Textainer Group Holdings Limited Reports Third-Quarter Results

Textainer Group Holdings Limited (NYSE: TGH) (“Textainer”, “the Company”, “we” and “our”), one of the world’s largest lessors of intermodal containers, reported third-quarter 2017 results.

Financial and Business Summaries

• Business environment continues to rebound. Lease rental income increased $3.4 million (or 3.1 percent) from the prior quarter to $112.2 million for the quarter;
• Gain on sale of containers, net increased $2.1 million (or 35.6 percent) from the prior quarter to $8.0 million for the quarter, reflecting the continued improvement in resale prices;
• Net income attributable to Textainer Group Holdings Limited common shareholders of $18.5 million for the quarter, or $0.32 per diluted common share, an increase of $27.8 million from the prior quarter;
• Adjusted net income(1) of $18.6 million for the quarter, or $0.33 per diluted common share, an improvement of $19.8 million from the prior quarter;
• Increased adjusted EBITDA(1) of $100.6 million for the quarter, an improvement of $9.4 million (or 10.3 percent) from the prior quarter;
• Utilization averaged 96.7 percent for the quarter and is currently at 97.2 percent, an improvement of 40 basis point over the prior quarter average; and
• Approximately $500 million of capex year-to-date in 2017.

“We are excited about the significant improvements in our financial performance and favorable overall market conditions. The positive trends reported previously continued with sequential improvements in lease revenue, gain on container sales, and direct container expense. Our third quarter results mark a return to profitability which we expect to continue going forward. With Hanjin behind us and our refinancings completed, we are well positioned to take advantage of the attractive market environment,” stated Philip K. Brewer, President and Chief Executive Officer of Textainer Group Holdings Limited.

“Utilization continues to rise. Rental rates and container prices are holding at their highest levels in many years. Cash-on-cash returns on new dry freight term leases have remained strong with longer lease terms and Asia-focused return schedules, which in turn lift rental rates for depot containers and lease renewals. New container prices have remained relatively stable in the range of $2200 to $2300 per CEU, further supporting rental rates.

“We continued our strong capex investing approximately $500 million year-to-date. Over 70% of our new containers have either been leased-out or committed to be picked-up once manufactured. As these new containers have been and will be going on lease largely during the second half of the year, the impact on our results is not yet apparent and will be seen in the coming quarters. We project that containers leased at today’s rates will provide returns-on-equity in the mid-teens,” continued Mr. Brewer. “Resale values for used containers continued their sustained improvement, as evidenced by the increased gain on container sales and reversal of previously recorded impairments.”

Key Financial Information (in thousands except for per share and TEU amounts):

(*) Certain amounts for the period ended September 30, 2016 have been restated for immaterial corrections of identified errors pertaining to the calculation of gain on sale of containers, net.

“Adjusted net income (loss)” and “adjusted EBITDA” are Non-GAAP Measures that are reconciled to GAAP measures in footnote 1. “Adjusted net income (loss)” is defined as net income (loss) attributable to Textainer Group Holdings Limited common shareholders before charges to write-off of unamortized deferred debt issuance costs and bond discounts, unrealized (gains) losses on interest rate swaps, collars and caps, net and the related impact of reconciling items on income tax (benefit) expense and net income (loss) attributable to the non-controlling interests (“NCI”). “Adjusted EBITDA” is defined as net income (loss) attributable to Textainer Group Holdings Limited common shareholders before interest income and expense, the write-off of unamortized deferred debt issuance costs and bond discounts, realized and unrealized (gains) losses on interest rate swaps, collars and caps, net, income tax (benefit) expense, net income (loss) attributable to the NCI, depreciation expense, container impairment, amortization expense and the related impact of reconciling items on net income (loss) attributable to the NCI. Footnote 1 provides certain qualifications and limitations on the use of Non-GAAP Measures.

Third-Quarter Results

Textainer’s third quarter results benefited from higher lease rental income due to higher utilization and an increase in the size of our owned fleet. Direct container expense decreased $4.7 million from the prior year quarter due to the increase in utilization and decreases in repositioning expense and repair and recovery costs from the Hanjin bankruptcy.

Gain on sale of containers, net was $8.0 million for the current quarter compared to $2.2 million for the prior year quarter. The $5.8 million increase was primarily due to an increase in average sales proceeds per unit, partially offset by a decrease in volume of sales.

Container impairment was $2.0 million for the current quarter compared to $43.7 million for the prior year quarter. The $41.7 million decrease was primarily due to a decrease in impairments to write down the value of containers held for sale to their estimated fair value and a $22.1 million impairment from the Hanjin bankruptcy for the prior year quarter.

We evaluate the estimated future residual values and monitor the sales prices and useful lives of our containers on an ongoing basis. As a result, we increased the estimated future residual value of certain container types effective July 1, 2017 as follows:

“Following the sharp and sudden rebound in sales prices, we reviewed our depreciation policy and increased residual values on each of our three primary dry container types. This change decreased depreciation expense by $3.6 million during the third quarter,” commented Hilliard C. Terry, III, Executive Vice President and Chief Financial Officer of Textainer Group Holding Limited. “Last year we reduced residual values after a prolonged period of declining sales prices; however, the significant reversal in the market caused us to reassess our residual values. The changes we’ve made better reflect our long-term view of used container prices over the cycle. Our residual values remain equal to, or lower than, our public peers.”

Bad debt expense was $17.3 million lower in the third quarter mainly due to a $17.1 million provision for the Hanjin bankruptcy in the prior year quarter with no comparable provision recorded in the current quarter. These benefits were partially offset by a $6.4 million increase in interest expense including hedging costs primarily due to higher amortization of deferred debt issuance costs and a repricing of interest margins back to market rates in some of our debt facilities.

“During the quarter, we recorded a tax benefit of $4.8 million, in spite of recording net income for the quarter. Our tax rate is affected by items such as tax rates in various jurisdictions, the relative amounts of income we earn in those jurisdictions and discrete items that occur in any given period. We expect the tax benefit recorded in the third quarter to be largely offset by an almost equivalent tax expense in the fourth quarter,” concluded Mr. Terry.

Outlook

“We are very optimistic about the outlook for both Textainer and our industry. The manufacturers are full through November. Production during the winter will be constrained due to the difficulty in applying water-born paint in cold temperatures. Steel prices may strengthen due in part to enforcement of pollution regulations in China leading to the closure of some steel producers. For these reasons, we do not expect new container prices to decline over the coming quarters,” continued Mr. Brewer. “The inventory of new containers at factories is approximately 400,000 TEU which we consider reasonable given the current outlook for demand and production. With utilization at such high levels, worldwide depot inventory is also very low.

“We expect rental rates to remain around current levels given the disciplined ordering of new containers by lessors and shipping lines and the constraints on new container production. Sales prices should remain around today’s levels because the quantity of containers being put to sale is limited due to high utilization at lessors and shipping lines.

“Over the coming years, we will benefit not just from the projected continued strong growth in container trade but also from revenue upside from lease repricing. Leases maturing in 2018 have average rates of $0.56 per CEU per day and this figure declines to $0.36 per CEU per day by 2021. These rates are well below current new and depot container rental rates. If current market conditions continue, as these leases reprice any increase in rental revenue will flow straight to our bottom line.”

Investors’ Conference Call and Webcast

Textainer will hold a conference call and a Webcast at 11:00 am EDT on Thursday, November 9, 2017 to discuss Textainer’s third quarter 2017 results. An archive of the Webcast will be available one hour after the live call through November 9, 2018. For callers in the U.S. the dial-in number for the conference call is 1-888-895-5271; for callers outside the U.S. the dial-in number for the conference call is 1-847-619-6547. The participant passcode for both dial-in numbers is 45846250. To access the live Webcast or archive, please visit Textainer’s Investor Relations website at http://investor.textainer.com.

About Textainer Group Holdings Limited

Textainer has operated since 1979 and is one of the world’s largest lessors of intermodal containers with more than 3.2 million TEU in our owned and managed fleet. We lease containers to approximately 300 customers, including all of the world’s leading international shipping lines, and other lessees. Our fleet consists of standard dry freight, dry freight specials, and refrigerated intermodal containers. We also lease tank containers through our relationship with Trifleet Leasing and are the primary supplier of containers to the U.S. Military. Textainer is one of the largest and most reliable suppliers of new and used containers. In addition to selling older containers from our lease fleet, we buy older containers from our shipping line customers for trading and resale. We sold an average of more than 120,000 containers per year for the last five years to more than 1,400 customers making us one of the largest sellers of used containers. Textainer operates via a network of 14 offices and more than 500 independent depots worldwide.

Important Cautionary Information Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of U.S. securities laws. Forward-looking statements include statements that are not statements of historical facts and include, without limitation, statements regarding: (i) Textainer’s expectation that profitability will continue going forward and it will be able to take advantage of the market environment (ii) Textainer’s projection that containers leased at today’s rates will provide returns-on-equity in the mid-teens (iii) Textainer’s expectation that the tax benefit recorded in the third quarter will be largely offset by a tax expense in the fourth quarter (iv) Textainer’s belief that new container production will be constrained and new container prices will not decrease in the coming quarters due to the challenges of using waterborne paint during the winter months and possible increases in component costs (v) Textainer’s expectation that both rental rates and sales prices will remain around current levels (vi) Textainer’s expectation that should current market conditions continue going forward, its revenue will increase due to container trade growth and due to the repricing of maturing leases which are at rates below the current market. Readers are cautioned that these forward-looking statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results. These risks and uncertainties include, without limitation, the following items that could materially and negatively impact our business, results of operations, cash flows, financial condition and future prospects: any deceleration or reversal of the current domestic and global economic conditions; lease rates may decrease and lessees may default, which could decrease revenue and increase storage, repositioning, collection and recovery expenses; the demand for leased containers depends on many political and economic factors and is tied to international trade and if demand decreases due to increased barriers to trade or political or economic factors, or for other reasons, it reduces demand for intermodal container leasing; as we increase the number of containers in our owned fleet, we increase our capital at risk and may need to incur more debt, which could result in financial instability; Textainer faces extensive competition in the container leasing industry which tends to depress returns; the international nature of the container shipping industry exposes Textainer to numerous risks; gains and losses associated with the disposition of used equipment may fluctuate; our indebtedness reduces our financial flexibility and could impede our ability to operate; and other risks and uncertainties, including those set forth in Textainer’s filings with the Securities and Exchange Commission. For a discussion of some of these risks and uncertainties, see Item 3 “Key Information— Risk Factors” in Textainer’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 27, 2017.

Textainer’s views, estimates, plans and outlook as described within this document may change subsequent to the release of this press release. Textainer is under no obligation to modify or update any or all of the statements it has made herein despite any subsequent changes Textainer may make in its views, estimates, plans or outlook for the future.

View source version on businesswire.com: http://www.businesswire.com/news/home/20171109005314/en/