Matt Elkott: Good morning. Thank you. Just a quick follow up on the lease rate environment and the continued strength in it; are you guys a bit surprised? Is it time to be surprised by how resilient the lease rate strength has been, given the fact that rail volume is down 4% or 5%, intermodal is down 9%, and rail network fluidity is improving. So in the near term, you would think those two factors would be headwinds to lease rates or is that — has that been more than offset by interest rates being higher and tempering builds?
Bob Lyons: Well, it’s a combination — not just interest rates. It’s also new car costs to — you have to keep that in mind as in regards to the alternatives for the customers out there. So as those new car costs have continued to rise in a stated relatively heightened levels, that gives leeway and latitude to kind of take up the lease rates on the existing cars and they need to go up. They need to go up for interest rates and they need to go up as a reflection of the new car alternative. So not particularly surprised and again, I think it speaks to what we have seen in terms of a very bifurcated market where the existing cars that are in place, customers are very keen to hold on to those and so as we move rates up to reflect high utilization, some overall fleet attrition over the course of the last couple years, as you mentioned, rising interest rates, the new car costs, they’re holding on to those cars.
Placing new cars under the supply agreement, particularly on the tank car side, is a bit more challenging, but fortunately we have a big commercial network and a big customer base and we’re able to do that, but that is a heavier lift than renewals.
Bob Lyons: And Matt, it always starts with that supply demand dynamic and that remains favorable for most car types. Industry cars and storage are under 18% and then if you look at the demand side, industry carloads are up about 2.5% versus a year ago. So there are some positive factors offsetting some of the things you mentioned.
Matt Elkott: Yes. No, that makes sense and then just maybe kind of a longer term question. I know, you guys have only repriced, I don’t know, maybe 25 or one-third of your fleet since the lease rate recovery began, just over two years ago. So, is it safe to assume then we should see lease revenue growth for a couple of years to come at least, given the fact that more repricing will happen and more of your fleet will be at higher levels?
Bob Lyons: So, as you know, we always give guidance for the current year and we don’t give too much beyond that, but what I would say is the trends of strongly straight environment and the comparison getting — continuing to get a little bit better as you get a little further away from some of the upmarket. Those are positive trends and the big part of the reason we express confidence in the lease rate environment in 2023.
Tom Ellman: Yes, and I’d add Matt too. Yeah, we’re very encouraged by the fact that we’re able right now to put a lot of the renewals into the portfolio at attractive return or at attractive rates right now at longer terms. And that’s embedding a lot of high quality, strong cash flow into the portfolio that’ll pay dividends for years to come.
Matt Elkott: Yes. And then just finally Bob and Tom, secondary market valuations, I know they’ve been very strong, but, there’s been some very slight cracks recently in certain car types I think maybe related to housing and maybe slightly the consumer center being and so on and so forth. What’s the environment like from your perspective on the secondary market valuations?
Bob Lyons: So, I would say the secondary market remains strong and we expect that to continue. Positive feelings about the market appear to be upsetting any negative impacts from higher interest rates. And it’s interesting you mentioned some of the individual car types because one of the things we always point to is that we have the most diverse fleet in the industry. So there’s always a piece of our fleet that’s going to be relatively attractive, even if there might be pockets where that’s less true.
Tom Ellman: And, to follow on that too, Matt, a point Shari mentioned in the opening comments is we had a very strong quarter on the buy side in the secondary market. One of the strongest I can recall in recent years, and again, that goes to the point Tom mentioned, that we can selectively identify opportunities. When we see portfolios for sale from other leasing companies, we will bid individually in a very targeted basis on the car types that we want and we’ve seen as evidence in the first quarter, some really attractive opportunities to add a lot of car north of a 1,000 cars to the fleet that we bought in the secondary market.
Matt Elkott: Now, that’s good to see that you’re still seeing pockets of opportunity in a pretty expensive secondary market. Now, do you guys think that there might be some bigger acquisition targets? I wouldn’t imagine that if you’re a lessor right now, this is an opportune time to look into if you want to exit the market to look into selling because valuations are high, and if you have any kind of debt refinancing needs in the future, you probably want to get out before that happens. So could we see larger fleets go for sale?
Bob Lyons: It’s always a possibility, Matt. We’re well dialled into most of the portfolios that are out there and the owners of those portfolios. So we are trying to stay abreast of what’s happening in the market. So it’s always a possibility and we will — we’ll always look, I think we’ll always be in the mix in terms of those opportunities. But we’ve also had the question as it relates to the banking industry right now where there are portfolios that are owned by banks, those portfolios aren’t core to the bank. And given some of the pressures in that sector, might some of those portfolios shake loose? Certainly a possibility, we haven’t seen it yet,
Matt Elkott: But you would ask — you would be interested in those — in joining at a bid for those fleets, right?
Bob Lyons: It all comes down to the poor quality of the portfolio and evaluation, those two things.
Matt Elkott: Yes, makes sense. Bob, Tom, Shari, thank you very much. Appreciate it.
Operator: ] Thank you. We go next now to Allison Poliniak at Wells Fargo.
