Operator: Your next question comes from the line of Brendan McCarthy with Sidoti. Your line is open.
Brendan McCarthy: Good morning, everybody, and thanks for taking my questions.
Robert Lyons: Good morning.
Tom Ellman: Good morning.
Paul Titterton: Good morning.
Brendan McCarthy: Just wondering, first off, if you can touch on the lower income tax expense and what drove that in the fourth quarter of ’23.
Tom Ellman: Yeah. So one of the things that can be a little challenging is to take out the normalizing items from the effective tax rate. So if you look at where we were in 2022, we were just below 26% if you look at the normalized tax rate, including share of affiliates. We expected to be around the same level in 2023, and indeed we were almost identical. So ’22, ’23, and our expectations for ’23 were all almost exactly the same. We talked about some of the other normalizing events in the past, but in this quarter, there were two items which are worth your attention and can help you explain that difference. During the year, there were a number of states that enacted statutory tax reductions, which hit the impact of reducing our deferred taxes by about $3 million.
Also, on an annual basis, we evaluate the realizability of our state net operating losses and the associated valuation losses. This year’s analysis resulted in a tax benefit of $2.3 million. So that $5.3 million tax benefit you have to work in and that’ll explain the vast majority of your fourth quarter difference.
Robert Lyons: And the estimate for 2024 incorporates the tax level at a similar — an effective tax rate, normalized basis, similar to 2023.
Tom Ellman: Yeah. So we expect it to be another year in that 26% range.
Robert Lyons: Thank you.
Brendan McCarthy: Great. That’s helpful. Thank you. And then secondly, I know you mentioned the higher debt level kind of being a function of the investment volume. Just kind of wondering if you could touch on the weighted average rate on your debt and what are your assumptions for the interest rate environment heading into 2024 in general?
Tom Ellman: Yeah. So in general, what I would tell you is, the environment that we’re seeing right now is our general expectation for what we see going forward. Over time, just like we do on the asset side, we really look to take advantage of the cycle. And we had many, many years of strong debt markets. And over the past decade, we took our average debt rate from over 8% — I’m sorry, over 6% to under 4%. And we’ll look to continue to take advantage where we can going forward. But for specifically 2024, I would expect our guidance anticipates similar levels to today.
Brendan McCarthy: Got it. Okay. And then kind of switching gears to the Portfolio Management segment. What percentage through the post-COVID global recovery in international air travel, would you say, we’re at, at this point, I guess, as of the end of 2023?
Tom Ellman: So it’s let Bob add additional color if he’d like, but my short answer is that we’re recovered.
Robert Lyons: Yeah. Domestic is actually a little bit above where we were pre-pandemic and international was just below.
Brendan McCarthy: Okay.
Robert Lyons: And I would also add, in the depths of the pandemic, on a best-case scenario, you would say that recovery would be in 2025, late 2024. So the air travel has recovered well ahead of that plan.
Brendan McCarthy: Okay. And I know you mentioned Portfolio Management segment profit potentially up $5 million to $15 million. What are the assumptions in the wholly owned GEL portfolio? My guess is — I think there’s 29 engines in the portfolio as of end of ’23. What are your assumptions for acquisition activity going forward?
Robert Lyons: Similar to what we did this past year, in 2023, we acquired 10 engines for $267 million. We have forecast a similar investment level and a similar number of engines for 2024.
Brendan McCarthy: Got it. Okay. And then one more for me, just looking at the investment volume in Rail North America, I think there were a little over 1,600 cars added, which is a nice uptick from the past two quarters. Just wondering if you can comment on that. And what can we think about looking forward to demand in 2024?
Paul Titterton: So the investments that we’ve made in the quarter and for the year include both secondary market acquisitions as well as, of course, our ongoing supply agreement purchases from our multi-year supply agreement. And what I would say is, we are continuing to see additional investment in 2024 in both of those areas.
Brendan McCarthy: Okay. That’s all from me. Thank you.
Robert Lyons: Thank you.
Operator: There are no further questions at this time. I will turn the call back to Shari Hellerman.
Shari Hellerman: I’d like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Thank you.
Operator: This concludes today’s conference call. We thank you for joining. You may now disconnect your lines.
