Triton International Limited

Good morning and welcome to the Triton International Limited fourth quarter 2020 earnings release conference call. All participants will be in listen-only mode. If you need assistance today, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press stars and one on your telephone keypad. To withdraw your question, please press stars and two. Please note today's event is being recorded. I would now like to turn the conference over to John Burns. Please go ahead, sir.

Thank you, Rocco. Good morning, and thank you for joining us on today's call. We are here to discuss Triton's fourth quarter and full year 2020 results, which were reported this morning. Joining me on this morning's call from Triton is Brian Saunders, our CEO, and John O'Callaghan, our head of global marketing and operations. Before I turn the call over to Brian, I would like to note that our prepared remarks will follow along a presentation that can be found in the investor section of our website under investor presentations. I'd like to direct you to slide two of that presentation and remind you that today's presentation includes forward looking statements that reflect Triton's current view with respect to future events, financial performance, and industry conditions. These forward looking statements are subject to various risks and uncertainties. Brighton 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, and we encourage you to review these factors. In addition, reconciliations of non-GAAP measures to the most directly comparable GAAP financial measures are included in our earnings release and the presentation. With these formalities out of the way, I'll now turn the call over to Brian.

Thanks, John. and welcome to Triton International's fourth quarter 2020 earnings conference call. I'll start with slide three of our presentation. Triton's outstanding results in the fourth quarter of 2020 provided a fantastic finish to a remarkable year. In the fourth quarter, we generated $1.70 of adjusted net income per share, an increase of almost 50% from the third quarter, and we achieved an annualized return on equity of 22.9%. For the full year of 2020, we generated adjusted EPS of $4.61 and achieved an adjusted return on equity at 15.9%. We did not anticipate having the opportunity to achieve this level of performance when the pandemic initially took hold. It's of course been a tragic and difficult time, but the changes in consumer spending patterns caused by the pandemic have led to a surge in trade and very strong demand for containers. We are pleased to have the opportunity to work closely with our customers to keep global supply chains functioning, and we are very proud of the way the Triton team has executed seamlessly through all the challenges and disruptions created by the pandemic. In 2020, Triton demonstrated the resilience of our business and our discipline and agility with capital management. Our financial performance held up very well in the first half of the year, while trade volumes were hit hard by the initial COVID lockdowns. and we focused our investment on share repurchases during this time. We then achieved exceptional operational and financial performance in the second half of the year as trade volume surged. We drove record levels of containers on hire, boosting our utilization to almost 99% by the end of the year. We also quickly pivoted our investment focus to aggressive fleet growth. We accepted $550 million of containers in the fourth quarter, and we're on pace for a record level of fleet investment in 2021. Market conditions remain very strong, and we are carrying significant momentum. Trade volumes remain well above pre-pandemic levels, and the supply of containers is tight. Our utilization is close to the maximum level, and we have almost 600,000 TEOF new containers booked for pickup in 2021. We expect our adjusted EPS will hold steady or increase slightly in the first quarter from the record level achieved in the fourth quarter of 2020, and we expect our profitability will remain at a high level throughout 2021. We expect the business and financial benefits from the current straw market will be durable. We have placed large numbers of containers onto well-priced, long-duration leases. We have expanded our leasing margins with attractive financing activity. and we have further secured our position as the go-to supplier in our industry. I want to hand the call over to John O'Callaghan, our global head of marketing and operations.

John O' Thank you, Brian. Turning to slide four and the current market overview, trade volumes have remained exceptionally strong and continue to be boosted by consumers shifting from services to goods. The lines continue to face a short-term shift capacity to meet this demand. and they've relied heavily on the lease companies for their containers. The availability of containers remains limited. The depot container inventory has been completely absorbed, driving utilization to record levels. In addition, new production inventory remains low despite manufacturers increasing production, leading to a jump in container prices as well as market lease rates. Triton has secured sizable bookings servicing those shipping line requirements due to our extensive supply capability. We have booked over 1.3 million TEUs since July 2020, capturing an excess of 35% of the lease market share. In addition to securing a sizable share, the average duration of new production business is over 10 years, with an expected lifetime ROE in the upper teens and a large percentage of the used depot containers have been locked into lifecycle leases. The pace and magnitude of the volumes required to meet demand has also increased sales demand to record levels, and used container disposal prices continue to strengthen as there are limited containers available for sale. Slide five illustrates the strength of trade driven by the shift in consumer spending from services to goods. and also that cargo volumes have continued to remain above pre-pandemic levels since July 2020. The bottom left chart gives us some indication that there may be room for this to run. Inventories are still below where they were pre-pandemic levels in the ratio of inventories to sales. It's evident the goods are not piling up in the shelves, but continue to find their way to consumers. Those goods continue to go out as quickly as they come in. You can see the strong growth levels on the chart on the right. As the market contracted hard in the first half of 2020, it then recovered very quickly and was back to normal levels by July, pushing into very strong levels of growth in the second half of 2020. We think this will at least push into the second quarter of 2021. We continue to hear from our customers that the numbers are strong, and trade volumes are currently constrained by container and vessel capacity rather than demand. All of this trade, in addition to creating demand for containers, has continued to create a range of logistical challenges for our customers, with a decrease in turn times boosting demand for further containers. Slide six shows that Triton's key operating metrics reflect the strong market and are pushing up even further than we predicted. This can clearly be seen in the top left chart, with utilization at near maximum levels. We have booked 1.3 million TEUs since July, with little more than half picked up in 2020, including almost all of our available used containers. And we have 600,000 TEU of new containers to be picked up in the first half of 2021. Over 75% of Triton's used containers have gone into lifecycle. These sites of used containers are now slowing as we bump up against full utilization and the last depot units go on lease. The bottom charts demonstrate the significant bookings of new and used dry containers over the last seven months. On the bottom right chart, looking to the extreme right bar under what's current, we only have limited dry depot units remaining uncommitted. The lower left is a chart showing new leasing transactions by quarter. The bubbles represent the significant amount of new production that has been placed on lease over the last seven months. These leases have an average duration of 10 years. The chart also illustrates the increase in market lease rates as container prices jumped to meet demand. Slide 7 explains that container supply remains very tight despite factory production ramping up. The chart on the right shows factory production by quarter from the beginning of 2019. It's worth observing two things. Leasing is making up the vast majority of purchases, and for a period of 12 months, production was below replacement. In addition, shipping line container fleets contracted as customers took action to tighten costs through 2019 and look to gain efficiencies to offset revenue pressure. This helps explain in part what has contributed to the shortfall. As production has ramped up, it's mainly lease companies buying, and as trade has surged, customers have depended on leasing companies to add containers to their fleet quickly and efficiently. Production in the second quarter is likely to be even higher, and the lines are continuing to rely on leasing companies for that supply. You can see that the factories have really boosted production in response to the higher demand over the last six months and are projected to do the same for the remainder of the first half of 2021. Despite this high level of production, you can see low levels of available factory inventory on the bottom left chart. These are orders by shipping lines and leasing companies combined. What's sitting on the ground is very small, roughly representing two to three weeks of production supply only. Slide eight helps illustrate why vessel space and container shortages are driving freight rates and container prices to record levels. Trade volumes have been restrained by the lack of container and vessel capacity pushing up freight rates and container prices. You can see in the upper right chart that new container prices are in the range of $3,500, the highest I can remember. The bottom right chart illustrates that the sale of used containers increased steadily throughout the quarter. The shortage of available sale containers led to week-on-week price increases as inventory was depleted. The chart on the left illustrates the Trans-Pacific and East-West spot freight rates relative to bunker costs, and this also perfectly encapsulates where we are at this point in time with container shortages as well as a lack of ship capacity pushing container prices and rate to unprecedented levels. I'll now hand you over to John Burns, our CFO.

Thank you, John. Turning to page nine. On this page, we have presented our consolidated financial results. Adjusted net income for the fourth quarter was $114.7 million, or $1.70 per share, an increase of nearly 50% from the third quarter. When we finished the full year of 2020, with adjusted net income of $319.9 million, or $4.61 per share. These exceptional results represent a return on equity of 22.9% for the fourth quarter and 15.9% for the full year. Turning to page 10. Our results on the fourth quarter reflect the benefits of the surge in container demand during the second half of the year. which generated strong leasing demand and exceptional disposal gains. Though our fleet growth was limited for the full year, when lease demand jumped in the second half of the year, we pivoted and aggressively ramped up our capex, accepting almost $550 million of containers in the fourth quarter. Average utilization increased 2% in the fourth quarter to average 98.1%, and the year-end utilization was 98.9 percent. The increase in utilization drove down direct operating expenses by $11.2 million from the third quarter, largely due to lower container storage and repair expenses. And the container shortage and high new container prices drove a sharp increase in container disposal prices. resulting in $25.4 million of gains on sale and trading margins, a jump of nearly $11 million over the third quarter. We had not anticipated this rapid increase in disposal prices and related jump in disposal gains. In 2020, our shipping line customers managed the rapid swings in trade volumes caused by the pandemic by managing vessel supply better than they have in prior periods. This supply discipline led to strong profitability for the year and may indicate long-term financial stability for them and a reduction in our overall credit risk. We repurchased 1.4 million outstanding shares during the fourth quarter, reducing our average diluted share count by 1.5% from the third quarter. And for all of 2020, we repurchased 5.1 million shares at an average price of $30.85, reducing our average outstanding shares by 7.2% compared to the prior year. Turning to page 11. On this page, we highlight our strong balance sheet, significant liquidity, and our well-structured debt profile. Our key leverage metric is net debt as a percentage of revenue-earning assets. This metric was 69% at year end, well below our historic levels. In addition to our low leverage, we have significant liquidity, as shown on the table on the top right. We also continue to maintain a simple capital structure, which you can see on the bottom left, made up of common equity, a small slice of fixed rate perpetual preferred shares, and the balance is senior secured debt. The current cost of our debt is competitive, with an average effective interest rate in the fourth quarter of 3.4 percent. And we issued $500 million of ABS notes in January this year at a yield of roughly 1.7 percent. On the bottom right graph, we show that we have no significant maturity cliffs in our debt portfolio. enabling us to meet our obligations from our cash flow, which is shown by the blue line, without the need for refinancing for several years. Turning to page 12. This page highlights how we've been able to use our strong cash flow to create significant long-term value for shareholders. The graph on the top left shows our cash flow before capital spending. And you can see the resiliency of our cash flows across market cycles. And you can see the strength of our current cash flows in the annualized fourth quarter figure. The graph on the bottom left shows how our stable cash flows, together with the short order cycle for containers, enables us to maintain our leverage in a steady range over the long term. As John noted, we continue to invest aggressively in new containers. with $1.7 billion of containers already ordered for delivery through June. This volume alone would lead to over 10 percent asset growth, and with our strong current cash flows, we could support significant further investment and growth this year without a meaningful change in our leverage. The graph on the right demonstrates how these strong cash flows and our financial stability have enabled us to create significant shareholder value by steadily growing the book value of the business while paying a substantial dividend. I'll now return you to Brian for some additional comments. Thanks, John.

Slide 13 shows how Triton has consistently created value for shareholders by nimbly shifting our strategic and capital allocation focus. Over the last five years, we've experienced a wide range of market conditions. But Triton has been successful throughout this time and created value for our shareholders in a variety of ways. In 2016, trade volumes and container demand were impacted by a global industrial recession. We executed well in this challenging environment, but our main strategic focus was structuring and closing the Triton and Tao merger. This merger generated substantial cost savings and created the clear scale, cost, and capability leader in this industry. Our shareholders continue to benefit from this merger through our steady outperformance. Global trade and container demand rebounded strongly in 2017 and 2018, and we shifted our focus to fleet growth. We estimate we won roughly 40% of new leasing transactions over this time, and grew our fleet over 20% across these two years. Trade growth was weak in 2019 due to the global trade dispute, and trade volumes were down sharply in the first part of 2020 due to the initial COVID lockdowns. We dialed back on capital spending over this time, but aggressively repurchased shares at attractive levels. With the recent surge in container demand, we have now shifted our focus back to aggressive fleet growth, and we are on pace for a record year of container investment. It's also important to note that we paid over $10 per share in dividends during this time and reduced our leverage. I'll now finish the presentation with slide 14. was a remarkable year for Triton. We performed well throughout the challenging first half of the year and created meaningful value for shareholders through share repurchases. We drove our operating and financial performance to record levels in the second half as we experienced a surge in container demand, and we quickly pivoted our investment focus to growth. We provided large, critically needed container solutions for our customers, and we once again demonstrated the business and financial advantages of our market leadership and disciplined capital allocation. We expect the benefits of the current strong market will be durable. We have locked away large numbers of containers on long duration, high value leases. We've expanded our leasing margins with attractive financing activity. And we have further secured our position as the go-to supplier in our industry. Triton is starting 2021 with significant operating and financial momentum. Market conditions remain very strong. Our critical operating metrics are at high levels, and we have already secured a substantial volume of attractive new container lease transactions. We expect our adjusted EPS in the first quarter will hold fairly steady or increase slightly from the record level we achieved in the fourth quarter of 2020, and we expect our profitability will remain strong throughout the year. I'll now open up the call for any questions.

Thank you. As a reminder, ladies and gentlemen, to ask a question, please press star then 1. If your question has already been addressed and you'd like to remove yourself from the queue, please press stars and two. Today's first question comes from Ken Hexner with Bank of America. Please go ahead.

Hey, great. Good morning. So, Brian, just a phenomenal result, and congrats on a great year and shifting to the growth. But let me just ask you this. I don't know if this is for you or John, but it looked like lease rates were a little bit soft in the fourth quarter today. the annual lease yields declined, it looked like, sequentially. Is that because you're shifting on the longer-term lease rates in order to lock in longer terms? Or maybe you can just talk about the environment, and it sounds like your outlook remains even more robust going into 21, and talk about that a bit.

You know, it's interesting, Ken. There's something, we actually didn't see that in the fourth quarter. You know, my guess is, and it's a calculation I'll take a look at, is perhaps the container acceptances that we made were back-ended in the quarter or something so that the average containers in our fleet or certainly the average number on hire were less than maybe it looked like if you just take maybe the quarter end number. But as John O'Callaghan noted in his discussion, market lease rates are up significantly. And one of the interesting things to note about the bubble chart that we show there is you can see that the lease deals that we're doing are you know, well above where they had been in the previous strong cycle in 2017 and 18, but actually the average duration of the leases is probably four or five years longer, you know, which is, so the apples to apples rates are even higher, you know, relative to those prior periods. So, again, I often sort of look at the mathematical quirk that may be, you know, giving that impression, but generally speaking, lease rates are very strong.

Okay, and And how do you I mean, you've been very good at understanding the cycles and figuring out when when to buy. And so I want to dig into that a bit. I mean, just given how tight it is now. But John also mentioned, you know, the shift that you've seen in a shift to goods from services. So it's just so good right now. And you're getting these phenomenal 10 year leases, which is which is great to lock in long term. How do you understand to not overbuy into an upswing period? Or, you know, how do you see this this cycle lasting longer?

Sure. So as you point out, certainly it's a strong and somewhat unexpectedly strong time right now and driven by things that are just kind of fundamental changes in consumer behavior, I think, because of the pandemic. And I think now that's also compounded by some logistical challenges created for the shipping lines as they try to get containers offloaded from their vessels and moved inland. just due to the same challenges, you know, just the volume of goods, but also I think lower workforces on the terminals and in trucking because of the pandemic. You know, we're constantly talking with our customers to get their assessment on how long market conditions are likely to remain very strong. What we're being told right now is that, you know, the market right now is, you know, really being limited more by capacity than demand. And so that creates, you know, some of its own natural momentum as as containers that are loads that can't be moved now or have to be moved later. You know, we're hearing from our customers that they expect conditions to remain strong into the second quarter. You know, I think beyond that, it's not that they expect conditions to necessarily weaken. It's just it gets less predictable. I think because this is unusual things that are driving demand, it's a little bit even more difficult to anticipate how it changes. But, you know, I think you know as we get through the second quarter into the third quarter, that typically is the peak season for shipping. You know, where goods that are going to make it onto the shelves in Europe and the U.S. for Christmas have to start moving. And so, you know, again, our view generally is that the market feels pretty good for 2021. I think, you know, as you know, we try to be very careful in managing our inventory of new containers, that one of the benefits of this business is that you order containers typically with only a few months of lead time. That's lengthened a little bit this year because of the strength of demand, and so we've purchased containers through June. But that said, the amount of uncommitted containers that we have are a very small portion of our overall spend so far this year. So certainly it's not without risk. We do have containers that we've purchased at high values that are waiting to go on lease to customers. That's why customers use us. But that said, it's a very small portion of our container fleet at any time. It's not locked away either on lease or waiting to be picked up on a lease.

So just a quick follow-up on that, just so I understand it. Do you see a shift of adding more contract business to your pre-buying of containers, or is that just a feature of the market? You'll still look to take that risk of ordering the containers going forward?

Yeah, so I'd say our basic business model has not changed, that we buy containers from the factories and have them ready for customers to commit to them, so we're always taking some level of inventory risk. I think what's changed really is just the pace of activity, you know, that the shipping lines are scrambling to grow the size of their container fleets because they're being limited on volumes right now because of a lack of equipment. And we've been scrambling to place orders, and to some extent it's been a race between our ability to order and our demand from our customers. But, again, the basic business model of us buying equipment to have ready availability for customers hasn't changed.

Great. All right, John, John, thank you very much for the time. Great quarter.

Thank you, Ken.

And our next question comes from Michael Brown at KBW. Please go ahead.

Hey, good morning, guys. Good morning. So, Brian, I wanted to start with maybe the cadence of how these containers will come on and how we should think about the leasing revenue growth from here. It's just when I've been modeling this out the last two quarters, I think I've – kind of mismodeled when the new bookings start to kind of hit their full revenue ramp. And so you obviously had a very active fourth quarter, and it sounds like some of that came in towards the end of the quarter based on your comment that you just made. But you clearly have a lot coming on in the first half here, but I was hoping you could just give a little more color about that the 600,000 containers, when those are kind of expected to start to ramp up as we think about, you know, first quarter, you know, second quarter and beyond.

Sure. So maybe I'll just provide a little perspective, you know, for maybe 2020, and then we can talk about 2021. So, again, we'll take a look at the, you know, the timing of containers coming in and then just sort of perhaps quirk of the modeling that looks like rates went down. Um, but I think if you just dial back to when we really started seeing the strength in the market, it was in July. Uh, and then, you know, we started ordering containers probably in earnest, you know, in, in August. And just given the timeline for container production, we probably started getting deliveries, uh, you know, in, in high volumes, probably not much until October, you know, September, October. So, uh, and then, you know, monthly deliveries were growing month on month. And so, you know, I think that's, that's probably the issue that's leading to the, the modeling issue in Q4. You know, I'd say since, you know, probably January of 2021, the factories are producing at a high level of monthly production, and we probably expect a steadier, you know, delivery of containers and, you know, on higher growth, you know, throughout 2021. You know, probably it's still going to grow, probably second quarter relative to first quarter, but it will be a lot less ramped because the factory is already are producing at high volume for the beginning of this year.

Okay, that's helpful. And then just, you know, in the prepared remarks, you talked a little bit about how the shipping lines continue to really rely on the leasing companies here, which is obviously great to hear, but just curious if you could, about that dynamic and what causes them to kind of use you guys more versus looking to deploy kind of their own CapEx. I know that they've got kind of a number of levers that they have to toggle between in their own businesses, but I would just love to get some additional comments about that.

Sure. So I think basically it's just the same reasons that they've used leasing companies in the past in the sense that leasing is an efficient way to add equipment to their fleets. Relative to purchasing containers, they get much greater flexibility on how many containers to take and where to take them from. There's a number of locations in China where containers are produced. Container size types is more flexible when you lease. And then just to pick up timing. We maintain this ready inventory, and so it just cuts the time between knowing you need the container to the time you can actually get it, rather than, say, placing your own orders. And all those things allow the shipping lines to operate fewer containers in their fleet. And generally speaking, that's why they use leasing. And Also, something we talked about on Investor Day is the extra cost of leasing relative to buying a container I think has come way down, that we finance our containers very efficiently. We use a higher percentage of debt to finance our containers than the shipping lines do just due to the greater stability of our business model. And just the greater scale that we operate, certainly compared to our history, You know, there's not a very high charge that gets put on top of the container for our operations because we operate such a large fleet. So overall, I think it's just the shipping lines have, at least most of them, you know, kind of crossed the bridge that, you know, using leasing to add equipment is just a sensible way to manage their container operations. You know, at this time right now, you know, it is interesting that shipping lines are doing very well financially, starting in the second half of this year and expecting to have really phenomenal, I think, first and second quarters because of the very high freight rates. But they continue to rely on leasing. And again, I think it just mainly reflects the fact that using leasing is a pretty sensible way for them to add equipment.

Okay, great. So it's not really a major change in the recent months here. Let me just begin maybe one more here. So as I think through your business, you're at maximum utilization rates, you're expecting a record level investment, you're seeing a pace that points towards that level at least. Leverage is at historically low levels, but production is still somewhat constrained here, so it sounds like they'd probably want to lean in even more if possible. So against that backdrop, how are you feeling about consolidation here? Do you still see that as potential opportunity? or has your mindset kind of shifted at all here? Thanks.

Yeah, so I think we're still believers in consolidation. I think we've talked many times about all the benefits we see ourselves getting from the TAL and Triton merger that we, you know, were able to put together in terms of cost savings, capability advantages, supply, you know, advantages to our customers, having a bigger fleet to draw from and simpler to work with one customer. You know, so I think, you know, generally speaking in terms of the strategy, we still see consolidations being interesting for us and very much remain interested in looking for opportunities. And I think just as you know, that really just depends on what opportunities become available and how they stack up financially. Do we think it's a good investment for our shareholders? And so from the strategy of consolidation, yes, we very much are interested and it just comes down to the practical details and what opportunities present themselves.

Okay, great. Thank you, Brian.

And our next question today comes from Larry Salo with CJS Securities. Please go ahead.

Great. Thanks. Good morning, guys. Congratulations as well. Nice, very good year and exceptional quarter. Just a couple of follow-ups, just from a high level. Sequentially, I know you guys don't give guidance beyond the quarterly, But just in terms of just looking at it from a high level, on the revenue side, so I think, you know, it seems like your operating lease revenue, I guess we should assume, should bump up. I think you have, like you mentioned, 600,000 new TEUs coming online in 2021. I would assume that would bump up. And then maybe there's a little bit of a drop on sales of used containers. I know you mentioned... I've got to imagine the supply of that will be dwindling, right, and what's in your hands. And you had a little bit of a pop the last couple quarters, I think $8 million plus and then $10 million plus this quarter. So is that a good way to kind of view those two line items?

Yeah, for sure. So you're right. There's going to be a lot of revenue strength coming from all the investments that we made. The easiest way to think about it, and I think John Burns mentioned it in his prepared remarks, that $1.7 billion that we've committed to be produced for us through June 30th, that in alone would lead to about 10% asset growth for the year. I think that if all else equal, that's pretty close to probably once we get that $1.7 billion delivered, 10% revenue growth, something like that. Again, all else equal. If nothing else in the business changes in terms of utilization or other things. And I think, yeah, certainly in the short term, the biggest challenge will be likely to replicate the gains on disposal Prices, as John O'Callaghan showed in his charts, are exceptionally strong right now because there's a lot of value to have a container, and there's not many around. And that pushed our gains up to very high levels in the fourth quarter. I think they'll be very high again in the first quarter. But at some point, the inventory is getting quite small, and typically the inventory gets replenished as customers drop older containers. And just given the shortage of equipment, we're getting very few containers dropped off lease.

I guess that's a high-class problem, I guess, in the overall grand scheme of things. Absolutely. On the expense side, in terms of direct expenses, obviously, sequentially, they came down pretty nicely. There's still about 6% of revenue. As we go forward, I think if we look back, historical peaks when utilization was running really high, I think it was even closer to 4%. You know, is there room for this to drop as we go out over time on a percentage basis?

You know, what you'll see in the first quarter is that, you know, the fourth quarter utilization was up about two points during the quarter. And so, say, on average was one point less than where it finished. And, you know, the easiest way to forecast direct operating expenses is to – it's kind of an inverse of utilization – And so there should be some further benefit, as we do think, that utilization will remain virtually near peak, 99% range, throughout the first quarter. After that, it really just depends what happens with utilization.

Right. Okay. And then, obviously, you're spending a lot more, you're investing. So I suppose, and you did announce a new $500 million EBS notes, I know, a few weeks ago. I'm not sure. I think a part of that maybe was funding some existing debt. But I suppose interest expense should start to creep up a little bit as we look out.

Larry John here. I would say our average effective rate will stay probably in a similar range or notch down a little bit. As you note, we did the $500 million in ABS. That was at 1.7%. And we do have About $1.6 billion of institutional notes, private placements that slowly wind down, about $300 million per year. So as we refinance those, those are at about 4.5% to 4.6%. So as we refinance those at lower rates, we'll get a little bit of benefit from that.

Right. So we expect, I think, a little further improvement than the average effective rate. Offset, I think, as you're pointing out, by increase in debt associated with all the containers that we're buying.

Got it. Okay, great. Thanks. I appreciate it.

And our next question today comes from Dan Day with B-Riley Securities. Please go ahead.

Yeah. Morning, guys. Thanks for taking my questions, and congrats on a really, really great quarter. It's great to see. You know, most of my questions have been asked, but I'll get a couple more in. Just on the gain on sale on leasing equipment here, it was really strong in fourth quarter. Obviously, you've talked about it. Just – Is part of that due to, for example, increased demand for static storage, like the Amazons of the world looking to take delivery of these containers for storage? Is that kind of a factor here in how strong the demand is for the used containers?

We definitely are hearing from customers that cargo shippers are holding on to containers longer. We've seen some interest in people like Amazons of the world to start maybe owning some of their own containers because they get charged by the shipping lines when they hold onto containers longer than they're supposed to. But frankly, I think the main thing that's driving containers is the fact that the shipping lines, our customers, are having a hard time getting them so that some cargo movers are actually buying containers and then using those containers they purchased to move cargo and are finding that somehow it's a net lower price. And so we're seeing the strongest prices and strongest demand in Asia where we think, again, the containers are primarily being used as a way around the container shortage.

And that $25 million in a quarter between the gain on sale and the trading margin, do you think that's a kind of sustainable number going forward, at least kind of through first quarter and then kind of tapering off after that?

Yeah, you know, we don't like to give too much guidance below or just maybe above EPS. But, you know, right now it's a little difficult to predict. You know, we're seeing prices continue to, I think, you know, John A. Callahan called it increase week by week, which is the case. And on the other hand, we're seeing very few containers coming back. And so, you know, there's just not much inventory to sell from. But so overall, I'd say we expect the gain to be at a high level, certainly very high relative to how many containers we're selling. But it's not so easy to predict, you know, just how the you know, the decreasing volume because of lower inventory, how that works against the rising prices and just how long this extreme shortage situation lasts. But overall, expect to be selling for good gains for some time here.

Awesome. Thank you. And then just last one. Obviously, the focus here, you know, probably through the first half of the year is going to be on CapEx. You know, once the container is in place and once sort of CapEx spend starts to come down, as far as returning capital to shareholders, can you just uh, maybe refresh us on how you're thinking of, uh, between, uh, buybacks and dividends, how much you have left on the repurchase authorization and sort of what you look forward to, to balance too.

Yeah, sure. Uh, you know, as we, we tried to, you know, make the point in the presentation that we, you know, that we're nimble and, and try to be fairly thoughtful on how we allocate our, our cashflow. And, you know, one of the good things of course, of having, you know, performance like we're having is that we generate lots of cash and, and, So we can actually do quite a few things with cash flow right now. You know, John Burns mentioned that, you know, we've already, you know, get invested for 10% growth and, you know, through June 30th. But, of course, the year doesn't end in June 30th. And we could actually continue to invest at a high level, you know, before we're going to move our leverage upwards. So, you know, if we wanted to, we could do other things as well as, you know, buying containers at a pretty aggressive pace right now. You know, but I think, you know, in terms of what else we might consider, you know, share repurchases, you know, obviously we look at that regularly. We've been active buyers a number of, you know, years here. And, you know, we'll continue to look at that relative to the attractiveness of other uses of our capital, including, you know, further growth, you know, M&A or portfolio opportunities, you know, increased dividends, et cetera. You know, it's something we spend a lot of time on as a senior management team and with our board. And again, we just, you know, we'll We've got lots of cash to use, and we'll try to make sure we continue to make good decisions about where to put it.

Awesome. Appreciate it. Thanks again for taking my questions. I'll turn it over.

Ladies and gentlemen, this concludes the question and answer session. I'd like to turn the call back over to the management team for any final remarks.

Well, I'd just like to thank everyone again for your interest and attention for Triton, and we'll look forward to talking to you soon. Thank you very much.

And thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.