Textainer Group Holdings Limited Reports Fourth-Quarter and Full-Year 2018 Results

Textainer Group Holdings Limited TGH ("Textainer", "the Company", "we" and "our"), one of the world's largest lessors of intermodal containers, today reported financial results for the fourth-quarter and full-year ended December 31, 2018.

• Lease rental income of $157.1 million for the fourth quarter, as compared to $157.8 million in the third quarter. Lease rental income of $612.7 million for the full year, an increase of $63.3 million (or 11.5%) from the prior year;
• Gain on sale of owned fleet containers, net, of $9.6 million for the fourth quarter, an increase of $1.1 million (or 13.5%) from the third quarter. Gain on sale of owned fleet containers, net, of $36.1 million for the full year, an increase of $9.9 million (or 37.6%) from the prior year;
• Adjusted net income of $11.9 million for the fourth quarter, or $0.21 per diluted common share, as compared to $4.8 million, or $0.08 per diluted common share in the third quarter. Adjusted net income of $51.5 million for the full year, or $0.90 per diluted common share, as compared to $23.2 million, or $0.41 per diluted common share in the prior year;
• Adjusted EBITDA of $115.0 million for the fourth quarter, an increase of $1.3 million (or 1.1%) from the third quarter. Adjusted EBITDA of $443.1 million for the full year, an increase of $68.5 million (or 18.3%) from the prior year;
• Utilization averaged 98.6% for the fourth quarter, an improvement of 60 basis points over the third quarter, and is currently at 98.3%. Utilization averaged 98.1% for the full year, an improvement of 170 basis points over the prior year; and
• Container investments of approximately $830 million accepted into our owned and managed fleet during the year.

"2018 was a strong year for Textainer, as we delivered lease rental income of $612.7 million, an increase of 11.5% over the prior year. We leased out over 500 KTEU during the year, three-quarters of which was new production at an average yield of 11%. We delivered adjusted EBITDA growth of 18.3% to $443.1 million. Our average utilization for the year of 98.1% was in improvement of 170 basis points over the prior year," stated Olivier Ghesquiere, President and Chief Executive Officer of Textainer Group Holdings Limited.

"While we are pleased with our performance for the year, concerns and uncertainty around the ongoing trade frictions and slower global economic growth forecast served as a headwind to market activity in the fourth quarter. Accordingly, fourth quarter lease rental income of $157.1 million was flat sequentially to the third quarter, driven by the low level of on-hire activity and reduced production volumes in the fourth quarter."

Ghesquiere continued, "As we look at the industry through the global perspective, we are cautiously optimistic about the market outlook. While macro uncertainty persists, we are encouraged by low turn-in bookings, high utilizations, favorable container resale environment, and reasonable inventory levels. We continue to strengthen our business, with a focus on driving disciplined profitability, and we believe we are well-positioned to capitalize on potential market opportunities and create shareholder value."

Fourth-Quarter and Full- Year Results

Lease rental income decreased $0.6 million from the third quarter of 2018 due to a slight decrease in fleet size, partially offset by higher utilization and increases in the average rental rates of the fleet. Lease rental income for the year increased $63.3 million from 2017 due to a larger fleet size, higher utilization and increases in the average rental rates of the fleet.

Gain on sale of owned fleet containers, net, increased $1.1 million from the third quarter of 2018 due to an increase in the number of containers sold, partially offset by a reduction in the average gain per container sold. Gain on sale of owned fleet containers, net, for the year increased $9.9 million from 2017 due to an increase in the average gain per container sold, partially offset by a slight reduction in the number of containers sold.

Direct container expense – owned fleet decreased $1.4 million, compared to the third quarter of 2018, mostly due to lower repositioning expense. Direct container expense – owned fleet for the year decreased $1.5 million from 2017, mostly due to $6.8 million in lower storage cost resulting from higher average utilization, partially offset by $4.4 million in container recovery cost incurred for lessees that became insolvent in 2018.

Container impairment was $8.2 million for the quarter, consisting of a $4.6 million write-off for the estimated unrecoverable containers held by defaulted lessees and a $3.6 million impairment to write down the value of containers held for sale to their estimated fair value less cost to sell. Container impairment was $26.8 million for the year consisting primarily of a $12.6 million write-off for the estimated unrecoverable containers held by defaulted lessees and $13.0 million in impairments to write down the value of containers held for sale to their estimated fair value less cost to sell, of which $6.9 million resulted from unleasable containers moved to disposal. These containers were primarily reefer units, many of them recovered from Hanjin, for which there were no near-term lease opportunities due to various technical and commercial factors.

Depreciation expense increased $0.7 million from the third quarter of 2018 and $4.7 million from the year 2017. The year over year increase was primarily due to fleet growth, partially offset by the decrease due to an increase in future residual values effective July 1, 2017.

General and administrative expense decreased $1.8 million from the third quarter of 2018 mostly due to $2.4 million in costs associated with departing senior executive personnel recorded in the third quarter of 2018 with no comparable charge in the fourth quarter of 2018. General and administrative expense for the year increased $4.6 million from 2017 mostly due to a $4.7 million increase in compensation costs, including the above $2.4 million in costs associated with departing senior executive personnel and a $1.0 million increase in short-term incentive compensation costs.

A gain on insurance recovery of $8.7 million was recorded in 2018, which related to the final insurance settlement of the Hanjin bankruptcy for insurable costs including primarily unrecovered containers and incurred container recovery costs, net of the insurance deductible.

Interest expense for the quarter increased $0.9 million from the third quarter of 2018 and for the year increased $21.0 million compared to 2017. The year over year increase was primarily due to higher borrowing costs resulting mostly from a higher average debt balance and higher interest rates. Realized gain on interest rate swaps, collars and caps, net, for the quarter was flat compared to the third quarter 2018 and for the year increased $6.4 million, compared to the 2017 due to the increase in interest rates.

Unrealized loss on interest rate swaps, collars and caps, net, was $8.0 million for the quarter and $5.6 million for the year, primarily resulting from a notable decrease in the forward LIBOR curve at the end of 2018 which reduced the value of our interest rate derivatives. Longer tenured and higher fixed rate swaps were also required to be traded during the periods to replace expiring lower fixed rate swaps.

Reclassification and Revisions to Previously Issued Consolidated Statements of Comprehensive Income

We have revised the presentation in our previously issued Consolidated Statements of Comprehensive Income for the first three quarters of 2018 and for the years ended December 31, 2017 and 2016. In connection with preparing our 2018 financial statements, we re-evaluated our fleet's management agreements for managed containers and determined these agreements convey to the Company the right to control the managed fleet, therefore meeting the definition of a lease based on the guidance of ASC 840 Leases. As a result, lease management fee income, previously presented on a net basis, was reclassified and presented on a gross basis for all periods presented. Separately, we also decided to include short term incentive compensation expense and long term incentive compensation expense together within general and administrative expense. See note (a) and (c) within the attached Condensed Consolidated Statements of Comprehensive Income. These reclassifications have no impact to underlying income from operations or net income, as well as no resulting changes to the consolidated balance sheets and consolidated statement of cash flows.

Conference Call and Webcast

A conference call to discuss the financial results for the fourth quarter and full year 2018 will be held at 5:00 pm EST on Thursday, February 21, 2019. The dial-in number for the conference call is 1-877-407-9039 (U.S.) and 1-201-689-8470 (outside the U.S.). The participant passcode for both dial-in numbers is 13686662. The call and archived replay may also be accessed via webcast on Textainer's Investor Relations website at http://investor.textainer.com.

About Textainer Group Holdings Limited

Textainer has operated since 1979 and is one of the world's largest lessors of intermodal containers with more than 3 million TEU in our owned and managed fleet. We lease containers to approximately 250 customers, including all of the world's leading international shipping lines, and other lessees. Our fleet consists of standard dry freight, refrigerated intermodal containers, and dry freight specials. We also lease tank containers through our relationship with Trifleet Leasing and are the primary supplier of containers to the U.S. Military. Textainer is one of the largest and most reliable suppliers of new and used containers. In addition to selling older containers from our lease fleet, we buy older containers from our shipping line customers for trading and resale. We sold an average of almost 140,000 containers per year for the last five years to more than 1,500 customers making us one of the largest sellers of used containers. Textainer operates via a network of 14 offices and approximately 500 independent depots worldwide.

Important Cautionary Information Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of U.S. securities laws. Forward-looking statements include statements that are not statements of historical facts and include, without limitation, statements regarding: (i) being cautiously optimistic about the market outlook, and (ii) being well positioned to capitalize on potential market opportunities and create shareholder value. Readers are cautioned that these forward-looking statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results. These risks and uncertainties include, without limitation, the following items that could materially and negatively impact our business, results of operations, cash flows, financial condition and future prospects: any deceleration or reversal of the current domestic and global economic conditions; lease rates may decrease and lessees may default, which could decrease revenue and increase storage, repositioning, collection and recovery expenses; the demand for leased containers depends on many political and economic factors and is tied to international trade and if demand decreases due to increased barriers to trade or political or economic factors, or for other reasons, it reduces demand for intermodal container leasing; as we increase the number of containers in our owned fleet, we increase our capital at risk and may need to incur more debt, which could result in financial instability; Textainer faces extensive competition in the container leasing industry which tends to depress returns; the international nature of the container shipping industry exposes Textainer to numerous risks; gains and losses associated with the disposition of used equipment may fluctuate; our indebtedness reduces our financial flexibility and could impede our ability to operate; and other risks and uncertainties, including those set forth in Textainer's filings with the Securities and Exchange Commission. For a discussion of some of these risks and uncertainties, see Item 3 "Key Information— Risk Factors" in Textainer's Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 14, 2018.

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

TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Reconciliation of GAAP financial measures to non-GAAP financial measures
Three Months and Years Ended December 31, 2018 and 2017
(Unaudited)
(All currency expressed in United States dollars in thousands, except per share amounts)

The following is a reconciliation of certain GAAP measures to non-GAAP financial measures (such items listed in (a) to (c) below and defined as "Non-GAAP Measures") for the three months and years ended December 31, 2018 and 2017, including:

Non-GAAP Measures are not financial measures calculated in accordance with U.S. generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity. Non-GAAP Measures are presented solely as supplemental disclosures. Management believes that adjusted EBITDA may be a useful performance measure that is widely used within our industry and adjusted net income may be a useful performance measure because Textainer intends to hold its interest rate swaps, collars and caps until maturity and over the life of an interest rate swap, collar or cap the unrealized loss (gain) will net to zero. Adjusted EBITDA is not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure for comparison.

Management also believes that adjusted net income and adjusted net income per diluted common share are useful in evaluating our operating performance because unrealized loss (gain) on interest rate swaps, collars and caps, net, is a noncash, non-operating item. We believe Non-GAAP Measures provide useful information on our earnings from ongoing operations. We believe that adjusted EBITDA provides useful information on our ability to service our long-term debt and other fixed obligations and on our ability to fund our expected growth with internally generated funds. Non-GAAP Measures have limitations as analytical tools, and you should not consider either of them in isolation, or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Some of these limitations are:

• They do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
• They do not reflect changes in, or cash requirements for, our working capital needs;
• Adjusted EBITDA does not reflect interest expense or cash requirements necessary to service interest or principal payments on our debt;
• Although depreciation expense and container impairment are a noncash charge, the assets being depreciated may be replaced in the future, and neither adjusted EBITDA, adjusted net income or adjusted net income per diluted common share reflects any cash requirements for such replacements;
• They are not adjusted for all noncash income or expense items that are reflected in our statements of cash flows; and
• Other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

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