Hilliard Terry - Executive Vice President and Chief Financial Officer Philip Brewer - President and Chief Executive Officer Robert Pedersen - President and Chief Executive Officer of Textainer Equipment Management Limited

Michael Weber - Wells Fargo Amit Mehrotra - Deutsche Bank Ken Hoexter - Bank of America Merrill Lynch Douglas Mewhirter - SunTrust Robinson Humphrey Vincent Caintic - Macquarie Research

Welcome to the Third Quarter 2015 Textainer Group Holdings Ltd., Conference Call. My name is [Korie], and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Executive Vice President and Chief Financial Officer, Hilliard Terry. Mr. Terry, you may begin.

Thank you, Corrie and welcome to Textainer's 2015 third quarter conference call. Joining me on this morning's call are Phil Brewer, TGH President and Chief Executive Officer. At the end of our prepared remarks, Robert Pedersen, TEM President and Chief Executive Officer, will join us for the Q&A. Before I turn the call over to Phil, I'd like to point out that this conference call contains forward-looking statements in accordance with U.S. securities laws. These statements involve risks and uncertainties, are only predictions, and may differ materially from actual, future events or results. Finally, the company's views, estimates, plans and outlook as described within this call, may change subsequent to the discussion. The company is under no obligation to modify or update any or all of the statements that are made. Please see the company's Annual Report on Form 20-F for the year-ended December 31, 2014 filed with the Securities and Exchange Commission on March 13, 2015, and going forward, any subsequent quarterly filings on Form 6-K for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements. I would also like to point out that during this call, we will discuss non-GAAP financial measures. As such, measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure will be provided either on this conference call or can be found in today's earnings release. At this point, I'd now like to turn the call over to Phil for his opening comments.

Thank you, Hilliard. I would like to welcome all of you to Textainer’s third quarter 2015 earnings call. Although our operating performance was solid our results for the quarter were below expectations. Utilization remain high but lease rental income after adjustments with essentially flat compared to the prior year quarter or significantly our performance was adversely affected by the default of a midsized agent shipping line in our decision to reduce the residual value on 40 foot high cube containers from $1,650 to $1,450. The defaulting lessee had been under internal credit review for sometime and we have been reserving overdue accounts receivable. The lessee was in discussions with the potential buyer who had plans to recapitalize the company as the result we believe the situation with improve. Unfortunately the sale did not happen on the lessee leased operation. We have lessee default insurance in place to cover the value of un-recovered containers the cost to recover containers in a period of loss future rental income above a fixed deductible. The impact net of insurance proceeds of this default on our third quarter results totaled $4.2 million and is reflected in container impairment in bad debt expense. We did not expect this lessee default to have a material impact on our results after this quarter. We also changed our depreciation policy resulting an increase and depreciation expense of $5.8 million. We depreciate our dry freight containers over 13 years to fixed residual values. Every quarter we review our residual values against not just prevailing used containers prices but also against our projections for used container prices 13 plus years in the future. Sales prices for used containers at historically had large fluctuations with prices reaching a peak in mid-2011 and declining significantly sine then. Do both to these declines in our reduced projections for future sales prices we made the decisions to reduce the residual value of 40 foot high cube containers by $200 from $1,650 to $1,450. We do not see the need to adjust the residual value of other containers types at this time. However we continuously monitor current and projected future sales market conditions and we will make additional adjustments should our outlook change. Hilliard will provide more details on the impact of this change later. Utilization has remained high averaging 96.4% for the quarter and is 95.5% currently. Utilization has declined only 2.6 percentage points since the beginning of the year. Adjusted net income for the quarter was $17.7 million or $0.31 per diluted common share. Container demand during 2015 has been much weaker than expected there was no demand peak during the third quarter as we have often seen in past years. Many, many analysts will not achieve its targeted year end growth of 7% Drewry has cut in half its forecast for 2015 container trade growth to 2.2%. Forecast for global trade growth for 2016 have been reduced as well but most projections remain in the range of 4% to 5%, many freight rates are loss making and are at or near the lowest levels since 2009. It just stand to enforce the freight rate increase during 2015 failed generally after a very short period of time. We are not expecting a significant improvement in container demand for at least the second quarter of 2016. The level of new dry container inventory at factories is now around 930,000 TEU, a decline from this year’s peak of more than 1 million TEU but still high for this time of year. During our last earnings call we mention that some of the major container manufacturers plan to stop for several weeks. Manufacturers are no longer announcing factory closures but they have huge dry freight container orders and are operating at very low level if not being effectively closed. New container prices continued to decline and are approximately $1,515 per CEU currently. Our steel prices have fallen more than container prices since the beginning of the year, we believe container prices could decline further. Textainer’s resale team sold 115,000 TEU a unit of older in fleet and purchased lease back containers through the end of the third quarter. A record pace of sales, this high level of sales has not been driven using our disposal policy. But by the quantity of containers being returned from lease the qualified for disposal due to age, location and/or condition. Used container prices continued to decline and are down 10% to 15% over the last six months. We do not expect used container prices to recover prior to an increase in new container prices. We’ve invested more than $600 million in containers for lease out in 2015, we purchased more than 230,000 TEU of new and used containers of which 97% was for our own fleet, well we continue to grow our fleet, our rate of investments slowed during the third quarter and direct response to the slowdown in demand. Compared to previous years, this year we have invested relative more in reefers and less in dry freight containers. We declared a quarterly dividend of $0.24 per share, which is a reduction from last quarter’s dividend of $0.47. The dividend is now set at level that we believe is sustainable and appropriate for the longer term. Additionally, we are initiating a share repurchase program of up to $100 million, we believe that our current share price does not properly reflect the underlying value of our containers taking into account the cash flow expected to be generated over their lives and the long-term growth prospects for company. Purchasing shares at their current level will be accretive to earnings per share and relied to our return on equity, while allowing us remain the least leveraged container lessor. The outlook for the remainder of 2015 and early 2016 remains challenging. Improved performance requires an increase in demand, container prices and/or interest rates. We do not expect a significant increase in demand until at least Chinese New Year and possibly later. Maturing leases that are extended will be repriced at lower rental rates. Container prices are not expected to increase in the near term and any increase in interest rates, if it does occur, is expected to be minor. We expect these factors combined will lead to lower financial results in 2016. We must keep in mind that our industry is and has always been cyclical, we have been in business for 35 years and have successfully managed through many ups-and-down, we have the largest fleet and lowest operating costs of any of our public competitors. Our low leverage provides operational flexibility we believe container prices, purchased containers, purchased at today's prices will generate attractive returns over their life. I will now turn the call over to Hilliard.

Thank you, Phil. I’ll walk through several key factors influencing our results this quarter. Lease rental income was $128.3 million down 1.7% if you exclude the impact of a $2.6 million settlement from a bankrupt lessee in Q3 of 2014; lease rental income is essentially flat year-over-year. The decrease in average per diem rental rates and a decline in utilization was offset by the increase in the size of our own fleet. It's worth noting that rental rates on new containers fell by approximately 25% over the past year, whereas decline in our average rental rates was significantly less at 6.8%. Having a fleet of which 85% is on long-term and finance leases with an average remaining term of 40 months mitigate the effect of some of the changes to new container rental rates. Also as leases reprised, they generally do not reprise at a rate for new container lease outs due to repair, repositioning and related costs. Lastly, only 6% to 8% of our term lease fleet matures in 2015 and 2016 and lower percentages in the following years. Lower resale prices continue to result in reduced gains on containers sales in spite of record sales volume. On the expense side, direct container expenses increased $2.2 million or 20% to $13.3 million for the quarter. $1.2 million of the increase was due to higher storage costs due to lower utilization and increase in daily default storage rates. Damage production expense, repair and recovery costs also increased. Depreciation expense was $63.6 million for the quarter, up $16 million year-over-year included in the increase was $5.8 million resulting from a change in the residual values of our 40-foot high cube containers of which $1.5 million is one-time as we had to also adjust for our fully depreciated containers. $2.7 million of the increase was due to the impairment of containers related to the defaulted lessee net of insurance proceeds. $5.8 million of the increase was due to our ongoing reduction of mark-to-market that containers held for sale mostly in future quarters to their net realizable value. And $1.8 million of the increase was due to the larger size of our owned fleet. On a go forward basis, we expect normalized depreciation expense to be $4.8 million higher quarterly as a result of a change in the 40-foot high cube container residual values. Annualized depreciation expense for the quarter was 5.6% of average container costs or 4.3% excluding the impact of the lessee default and the residual value change and mark-to-market of containers held for sale. We expect annualized depreciation expense to be 4.7% to 4.8% of average container cost. Our bad debt expense was 1.9% of revenue of which 1.2 percentage points was due solely to the write-off of receivables on our books from the defaulting lessee. Our interest expense including realized hedging cost, but excluding the write-off of unamortized bank fees and unrealized loss on interest rate swaps was $22.5 million for the quarter up 7.3% versus the year ago quarter and much less than a 13% increase in our average debt balance. We continue to benefit from our refinancing activities over the past year. Our average effective interest rate which excludes realized hedging cost is currently 2.93%, a 15 basis point decline when compared to the year ago quarter. During the quarter, we completed a new five-year $190 million revolving facility to finance primarily our purchase leaseback transactions. We are able to achieve an extremely attractive financing rate of LIBOR plus 130 basis points. Our financing costs remain low and reflect the strong support we receive from banks and other institutional investors and our low leverage. As of quarter end, 80% of our debt was fixed or hedged, consistent with the percentage of our owned fleet subject to long-term and finance leases. The weighted average remaining term of our fixed rate debt is 48 months and weighted average remaining term of our long-term and finance leases is 40 months. Income tax expense for the quarter was $1.6 million resulting in a higher than normal effective tax rate given our lower net income. As we’ve stated in the past, our effective rate can vary from quarter-to-quarter due to discrete one-time items. However, we continue to expect our annual effective rate to be in the mid-single digits. Adjusted net income for the quarter was $17.7 million, or $0.31 per share. The change in depreciation policy resulted in our earnings per share being impacted by $0.10 and the defaulted lessee reduced our EPS by another $0.07 per share. Adding these numbers back and normalizing the tax rate in the mid single-digits would get you to a number that’s more directly comparable to your estimates down for the quarter. As stated previously we expect the ongoing impact of the change and depreciation to result in roughly about $0.08 per share lower EPS for that quarter going forward. Turning to the balance sheet, as of September 30, our cash position was $94 million, with standby or available liquidity of approximately $760 million. Total assets were $4.4 billion, container contracts payable are down significantly year-over-year, to the lower level of container purchases. And also you’ll notice there is a $9 million receivable for insurance proceeds which will get smaller as time goes on as the cash from the insurance proceeds is received. As Phil mentioned earlier, our dividend was lower to $0.24 per share. And as a remainder, our distributions dividends are treated as distributions by U.S. tax holders as a return of capital rather than dividends. We plan to start a share buyback for up to $100 million this quarter and have ample cash to support the program. Thank you for your attention. I’d now like to open up the call for questions. Korie, can you like the participants now the procedures for the Q&A.

Thank you. [Operator Instructions] We have Michael Weber from Wells Fargo on the line with a question. Michael you line is open.

Hey, good morning guys. How are you?

Hi, Mike. How are you?

Good. It feel obviously the first questions going to be around the dividend shift and also the lowering our residual values and just maybe you could give us a bit more color and kind of walk us through the thought process around how you guys the right decision this quarter as opposed rather waiting into 2016 to see if anything changed or maybe earlier in the year kind of what in the long-term outlook pushed you guys to the point where you didn’t make kind of long-term shift in terms of your cash outflows and then how you guys are thinking about long-term asset values to shift the residuals?

Thanks Michael. Well obviously these are not decisions that we make in the short-term. I mean these two separate decisions here so let me talk first a little bit about the change in depreciation policy. That something we look at quarter-by-quarter and we will continue to look at quarter-by-quarter. The fact that it happened at the same time that were cutting our dividend is honestly a bit of a coincidence. We look at that the residual values that performance of the assets and of course not just simply new container even current used container enterprise because you have to look at the cash flow the assets over the entire remaining life of the asset. But we look at that information on each container by container type quarter-by-quarter and we will continue to do so. So that at this point looking at the current sales prices on 44 huge cube containers looking at what we project for the future it seemed appropriate to reduce the residual value for 40 foot high cube containers. With respect to the dividend obviously that was a very challenging decision for us and we take our dividends are very seriously as you know the past that we've never cut or reduced our dividend, but when we were looking at our performance for the remainder of the year and our projected performance going forward. We felt that the dividend cut was necessary and we simply decided that this would be the appropriate time to do it we want to make sure that our dividend policy as a sustainable policy on a go forward basis at the same time we believe that our chairs are dramatically undervalued. So we will also be returning cash to our shareholders by implementing the share repurchase program up to $100 million and I’d also like to make it clear that we have more than ample cash in order to pursue the program.

Gotcha. That’s helpful. Around the residual values you guys mark down the high cubes, but your recent residuals are still bit higher than some competitors, can you talk to the thought process there. I guess how that business may or may not be different and how we should think about the likelihood, a move there or sometime over the next year?

I think there is a few things that need to keep in mind. Our reefer fleet is pretty young and We haven’t been selling a lot of reefer containers. So, again we are trying to project what residual prices are going to be many years in the future, we don't have a whole lot of experience in selling reefer containers today. We feel comfortable with our residual values for the refrigerated containers. But again having said that we analyze this data every quarter and if we feel it is appropriate to make a change in any container type based on the residual value will do so. Now that’s been our policy until now we've changed residual values in the past of course in the path they’ve gone up. This is the first time we cut them since we’ve been a public company, but it is not – it’s not as though this is something we just randomly choose to do, we do this every single quarter look at, compare the residual values to the cash flows that we expect to containers to generate over the life along with our expected sale prices.

Gotcha. Okay, and still within your comments and forgive me, you said this one was a bit fuzzy in terms of new box prices here, do you say, 1,550 or 1,650 and then if you can give a bit of color around. You mentioned steel falling more quickly than box prices, which would certainly, we should imply similar down pressure but you’ve also got wider margin for manufactures but aren’t really in a rush to produce, maybe if you can talk about what you're seeing there. I guess quarter to date - and from a yield perspective, if you are still seeing any pressure from some significant competitors and trying to [indiscernible] any growth they can.

Well, let me talk first about the container prices, there is really not a lot of purchasing of containers going on at the moment. So to say exactly where the price on new containers are is hard to be specific. I said 1,550, I’d say that’s a reasonable estimate as to where work containers would be priced today, and could be slightly lower. But there's not a lot of aggressive purchasing of containers going on at the moment. I also made the observation, I think many have made it as well that container prices haven't declined as much as the decline in steel prices, which would imply that there's still the possibility for further declines in new container prizes. As far as yields, yields remain under pressure, there's not been a lot of activity in the third quarter as we've already said earlier, we didn’t see a peak demand, so the transactions that were out there. You can imagine that there's been – that they’re very, very competitive each transaction that comes to market.

Gotcha, okay. I had some more questions in the buyback. But I’ll let some else handle it. I appreciate the time guys. Thank you very much.

Thank you, Mike.

And our next question comes from Amit Mehrotra from Deutsche Bank. Amit your line is open.

Yes, thanks so much. Good morning guys. I noticed at the end of the slide deck, you said the company was well-positioned and had a little footnote there as you said that was out of September 30. So I just wanted I'm sure you guys are running all sorts of stress tests and analyses and wanted to just try to get a sense of what those analyses are telling you in terms of what level of asset further level of asset value declines. Maybe you can observe without necessarily having to put up some additional money?

Hi, Amit. This is Hilliard. So we take a look at sort of the cash flows that our assets generate and we actually do this on a quarterly basis and if you look at sort of the cash flows over the life of the asset basically they are above where our current assets are on our book. But also I think one or two of the analysts have kind of looked at our peers in terms of some of the debt covenants and things of that sort. And I think the thing that was noted is we’re probably the company that has the most room out of our peers to absorb if there were any adjustments to asset values but again I go back to my first point, if you look at sort of the cash flows that we expect to generate off our assets it is above book value.

Maybe I could just add to what Hilliard is saying, because why we can’t come in on the situation of our peers, we have a quite significant amount of room with respect to where our covenants are if there were any other issues with respect to our assets, so we don't see that you are asking projecting over time, we do not see that as an issue going forward.

Right, okay. Yes, it makes sense. Just one follow-up with respect to your comment on sort of recovery or maybe stabilization starting in the second quarter of next year, just curious on sort of why you think that that's the bogie and also wanted to understand just given your experience 35 years, I just want to understand what a sort of bottoming process actually looks like and do you actually see some level of capitalization in asset values and then did they sort of bounce back from there which would maybe obviously apply some more pain. So just wanted to see if you could just give us some insight based on past cycles on what it really a bottoming process looks like?

This is Robert here, let’s just look at this year first, our shipping line customer are actually pretty surprised that shipping volume, cargo volumes were as poor as they were. I mean they predicted a peak prior to Chinese New Year earlier this year, they did predict a peak in the third quarter that just did not happen. Cargo volumes have at least not dropped and the issue as more being the fact that you’ve had 1.6 million CEU a vessel capacity being added this year and there has been more vessel capacity compared to cargo volume growth. And that has obviously created a very competitive situation for them and because some reduced demand for us and as much as when the vessels are not full, obviously it is much easier for our shipping line customers to bring their empties back to the demand locations and to clear up their surplus players around the world. So that’s kind of the preface to what’s going to happen next year. Growth was a lot lower this year as Phil mentioned in his beginning the cost that increased to 2.2%, they are predicting 4% to 5% next year. That’s a very considerable increase compared to 2.2%. Is that going to happen? Well, we all have crossed our fingers for that, but when we talked to our biggest customers they are relatively optimistic about that. They are not totally bearish about the outlook for next year. I think we kind of look at as a slight delay growth from what they thought was going to happen this year and quite frankly from what we thought was going to happen this year as well.

And maybe I could just add a little bit more to that. I mean we’re seeing, we are expecting production of dry freight containers this year perhaps 2.3 or maybe 2.4 million TEU that’s not as I’m sure you know. That is not a very big production year. We are seeing significant disposals of the containers, as I mentioned earlier we certainly expect to sell more containers this year than we sold in any year in our history and we are not dealing with only one selling significant quantity of the container. So if there is a pickup in demand next year as this projected, you are dealing with a situation whether you could see a strong demand for containers or it certainly a stronger demand for containers versus what we saw this year, because of the change in the population of containers over the course of this year.

Yes, okay. One last question if I could just on the share repurchase so $100 million is a really good number, in the past you’ve sort of talked about the limited liquidity and the restrictions that that puts on sort of share buyback so Hilliard I guess this sort of going to be just on automatic 10% or 20% of daily volume and you guys are just going to be on automatic or as this kind of sort to be more opportunistic, how should we think about the execution of it?

Well, I think two things, number one just 10b-18 rule sort of limit you to I think about 25% of the last four weeks of your average daily volumes so that’s just a limitation there, but outside of that we are going to be opportunistic I mean we believe our shares have been trading at low levels and so we think this is an opportunity to buyback shares and it is accretive as Phil said earlier. If you look at the actual dollar reduction in our dividend we are actually looking at repurchasing two times as much as we reduced our dividend.

Great. Okay, very good. That’s all I have, thanks very much guys. Appreciated.

Thank you for your time.

Our next question comes from Ken Hoexter from Merrill Lynch. Ken your line is open.

Great. Good morning. Phil or maybe Hilliard you talk about rates being down 25% and then on new boxes in 6.5% ongoing. Can you talk about what you expect as we move into 2016 do you look at those rates are staying at these levels or do we see accelerated on the decline side?

I am sorry Ken are you talking about rental rates on new containers I am not certain what…

This was your thought Hilliard was talking about lease rates being down 25% not new box prices, but for per diem rates is that what he was talking about when he said rates are down 25% and 6% on an ongoing basis?

No what I’ve specifically I was talking about rental rates were down approximately 25% over the past year, but if you look at the average rental rate in our fleet it was only down 6.8%. So our fleet was not declining as much as sort of what I’d describers from market rate.

I mean I think the point here Ken is just because sometimes people focus on what we might call the spot rate the rental rate on a brand-new container which has declined significantly but that's not to say that the average rental rate on our fleet has declined to the same extent right you got fleet that has an average life of the over 40 months is re-pricing and we only have 6% to 8% of our fleet maturing anyone year. So the impact of the lower current rental rates on our fleet are not as dramatic as the decline and again what I’d called the spot or the brand-new container rental rates.

So if rates are stay at these levels so if the box stay at that 15.50 talk about earlier than you would anticipate kind of another 6.5% that’s what I am asking is does anything accelerate in 2016 or does it continue with this pace if using the assumption that rates overall stay at these levels.

I mean if you are using that assumption you know there is no reason to assume that things would accelerate any more rapidly in 2016. We have a slightly higher percentage of our fleet maturing in 2016 and 2015 but still these are reasonable percentages are fleet that leases that maturing its nothing out of the ordinary.

Okay, thanks and then on the fleet itself, you mention your slowing your pace of by down to 600 million and you are going to slowly going forward. Your total fleet slowed look like gross slowed right so do we expect that or the own fleet I guess came down a little bit do you expect to see negative growth in the fleet if you are increasing your sales or do you hold the fleet at the size?

Ken I think it’s important to keep in mind that we are going to invest when wee see the opportunity the market justifies that investment. We are going to sit or implied containers simply to buy containers. We buy containers when we feel the market conditions justify that. So if that anyone time we’ve actually sold more containers when we purchased yes our fleet could decline. I personally think that the fourth quarter were not going to see real strong buying like we seen in the last several years were the leasing companies have increased supply in the fourth quarter in anticipation of the beginning of the next year. In part because we still have some inventory of factories. So its possible that over the fourth quarter you are going to if you see continued strong sales that’s you could see that the fleet shrinking slightly but we will certainly buy when the opportunity is there we’re going to invest we’re not paying specific attention to the size of our fleet but what make sense from an economic point of view to do with respect to the cash regenerating and investing an assets.

Okay helpful. And then Hilliard I think you want to quickly catch it on the direct container expenses it jumped 30% sequentially and is up 50% from the beginning of the year. I think you gave a reason as to why a just in catch it. Can you kind of review what's going on a direct container expense side?

Sure I mean it was really primarily an increase in storage expense on the direct container expense side you know with lower utilization also we’ve seen some of the daily double rates increase as well and so that's what's been driving a good piece of that.

So there is nothing special in the quarter so is that a good run rate at these levels are we seeing that pressure continue to rise?

I mean again it really depends on what happens with utilization going forward.

Okay. So just Michael kind throughout there on the share repurchase to come back to later so I want to revisit that for a second you said the shares are undervalued if just what understand that if earnings are going down one assets in the right way not to be [indiscernible] I just want to understand your thesis of the buyback, so if containers are finding the floor why do you believe that's the right way to return cash now. If you are seeing, I think Phil mentioned before earning are going to be down in 2016, the fleet may be down the rate is pressure is going to continue why is now the right time to the buyback shares then?

While in part, because we think it’s quiet accretive to repurchase our shares at that time at this time.

Okay, is there any peak that can still occur or is the shipping side done for the season at this point?

I would say the shipping side is done for the season. Chinese New Year, I think the 7, 8th of February next year, they are expecting a small peak before that. But if we should look at what we saw this year, we could be talking about a two, three week period. So we don't expect to see any significant action rest of year

And just one other last question I just Phil, from a bigger picture perspective on that than if we think go through it. Can you correlate what typically happens if you don't see it on the shipping side to then what can happen on the like is there, is that automatic on the land you know when you think inland rail, truck side or is it not necessarily kind one for one part relationship?

I mean that I would rather go back to the international trade, if the deep sea are not strong it also influences the largest trade in the world for Asia trade basically as a rule of thumb [indiscernible] move on the - Asia and Europe you have one-third of an initiative move before that, when you don’t have the volume of the deep sea move that influences inter Asia as well. So I mean for our web business for all business to turnaround and get stronger, we need – we really need more purchasing into Europe where the big container vessels are operating. The Christmas cargo being on the ocean right now, there is not much more, all those shipping, all those shopping over here for Thanks Giving has been for and now the Christmas cargo is arriving, there is nothing more happening at this year here that would lead us to believe that we are going to see a big peak right now. And you know something we look at in total one positive thing I mean we have always said, we generally maintain between a $150 million and $250 million of inventory. Right now we are pretty close in the middle of that range with a little bit of a more reefer inventory that we would normally have, most of those in this are not even produced under reefer containers side, that’s the beauty about our industry, we don't have to buy, we buy unspec, but when we don’t see it, we stop it. And quite frankly our shipping and customers have done that to, so they are not beating up anywhere else in the fact that they committed to a lot of large scale vessel purchases in early years and they are being delivered this year and next year.

Great, Robert, Phil and Hilliard, thank you very much for the time.

Thank you, Ken.

Our next question comes from Doug Mewhirter from SunTrust. Doug your line is open.

Yes, hi good morning. Just two questions, first Hilliard with respect to the buyback in your balance sheet. Yes, it sounds like you have enough cash flow to do this and you are not making a whole lot of CapEx, do you are you targeting any leverage to maintain, do you expect the drift up or down a little bit in the next couple of quarters

It could drift up a little bit but nothing I think material, I mean it will still be below three times.

Okay and thanks and my second question, is there any particular market as dynamic is to why the high cubes have come under pressure relative to your residual values and not say the 20 foot drives or the 40 foot regulars, I know this 40-foot hike is in those common one these days. But I just didn't know if there is a certain wrinkle in the market, which has held up values of those alternative types.

Wrinkle in the market, no traditionally 20 foot standard containers have been the strongest containers in the resale market, they are the easiest to move is one reason, why what we doesn’t seen is that sales pipe is for 40-foot high cube containers have come down at a higher percentage than 40 foot standards or 20 foot standard containers.

Okay, great. Thanks, that’s all my questions.

Thank you.

Our next question comes from Vincent Caintic from Macquarie. Vincent, your line is open.

Great. Thanks very much. I just actually have two broader questions on the industry, first in terms of your consumer base, the shippers have you had any conversations with them about say what they're expecting for the outlook of 2016 and anything that kind of positive commentary you can look into that?

Well, we don't see a dramatic change in shipping line purchasing compared to leasing company purchases so that will probably be about 50-50, if low prices continue you may see slightly more shipping line purchases, but so we don’t see a dramatic effect there, they are predicting growth for next year. I think we are all just a little bit more cautious now than we were a year ago, what we thought it would happen earlier so I would suspect that their investment programs similar to our just be somewhat delayed compared to what we started out last year, but we really started buying in the fourth quarter 2014 for first and second quarter 2015 demand. Since we are sitting on dry container inventory and there are 930,000 TEU in factories new orders will be somewhat delayed. And the manufacturers have prepared themselves for that. They are actually not trying to sell their entire capacity right now of course they would like to, but they know it’s not there. So they are just staying – for whenever this is going to happen and when I say it is going to happen everybody does expect there will be growth in 2016 than we saw on 2015.

Got it. And then my second question, it might be too broad of a question, but I’ll try asking that anyway. Just in terms of retrospective what did drive say the weakness in the demand for containers I mean so I guess shipping is weak, but is that because there's just less demand for inventory in the U.S. and Europe or is it because the cargo is getting shipped from air rather than by sea or kind of – and the reason for this is what should I look forward to us like there's still more demand and say retail inventory maybe just drives shipping demand up again and therefore container leasing demand? Thanks.

We don't really see air as the main reason for the limited growth we’ve seen in shipping volume. If you look at macroeconomic I think Chinese lower run rate has had an impact, certainly the situation in Europe has had an impact, situation in Russia has had an impact, the South America has not grown to the extent that people were expecting. The trends specific size and the U.S. trade has actually done relatively well compared to the other trade. So I like that – but I think if you back at the major reason I think just by the fact that you had 1.6 million TEU of vessel capacity being delivered this year, that’s 8% compared with 2.2% growth that has created the situation. There is no peak, there is no peak demand. Shipping lines haven’t been in a situation where they have had to roll a cargo which basically something that happens every year, meaning that they have, they are over booked and they have to put cargo on the subsequent vessel that hasn’t have to happen. So everything has been more predictable in terms of the supply locations if the vessel is only 90% leaving Asia, before leaving Asia they can be 100% full with empty is going back, which means it’s much easier for the shipping lines to redistribute all their inventory to the demand locations and get it right. Let’s face it many times, we are buying in 15 different locations if the shipping lines discharges the locations in the first three or five locations then they still have to meet another location well that hasn’t have to happen this year, because they have been able to put their inventories in the right locations at the right time.

It’s very, very helpful. Thanks very much.

Thank you. End of Q&A

We have no further questions at this time. I’ll now turn the call back to Hilliard Terry for closing remarks.

Well, thank you everyone for joining us for our Q3 earnings call and as always if you have questions we are on to answer any questions. Thanks again.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.