Q4 2023 GATX Corp Earnings Call

Presentation

Operator

Hello, and welcome to the GATX 2023 fourth quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. And if you would like to ask a question during this time, simply press star one on your telephone keypad. I will now turn the conference over to Shari Hellerman, Head of Investor Relations. Please go ahead.

Thank you, Sarah. Good morning, and thank you for joining GATX's Fourth Quarter and 2023 year end earnings conference call. I'm joined today by Bob Lyons, President and Chief Executive Officer, and Thomas Ellman, Executive Vice President and Chief Financial Officer, and Paul Titterton, Executive Vice President and President of Rail North America.
As a reminder, some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts for more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10 K for 2022 and in our other filings with the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events our circumstances.
I'll provide a quick overview of our 2023 fourth quarter and full year results. And then I'll turn it over to Bob for additional commentary on 2023 as well as our outlook for 2024. After that, we'll open the call up for questions. Earlier today, GATX reported 2023 fourth-quarter net income of $66 million or $1.81 per diluted share.
This compares to 2022, a fourth quarter net income of $48.4 million or $1.36 per diluted share. The 2023 fourth quarter results include a net positive impact from tax adjustments and other items of $0.07 per diluted share for 2022 to fourth quarter results include a net negative impact from tax adjustments and other items of $0.18 per diluted share.
For the full year 2023, GATX reported net income of $259.2 million or $7.12 per diluted share. This compares to net income of $155.9 million or $4.35 per diluted share in 2022. The 2023 full year results include a net positive impact from tax adjustments and other items of $0.05 per diluted share.
The 2022 full year results include a net negative impact from tax adjustments and other items of $1.72 per diluted share. These items are detailed in the supplemental information section of our earnings release in 2023 total investment volume was over $1.6 billion as we increased investment in rail, North America, Rail International and our fully owned engine portfolio.
In the coming year. Leases for approximately 19,400 tank and freight cars and approximately 1900 boxcars in North America are scheduled to be renewed. These renewal levels are similar to those we've had in recent years. Lastly, as noted in the release, we met 2024 earnings to be in the range of $7.30–$7.70 per diluted share. With that, I will now turn the call over to Bob.

Thank you, Shari, and thank you all for joining the call today. For those of you that follow us closely, you know, we are generally very brief in our opening remarks. But given that we're at year end, we thought it would be helpful to spend a little bit more time.
So I appreciate you bearing with me as we go through some of the details, I'm going to provide some brief comments on 2023 performance versus the outlook we had coming into the year. And then I'll add some additional color to the 2024 guidance that was included in today's press press release.
But before diving in first, I want to thank our employees for their focus and their efforts this past year, in particular, our employees who work in our maintenance network and who work in our shops, both in North America and Europe.
Once again, they did an outstanding job in the face of very high demand for shop services. And I'm very pleased that our safety record in the shops in 2023 was excellent. Our shop management and employees continue to strive for efficiency while focusing on safety, and that's what matters most. So thank you to all of our employees on the shop floor who really make this company tech.
Looking more broadly at our business segment performances, I'm pleased with the contribution across the board, whether it was rail, North America, rail, Europe, India, our engine leasing activities, our truck fleet. Everyone performed at a very high level this past year, and I fully anticipate continuing this momentum through 2024.
Our broad goals at GATX remain unchanged, and they're very straightforward, operate safely, grow our global businesses in a disciplined manner, be a good corporate citizen, be good stewards of our shareholders' capital and generate an attractive risk-adjusted return for our shareholders.
And on that note, I'm pleased that in 2023, our total shareholder return was 15.2% and very important to us the 10-year return because we think very long term, the 10-year return was 11.4%. So looking back on 2023, we came into the year expecting EPS in the range of 650 to 690 per diluted share as reported today, we exceeded that guidance and it really boils down to a few factors.
First, Rail North America's segment profit came in below our original expectations, primarily due to increased demand and net maintenance expense in our shops of doing and more detail on that in a moment. But by every commercial metric such as the LPI. utilization, renewal success rate and investment levels.
We had a great year at Rail. North America Rail International performed in line with our positive expectations coming into the year and the biggest source of variance versus our expectations on the positive side were results in portfolio management and watching incorporate all of our engine leasing activity. The recovery in global air travel occurred much faster than original expectations, and our results reflected that.
Looking specifically at Rail North America in 2023 first, the lease rate environment for existing railcars was very favorable customers remained focused and holding onto the cars that they had in their existing fleets. And our commercial team did an outstanding job of working closely with our customers to meet their needs. Lease revenues came in well ahead of expectations.
Importantly, we were also able to establish lease terms in excess of 60 months on renewals, meaning that we have locked in those committed attractive, high-quality cash flows for years to come. While revenues came in ahead of our original expectations, not by a large enough margin to offset the impact of increased maintenance expense and higher interest expense.
Interest expense component was actually largely driven by a positive long-term factor that being our investment volume was well ahead of plan. We identified more attractive investment opportunities than expected. We executed on those, and I view this as continuing to build our foundation for the future.
On the maintenance side, demand for shop capacity and services was north of what we planned. Key driver to that was the we experienced a higher volume of cars due for regulatory service. It is always really difficult to estimate exactly when those cars are going to come into the shop because the customer oftentimes control that decision. And frankly, we undershot and under budgeted for that in 2023.
Additionally, and this is a net positive as reflected by our lease revenue performance. This past year, we ran the fleet at extremely high utilization, so many cars that were returned by customer A., for example, went through our shop and on the customer be very quickly.
Now we incur a shopping event and cost when that occurs. But net-net, it's a positive as the cars back out on a long-term lease earning revenue instead of sitting idle for an extended period.
In summary versus our expectations coming into the year, Rail North America had higher lease revenue, which was offset by higher maintenance and interest, we always get required questions on remarketing income, too.
So I'll just add that remarketing income came in generally in line with our expectations entering the year demand for our railcars in the secondary market. Secondary market was very robust, and we use the opportunity to continue optimizing the fleet.
Looking at Rail International segment profit was up nicely in '23 versus '22. And right in line with our expectations. We saw very strong demand for existing assets in Europe and India, but we were also able to invest close to $400 million across these markets, a record level. We continue to grow our European and Indian fleets and our teams there are operating at a very high levels.
As I mentioned, the largest source of outperformance from 23 versus original expectations was within our engine leasing activities. Global air travel recovered in 2023 at a pace far quicker than anyone planned. As a result, we had higher engine utilization and at our joint venture RRPF., higher than planned lease rates and fewer customer issues and bad debt expense Importantly, we're also seeing the income benefit from our direct investment in engines, and we made another direct investment in other direct investment in 2023 for $260 million. These factors led to a sharp increase in segment profit within portfolio management.
The last comment I'll make on 2023 is that we had a record year for investment volume exceeding $1.6 billion. With every business segment contributing even in a rising interest rate environment, we were able to identify very attractive investment opportunities, and I'd encourage everyone And keep in mind, we are acquiring 2030 and 40 year assets, and I'm confident that these investments will provide our investors with a growing global platform with very attractive risk-adjusted returns. So I'm very pleased with '23, but I'm even more excited about where this positions us for 2024 and beyond.
So let's get into 2020 for Rail North America. We anticipate demand for the existing fleet will be solid, with utilization remaining in the 99% range. We see renewal success continuing at the high levels experienced in 2023.
And we anticipate the LPI will be in the range of plus 30% in 2024, again, with very attractive terms attached, coupled with new additions to the fleet, we expect lease revenue to increase $80 million to $90 million in '24 versus '23. Interest expense will continue to increase, reflecting the compounding effect of rising interest rates over the past 18 months and our growing asset base.
So we see interest rate interest rates increasing $40 million to $50 million at Rail North America in 2024 for net maintenance expense, we anticipate a very modest increase in 2023. We will see some uptick in regulatory compliance work, but also a benefit from overall sharp operating efficiencies. So therefore, we see net maintenance coming in flat to plus $10 million in the year ahead.
As for remarketing income, we again expect a very robust demand for our assets. And in fact, we've seen steady inquiries from potential buyers and from a lot of interest in the packages that we've already taken out to market following a very busy calendar for asset sales in the past few years.
In 2024, we currently expect to market slightly fewer cars, resulting in remarketing income being $10 million to $20 million less and '23 level. This implies remarketing income in the $90 million to $100 million range for 2024 for a very solid year.
I'll also add a bit of a disclaimer that this is another element of our forecast. That's really hard to pinpoint the level of sales activities always tough to gauge coming into a year. But as I said from where we sit today, this is the best estimate.
And we as we always do, we'll tried to keep you updated as the year progresses. The net result of all these factors after incorporating some minor line items is that we see segment profit Rail North America being up between $10 million and $20 million in 2024.
At Rail International, we expect segment profit up $10 million to $15 million in 2024, with the main drivers being continued growth in our European lease fleet and in India. In fact, in Europe, we will surpass 30,000 railcars in our fleet this year, and we expect to see rising lease rates on many of those car types.
While the upper economic outlook in Europe is muted with low single digit GDP forecasts demand for rail services continued to be solid. In India. We have the benefit of GDP growth that's forecast to be in the high single digits.
One of the strongest outlooks in the world. India is going to continue to build out its infrastructure, including roads, homes, hospitals, schools, government buildings and so on. And to do so. There will be a growing need for cement, steel and other materials that move by rail.
You couple that with the focus by the Indian Railways to continue building out dedicated freight rail capacity, and we should see strong fleet growth at GATX India. In fact, in 2024 for GATX Rail, India's fleet will likely go over the 10,000 railcar mark quite an achievement given that we were the first railcar leasing company in India.
And 10 years ago, we had a fleet of just a few hundred cars and all the credit goes to our outstanding team in India. For our engine leasing investments within portfolio management, we expect to see strong demand as global air travel continues to recover to pre-pandemic levels and beyond, we're expecting segment profit to be up $5 million to $15 million in 2024 for a very nice performance, especially given the sharp increase we saw just this past year in '23 over the prior year.
Looking at SG&A, like most companies we're experiencing experiencing rising labor costs. You pair that with a slight increase in headcount, which I'll point out is primarily to support our international growth and we're forecasting SG&A to be up between $10 million and $15 million in the year ahead for entering the year on the heels of a record investment volume of $1.6 billion in '23.
And based the good news is based on committed investments and opportunities, we anticipate seeing during the year, we expect to be close to the same range in 2024. That bodes very well for 2024 and the years beyond all of the factors just discussed, formed the base of basis of our current estimate of $7.30 to $7.70 per diluted share.
Before a closing comment, I'd like to mention the dividend. We routinely get asked about dividends on the January call. GATX has paid dividends continuously now for over 100 years, and we understand the importance of the dividend to our shareholders. We have a regularly scheduled GATX Board meeting this Friday. So please take a look for an announcement on the dividend on that day.
Lastly, GATX celebrated a couple of major milestones this past year. Most notably our 125th anniversary and the 25th anniversary of our partnership with Rolls-Royce. GATX is a very different company, a far stronger company, and we were 125 years ago, 25 years ago or even five years ago.
We continue to expand our global footprint in rail, and we're the leading global lessor of rail assets, contributions from Europe and India and rail and diversity and stability to our cash flow and our earnings. Likewise, our investments in aircraft engines have proven to be great additions to the GATX portfolio. While the COVID era was a challenge. It proved once again that air travel is remarkably resilient.
Aircraft engines are high quality service based assets that are a great store of value. And with our partner, Rolls-Royce. We enjoy a very unique and valuable position in the engine leasing markets. So our growing international rail businesses, along with our growing air aircraft engine investments, our outstanding compliments to the leading rail leasing franchise we have and will continue to grow in North America.
So thank you all for enduring. My somewhat lengthy comments on 2023 and the outlook for 2024. And with that, we will go to questions.

Question and Answer Session

Operator

Thank you. If you have a question, please press star one on your telephone keypad. To withdraw your question, simply press star one again. Your first question comes from the line of Justin Long - Stephens. Your line is open.

Thanks and good morning. And maybe to start, I was wondering if you can share the absolute lease rate trends sequentially that you saw in the fourth quarter and when we think about LPI. guidance to be in that 30% range. What does that assume for how lease rates will trend over the course of the year on a sequential basis?

Sure, I'll take that. This is this is Paul Titterton and thanks for the question. And what I would say broadly to start is lease rate performance in North America has been quite strong for quite some time right now. We are seeing an absolute sense, a relatively flat environment versus the prior quarter.
But as indicated by the LPI base relative to the expiring rates, we are expecting continued positive performance. And so and overall, we would say in an absolute sense, the leasing market for most car types in North America remains quite strong.

Got it. Thanks. And maybe one on the RRPS. contribution in the fourth quarter, there was a pretty significant step up sequentially. I was wondering if you could break out that fourth quarter contribution between remarketing and just the core operating results. And maybe you could talk about those two buckets progressing in 2024 in terms of what you're baking into the guidance there?

Hi, Justin, this is Thom. So what I would tell you is that for the fourth quarter, it was about 60% operating income, about 40% remarketing. As you know, having followed us for a long time. It's really difficult to predict exactly how that some remarketing piece will move over the course of any given year, but but something in the range that we saw for the full year, which was about 55% operating income and 45% remarketing wouldn't be unreasonable.

Okay. Understood. I'll leave it there. Thanks for the time, and congrats on the results.

Operator

And your next question comes from the line of Matt Elkott, TD Cowen. Your line is open.

Good morning. Thank you, Tom, I was wondering if you can talk about the additions to the fleet in 2024, do you see the best opportunities in the secondary market or in the new car market?

So this is Paul. I'll take that again. And what I would say right now is overall, we've seen higher quality investment opportunities in a variety of areas within rail, North America. There certainly have been opportunities in secondary markets and syndications that we've taken advantage of.
But I will also say in the primary market in our originations of new car leases, we're also seeing very attractive opportunities. So really from an investment standpoint, North America, the there are up quality opportunities, both in primary originations and secondary markets and syndications.

Got it. Good enough. And then one question on India. You guys were basically started this market for a privately-held freight car lessors in India. And can you give us an update on the competitive landscape right now? Are you still the biggest operator there? Do you see interest from potential new entrants as the growth prospects proves to be strong and sustainable?

Sure, Matt, it's Bob. We are far and away the largest private owner of railcars in India. There are some other competitors that periodically appear on, but they don't have anything of size in terms of fleet or from what we see a significant foothold in the marketplace, the one area we would compete.
And so I don't want to give you the impression that it's just I know unfettered prospects because there is the our customers have alternatives and one of those would be bank financing or owning the assets outright themselves.
These are big, formidable, large entities, so they can buy as well, just like here in North America. But from a leasing standpoint, we are far and away the largest and I think generally recognized as the leader and certainly recognized by the Indian Railway as the most advanced in the market.

Okay. So it's more of a question of the how much traction the business model you guys introduced into the into the market gets versus other ways of acquiring assets on that.
That's good to know. So and I think you mentioned just the quick clarification. You mentioned over 10,000 cars at the end of 2024, you think your new fleet will be?

Yes. If we meet our investment targets for this year, that would be the expectation.

What about the overall fleet globally in Europe and in the US, do you expect that to grow as well up by at the end of '24?

For India, we would expect for sure, because it continues to be such a growing market. And in fact, in fact, in certain car types, the Indian Railway has pretty sizable orders and to expand its own fleet. And the issue really in India is not so much as the growth there.
It's the ability to get the wagons come in to continue to diversify into different card types and different customers. The growth will, you know, based on the prospects today is there the European market is a little bit more?
I would say it came to North America in terms of maturities. So we wouldn't anticipate any and are certainly not banking on any significant growth in the overall fleet in Europe.

Got it. Thank you very much, Bob. Thanks, everyone.

Operator

Your next question comes from the line of Allison Poliniak-Cusic, Wells Fargo. Your line is open.

Hi, good morning. And really starting bigger picture utilization. This is focused on rail, North America, Italy utilization is really high. You have the rails improving service really focused on trying to capture growth. Would just love to get your perspective.
I guess one, what do you think the market the equipment markets investing enough at this point, just given where utilization is for that potential inflection? And then two, I guess, how would how is GTx sort of managing that potential dynamic? Just any thoughts there?

Sure. So it's good question, Allison, this is Paul. I'll take that. So what I would say right now is investment continues at a kind of slightly above replacement pace in North America overall. So come with core carloads. We have we measure them, but maybe low single digit percentage year over year that that's an investment pace that should be adequate to keep pace with demand in the context of a somewhat improving service.
And I will say the we hear from our customers, that service is improving and the metrics of dwell time and velocity that that are reported on wood would bear that out. So with modest growth, modest service improvements and a modest level of investment that speaks to a pretty balanced market. One of the nice things about the market that we see right now.
Frankly, unlike past tight railcar markets, we haven't seen that enormous build wave. If we look back at the ethanol boom or the crude boom, we saw build years where the industry will produce upwards of 80,000 cars and then there would be a huge hangover after that excess production?
No, this tight market, we're seeing industry wide production in North America, the top out in the 40s. And so that speaks to, I think, a much more balanced, much more disciplined market, which should be good for all participants.

Got it. Thank you. That's helpful. And then on other revenue and noise around North America, Bob, I know you mentioned sort of the speed to get sort of those cars back on lease and so forth. Should we expect that to be elevated again in '24? Like how should we be thinking that sorry, if I missed any commentary there.

Are you speaking specifically to the other revenue line and the other revenue, sorry?

Yes, yes,

We're not anticipating any significant growth any out, you know, abnormal growth in that line item in 2024 should grow right along in line with lease revenue.
Yes.

And Allison, just to put some perspective on that really what you need to do is look at that in conjunction with the maintenance line. So really, I'd guide you to Bob's comments on net maintenance being somewhere between flat and up $10 million.

The biggest component of other revenues. It is essentially repairs billed back to the customer.

Got it. Thank you.

Operator

Your next question comes from the line of Bascome Majors, Susquehanna. Your line is open.

Thanks for taking my questions. Going back to your thoughts on the North American secondary market and a very high level of P&L from that historically, but a little down from where you were last week. Can you talk a little bit maybe qualitatively about the depth of the market, the buyers?
And just anecdotally, how that feels today versus how it felt over the last couple of years? And then maybe a little more precisely, just any thoughts on how that profit assumption correlates to your plan to sell fewer railcars? Or is it really just the gains on individual units coming down a little bit from where they were in the last few quarters? Thank you.

Sure. So this is Paul. I'll take that. And yes, I mean, the bottom line for the secondary market is it has been robust and it continues to be robust. We continue to see a large number of participants on the buy side with a lot of depth. And whenever we see packages, whether it's our own packages or other packages in the market, the response has continued to be robust, and we anticipate that robustness continuing to the second part of your question, really for us, we're trying to make good portfolio decisions.
And so ultimately, we're really looking at the economics of the transaction, more than we are the accounting gains. We're really trying to optimize the portfolio either from a credit or asset or market or term standpoint. And really we're using those sales in the secondary markets to balance out that portfolio and ensure we've got a diverse and attractive portfolio along all the dimensions that I just mentioned.

And Bascome, I'd add we did come into this year, I think, into 2023. That is feeling whether in a rising interest rate environment that the secondary market condition was probably more uncertain, but it remained really strong throughout the entire year continues to be strong.
And I think it speaks to the quality of the underlying asset railcars have proven over time, be great stores of value and very good assets to home long term. So even with interest rates up where we thought well, maybe the buyer universe would shrink a little bit still they're still great depth, still a lot of a lot of activity.

I appreciate the responses on both of those. You I believe you mentioned that you expected to put a similar amount of capital to work this year from where you sit today as you did last year, which was $1.6 billion - $1.7 billion, a fairly large number.
Can you talk about about a little more about the opportunities you see? I think it was maybe 60% of that went to North America, 20% - 25% international and the rest in some of your other businesses, there's your opportunity set and where you see investments this year looked a lot different than what we've seen over the last 12 to 18 months?

Yes, it's not a lot different than Eskimo. In fact, it's pretty similar to what we saw this year, whether it would be add to within GATX engine leasing that's within portfolio management. We invested about $267 million this past year for for 10 engines.
We would it works. We're anticipating being right in that same range and based on the outlook we have for rail, North America and internationally, those markets should be very similar to where we were last year. Rail North America was north of $970 million. So maybe it's not right on top of that number, but it's certainly in that neighborhood. And then GRE are GATX Rail, Europe and India were both about combined about 400. We're looking at about the same again this year.

And basket, I'd just remind you of Bob's comments of some of the challenges of getting the assets, particularly in India. That's one of the things that causes us to have a little room, a little uncertainty on exactly how much we can get.

And lastly on that, do you see any more assets where you could start to build a platform and some maybe invest in assets related to what you've done before, but are markets you're currently in or do we expect it just to look a lot more like it has looked for your earlier comments?

While our focus on long-lived widely used assets with a service component where you need intense asset knowledge to succeed well, not change. We see pretty much every M&A opportunity out there at remotely related to the leasing world, but you have to pass those price for criteria because that's what works for GATX. That's where we generate the best return for our shareholders.
We did add tried fleet the largest one of the larger tank container lessors in the world a few years ago to the portfolio and that asset meets all of those criteria. It's a good platform that's scalable, but we continue to integrate that into our into our operations overall.
But we pass on far more than we pursue them and that will not change that discipline won't change. And with $1 billion of investment volume, this past year and a similar outlook for 2024. There's a lot of opportunity for us right in the markets we're in today.

Thank you for the time.

Operator

Your next question comes from the line of Justin Bergner with G.research. Your line is open.

Good morning, Bob. Tom, Paul and Shari. We're morning morning. First question relates to the secondary market on the one hand, you're indicating the secondary market is strong and pricing is strong. On the other hand, you're seeing a lot of opportunities to put money to work. So can you sort of reconcile those two aspects of the market?

I mean, really for us, it comes down to portfolio management. As I said earlier, we're using the secondary market to optimize our portfolio. And at the same time, the fact that we're able to generate attractive both economic and book gains in the secondary market doesn't change the fact that there is also high quality investment available to us on the buy-side.
And so really for us, every decision we make, whether it's to sell into the secondary market or to originate the primary market or buy in the secondary market. We're making that on the basis of deploying and harvesting our shareholders' capital in the optimal way possible.
And so in the current market right now, on the sell side, we are certainly seeing lots of attractive opportunities where the market is valuing certain parts of our portfolio on a buy on the buyer side higher than we value on a hold side. At the same time, we're seeing tremendous opportunity to put capital to work where there are attractive returns available. So that's really the mindset we have.
We're constantly looking at ways to optimally deploy and harvest our shareholder capital in on the buy side and the sell side.

Justin, and also I would remind you that we have the most diversified fleet in the industry and some we've talked about before, as you know, the car types we're selling or not the car touch robots.

Okay, got it. So is it are you buying a very balanced set of car types and selling more specific set of car types? Or are they both very tailored to specific?

Yes, I would say they're both very tailored to specific And keep in mind, too, when we're in the market on the sell side, we're typically selling in very small lots. We don't sell 2000 cars at a time or 1,000 cars at a time, it tends to be 50 or 100.
And so it's very, very targeted, very specific with a fleet our size we can do that. And with the diversity we have, we can do that. We can really pick and choose. Likewise on the buy side, we don't have to buy anything that's always a good position. I always liked being in that position.
We don't have to buy anything. We don't need anybody's customer base or platform or anything else. What we're looking for is a very targeted asset type. And we're seeing we saw some of those opportunities last year. And we are we think we'll continue to see some of those this year. And I'll let Paul, add anything to that he wants.
Yes. And I will just say too. I mean, that's really the advantage of having such a liquid secondary market. And so many participants within the North American secondary market is you're going to have different participants that have different appetites for different assets. A great example is, as it's trending towards end of life, where there may be smaller lessors that specialize in those assets where we may decide we're going to be in harvest mode there.
And some of those buyers may offer us very attractive pricing we will then reinvest the proceeds in modern, either new or nearly new assets that fit our long-term portfolio approach. That's just one example of the many ways we think about buying and selling.

Got it. Thank you for that. On the Rolls-Royce joint venture, how does the 55% operating income versus 45% remarketing income mix that you saw this are in '23 and expect to see in 2024 compared to longer term, Craig?

Yes, just 2% suggesting it clearly moves around just because of how much that remarketing piece can change year to year, but at least the most recent history, it was it was similar in 2022.

Yes, the other the other thing I would remind folks of is that remarketing activity or asset sales activity on the engine leasing side is very different than remarketing activity at North American rail, where we're selling lots of lots of different types of assets.
And, you know, at a lower starting net book value engines are expensive assets, so one or two sales in a given year three sales, whatever you in a given quarter has a much bigger impact than Is that kind of the steady drumbeat of sales we do at Rail North America.

Great. Thank you. Just if I could get one more in, do you expect the maintenance level in 2024 to be above normalized levels, assuming it was also above normalized levels in 2023?

I mean, what we expect for Rail North American net maintenance expense in 2024 is either flat to up $10 million. And what we have already baked into our guidance for the year which is a little bit of an elevated level of regulatory compliance that should pare back in the years ahead. But this year, 2024 and likely 25, we're kind of in this range of regulatory activity. Great. Thank you for taking my questions.

Operator

Your next question comes from the line of Brendan McCarthy with Sidoti. Your line is open.

Good morning. Everybody, and thanks for taking my questions this morning. Morning. Just wondering, first off, if you can touch on the lower income tax expense and what drove that in the fourth quarter of '23?

So on 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 expect it to be around the same level in 2023. And indeed, we were almost identical, so '22, '23.
And our own 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 some are worth your attention and can help you explain that difference during the year, there were a number of states and enacted statutory tax reductions, which had the impact of reducing our deferred taxes by about $3 million.
Also on an annual basis, we evaluate the REALIZE 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 will explain the vast majority of your fourth quarter difference in.

The estimate for 2024 incorporates the tax level of a similar effective tax rate normalized basis similar to 2023?

So sort of be and we expect it to be another year in that 26% range.

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, but 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?

Yes, 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.

Got it. Okay. And then kind of switching gears to the portfolio management segment, your what percentage through the post-COVID global recovery in international air travel, would you say we're at this point, I guess as of the end of 2023.

So it's all but Bob can add additional color if he'd like. But my short answer is that we're recovered.

Yes, domestic domestic is actually a little bit above where we were pre-pandemic and international was just below.

Okay. Okay.

I would also add in the depths of the pandemic. Are you 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 plants.

And I know you mentioned portfolio management, second profit potentially up $5 million to $15 million. What are the assumptions in the wholly-owned GEL. portfolio. My guess is I think it's I think there is 29 engines in the portfolio as of end '23. What are your assumptions for acquisition activity going forward.

Similar to what we did this past year in 2023, we acquired 10 engines for $267 million. We have forecast a similar investment level on a similar number of engines for 2024?

Yes. 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 nice uptick from the past two quarters. I'm just wondering if you can comment on that and what can we think about looking forward to demand in 2024.

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 from our multi-year supply agreement. And what I would say, we are continuing to see additional investment in 2024 in both of those areas.

Okay. Okay. That's all for me.

Thank you.

Operator

Thank you. There are no further questions at this time. I will turn the call back to 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.