the financial condition of most major shipping lines has improved over the past several years due in part to increased consolidation. Furthermore many analysts are predicting an increase in freight rates during the second half of the year.
Given our CapEx year to date, we are well positioned for current and projected future demand and have the liquidity to place additional orders as demand dictates. New and used container prices and rental rates are very attractive levels, which is maturing this year have average rental rates below current rates providing an opportunity to improve cash flow going forward.
Our economies of scale and the ability to provide large quantities of containers in demand locations worldwide enable us to benefit from shipping line consolidation. We have positive momentum and are well positioned as we head into the peak season.
I will now turn the call over to Hilliard.
Thank you, Phil. Last quarter we said we expect to show growth and further improve profitability as we move through 2018. The key drivers of our growth continue and we're off to a solid start. With that I'll review the major drivers of our earnings for this quarter.
The 3.9 million sequential increase and 12.6 million year-over-year increase in lease rental income were both driven by higher utilization, increase in per diem rates and increasing the size of our owned fleet, offset by two less billing days this quarter. Most of our new CapEx has been picked up or will go out on lease by the end of June. As more new CapEx is delivered and goes on lease through the next two quarters, we expect lease rental income to increase further.
Gains on sale of containers from our fleet were 6.6 million, down 1.7 million or 20% from the fourth quarter of last year, but on a year-over-year basis gains on sale were up 2.6 million or 64% due to strong used container prices despite reduced sales volumes. We highlighted last quarter that gains on sale would decrease as we expected volumes to continue to moderate as fewer containers were likely to be available for sale. However, we expect gains on sale to continue at a healthy clip.
Direct container expense was 13.7 million, down 1.1 million or 7% compared to the fourth quarter and down 6 million or 30% versus the year ago same quarter. We expect that the ongoing normalized run rate would be lower compared to the fourth quarter of last year given the higher than normal repositioning expenses during that quarter. The year-over-year decrease reflects our higher utilization level resulting in lower storage and repositioning expenses. Assuming utilization remains high, we expect direct container expenses to remain between the current and last quarter run rate.
Depreciation expense was 56.3 million, slightly higher than the previous quarter, primarily due to 3% increase in the size of our fleet and the timing of our new CapEx coming on line. Depreciation expense was down 4 million or 7% year-over-year primarily due to our depreciation policy update midyear, partially offset by an increase in the size of our owned fleet.
Annualized depreciation expense for the quarter was 4.6% of average container cost. Dry freight containers have lower depreciation rates than refrigerated containers. We expect the run rate to remain close to this level as our recent CapEx comes on line and we continue to invest substantially more in dry freight than refrigerated containers.
For the quarter our interest expense including realized hedging costs was $30.4 million, $1.6 million increase from the fourth quarter. Our average effective interest rate which includes realized hedging cost is currently 3.99%, 8 basis point increase when compared to the fourth quarter. The quarter-over-quarter increase was due to higher borrowing costs resulting from higher LIBOR rates and increased debt balances from our recent CapEx, partially offset by the impact of two fewer days in the quarter.
During the quarter we issued $300 million seven year fixed rate term loan to free up additional borrowing capacity in our short term facilities, enabling us to benefit from further container investment in our strong lease out market in support of our customers. The net impact was an increase in the fixed portion of our debt by two percentage points.
As of quarter end over 74% of our debt was either fixed or hedged compared with 78% of our total financed container fleet subject to long term and finance leases. The weighted average remaining term of our fixed and hedge debt is 33 months. The weighted average remaining term of our long term and finance leases is 43 months. We will continue to be opportunistic in our approach to the financing markets and look to increase the fixed percentage of our debt.
Our tax expense for the quarter was $560,000, reflecting a 2.7% tax rate for the quarter. Going forward, we continue to expect our annualized income tax rate to normalize in the mid-single digits.
Adjusted net income for the quarter was 17 million or $0.30 per diluted common share, excluding unrealized gains on interest rates swaps and not controlling interest.
Adjusted EBITDA was 105 million for the quarter, up 28% or 23 million, compared to Q1 of last year and up 5 million or 5% when compared to last quarter. In fact, our adjusted EBITDA has increased for four quarters. Our cash position has increased by 87 million when compared to the same period last year.
Last year we were focused on recovering containers from a bankrupt lessee which consumes cash. Today, we are no longer incurring recovery expenses and our business has started to generate more cash.
Our first quarter was a solid start to the year. As we look forward, assuming current market conditions continue, we expect expenses will remain stable with depreciation and interest expense increasing consistent with fleet growth. Continued resell gains, fleet growth and high utilization support our expectations for improved net income and revenue growth over the course of 2018.
Thank you and now I'd like to open the call up for questions. Operator can you inform the participants of the procedures for the Q&A.
Thank you, sir. We'll now begin the question-and-answer session. [Operator Instructions] The first question in the queue comes from Helane Becker with Cowen and Company. Your line is open.
Thanks, operator. Hi Guys, thank you for the time. I was looking at the one slide, I think it was a Slide 10, where you talk about your forecast - a much richer forecast actually that's my question for GDP growth and so on, is that 10% number - is that a worldwide number? You say 2018 GDP growth. Yeah, on my presentation its Slide 10, of approximately 4%, so is that - whose number is that I guess?
Boring questions Helane, next question. I'm sorry Helane, for a moment I thought I was manufacturing electric cars. How are you, Helane? This is Phil. I'm looking at the slide right now. Actually, we've seen that figure come from the IMF and from other sources I think the last number I saw was actually slightly below 4% probably the high 3% projected growth in world GDP. Trade growth last year and we expect it to be the same this year. Container trade growth should be slightly higher than world GDP growth. As you know we used to have a multiple in excess of two then it fell down one and even slightly less than one, but last year it was something like 1.7 times and many analysts are expecting some level of a similar multiple of world GDP growth in terms of container trade growth this year.
Okay and then I think you said that your - most of your containers will be picked up by the end of the current quarter. So can you say - maybe question A is, how long are you holding containers in inventory for and B is how quickly are your customers picking them up?
Not interesting though, I noticed you have the similar question of one of our competitors and I have to answer in a similar fashion because the time - when we enter into agreements to lease out containers with a shipping line there can be many different types of conditions associated with that agreement. For example, you might agree to a pickup schedule that extends over several months, you also might agree to a pickup schedule where they're picking up containers starting the very next day, so it's very difficult to say over what period of time somebody is picking up containers. The more appropriate question is, are they picking up containers in accordance with the terms that you've agreed with them at the time of the lease, and indeed that's what's been happening.
Okay, well, what can I say so I'm not very clear though? And in fact not that you have to be fair to me, but in fairness to me, that's a question that I get a lot from clients, they want to know how faster are companies picking up their containers? What's the inventory level in the depots? How fast can you get a container? So my questions aren't really covered, they're just designed to kind of answer questions that I'm getting that I might have the answer to, so thank you.
No, I appreciate, - I'm sorry Helane, I appreciate that. What I - what the point is that sometimes indeed you will enter into a lease where the shipping line has a schedule of pickups that extends over a period of several months. Indeed at the time you enter into the lease there may not be any pickups for a period of time until sometime in the future. So it's very difficult to say in that case they are not picking up the containers late, but to say that they're going to pick them up in a month while that may sound bad indeed is not that's entirely what was agreed.
I think that - if I may, just add a little bit. I think in Hilliard said earlier on that we expect all our infantry to be picked up by the end of June. I think that's a very straight and fair comment. I mean what we have seen is typically - there was a build up with the Chinese New Year and normally we would have expected a bit of a slowdown and what we have seen is we have seen a lot of shipping lines actually coming in and trying to secure inventory in preparation for the seasonal activity. So over March and April, we have seen activity in terms of actual pick up being just slightly lower, but we've already seen over the last two weeks now that the activity is picking up and as Phil mentioned our customers are honoring their commitment and if we compare this year to the previous year, I would say that the number of containers that are being picked up at this time of the year is certainly higher than what we have seen the last two years.
Okay, that's hugely helpful. Thank you very much. And last - I just had one other quick question and that's with respect to the demand. I think Hilliard you mentioned that you raised some capital in the quarter and I was wondering that was a private sale, I think right. You can't really say whether the demand of your paper is higher.
Well, I would say Helane, yes, that was a private transaction, but my sense is that there is really good demand for container paper in the fixed income markets today.
Okay, thanks very much. Thanks guys, I appreciate the time.
Thank you, Helane.
And the next question in the queue comes from Doug Mewhirter from SunTrust.
Hey guys, good morning. This is Michael filling in for Doug. Thanks for taking our questions.
Good morning, Michael.
So any change to the direct expense trends, we noticed that utilization had a nice improvement from fourth quarter, but the direct expense it didn't seem to chop proportionally, we understand the lower direct expense can be attributed to the higher utilization rate, which contributes to lower storage repairs and handling costs along with possibly lower redeliveries and possibly lower available inventory. But is there anything else we're missing in the summer?
I would not say there's anything that you're missing on that front. If you look at sort of where we were in Q4, I think we were close to 15 million. It's dropped down to 13.7 million. I would say that the run rate where we are today will probably see that, assuming utilization stays where it is. The only thing that - sort of change that is if there's additional repositioning expenses or things of that sort for particular cases. but I would expect the trend stay about the same.
Okay, thanks. So that's helpful. That was actually part of our follow up as well for the run rate, so thank you. I guess let's see on yields, can you please give us an idea of the yields attached to the leases coming off expiration over the next twelve months? I guess from the leases signed three or four years ago, what do you believe is the probability that these expiring leases are not going to be extended at federal rates to the customer rather than they're renewed at higher current rates.
So you got a multi part question let me let me step back a little bit and note that the average rental rate on leases that are maturing this year, as I mentioned in the opening comments that I believe $0.55 CEU per day. That number drops over the next two years and it drops pretty significantly. We expect that as these leases mature and as we see re-pricing over the next several years, assuming we have market conditions somewhere similar to today, even they could fall - decline somewhat, but as long as they're reasonably similar today that there will be a strong positive improvement in revenue and our performance on those particular containers that are maturing over the next several years. I can't tell you what the yields will be next year or the year after because obviously that will depend on new container prices on interest rates et cetera on trade growth, on demand, none of us know those figures. Right now, yields on containers that are - new containers being rented out are in the cash-on-cash yields are in the very low double digit. Did I answer all of your question or not? I'm sorry.
I think you did. That's helpful, thank you. Speaking of the cash-on-cash returns, we know as they've picked up in the past few weeks. Do you believe there are still major competitors on the sideline right now?
Well, right at the moment the conditions that we saw last year, the beginning of last year, as you know we were not aggressively investing in containers beginning of last year. We don't see those conditions today. You have most of the major leasing companies buying containers. There are a few, I would probably say maybe one example of a competitor that doesn't seem to be quite so aggressive, but the larger point is there are enough leasing companies buying equipment and participating in the market today that every transaction that comes to market is a competitive transaction.
Okay, alright, great. Thank you for that. And then maybe just the last one from us, seems like CapEx is still checked at now current levels, can you give us an idea of your capacity for CapEx this year without raising any equity?
We don't see the need to raise any equity for at least a year. I don't want to get into what our budget number is, but it's significant - budgeted CapEx for the year, but it is significantly higher than what we've already committed for this year and we don't foresee any problems in financing that level of CapEx nor whatever we need over at least the next 24 - 12 months.
Okay, great. Thanks for taking our questions. Thanks guys.
Thank you.
And the next question in the queue comes from Michael Webber with Wells Fargo. Your line is open sir.
Hey good morning guys, how are you?
Hey, Michael, how are you?
I'm good, I'm good. You really touched on a couple of these questions - these topics. I just wanted to go back real quick, before I touch on the industry stuff, just on Slide 18 has a well laid out capital structure Slide and it's interesting how even your sourcing funds are now with the new facility. Hilliard, is there any term loan like if you were to look forward the next two to three years, how do you think this evolves? Do you think you'll end up leaning more heavily on the term loan mark or the secured or the typical bank debt market or do you think it stays pretty evenly split?
I would say, I would expect it to stay pretty evenly split and really Mike, I would say just in the short term you'd probably see us do more six to eight debt, basically approaching the ABS markets and things of that sort. Over time we may diversify into other funding sources as well.
Got you, okay, that's helpful. Also referenced in your deck, to Trifleet tank container partnership and I apologize if I missed commentary on this earlier. Can you give a little bit more color around what the commodity exposure there, not that you would necessarily take commodity exposure or where commodities would be used there? And then just maybe some sense of scale and cost in just a bit more color on that, it seems like it's relatively important if you guys called it out in your deck.
What do you mean by commodity exposure Mike? I'm sorry.
What are you hauling, is this something that's going to be - is this crude products, LPG, NGLs?
Mike, Olivier, as you know we are pretty much a sleeping investor in Trifleet. We're investing alongside what they do, but they're in control of what kind of equipment they wish to purchase and who they want to lead them to. More to your second question that is there are an exposure. Well, when you're dealing with chemicals you are definitely a little bit more exposed to something happening, but I would point out that even in our traditional business we are also not in control of what our customers are loading into our container and the same situation applies really to tank containers. It's essentially the end user that is responsible for using the equipment fully.
Yeah, I guess the question is are they pressurized or refrigerated, so determine the [indiscernible]?
Well, there's no –the balance is, typically there's about 80% of the containers that are being used for liquid chemicals, most of those are flammable and they're dangerous to various degrees and there's about 20% that are liquefied gases, but most of those gases are actually refrigerant gases that are used in air conditioning devices that are not typically highly explosive or flammable gases. That's roughly split 20% is liquefied gases, 80% is liquid chemicals and then there's a little bit of food, but that's really marginal.
And then in terms of the scale within your fleet, is there something that would be - just would show up as kind of a discrete investment or would this kind of get blended into kind of the other specialized containers you guys are at?
I mean, at the moment it's not a significant investment that we have in tanks relative to our other asset classes, but it's one that we intend to continue growing over time.
Okay, alright. We'll keep an eye on it. Phil, I guess the last question, just kind of bigger picture, box prices kind of hovering around 2,200, we feel like we've been there for a little while. And so the couple of interesting dynamics, in one sense that might be the best thing possible for the space, right to get an extended period of time kind of add in your mid cycle level, so people want to chase kind of more expensive equipment and you've got an attractive cost basis on it on a big chunk of assets. But we're also hearing about some margin compression at the manufacturers and maybe they start looking for - to kind of pass that along in terms of box prices, so I guess one, how do you how do you think about? Do you think that we –are we - crystal ball, but do you think it's reasonable to think will be relatively range bound for the rest of the first half and into the summer? And then two, if we do see movement in box prices, is that going to be more of a margin pass through or is there some other factor maybe just kind of sweeping inflation or something like that that gets the ball rolling on, on moving towards the peak of the cycle.? It's a big question, sorry yeah.
That's okay, Mike. Let me is back and have a go at it. Actually, I listened to some of our competitors call and they mentioned there's still prices that trended up, which is true over time, but recently they've actually trended down. So the margin compression that had been happening at the manufacturers, it's probably more due to some of the component cost that have increased. Our expectation - well, first let me say, we've seen a very, as you noted a very decent period here of stable new container prices, probably the longest period of stable new container prices we've seen in a long time, really since the year ago they've been relatively - they ranked transit within the range of probably no more than about $100 per CEU. Right now we figure that the greatest likelihood is the container prices will actually head up over the year and whether that's due to increases in component or steel cost or paint cost, now with petroleum like we're headed up as well or perhaps even just financing costs heading up, all of which - and in we believe a strong demand during the peak season, all of which is likely - more likely than not container price is up as opposed to see container prices decline. As you know increasing container prices tends to be a positive thing for the for the leasing industry, right. The shipping lines tend to prefer to lease over buy, it tends support residual value and resale prices and as rental rates increase it just gives us that greater margin over whatever's maturing at that time and ability to maintain or extend or improve the performance of maturing leases. So the outlook in terms of container prices in my opinion is actually very positive.
Is it fair to say that maybe the pace of the early recovery in box prices was maybe a bit - maybe a bit faster than we - than you would have wanted in the sense that it was tough to really fill in or layer in at ton of capacity at those really tough prices, just given how quickly they escalated and the - it just seems like kind of settling in here was probably what the space needed considering the kind of the pace of the recovery had early that it was really difficult to actually layer in a lot of boxes that are going to help with breakeven levels the rest of the cycle.
I'm not sure I understand the question.
No, it's alright. I can take it offline. It's around stepping into mid cycle boxes, I can take it off line. You've already been very helpful.
Okay, well, let me let just note this Mike because I do think it's an important point to note especially with respect to Textainer. When container prices were very low we were a very strong buyer of containers at that time. I suspect the strongest among any of the leasing companies and in retrospect it's fair to say that the one impact that has shown up in our performance is that those containers were put out a relatively low rates and it has negatively impacted our revenue performance. But those containers are the ones that are going to start rolling over the next few years and we paid less for those containers than used container prices today. We could sell those containers in some cases for more than we paid for them and the room between the rental rate on those containers and we're very current container prices and current rental rates are is significant, in some cases $0.30 per CEU per day or more. So assuming container prices stay somewhere where they are or even trend up, we see a very positive impact on Textainer's performance starting next year and the year after. We're seeing some of it this year, but with the more dramatic effect we'll start seeing next year and the year after.
Yeah, that's fair. It was really a question around layering in cheap capacity to kind of help facilitate like the multi-year ROE expansion trade, so the idea of just kind of buying cheap basically, which I think you addressed, so I appreciate that and I will turn it over.
Thank you, Mike.
Thanks.
And the next question in the queue comes from Scott Valentine from Compass Point. Your line is open.
Thanks for taking my question. Just a couple questions, one, just numbers or accounting question, on tax rate it dipped this quarter, but it sounded like keeping the full year tax rate guidance the same, it sounds like it was one off items during the quarter that's true of a tax rate lower?
Correct Scott. I would say, as I said earlier I expect our tax rate to kind of normalize in the low single digit basically, mid to low single digit.
So pretty much unchanged from the prior guidance and the prior guidance was limit -
Correct.
Okay and then just referring to seasonality - utilization rate, I think you guys said you ended the quarter I think around 97.8% if my memory is right - my notes are right here. Is that - should we expect that to trend higher given supply demand dynamics and again entering the seasonally strongest part of the year?
We expect our utilization will trend higher as we go into the peak season, yes.
Okay, alright. And then just a capital management question, I know you guys are - or obviously CapEx is the focus right now. You guys said $428 million, I guess is what you've done in the first five months in terms of orders and deliveries, but stock's trading 87% of below book value. How do you guys approach - or will there be some point in time where you think maybe the CapEx won't be as attractive and therefore you switch to more of a capital management strategy, maybe look at the stock depending on what course where the stock is trading?
It's very fair question Scott, but right now we believe container prices are attractive and the returns on container prices - and the return on container investments are attractive and our focus is on growing our fleet. But if conditions change that's a question we always have to ask.
Okay, fair enough. And Olivier, I think on the gain on sale, you mentioned it will be healthy. Is there a kind of a range or point between like 4Q and 1Q in terms of what could be a healthy gain on sale, the dynamic being of course the margins are very good to sell, but you still have less volume the cell because of the inventory?
Sure so remember in 4Q it was 8.3 million, this quarter it was 6.6, my comment was it would sort of trend somewhere in between that number. And again the used container prices remain very, very healthy and with high utilization of what have you, we expect the used market to continue as it is. The only issue is there isn't a lot of supply out there and so volumes could lean a bit, but again when I say healthy clip, I'm suggesting that it's somewhere at or above where we - where it was this quarter.
Okay, it's helpful. Alright, thanks very much for taking my questions.
Thank you, Scott.
And the next question in the queue comes from Mike Brown with KBW. Your line is open.
Hi, good morning.
Good morning, Mike.
So all of my questions have been asked and answered, but I just wanted to do a quick follow up on the funding mix there. So looks like the duration of your funding ticked up to 33 months from 31 months and then given the duration of your long term leases is more like 43 months, would you kind of consider terming out your debt a bit more high proportion of that fixed rate debt, so that it closely matches the duration of the leases, is that something you would eventually target?
Mike, I would expect us to continue to term out more debt. We are and others are looking at the ABS market to term more debt out, so I would expect that to continue to increase.
Great, thank you. And as the utilization rates have kind of ticked out the high historical levels. What is kind of the calculus there between deciding which containers to kind of sell off, obviously again sales have been strong, the resale values have been strong versus seeing if you can actually redeploy those containers.
We try to keep that very agnostic, right. The - very unemotional, we have a model that when a container comes off lease that looks at that container and it makes a determination as to what's the best way to maximize the present value of the cash that we can generate off that asset and is to sell it where it is, to sell it in another location and move it to that location and incur the cost or sometimes potentially revenue of moving it to that location is it the key - is that to repair it and keep it in our fleet, to do that and move it to another location to lease it out, so it looks at all these alternatives and decides, which is the best one to do. As demand is quite strong right now for containers especially in Asia, what you find is lot of containers that turned in are kept in our fleet and not sold, but also with a very high resale price the other effect is sometimes you say, wow, it just simply makes sense to sell this containers, so just trying to make sure you understand that we don't sit there and look at each container on an individual basis, it's simply a calculation of what's the best way to maximize the present value of the cash flow of that asset.
Great, thank you. Then just a quick follow up there is, what regions are you kind of seeing - where are you kind of selling off the containers more, is it - sounds like Asia is very strong, so it's not there, is it more in Europe?
Well, see the interesting thing is the highest resale prices tend to be in Asia as well, so although you have the highest lease out demand, you're also going to have the highest resale price, which is the other side of that equation when you're making your determination. The lease out demand in Europe or North America is not as strong. The resale prices tend not to be quite as high either. But again it's simply a matter of where the math comes out, where you decide to return the –which is the way to maximize the present value of the cash flow. Having said all that, it's more likely that a container in North America or Europe is going to be sold because the lease out demand generally tends to be forward.
Okay, great. Thank you and that's it for me.
Thank you very much.
We have no further questions at this time. I'll turn the call back over to Mr. Terry for closing remarks.
Thank you, Michel. Thank you everyone for joining us for the Q1 earnings call. We look forward to speaking to you as we move through the quarter and thanks again for joining us.
Ladies and gentlemen this concludes today's teleconference. Thank you for participating. You may now disconnect.