Gatx Corporation · NYSE:GATX
Gatx — Stephens 2019 Nashville Investment Conference
46 slides from Gatx's conference presentation, Nov 13, 2019
Slide 1: Stephens 2019 Nashville Investment Conference
STEPHENS 2019 NASHVILLE INVESTMENT CONFERENCE | NOVEMBER 13, 2019
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS Statements in this Presentation not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and, accordingly, involve known and unknown risks and uncertainties that are difficult to predict and c
Slide 3: History and Business Overview
121 HISTORY AND YEARS OF BUSINESS OVERVIEW EXPERIENCE
Slide 4: GATX's 121-Year History
GATX’S 121-YEAR HISTORY 1898 Established as railcar lessor with 28 railcars 1919 Initiated quarterly dividend 1936 Began rail investment in Canada 1973 Acquired American Steamship Company (ASC) 1985 Began locomotive investment 1994 Began rail investment in Europe & Mexico 1998 Formed Rolls-Royce Par
Slide 5: GATX Today – Business Segments
GATX TODAY – BUSINESS SEGMENTS RAIL NORTH AMERICA NET BOOK VALUE OF ASSETS Premier railcar lessor Diversified fleet of approximately 122,000 wholly owned railcars 1% and more than 650 locomotives Strong customer credit quality, diversification in car types and 4% commodities carried 8% Over
Slide 6: Straightforward and Proven Business Model
STRAIGHTFORWARD AND PROVEN BUSINESS MODEL BUY LEASE SERVICE MAXIMIZE the railcar at an the railcar to a the railcar in a manner the value of the economically attractive quality customer at that maximizes safety, railcar by selling or and competitively an attractive rate for in-use time and scrapping
Slide 7: GATX Rail North America Overview
GATX RAIL NORTH AMERICA OVERVIEW 2018 OVERVIEW INDUSTRIES SERVED UTILIZATION* WHOLLY OWNED FLEET COUNT 100% 10% 99% 99% 122,000 CAR TYPE COUNT 7% 26% 98% 160+ 98% AVERAGE FLEET AGE 96% 13% 20 Years 96% LOCOMOTIVE COUNT 94% 650+ NUMBER OF CUSTOMERS 24% 92% 20% 850+ 91% COUNTRIES OF OPERATIONS 90% US,
Slide 8: Railcar Leasing Market Conditions
RAILCAR LEASING MARKET CONDITIONS Railcar oversupply persists Approximately 22% of industry fleet remains idle 160,000 INDUSTRY BACKLOGS New railcar backlog still above 140,000 historical averages 120,000 Supply/demand imbalance exacerbated by speculative orders 100,000 from new market entra
Slide 9: North America: Commodity Carloads
NORTH AMERICA: COMMODITY CARLOADS Quarterly Commodity Carload Traffic North America (000s) 2,500 2,000 1,500 1,000 500 - 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 All Other Coal & Coke Sand, Stone, Minerals, & Related Prod
Slide 10: GATX Actively Manages Through Cycles
GATX ACTIVELY MANAGES THROUGH CYCLES GATX proactively manages changing market conditions by utilizing our strong customer relationships and diversity of our fleet to adjust rate and term. STRONG MARKET WEAK MARKET STRONG MARKET WEAK MARKET 70 67 63 66 50% 60 62 60 40% 54 MONTHS 39% 30% 50 45 35% 32%
Slide 11: GATX Strategy in This Environment
GATX STRATEGY IN THIS ENVIRONMENT Execute cyclically-aware management of lease terms and assets by car type – Some opportunities to increase lease rates Continue to practice a disciplined capital allocation strategy – Place new cars from long-term supply agreements – Pursue attractive incrementa
Slide 12: GATX Rail International Overview
GATX RAIL INTERNATIONAL OVERVIEW 2018 OVERVIEW INDUSTRIES SERVED BY GRE GRE FLEET UTILIZATION FLEET COUNT 5% 100% 23,000+ in Europe (GRE) 99% 99% 2,400+ in India and Russia 13% 98% CAR TYPE COUNT 97% 97% 97% 97% 97% 35+ 96% AVERAGE FLEET AGE (GRE) 96% 96% 95% 18 Years 55% 95% 95% 27% 94% NUMBER OF C
Slide 13: Portfolio Management Overview
PORTFOLIO MANAGEMENT OVERVIEW 2018 RRPF OVERVIEW OWNED PORTFOLIO RRPF ENGINE TYPES 3% SPARE ENGINE COUNT 450+ 10% AVERAGE FLEET AGE 5% 21% 11 Years 31% 10% RRPF JV PRE-TAX INCOME (GATX’s SHARE) 11% $100 76% 11% 22% $80 $ MILLIONS $60 76% Aircraft Spare Engine 31% Trent XWB (A350) 10% V2500 (A320) Le
Slide 14: American Steamship Company Overview
AMERICAN STEAMSHIP COMPANY OVERVIEW 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total Net Tons Carried 37.2 37.3 35.7 21.2 28.0 28.4 29.7 28.8 30.5 26.5 25.4 27.8 26.2 by ASC (in millions) ASC Vessels Operated 18 18 18 12 13 14 14 13 15 13 11 12 11 ASC COMMODITIES CARRIED 2% FLE
Slide 15: Financial Discussion
121 FINANCIAL YEARS OF EXPERIENCE DISCUSSION
Slide 16: GATX Is Well-Positioned with Strong Cash Flows
GATX IS WELL-POSITIONED WITH STRONG CASH FLOWS GATX has nearly $3.4 billion in committed future lease receipts Our strong operating cash flow provides tremendous capital allocation flexibility GATX COMMITTED FUTURE LEASE RECEIPTS OPERATING CASH FLOW & PORTFOLIO PROCEEDS (Continuing Operations) $
Slide 17: Capital Allocation Framework: Invest in Core Assets
CAPITAL ALLOCATION FRAMEWORK PRIORITY 1 Invest in core assets to maximize shareholder value $9.4 billion* of investments over the period shown INVESTMENT VOLUME $1,031 $943 $860 $763 $781 $770 $715 $634 $615 $ MILLIONS $621 $603 $585 $480 2006 2008 2010 2012 2014 2016 2018 *Investment Volume and
Slide 18: Capital Allocation Framework: Optimize the Balance Sheet
CAPITAL ALLOCATION FRAMEWORK PRIORITY 2 Optimize the balance sheet Maintain a solid investment grade rating of BBB/Baa2 Maintain capacity for opportunistic investments LEVERAGE & REDUCTION OF SECURED ASSETS 6.0x 50% 45% 5.0x 40% 4.0x 35% 30% 3.0x 25% 20% 2.0x 15% 1.0x 10% 5% 0.0x 0% 2002 2003
Slide 19: Capital Allocation Framework: Return Excess Cash
CAPITAL ALLOCATION FRAMEWORK PRIORITY 3 In lockstep with Priorities 1 and 2, return excess cash to shareholders Over the period shown below, $1.8 billion returned to shareholders CASH RETURNED TO SHAREHOLDERS $2,000 $1,800 $1,600 $1,400 $ MILLIONS $1,200 $1,000 $800 $600 $400 $200 $0 2006 2008 2
Slide 20: GATX Financial Highlights
GATX FINANCIAL HIGHLIGHTS EPS* $5.77 $5.37 $5.22 $4.48 $4.70 $3.50 $2.81 $2.01 $1.59 2010 2011 2012 2013 2014 2015 2016 2017 2018 ROE INVESTMENT VOLUME 18% 18% $1,031 15% $943 14% $860 13% 13% $770 $715 $ MILLIONS 11% $585 $615 $621 $603 9% 7% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2
Slide 21: Appendix
121 APPENDIX YEARS OF EXPERIENCE
Slide 22: North America – Industry Railcar Ownership
NORTH AMERICA – INDUSTRY RAILCAR OWNERSHIP Approximately 1.6 million railcars NORTH AMERICAN FLEET RAILROADS (18%) LESSORS (54%) BY CAR TYPE Ownership of railcars has been Shift from railroad- and shipper- declining owned railcars to lessor market 5% Virtually no tank car ownership due share 7
Slide 23: North America – Tank & Freight Industry Ownership
NORTH AMERICA – TANK & FREIGHT INDUSTRY OWNERSHIP RAILCARS BY TYPE TANK CAR OWNERSHIP SHARE (Based on approximately 1.6 million railcars) 19% 5% 81% Lessor 7% 19% Shipper/Other 25% <1% Railroad 8% Based on approximately 410,000 tank cars 81% 21% FREIGHT CAR OWNERSHIP SHARE 34% 13% 45% Lessor 18% 45%
Slide 24: North America – Lessor Market Share
NORTH AMERICA – LESSOR MARKET SHARE LESSOR OWNERSHIP SHARE TANK CAR LESSOR OWNERSHIP SHARE (Based on approximately 876,000 lessor-owned railcars) 2% 10% 18% 18% GATX 8% 36% Union Tank Car 14% 17% Trinity 23% 9% 9% CIT 8% SMBC 36% 2% Wells Fargo Rail 16% 17% 10% Other 6% Based on approximately 332,00
Slide 25: North America: Idle Fleet
NORTH AMERICA:IDLE FLEET % Idle (NA Fleet) 24% 23.5% 22% 21.7% 20% 18% 16% 14% 12% 10% 8/2016 12/2016 4/2017 8/2017 12/2017 4/2018 8/2018 12/2018 4/2019 8/2019 AAR (Rail Time Indicators Report) 25
Slide 26: North America – Industry Railcar Deliveries
NORTH AMERICA – INDUSTRY RAILCAR DELIVERIES 25,000 20,000 15,000 10,000 5,000 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ‘19 Number of Tank Number of Freight Railway Supply Institute as of October 2019 26
Slide 27: North America – Industry Railcar Orders
NORTH AMERICA – INDUSTRY RAILCAR ORDERS 50,000 40,000 30,000 20,000 10,000 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ‘19 Number of Tank Number of Freight Railway Supply Institute as of October 2019 27
Slide 28: GATX Rail North America: Diverse Fleet
GATX RAIL NORTH AMERICA: DIVERSE FLEET CAR TYPE COMMODITIES CARRIED % OF FLEET % OF NBV General Service Tank Cars: Liquid fertilizers, Fuel oils, Asphalt, Food-grade oils, Chemicals (styrene, glycols, etc.) 20k-25k gallon 15.1% 14.0% General Service Tank Cars: Ethanol & methanol, Food-grade oils, Lu
Slide 29: GATX Rail North America: Continuous Investment
GATX RAIL NORTH AMERICA: CONTINUOUS INVESTMENT $6.0 130 Car count increased 8% $5.7 Assets increased 36% 120 $5.5 $5.4 $5.2 $5.1 110 $5.0 $5.0 RAILCARS IN THOUSANDS 100 ASSETS IN $ BILLIONS $4.6 $4.4 $4.5 $4.5 90 $4.2 $4.2 $4.1 80 $4.0 70 $3.5 60 $3.0 50 2008 2009 2010 2011 2012 2013 2014 2015 2016
Slide 30: GATX Rail North America: Fleet Optimization
GATX RAIL NORTH AMERICA: FLEET OPTIMIZATION GATX’s fleet of well-maintained modern railcars, leased to quality customers, allows us to realize significant remarketing income when we decide to sell cars in the secondary market. We also generate scrapping gains at the end of a railcar’s useful life. R
Slide 31: GATX Rail North America: Railcar Supply Strategy
GATX RAIL NORTH AMERICA: RAILCAR SUPPLY STRATEGY Railcar Supply Strategy GATX’S STRATEGY IS TO SECURE RAILCARS FROM A VARIETY OF SOURCES AS OPPOSED TO ALSO BEING A RAILCAR MANUFACTURER; COMBINING RAILCAR MANUFACTURING WITH A RAILCAR LEASING BUSINESS: Adds significant volatility leading to a higher
Slide 32: GATX Rail North America: Diverse Customer Portfolio
GATX RAIL NORTH AMERICA: DIVERSE CUSTOMER PORTFOLIO CREDIT RATINGS OF TOP 50 CUSTOMER FAMILIES Largest GATX serves more customer represents 18% than less than 6.0% 850 individual of total lease 30% customers revenue 14% Average Top 20 customers relationship tenure account for 38% of top ten customer
Slide 33: GATX Rail North America: Maintenance Network
GATX RAIL NORTH AMERICA: MAINTENANCE NETWORK GATX is known for its integrity, safety, and quality of our operations and superior execution. EXTENSIVE MAINTENANCE NETWORK CUSTOMERS RELY ON GATX MAINTENANCE Eight maintenance facilities In 2018, GATX Rail North America performed approximately 55,00
Slide 34: Rail North America: Summary
RAIL NORTH AMERICA: SUMMARY Attractive economic returns in railcar leasing are driven by: Access to efficiently priced capital and appropriate financial leverage Acquiring the right railcars at the right time at the right price Fleet diversification across railcar types, commodities carried, a
Slide 35: International – European Industry Snapshot
INTERNATIONAL – EUROPEAN INDUSTRY SNAPSHOT Lease rate volatility is lower RAILCAR OWNERSHIP INDUSTRY CAR TYPES relative to North American (Based on approximately 705,000 railcars in standard-gauge countries) market Key segments continue to 9% demonstrate need to replace 29% aging equipment for 3
Slide 36: Europe – Tank & Freight Industry Ownership
EUROPE – TANK & FREIGHT INDUSTRY OWNERSHIP RAILCARS BY TYPE TANK CAR OWNERSHIP SHARE (Based on approximately 705,000 railcars in standard-gauge countries) 9% 25% 75% Lessor 25% Railroad & Privately 29% Owned 15% Based on approximately 113,000 tank cars 75% FREIGHT CAR OWNERSHIP SHARE 16% 31% 21% 21%
Slide 37: Europe – Lessor Market Share
EUROPE – LESSOR MARKET SHARE LESSOR OWNERSHIP SHARE TANK CAR LESSOR OWNERSHIP SHARE (Based on approximately 212,000 lessor-owned railcars) 25% GRE 16% 36% VTG 11% 2% 16% 25% 14% Ermewa 7% 7% Wascosa 2% Touax 5% 14% 16% Other Based on approximately 85,000 7% 36% lessor-owned tank cars 40% FREIGHT CAR
Slide 38: GRE: Major Rail Markets
GRE: MAJOR RAIL MARKETS Nearly 73% of GRE’s revenue is generated in Germany, Poland, and Austria – strong rail freight transport economies GEOGRAPHIES SERVED FLEET STRUCTURE 3% 11% 10% 4% 36% Germany 4% 26% Poland 59% Liquid 36% 14% 11% Austria Petroleum Products 5% 5% Switzerland 17% LPG 59% 4% The
Slide 39: GATX India
GATX INDIA RAILCAR OWNERSHIP GATX OBTAINED THE GATX’s GROWTH IN INDIA (Based on approximately 290,000 railcars) FIRST-EVER WAGON LEASING LICENSE IN 2012 9% GATX India Private Limited is $90 $7 the market leader in railcar leasing $80 $6 － Owns 2,000 car fleet of $70 container flat wagons, steel 91
Slide 40: Aircraft Spare Engine Leasing Industry Overview
AIRCRAFT SPARE ENGINE LEASING INDUSTRY OVERVIEW AIR TRAVEL 2X 2X 4.4% Growth Growth expected annual growth 1980 1995 2010 until 2035 AIRCRAFT GROWTH ENGINE GROWTH SPARE ENGINE GROWTH 37,000 75,000 7,900 new aircraft in new aircraft engines new aircraft spare engines with an the next 20 years estimat
Slide 41: Aircraft Spare Engine Leasing Industry Overview
AIRCRAFT SPARE ENGINE LEASING INDUSTRY OVERVIEW AIRCRAFT SPARE ENGINE OVERVIEW Engines are very attractive and reliable leasing assets － Robust residual value characteristics － Retain value better over the long term compared to aircraft Aircraft engines need regular scheduled maintenance (3-5 ye
Slide 42: RRPF Affiliates Overview
RRPF AFFILIATES OVERVIEW The RRPF affiliates portfolio has committed future lease receipts of more than $2.9 billion. RRPF OVERVIEW RRPF ENGINE TYPES GATX established its first partnership with Rolls-Royce 10% plc in 1998 5% 31% Total NBV of engines upon RRPF establishment was $350 10% million;
Slide 43: RRPF - Growth in Revenue & Net Book Value
RRPF - GROWTH IN REVENUE & NET BOOK VALUE CAGRs of 15.6% and 14.4% for NBV and Total Annual Revenue, respectively, since 1998. 2018 NBV: $4,429M Rev: $433M $5,000 $500 $4,500 $450 $4,000 $400 REVENUE (MILLIONS) $3,500 $350 1998 NBV (MILLIONS) $3,000 $300 $2,500 NBV: $243M $250 Rev: $29M $2,000 $200
Slide 44: Reconciliation of Non-GAAP Measures
RECONCILIATION 121 YEARS OF OF NON-GAAP EXPERIENCE MEASURES
Slide 45: Reconciliation of Non-GAAP Measures – Net Income Measures
RECONCILIATION OF NON-GAAP MEASURES – NET INCOME MEASURES Net Income 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (in millions) Net income (GAAP) $ 81.4 $ 80.8 $ 110.8 $ 137.3 $ 169.3 $ 205.0 $ 205.3 $ 257.1 $ 502.0 $ 211.3 Adjustments attributable to consolidated pre-tax income: Cost attributa
Slide 46: Reconciliation of Non-GAAP Measures – Balance Sheet Measures
RECONCILIATION OF NON-GAAP MEASURES – BALANCE SHEET MEASURES On- and Off-Balance Sheet Assets 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total assets (GAAP) $ 5,206.4 $ 5,442.4 $ 5,846.0 $ 6,044.7 $ 6,535.5 $ 6,919.9 $ 6,894.2 $ 7,105.4 $ 7,422.4 $ 7,616.7 Off-balance sheet assets: Rail North