Q4 2022 Triton International Ltd Earnings Call
Speaker 2: Good morning and welcome to the Triton International Limited Fourth Quarter 2020 to Ernie Comforts call. All participants will be in listen only mode. Should you need assistance please ignore conference specialists by pressing the star key followed by zero.
Speaker 2: After today's presentation there will be an opportunity to ask questions.
Speaker 2: to ask the question you repressed started when you touched on the phone. To withdraw from the question cue, please press start then too.
Speaker 2: Please note this event is being recorded. I'd like to turn the conference over to Michael Perl, CFO . Please go ahead.
Speaker 3: Thank you, Anthony. Good morning and thank you for joining us on today's call.
Speaker 3: We are here to discuss Triton's fourth quarter and full year 2022 results, which were reported this morning.
Speaker 3: Joining me on today's call from Triton is Brian Sondi, our CEO and John O'Callahan, our head of global marketing and operations.
Speaker 3: Before I turn the call over to Brian , I would like to note that our prepared remarks will follow along with a presentation that can be found in the Investor section of our website under Investor presentations.
Speaker 3: I'd like to direct you to slide two of that presentation and remind you that today's presentation includes four looking statements that reflect straightened current view with respect to future events, financial performance, and industry conditions.
Speaker 3: These forward-looking statements are subject to various risks and uncertainties.
Speaker 3: Triton has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation.
Speaker 3: and we encourage you to review these factors.
Speaker 3: In addition, reconciliation of non-GAAP measures to the most directly comparable GAAP's financial measure are included in our earnings release and presentation.
Speaker 3: I will now turn the call over to Brian .
Speaker 4: Thanks Michael. Welcome to Trayton International's fourth quarter and full year 2022 earnings conference call.
Speaker 4: Before I start with our formal presentation, I would like to congratulate Michael on his promotion to Chief Financial Officer and welcome him to our quarterly calls. Congratulations, Michael.
Speaker 4: And now start with slide three of our presentation.
Speaker 4: Trayton's strong results in the fourth quarter. Catch an outstanding year for the company.
Speaker 4: In the fourth quarter, we generated $2.76 of adjusted and income per share.
Speaker 4: and achieved an annualized return on equity of 25.4%.
Speaker 4: For the full year of 2022, we generated $11.32 of adjusted earnings per share.
Speaker 4: and achieved a return inequity of 28.4%.
Speaker 4: Our 2022 adjusted earnings per share.
Speaker 4: We're up more than 20% from 2021.
Speaker 4: which had been a record year for Triton.
Speaker 4: Our market environment slowed in 2022.
Speaker 4: following nearly two years of exceptional container demand.
Speaker 4: Trade volumes have retreated from the 2020-2021 surge.
Speaker 4: Consumers are shifting spending back from goods to services.
Speaker 4: the various headwinds facing the global economy are hitting trade as well.
Speaker 4: In addition, the logistical bottlenecks that impacted pandemic-era supply chains have eased.
Speaker 4: Speeding container turn times and freeing container capacity.
Speaker 4: As a result, most of our customers are off-iring containers.
Speaker 4: And our utilization is gradually decreasing from last year's record level.
Speaker 4: We expect our performance will remain strong, despite the challenging environment.
Speaker 4: We have significant operational and financial advantages in our market.
Speaker 4: The large number of containers we purchased over the last few years are locked away. A long duration, high IRR leases.
Speaker 4: We have strengthened our overall least portfolio.
Speaker 4: The vast majority of our containers are on multi-year long-term leases.
Speaker 4: We have significantly increased the average remaining duration of our leases.
Speaker 4: And almost 60% of our containers are on life cycle leases.
Speaker 4: which are structured to keep containers on higher until the end of their leasing lives.
Speaker 4: We have also locked in low-cost financing with long-term fixed rate debt.
Speaker 4: We continue to use our strong cash loader drive shareholder value.
Speaker 4: We shifted our investment focus from Fleet Growth in 2021.
Speaker 4: DeShare Repurchases in 2022.
Speaker 4: We purchased over 9.1 million shares in 2022.
Speaker 4: Representing nearly 14% of our outstanding shares at the beginning of the year.
Speaker 4: while also decreasing our leverage.
Speaker 4: Market conditions are currently challenging, but we expect our financial performance will remain strong.
Speaker 4: We expect our adjusted earnings for share will decrease from the fourth to the first quarter as negative seasonality adds pressure to the generally soft market conditions.
Speaker 4: In addition, we do not expect the recurring items, assuming the non-recurring items, which benefited the fourth quarter will re-accur.
Speaker 4: But we expect our utilization, but remain high, and expect our share-re-purchases will remain highly accretive.
Speaker 4: Overall, we expect our cash flow, profitability, and return on equity will remain strong.
Speaker 4: Throughout 2023, and into the longer term.
Speaker 4: I'm not in the call over to John O'Callahan, our global head of marketing and operations.
Speaker 5: Thank you Brian .
Speaker 6: Page 4 shows Triton operating metrics.
Speaker 6: In a lower left charge you can see the monthly trend of our picker hub and drop off activity.
Speaker 6: Pick up volumes decelerated in the first half of 2022, though drop-offs remain low as shipping lines contended with the lingering effects of port congestion.
Speaker 6: and other supply chain bottlenecks. We started C-drop-offs to accelerate in the third quarter as our customers reacted to a muted peak season and an easing of logistical bottlenecks.
Speaker 6: This continued through the fourth quarter as a line started to rebalance their fleet in response to declining trade volumes.
Speaker 6: In the result of this increase in drop-off volumes is a gradual reduction in our utilization rate.
Speaker 6: As shown in the upper left chart.
Speaker 6: Nevertheless, utilization rate high at 97.6%
Speaker 6: reflecting the durable protection provided by a long-term and financed leases.
Speaker 6: which now make up over 88% of our least portfolio as weighted by net book value.
Speaker 6: A key part of our enhanced lease protection has been the increase in the percentage of our containers on life-side lease.
Speaker 6: I'll show them the upper right.
Speaker 6: In the chart, you can see that nearly 60% of our containers are on life cycle.
Speaker 6: which are structured to keep containers on high through their full remaining leasing light.
Speaker 6: and so have very little utilization risk.
Speaker 6: The bubble chart on the lower right shows the volume of our new dry container transaction activity.
Speaker 6: The volume of new container leases has significantly decreased as a result of the marked environment change.
Speaker 6: and our clients increased emphasis.
Speaker 6: on operational effectiveness.
Speaker 6: Page five.
Speaker 6: Illustrate the shipping market is normalizing following two years of exceptional conditions.
Speaker 6: In the upper left charge you can see the spot freight rates for our customers have decreased steeply over the last few quarters and response to cooling trade activity.
Speaker 6: and have returned to pre-pandemic levels on most trade lanes.
Speaker 6: In the upper right, you can see that new container prices have also normalized.
Speaker 6: As container capacity is no longer in shortage and the mildly new containers has eased.
Speaker 6: The chart on the low right looks at an index of use container cell prices.
Speaker 6: Use prices have come down in concert with new container prices.
Speaker 6: Although we continue to generate solid disposal gains in the fourth quarter.
Speaker 6: Finally, on the lower left, you can see that port congestion has mostly dissipated.
Speaker 6: as reduced trade volumes and improved productivity have allowed ports to work through their vessel backlog.
Speaker 7: Paid six.
Speaker 6: H6 looks at the supply of new and used containers as well as new container production volumes.
Speaker 6: which have decreased in response to slower demand.
Speaker 6: The chart of the upper left shows the inventory of new containers awaiting deployments.
Speaker 6: After reaching historically low levels in 2021, factory inventory is now back around the long-term average as a percent of the total dry container flees.
Speaker 6: You can see in the lower left, the Tritons depot inventory of used containers has grown, reflecting the increased taste of off-hires. Relative to our fleet size, our depot inventory remains very low and we expect it to remain well under control.
Speaker 6: due to the durable enhancements we have made to our least portfolio. Importantly, the vast majority of our depo stocks are located in key demand locations in Asia.
Speaker 6: and we expect the containers to go on high quickly as the market enters the next up cycle.
Speaker 6: 2022 production orders, as shown by the graphs on the right, dropped by more than 50% year over year in response to our customers' shift from aggressively adding containers in 2021 back to fleet efficiency.
Speaker 6: as you can see in the low right chart.
Speaker 6: Productions volume dropped way below to a pleasant range.
Speaker 6: as the demand decreased through the fourth quarter of 2022.
Speaker 6: The market has a natural balance of new container production and we expect very limited production of new containers in the first half of 2023.
Speaker 6: We have talked in the past about the short-order cycle for containers, which is just a few months.
Speaker 6: and the natural order of how container production.
Speaker 6: as well as the overall container fleet adjusts quickly to changes in the global container supply and the non-balance.
Speaker 6: I'll now hand you over to Michael Powell, our CFO .
Speaker 8: Thank you John .
Speaker 3: On slide 7, we have presented our consolidated financial results.
Speaker 3: Adjusted net income for the fourth quarter was $160.7 million or $2.76 per share, a decrease of 4.2% from the third quarter.
Speaker 3: For the full year of 2022, a Justin Ned income was $702.8 million.
Speaker 3: or $11.32 per share, an increase of 23.6% from 2021.
Speaker 3: This outstanding performance represents another record year of earnings that is built upon our impressive results from last year.
Speaker 3: In addition, we achieved an annualized return on equity of 25.4% in the fourth quarter.
Speaker 3: and a return on equity of 28.4% for the full year. On slide 8, I will discuss the key drivers of our performance, focusing on sequential changes from the third to the fourth quarter.
Speaker 3: Limited cat-backs led to a 1.7% decrease in our average revenue earning assets in the fourth quarter.
Speaker 3: Average utilization for the quarter was down 70 basis points.
Speaker 3: due to more challenging market conditions, but still remains very high and is supported by our well-structured long duration leases.
Speaker 3: Driven in part by an increase in storage costs.
Speaker 3: We saw operating expense increase by $7.7 million in the quarter.
Speaker 3: This increase was partially offset by an increase in revenue for repairs and handling costs that are rebuilt to our customers.
Speaker 3: Interest expense increased slightly in the quarter as higher rates somewhat offset the decrease in our average depth balance.
Speaker 3: However, our effective interest rate remains low, as we continue to benefit from the high portion of our debt that is fixed at attractive levels.
Speaker 3: At your end, 88% of our debt was either fixed or swapped to fixed.
Speaker 3: Paying on sale and trading margin decreased 11% in the fourth quarter, but still remains at a high level, and we continue to see pricing well above our residual values.
Speaker 3: The fourth quarter included several unusual items that added 13 cents per share to our earnings.
Speaker 3: We recorded a $3 million benefit from the reversal of a credit charge taken earlier this year.
Speaker 3: and the recovery from a default that occurred several years ago.
Speaker 3: We also had $4.8 million of gains from least biotransactions that benefited gain on sale.
Speaker 3: We do not expect these items to re-occur in the first quarter.
Speaker 3: As Brian mentioned earlier, we continue to use our strong cash flow to activate buyback shares.
Speaker 3: resulting in a continued decrease in our share count.
Speaker 3: Slide 9 demonstrates the meaningful increase in our leasing margin over the last several years and the durable enhancements we have made to help support this high level of profitability into the future.
Speaker 3: The chart on the left of the page shows this increase in leasing margin, which has been driven by several factors.
Speaker 3: including our elevated level of investment in high returning leases.
Speaker 3: attractive transactions for existing DEPA units, exceptional levels of utilization.
Speaker 3: and the impact from our significant refinancing activity.
Speaker 3: We have created a new level of durable profitability and the chart on the right of the page.
Speaker 3: So what we have done to help block in this high level of leasing margin.
Speaker 3: The chart in the upper right shows the evolution of our leasing portfolio.
Speaker 3: the combination of new long-duration leases along with attractive terms on renewals and depot pickups.
Speaker 3: have enabled us to extend our average restoration to almost 80 months.
Speaker 3: And as of the end of the year, 88% of our units by book value were either on long-term or finance leases.
Speaker 3: The chart in the lower right illustrates the improvements we have made to our desk structure.
Speaker 3: We have locked in long duration financing at low levels.
Speaker 3: that will help keep the effective interest rate on our current fleet from meaningfully increasing over the next several years.
Speaker 3: I will now turn the call over to Brian .
Speaker 4: Thanks Michael. Slide 10, summarize to the cash flow power of our business.
Speaker 4: In 2022, we generated slightly over $1.6 billion of cash flow.
Speaker 4: We need to allocate a little more than half of this cash flow for replacement capital spending.
Speaker 4: in order to maintain our fleet size as containers age out of service.
Speaker 4: This leaves us with a little over $700 million of steady state cash flow.
Speaker 4: We use roughly $160 million per year for our regular dividend.
Speaker 4: As a result, we have about $545 million of steady state cash flow after our substantial regular dividend.
Speaker 4: The next set of numbers shows a few things that we can do with this $545 million.
Speaker 4: and illustrates where we're able to create value across a wide range of market environments.
Speaker 4: If we focus on capital investment like we did in 2021.
Speaker 4: We can self-fund the equity needed for nearly 20% asset growth.
Speaker 4: while keeping a leverage ratio constant.
Speaker 4: Alternatively, if we focus on share repurchases like we are now…
Speaker 4: We can repurchase about 13% of our shares at their current trading range.
Speaker 4: If we want it instead to focus on dividends.
Speaker 4: We could pay well over $9 per share on top of a regular dividend, bringing the total annual dividend into the range of $12 per share.
Speaker 4: We have also included a table at the bottom of the slide that shows how we are able to use our strong cash flow to drive per share fleet growth almost regardless of market conditions, again while holding our leverage ratio steady.
Speaker 4: Revenue earning assets per share have increased from $134 per share at the end of 2020.
Speaker 4: to $199 per share at the end of 2022.
Speaker 4: an increase of almost 50% across two very different market environments.
Speaker 4: This strong growth in our assets per share is another key reason we expect our higher level of financial performance will be durable.
Speaker 4: Slide 11. Look to that. Trayton has created long term value.
Speaker 4: Triton is the scale, cost, and capability leader in the fundamentally attractive market.
Speaker 4: And we have a long history of delivering solid growth.
Speaker 4: strong profitability and above market shareholder returns.
Speaker 4: The chart on the upper left looks at the long-term growth of our container fleet.
Speaker 4: We have grown the netbook value of our fleet 8% annually over the last 17 years.
Speaker 4: The chart on the upper right looks at our long-term cash flow before capital spending.
Speaker 4: You can see how our cash flow is increased as we have grown our fleet.
Speaker 4: And you can see the stability of our cash flow, even in very challenging years for the global economy.
Speaker 4: The chart on the lower left shows how we've used our cash flow to both reinvest in our business and regularly return cash to shareholders.
Speaker 4: At the time of TAL's IPO in 2005, TAL had an adjusted netbook value of around $12 per share.
Speaker 4: Our adjusted netbook value was increased steadily, recently at an accelerated pace.
Speaker 4: and is now almost $50 per share.
Speaker 4: We've also paid over $30 per share in dividends.
Speaker 4: And as you can see in the lower right, we've generated a 15% annual total shareholder return since our 2005 IPO.
Speaker 4: significantly outperforming the S&P 500.
Speaker 4: We'll talk about our outlook on slide 12.
Speaker 4: As you can see in the chart, we expect a adjusted earnings for share will decrease from the fourth quarter of 2022.
Speaker 4: to the first quarter of 2023.
Speaker 4: This reflects the combination of several factors.
Speaker 4: The first quarter is typically the slow season for dry containers.
Speaker 4: which adds pressure to the generally slow market conditions.
Speaker 4: In addition, the first quarter has two fewer days.
Speaker 4: In addition, the first quarter has two fewer days, and we charge our customers on a daily usage basis.
Speaker 4: We also do not expect the unusual items that jetted 13 cents to the fourth quarter will be repeated.
Speaker 4: We expect the mix of factors will be different after the first quarter.
Speaker 4: and expect the pressure on a key operating metrics and profitability will ease.
Speaker 4: Seasonality typically improves as we move toward the summer.
Speaker 4: And we expect customer off-hires will slow due to this positive seasonality.
Speaker 4: and as the recess container inventory shrinks.
Speaker 4: the RECSF container inventory shrink. We expect sale prices will stabilize.
Speaker 4: After they returned from elevated to normal ratios compared to new container prices.
Speaker 4: And we expect we'll continue to benefit from ongoing share repurchases.
Speaker 4: The chart also highlights the durable enhancements we've made to our business.
Speaker 4: We expect our 2020 earnings for share to be in the range of two times our pre-pandemic level.
Speaker 4: despite the challenging market environment.
Speaker 4: I'll finish the presentation with slide 13.
Speaker 4: Trayton has an exceptional franchise and we delivered outstanding performance in 2022.
Speaker 4: Our market is currently challenging, but we are confident about our performance and optimistic about our opportunities.
Speaker 4: We have significant market advantages that have made durable and hands-in-stor business.
Speaker 4: Respect your profitability and return an equity will remain high.
Speaker 4: We are confident we will continue to build shareholder value quickly.
Speaker 4: We are confident we will continue to build shareholder value quickly, even while the market remains slow.
Speaker 4: and try and be ready to support our customers.
Speaker 4: and will position to capitalize on renewed fleet investment opportunities.
Speaker 4: when market conditions inevitably inflicts positively.
Speaker 4: We'll now open up the call for questions.
Speaker 2: We will now begin the question and answer session.
Speaker 2: To ask a question you may press star then when you're touched on phone.
Speaker 2: If using a speaker phone please pick up your hands and press on the keys.
Speaker 2: To withdraw from the question queue, please press star then 2.
Speaker 2: At this time we'll pause my material to some bar raster.
Speaker 2: Our first question will come from Larry Solo with CJS Securities.
Speaker 2: Our first question will come from Larry Solo with CJ as securities. You may now go ahead.
Speaker 9: Great, thank you so much. Good morning everybody. I guess my first question Brian , it's sort of just like a high level question. You know, you discussed things that seem to be normalizing, but a lot less congestion. I'm curious just on the fleet size, the shipping container fleets.
Speaker 9: Do you feel like, are they flated versus historical? I'm just trying to get, do you have any color or feel for that? Do they plan on, do you feel like they'll remain higher than we were just because of all this stuff that happened when the courts and maybe the courts and maybe the shippers don't want to risk that happening again?
Speaker 4: just kind of getting a feel, your feel if there is one of directionally where these size of these fleets, or what they are today and where they might be a couple of years. Yes, sure, thanks for your question Larry. We look at what happened over the last couple of years we saw a very large new container production volumes in 2021.
Speaker 4: But we estimate that there were something in the range of probably five to 10% too many containers in the fleets of our customers when market conditions flowed during the middle of 2022 and as the bottlenecks eased. And so that still is our estimate that something in the range of the fleet has to normalize between 5 and 10% to...
bring container supply and demand back into balance. You know, fortunately, one of the great strengths of our business is that there's a short order cycle for containers, typically only a few months, and we've already seen new container production volumes, while significantly to the point now where the container fleet is shrinking in a month over a month.
And even though the economy outlook is tough, I think the outlook for trade growth is still somewhat positive. And that eats into the excess as well. And I think as you may be referred to in your question, we do expect customers to hang on to a little bit more container fleet, say resiliency than they had before the pandemic when their focus was almost exclusively on efficiency.
and just I think some extra containers in the fleet due to the focus of our customers on resiliency and perhaps some of the impacts of slow steaming due to the tighter IMO rules on emissions and also just the cost savings that customers get from that. So I think those variety of things have to happen and they'll happen.
You know, we'll see when, but it's already underway. Gotcha. And in terms of just container purchases or for you guys, it looks like you basically were close to your sort of maintenance level in 22. And.
For your example, you repurchased almost 14% of your share, so it kind of matched your example there. But I'm just curious, you're spending obviously your trajectory in the back of the year. You spent less than $200 million, I think $50 million in Q4. And it sounds like maybe this year starts off slow or...
I realize someone is just replacement, so how should we kind of think about any gauge and what spending will be this year?
I need to flow that. Yeah, our level of spending was around the replacement level in the first part of 2022. It fell below the replacement level towards the back cap at the market really slowed down. And our fleet size decreased a little bit during 2002, especially in the second half.
In a right now, we're investing at below our placement level, just because there's not much need for our customers for traditional containers. That said, we do try to anticipate the change in market dynamics, and we try to invest ahead of that inflection. And so we do expect, at some point here, we're going to turn the taps back on for repurchases, both anticipating the market inflection.
for Michael, first of all, congratulations and welcome. Just on the direct operating expenses line item, I think you kind of called this out a little bit. Directionally, it was, I see why it went up, it went up a little bit more than I thought, but I guess perhaps most of that was due to this sort of repair hand-linked costs where you guys get reimbursed for it. Was that higher than normal this quarter?
and that kind of drove that direct expansion number a little bit higher, so eventually.
Yeah, there are two parts in there. One is storage, so as we show utilization is down a little bit, so we do experience in a higher storage expense. And then with pickups and drop-offs from our customers, that does generate answer-ly fees. So some of that shows up in OPEX, but then there's also some offsets.
in the revenue line as well for that. I appreciate that.
Our next questions will come from Michael Brown with KBW.
Our next questions will come from Michael Brown with KBW. You may now go ahead.
Great, how are you guys? Hey Michael, good thank you.
Great. So I was looking at your EPS range for 2023 and I just wanted to see if you could put a little bit more meat on the bone to help us understand what's the difference between how you're thinking about the lower bound and the upper bound and what would cause you to maybe deliver results closer to the...
upper bound versus the lower bound, which we think about there. Yes, I think mainly it's just what happens to the market. And so, I think if we were to be at the lower bound of our expectations, that just means that the market has evolved a little bit slower than we expected, that that supply and demand normalization took more time than we'd hoped.
and perhaps that new container prices fell to ranges below where we expected, which can push the use container prices down. So in general, it just reflects probably a little more utilization pressure than we expect to see that, perhaps we don't see any kind of positive seasonality as you move from the first to the second quarter.
for our utilization or sale results. Yeah, I think that kind of tracks the lower bound. You know, the lower bound is pretty well protected by the leasing margin and the strength of the lease portfolio. You know, the quickest thing that adjusts downwards is the gain on sale and you know, the gain on sale was quite high in 2020, even through the fourth quarter. You know, sale prices held up very well.
and we continue to expect that to normalize down. But once, as I pointed out in my repair remarks, once we see the ratio of use prices and use prices, get back into something of a normal range, we do expect that reduction to slow down.
I guess perhaps the lower bound might also be defined if that normalization doesn't happen and sale prices go to be lower ratios than they typically are, which we don't expect.
You know, I'd say in the upper end of the bound is just, you know, the opposite of those things that, you know, we see, you know, customers, you know, their fleet stabilizing as we head towards the peak season. You know, perhaps we see an inventory restocking cycle in the US that drives some trade volume. And, you know, we just see utilization, you know, stabilize.
better than we'd expected and maybe even start taking upward. Typically, when we do see container supply demand back into balance, we can get our used equipment back on higher quickly. And so really, it's just, again, we've got a pretty good floor of performance because of our least portfolio. And again, like to point out, as I did in the prepared remarks at that, even that lower bound is something in the range of two times our pre-pandemic performance. And so...
areas to consider. Thanks for...
Thanks for giving us all that guidance and color.
Brian , what have been some of your early observations after China's reopening here? What are customers saying and how has... What have you guys noticed in terms of how that is impacted containerized trade if it all yet?
So I think the main thing I like to point out that for us as a leasing company, what we really focus on is the head-haul trade. That really is what drives the customers' need for more equipment or perhaps that they have too much equipment. And so really what drives demand for our fleet is consumption in the US and consumption in Europe . So that brings them to love this drives into meaning which really won't be yours.
as opposed to economic activity in China or consumption there. I mean, obviously there's a connection that there were certainly times in 2020 and 21 and maybe a little bit early in 22. You know, when...
retailers and wholesalers in the u.s. and you couldn't get everything they wanted uh... and so what was happening in china you know impacted trade volumes you know the sense i have now is that you know with most you certainly think you know retailers and so on being overstocked in in the u.s. and in Europe that we haven't seen a a bump in trade volumes as china's reopened on the head hall trades
Bank of America.
You may not go ahead.
Okay.
Hey team, this is Adam Roscati gone for Ken Hechter. Thanks for taking my question. So just first off could you
If you grind just run through what percentage of boxes will expire this year in 24 25 just to get a sense of the exposure to some of those rolling off.
Yes, sure. So, I think both Michael and John O'Callaghan refer to the fact that something like 88% of our container fleet, as weighted by netbook value, is locked in on longer term leases. So, just naturally, there can't be too much that's expiring.
What we tend to focus on, we think of explorations and sort of market risk and earnings risk, are the portion of the fleet that's expiring that would have to be remarketed. We find even when market additions are tough, we usually generate gains on the SLN or use containers. And so we typically don't look at that as providing too much exposure to challenges in any given year.
And so we typically include an endotinous presentation in a chart showing what percentage of our fleet is expiring, it was already expired, and that is expiring over the next few years and each of those years, for equipment that we have to release at the end of the current lease. And that's page 15 in the investor chart.
What that shows is for our dry containers and reefers, something like a little under two and a half percent of the fleet by CEU is already expired and needs to be remarketed when it comes back to us.
And then an additional little bit over 5% will expire during the course of 2023. Again, containers that are expiring and will still be leasing life and need to be remarketed. So in total, something in the range of 7 to 8% of our fleet is...
expiring off lease this year already expired and needs to be re-marketed. That is a very low number for us historically. Probably last time we went into slower periods in the market in 2015 or 2019, those numbers are probably two to three times higher.
You know, it's one of the reasons why we look at going forward and feel we've got a very nice projection for profitability and returns, even if market conditions remain challenging for some time.
Got it. Thanks for that. And then maybe just on utilization, you know, how should we think about sort of a floor level for utilization given the high mix of life cycle leases that you've built in here? Any thoughts around that?
Yeah, so again, we because of what you're talking about, the life cycle leases and just what I was saying before, that's very high percentage of containers locked away on multi-year leases. We do think the floor of utilization is going to be high. We include a lot of long-term statistics in our operating deck, but you can see that
That's a low point for utilization if you go back to some of the charge we had shown in previous years. It has been increasing. From something, we got down to maybe 90% floor utilization in the financial crisis, perhaps 92, 93 in the industrial recession in 2015 and 16. I got down to maybe 95% during the trade war of 2019 and the COVID lockdowns in the first part of 2020.
And it's been an increasing flow, we're hopeful. That will continue to see that increase, and that will see our utilization bottom somewhere in the mid-topper 90s during this cycle. But again, we'll have to see how things progress. Obviously, if the cycle is somehow worse than prior cycles, that would offset some of the benefit of the improved leesport folia.
But overall, we're very confident that our performance, our utilization, sort of our key, leasing metrics will stay very strong because of the portfolio.
Yeah, thank you. And this is just the last follow-up. Maybe just talk about day rates where they are now versus a year ago and how you see that progressing. And then on the trading revenue side, they were down. But maybe just give some color. Our liners are looking to unload more boxes right now. And just kind of...
help me think through that. Yeah, so maybe just when it comes to market leasing rates, we saw market leasing rates reach all time record levels in 2021 and the very early days of 2022, just because box prices were very high, close to two times the average for box prices.
You know, since I'd say, you know, summer of 2022, we haven't seen a lot of leasing activity. You know, customers, as I was saying, are generally over-boxed. And, you know, where we do see activity, it's very sort of small, you know, should be in line with what we have, you know, requirements on a, you know, location and, you know, day basis, just because they ran out for whatever operational reasons in certain locations.
But rates have come down. And so I think the best thing to look at is new container prices. And new container prices peak that close to $4,000 and either late 21 or early 22. We estimate right now we have bought containers for a while for the leasing fleet.
But we believe it's in the range of 2150 or so, 2200 for new container prices. That's up a little bit from where it was at a low point, perhaps in October , November . But that means, at least when the market tightens and we start doing transactions again, we send it around where the container prices happen to be at the time.
Thanks for taking my questions.
Our next question will come from Liam Burke with B-Railey.
Our next question will go from Liam Burke with B. Riley. He may not go ahead.
Thank you. Good morning, Michael. Good morning, Brian . Good morning. Brian , has there been any discussion? I know the liners are pretty, or the container shippers are pretty strong in terms of balance sheets. So there's not a lot of fussing there, but is there any talk of any change in duration or rate on?
condition of our customer base and just the profitability and also the leveraging that happened in the shipping industry has been extraordinary. So we look at the credit of our customers as being in great shape, despite the fact that they're heading into a more challenging period. And also just worthwhile knowing for our customers too that when people talk about what's going on in the shipping cycle.
You know, that the ship orders, you know, have a very different motorcycle than containers. That we expect to see the vessel fleet continue to grow in 2023 and 24. You know, where we're already seeing the container fleet shrinking. And so again, it's that kind of core difference in the cycle for our market, you know, relative to cycle for our customers, the shipping lines.
In terms of the focus on lease durations, we've actually found that over the last number of years, and we think it's going to continue, that there's a win-win thing we're seeing, we're customers are willing to keep containers on hire for a long period of time, primarily on life cycle leases for used equipment.
We like that because it takes volatility out of our business and gets us extra revenue years. And the customers do it for several reasons, not just because we push for it, but we're able to give the customers discount on the per-dem rates and return for extra years of duration just because we think of the releasing activity and the renewals on an NPV basis.
And then also we're able to give our customers much greater logistical flexibility, which can have real backhaul savings for them by giving our ability to sell containers all over the world in particular in them and locations. And so we've just kind of seen this general migration where maybe in the past we had put a container on a long-term lease at the beginning and then several iterations or shorter-term lease.
You know, we're now, it really has become kind of a two-step model. You know, an initial lease for new equipment that goes from, in normal years, five to eight years, last year, or 2021, you know, out to kind of 11, 12, 13 years. And then...
Very often either the renewal or the pickup of used equipment is onto a life cycle lease. In many cases can carry out well past year 15.
Great, thank you, Brian . Michael, 12% of your debt is not fixed. How do you look at that in terms of capital location, BZB, the dividend and the buybacks?
I think most of our fixed and floating is just driven by our least portfolio. We do try to...
The hedge, pretty much all of our long-term leases and finance leases to make sure that the debt that's financing those containers is locked in as the revenues are locked in. So that's really how we manage that kind of fixed floating balance, which is why it's in that kind of upper 80% category, which is also generally aligned with what our least portfolio looks like.
Right, but during the year, last year, you did reduce, I mean, you net debt was reduced 22 over 21. Is there any thought on the portion that is not fixed or hedged on reducing that or are going to maintain certain levels of debt for capital efficiency?
and then just buy back stock or pay dividends. Our leverage has been, say, leverage has been pretty consistent. You know, that's something I think is Brian mentioned that we are able to use.
You know, tremendous cash flow to not only increase, you know, or buybacks or buy back at a high level, but also, you know, deliver a little bit throughout the year. You know, so that's kind of one decision point. I think how much is fixed or floating is, you know, more driven by, you know, the characteristics of our least portfolio. If that makes sense.
And when we think of leverage, we typically look at the ratio of our net debt compared to our revenue earning assets and actually adjust it a little bit for, you know, preferred stock and for, is the customer prepayments. But generally speaking, we try to keep that ratio in a relatively constant place. And so if, you know, if assets are shrinking like they did toward the end of last year, usually we're paying down debt.
In addition to using cash water by Backstock, if assets are growing, usually we're issuing new debt to finance the portion of that asset growth that can maintain constant leverage ratios. And as Michael said, we look at the amount of debt and the balance of fixed infloting is being somewhat disconnected.
with the amount of debt being targeted towards keeping our ratios constant and the fixed and floating mix really oriented around making sure that we're properly hedging our long-term lease portfolio.
Great. Thank you, Brian . Thank you, Michael. Yep. No, thank you, Lance.
This concludes our question and answer session. I would like to turn to Comfort Back over to Brian Saunday for any closing remarks. Just like to thank everyone for your continued interest and support for Triton.
The conference is now concluded. Thank you for attending today's presentation.