CHALLENGES AND OPPORTUNITIES OF ASSET MANAGEMENT ...
Transcript of CHALLENGES AND OPPORTUNITIES OF ASSET MANAGEMENT ...
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Proprietary and Confidential:
The Alta Group prepared this information solely for our client: 3rd party use is permitted only with explicit advance permission of The Alta Group
CHALLENGES AND OPPORTUNITIES OF
ASSET MANAGEMENT: MEASURING AND
MANAGING ASSET RISK
2 AUGUST 2019
By Carl C. Chrappa, A.S.A., M.R.I.C.S., I.F.A.
Senior Managing Director – Asset Management Practice LeaderEmail: [email protected]
Phone: 01-727-796-7733
III Leasing Encounter
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V. Equipment Market Conditions and Outlooks
OVERVIEW
IV. Equipment Analysis – Industry Perceptions of Equipment Markets and Future Business Opportunities
III. Expected Results of Proper Asset Management
I. Role of Asset Management in Leasing
II. Asset Risk in Leasing
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A. Maximizing profits through lifecycle
management & minimizing risk
I. Role of Asset Management in Leasing
Asset
Management
Life Cycle
End of
Term
Mid-
Term
Bid
Preparation
Lease
Commence-
ment
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3. Mid-terma) Review lessee’s financial condition
b) Possible physical inspection
c) Lessee intentions – “key assets”?
4. End of term preparationa) Review operative documents
b) Prepare for EOT purchase option negotiationsi. Know your lessee
ii. Know your asset
iii. Know its value
c) Execute purchase option or prepare for return
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5. Return – remarketing (continued)
c) Commence remarketing plan (continued)
ii. Remarketer to sell
1) Select a remarketer based on knowledge of asset and experience
2) Negotiate fee with remarketing agent, on an exclusive basis; if not sold exclusively, realized price will be lower
3) Remarketer to bring offer to asset management to accept or reject
4) If offer accepted, then sale is closed by asset management or with asset management’s approval
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APPRAISAL APPROACHES TO VALUE
– VALUE MEASUREMENT –
Three Approaches to Value
I. Cost ApproachDepreciated replacement cost new
II. Comparable Sales (Market)Market value for same or comparable item
III. Income ApproachPresent value of future earnings
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Levels of RV Risk
Type of Value (Value Tier)--EXAMPLE--
Sales Price % of FMV
Fair Market Value-in-Place (FMVIP)(Retail – Installed)
$225,000 113%
Fair Market Value-in-Exchange (FMV)(Retail – Deinstalled)
$200,000 100%
Orderly Liquidation Value (OLV)(Wholesale)
$175,000 88%
Forced Liquidation Value (FLV)(UTH)
$155,000 78%
Salvage / Part-Out Value (Sal. V) $12,000 6%
Scrap Value (SV) $2,000 1%
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I. Cost Approach to Value ExampleDepreciated Replacement Cost
Equipment– 5 yrs old; est. Useful Life: 10 yrs
Description % of RCN
I. Replacement Cost 100%
II.Physical Depreciation: Age/Life;
5 yrs / 10 yrs; -50%50%
III.Functional Obsolescence:
2% per year; -10%45%
IV.Economic Obsolescence:
-20%; and final value36%
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EXAMPLE: Determine the value of a (5) year old Brand X – CNC
turning center, Model Y w/ 20-in. swing, s/n 123456, w/ CNC controls
II. Sales Comparison Approach to Value (Market Approach) Example
FMV Sales Database ($ x 1,000) for Brand X – Model Y
Cost New 4-yrs 5-yrs 6-yrs
Values (Price)
$250 $101.6 $85 $72.5
110 90 75
100 80 70
95 85
% of Cost New
100 38 34 29
Collateral curve as % of New Cost appears to be reasonable (based
on the shape of the depreciation curve and experience).
0%
20%
40%
60%
80%
100%
0 2 4 6
Sale
s p
rice
, % N
ew C
ost
Age, yrs
Trade Data
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Historical Colombian Exchange Rate, COP / US$
0
500
1.000
1.500
2.000
2.500
3.000
3.500
25/01/2000 21/10/2002 17/07/2005 12/04/2008 7/01/2011 3/10/2013 29/06/2016 26/03/2019
2012 (New)
USD 200,000 x 1,750 P/USD = 350,000,000 Peso
RV in 2019
USD 50,000 (25%) X 3,205 P/USD = 160,250,000 Peso (45.8%)
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Market Data Charting
0%
20%
40%
60%
80%
0 5 10 15 20 25
Construct’n Eqpt, RV as %New Cost vs Age
excavator
grader
scraper
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A. Defensive role: Avoid losses because
full value cannot be obtained from
collateral.
II. Asset Management’s Role in Asset Risk in Leasing
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B. Offensive role: Generating upside
gains on residuals.
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C. Asset management risk
considerations:
1. Full payout; debt versus net worth, leverage, interest rate coverage, etc. Asset can also play a secondary role in mitigating the risk with its liquidation value in event of default
- - - - - - versus - - - - - -
2. Purchase Option Leases; with residual values
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C. Asset management risk considerations:
(Cont.)
3. Residual value analysis (Cont.)
f) Level of RV risk assumed:
i. FMV-in-place (installed)
ii. FMV (retail)
iii. OLV (wholesale)
iv. Net OLV (OLV less cost of sale)
v. 80% of OLV
vi. Auction value
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A. Reduction in losses thanks to planning and
analytics – leads to higher profits
B. Improved risk analysis – asset and value
analytics (study the asset; know its value)
C. Improved risk management framework –
better overall control
D. Early engagement in strategic business
decisions following a predefined framework
III. Expected Results of Proper Asset Management
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Orderly Liquidation Value
Trailers 36 mos 48 mos 60 mos 72 mos 84 mos
Flatbed 30% 28% 25% 23% 20%
Lowboy 30% 28% 25% 20% 15%
Dry van 48-ft & over 30% 28% 25% 23% 20%
Soft-side 48-ft & over 30% 28% 25% 20% 15%
Dry van (36-ft to 45-ft) 25% 23% 20% 15% 10%
Soft-side (36-ft to 45-ft) 25% 23% 20% 15% 10%
Dry van (24-ft to 35-ft) 30% 28% 25% 23% 20%
Reefer 48-ft & over 35% 33% 30% 25% 20%
Reefer (36-ft to 45-ft) 35% 33% 30% 25% 20%
Reefer (24-ft to 35-ft) 35% 33% 30% 25% 20%
Chassis 30% 28% 25% 23% 20%
Tanker 30% 28% 25% 23% 20%
Dolly (tandem w/5th wheel) 30% 28% 25% 23% 20%
Estimated Useful Life:
Orderly Liquidation Value
Vehicles - under 13M unladen 36 mos 48 mos 60 mos 72 mos 84 mos
Diesel Auto (mid - full) 0% 0% 0% 0% 0%
Gas Auto (mid - full) 30% 25% 20% 10% 0%
Gas Auto (compact) 20% 18% 15% 8% 0%
Gas Auto (subcompact) 20% 18% 15% 8% 0%
Shuttle (forward) 25% 20% 15% 11% 7%
Shuttle (perimeter) 20% 15% 10% 8% 5%
Estimated Useful Life:
Alta Residual Value Matrix
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Alta Agricultural Tractor DatabaseType Drive Make Model Mfr Yr Family Hp MSRP RCN S/N Use, Hrs Cond. Price Sale Type Sale Date Sale Yr Sale Age Location Source
175 HP Or Greater 4WD Case IH STX380 2007 CIH Steiger 385 380 $213,728 $250,773 Z7F105829 1,050 -- $175,000 Asking Oct-10 2010 3 IN tractorhouse.com
175 HP Or Greater 4WD Case IH STX380 2007 CIH Steiger 385 380 $213,728 $250,773 Z7F106117 1,930 F $159,000 Asking Oct-10 2010 3 MN fastline.com
175 HP Or Greater 4WD Case IH STX380 2007 CIH Steiger 385 380 $213,728 $250,773 Z7F106161 539 E $192,000 Asking Oct-10 2010 3 IA fastline.com
175 HP Or Greater 4WD Case IH STX380 2007 CIH Steiger 385 380 $213,728 $250,773 Z7F106224 1,050 -- $175,000 Asking Oct-10 2010 3 IN tractorhouse.com
175 HP Or Greater -- Case IH STX380 2007 CIH Steiger 385 380 $213,728 $250,773 Z7F106262 370 -- $174,000 Asking Oct-10 2010 3 TX equipmentlocator.com
175 HP Or Greater 4WD Case IH STX380 2008 CIH Steiger 385 380 $215,816 $250,773 Z7F105888 1,277 $181,900 Asking Dec-10 2010 2 IA tractorhouse.com
175 HP Or Greater 4WD Case IH STX385 2009 CIH Steiger 385 385 $237,487 $237,487 -- 331 G $155,000 Auction Dec-09 2009 0 MN machinerypete
100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 -- 3,100 -- $99,900 Asking Oct-10 2010 3 ND fastline.com
100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330P001396 2,304 -- $85,000 Asking Oct-10 2010 3 KS tractorhouse.com
100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330H001448 105 -- $83,500 Asking Oct-10 2010 3 AL fastline.com
100 HP to 174 HP MFD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330K001461 1,257 -- $82,500 Asking Oct-10 2010 3 PA equipmentlocator.com
100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330K001461 1,257 $82,500 Asking Dec-10 2010 3 PA tractorhouse.com
100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330K001895 -- E $107,500 Asking Oct-10 2010 3 IA fastline.com
100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330H002010 967 -- $75,000 Asking Oct-10 2010 3 GA fastline.com
100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 150 $98,601 $86,580 RW7330K002058 1,250 $78,900 Asking Dec-10 2010 3 MN tractorhouse.com
100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330H004101 498 -- $92,000 Asking Oct-10 2010 3 IL tractorhouse.com
100 HP to 174 HP -- John Deere 7330 2007 JD 7330 125 $93,101 $81,080 RW7330K004244 2,331 -- $89,900 Asking Oct-10 2010 3 MN fastline.com
100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330K004303 754 -- $91,900 Asking Oct-10 2010 3 OH fastline.com
100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 152 $98,601 $86,580 RW7730D006095 1,249 $100,500 Asking Dec-10 2010 3 KS tractorhouse.com
Tractors - 100 HP to 174 HP 2WD John Deere 7330 2008 JD 7330 125 $72,686 $81,080 RW7330H005753 969 -- $46,000 Auction Oct-10 2010 2 TX tractorhouse.com
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DATA SOURCES
Auction Blue Books Asking Prices
Agricul-
ture
tractorhouse Tractor Blue Book tractorhouse
Last Bid Hotline Farm Equipment Guide mascus
Machinery Pete Farm Equipment IronGuides fastline
Auto-
mobiles
Leake Auction Company Auto Red Book carsforsale
Auto Auction Mall TrueCar autotrader
cars.com
Machine
Tools
dataref machinetools.com
machinio
kitmondo
Truck/
Trailer
truckpaper Truck Blue Book truckpaper
Richie Bros Trailer Blue Book trailershopper
rockanddirt usedequipmentguide commercialtrucktrader
Chemical
Processing
bid-on-equipment bid-on-equipment
dataref HGR industrial surplus
kitmondo
Construc-
tion
machinerytrader Green Guide machinerytrader
Richie Bros usedequipmentguide catused
ironplanet rockanddirt
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E. U.S. Equipment Outlook, such as our What’s Hot
/ What’s Not in Equipment Leasing survey for
2019. Shows the 5 top equipment types are, in
order: Construction – No. 1 for the 6th year in a
row; followed by Truck/Trailer; Machine Tools;
Medical; and HiTech/Computer equipment. The
bottom 5 (of 15 total) were, in order, Telecommu-
nications; Automobiles; FF&E (furniture);
Oil/Gas/Energy; and in last place, as usual,
Printing.
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What’s Hot /
What’s Not in
Equipment Leasing
for 2019
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I.UNWEIGHTED FUTURE OPPORTUNITIES RANKING
BEST (+) AND WORST (-) BY EQUIPMENT TYPE
-30-20-10
010203040506070
Co
ns
truc
tion
Tru
ck
/Tra
iler
Ma
ch
ine
To
ols
Hi-T
ech
/Co
mp
ute
r
Me
dic
al
Ma
rine/In
terc
oa
sta
l
Pla
stic
Ra
il
Airc
raft
Co
nta
ine
rs/C
ha
ss
is
Te
leco
m
Oil/G
as
/En
erg
y
Prin
ting
FF
&E
Au
tom
ob
iles
+63
+48 +45
+33 +33+25 +24 +24
+18+14
+2 +0
-15-23 -24
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II. FUTURE LEASING BUSINESS VOLUME
BY EQUIPMENT TYPE (Weighted)
-200
-150
-100
-50
0
50
100
150
200
Co
ns
truc
tion
Tru
ck
/Tra
iler
Mach
ine T
oo
ls
Me
dic
al
Hi-T
ech
/Co
mp
ute
r
Ra
il
Co
nta
ine
rs/C
ha
ss
is
Pla
stic
Airc
raft
Au
tom
ob
iles
FF
&E
Te
leco
m
Ma
rine/In
terc
oa
sta
l
Oil/G
as
/En
erg
y
Prin
ting
178
11289
6843
9 1
-14 -25-54 -55 -58 -67
-110
-158
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III. CHANGES IN RESIDUAL POSITIONS
BY EQUIPMENT TYPE (+ increase / - decrease)
-40
-30
-20
-10
0
10
20
30
Co
ns
truc
tion
Ma
ch
ine
To
ols
Ra
il
Co
nta
ine
rs/C
ha
ss
is
Hi-T
ech
/Co
mp
ute
r
Pla
stic
Tru
ck
/Tra
iler
Me
dic
al
Ma
rine/In
terc
oa
sta
l
FF
&E
Airc
raft
Te
leco
m
Oil/G
as
/En
erg
y
Prin
ting
Au
tom
ob
iles
+26
+18
+6+3
-2 -3 -5 -7 -9-14 -14
-22 -23
-31 -31
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IV.FINAL OVERALL SCORE AND RANKING
LOWEST SCORE BEING THE BEST
0
5
10
15
20
25
30
Co
ns
truc
tion
Tru
ck
/Tra
iler
Ma
ch
ine
To
ols
Me
dic
al
Hi-T
ech
/Co
mp
ute
r
Ra
il
Pla
stic
Co
nta
ine
rs/C
ha
ss
is
Airc
raft
Ma
rine/In
terc
oa
sta
l
Te
leco
m
Au
tom
ob
iles
FF
&E
Oil/G
as
/En
erg
y
Prin
ting
24
68 9
1315
1718 19
2325 25
2628
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V.Equipment Survey Results: 2019 versus 2018
OVERALL RANKING SCORES
Equipment Type2019
Score
2018
ScoreDifference
CONSTRUCTION 2 2 +0
TRUCK/TRAILER 4 5 +1
MACHINE TOOLS 6 5 -1
MEDICAL 8 11 +3
HI TECH/COMPUTER 9 11 +2
RAIL 13 15 +2
PLASTICS 15 15 0
CONTAINERS/CHASSIS 17 11 -6
AIRCRAFT 18 17 -1
MARINE/INTERCOASTAL 19 27 +8
TELECOM 23 27 +4
AUTOMOBILES 25 24 -1
FF&E 25 20 -5
OIL/GAS/ENERGY 26 19 -7
PRINTING 28 30 +2
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V. Equipment Market Conditions and Outlooks: U.S. Leasing Market Size
►A. Total amount equipment and software purchased (x 1.0 Billion)
Year Total Total Financed Est. Amt Leased
2019 $1,866 est. $1,067 est. $507 forecast
2018 $1,817 prelim. $1,052 prelim. $500 prelim.
2017 $1,697 $1,012 $480
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B. Leasing penetration rate = 48% of amount financed
C. Top penetration rates (2017) [Lessor survey]
1. Copiers 78.9% Highest penetration, small ticket /
vendor oriented
2. Construction 32.7% High captive leasing and small
ticket sector
3. Rail 32.3% High direct leasing, large ticket
sector
4. Marine 31.6% High direct leasing, large ticket
sector
5. Agriculture 26.6% High captive leasing, small ticket
sector
6. Aircraft 18.9% High large ticket sector
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Equipment
Overviews &
Outlooks
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US TRAILER SALES(IN THOUSANDS)
195
227
226
280
330E320F
300F
0
50
100
150
200
250
300
350
2014
2015
2016
2017
2018E
2019F
2020F
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NORTH AMERICAN LIGHT VEHICLE SALES(IN MILLIONS)
17,40
17,20
16,84
16,67
16,91
16,99
16,56
16,51
13,24
10,43
11,59
12,78
14,49 15,58
16,5017.68
18.06*
17.23
17,33
16.6F
10
11
12
13
14
15
16
17
18
19
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019F
* New record
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USED MACHINE TOOL SALES
5 yr old Haas VMC
Auction PriceChange
from ‘09
2009 $28,000 Great Recession
2010 $47,000 +68%
2011 $50,000 +79%
2012 $41,000 +46%
2013 $52,000 +86%
2014 $54,000 +93%
2019 $56,500 +102%
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Machining Centers Horizontal, 400 - 800-mm pallet $790
Horizontal, >800mm pallet 709
Horizontal, <400mm pallet 495
Vertical, >20-in. Y 604
Vertical, <20-in. Y 551
Turning Centers Horizontal, >10-in chuck 465
Horizontal, <10-in chuck 566
EDM Ram Type 36
Wire Type 79
Laser Cutting 58
Transfer & Special Machinery 115
MACHINE TOOLSSpending by Equipment Type, $Mil
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Carpe diem!
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Presented by:
Carl C. Chrappa, A.S.A., M.R.I.C.S., I.F.A.
Senior Managing Director – Asset Management Practice Leader
E-mail: [email protected] websites: www. thealtagroup.com
THANK YOU