Disposal of Assets
This guideline has a brief overview and covers the following topics:
Disposal planning prioritizes and optimizes the disposal of any assets identified as being surplus in the asset review and analysis process.
The objective of disposal planning is to ensure that surplus assets are examined in detail to establish, firstly, that there are no alternative economic or community uses for these assets, and, if disposed of, that maximum return to organization is achieved.
The disposal plan should cover:
- Asset optimization goals and objectives
- How the disposal will achieve the desired outcomes and performance objectives
- Risks and how they will be managed
- A budget identifying the projected disposal funding, costs and benefits, including to the natural environment and the community, broken up by principal sub-assets and asset categories.
Each year the asset manager should review and update the disposal plan to include any changes since the earlier plan and take advantage of the latest thinking and policies etc.
Disposing of surplus assets ensures that they do not become a maintenance and/or financial burden. It may also free up funds required for capital works, influence decision-making and support the forward estimates and budget processes. Reinvestment may, in turn, provide substantial benefits for organization (and their clients), with funds being used to achieve enhanced service delivery outcomes.
Effective disposal planning is critical to the management of an organization’s asset base. If the process is not supported by competent and professional advice and the use of accurate and relevant information, this may result in:
- Inadequate return on the disposal of assets
- Poor coordination of cash flow with capital investment requirements.
The preparation of a disposal plan requires a strategic and an operational focus. This is best achieved using a multidisciplinary team of utility service planners and asset and portfolio managers.
There are four phases in developing a disposal plan:
- Locate assets identified in asset review and analysis as surplus to known and expected service delivery requirements
- Identify and prioritize disposal actions
- finalize the disposal plan
- Implement the disposal plan.
A significant investment of staff time is involved in setting up the disposal process for an organization. However, this will be reduced in subsequent years as more efficient processes are adopted, and as staff is trained. Asset managers should strive to continually improve the disposal process.
Much of the planning information should be maintained in the Asset Register to optimize user access.
Information is obtained from the results of an asset review and analysis. This process determines asset deficits (as the basis of a Capital Investment Strategic Plan), surplus assets (as the basis of the Disposal Plan), and assets to be kept (as the basis of the Management-in-use Plan and the Maintenance Plan).
Asset reviewers:
- Identify surplus assets
- Draw up financial and/or an economic analysis (expert assistance may be required)
- Identify assets that are surplus to requirements but are to be kept
- Record disposal action in surplus assets register.
The following considerations from the asset review and analysis may form a basis for an asset Disposal Plan:
Physical
Location, size, age and physical condition. Physical condition may include extent of deterioration, maintenance requirements and/or backlog, and refurbishment potential.
Major asset elements or services (for example, structure, air-conditioning, electrical and lift systems for office buildings) may be rated against benchmark levels to assess the extent/cost of maintenance required to bring the asset to the desired condition.
Financial
Major asset elements or services may also be rated to assess the cost of bringing the asset to the desired yield, return on investment;and cost measures such as:
- Operating costs (total and/or per unit of output or service delivery)
- Statutory charges (externalities).
Operational
Incorporates factors such as suitability for use, operational effectiveness, functionality, and includes potential for upgrading.
Major functional components of assets (for example, non-discriminatory provisions, assets planning adaptability, security etc.) may be rated against benchmark levels to assess the extent of upgrading required.
Market
Factors to be monitored can include value trends, inflation, population growth, demographics, the overall property cycle, and local market factors.
Organization / utility policy
Asset demand depends on future service provision requirements, including a consideration of social and economic objectives. Projected demand may be over 2 - 3 year, 5 year or longer-term horizons.
Statutory / legislative requirements
Held in Abeyance
A disposal plan based on the above considerations may be reviewed regularly. For instance, it may be that a particular property is operating sufficiently to be kept for the time being and should be reviewed at a later date, say 2 years time.
Disposal action is identified and prioritized so as to best meet service delivery requirements and to optimize returns to the organization. Discounted cash flow analysis (DCF) and/or economic analysis should assist.
In planning for asset disposal, social (including political and community) issues are to be considered as well as financial factors. This second part of the process will identify:
- Assets readily saleable
- Surplus assets with the potential for value adding (through the use of market cycles), refurbishment or redevelopment
- Surplus assets with little or no value and for which sale is not feasible, economic or probable.
A range of matters should be considered, including:
- Assets readily saleable
- Service delivery timings and imperatives
- Organization programs and required returns to the organization
- Market conditions (current and forecast)
- Organization/utility budget cycles
- Social issues, such as community involvement
- Departmental/organization replacement policies.
Where political or community factors dictate that assets be disposed of in
ways that adversely affect returns to the organization, the income foregone
(i.e. the opportunity cost) should be quantified so that utility planners and
managers will be alert to the economic cost of such a decision.
Disposal planners should co-ordinate their activities with Capital Investment Strategic Planners to ensure that any cash flow from the disposal of assets is accounted for in the reinvestment program. Maintenance planners should also be consulted so that they can develop strategies to ensure that vacant properties and those earmarked for disposal are maintained to the standard required by public health and safety legislation.
Identification of assets as surplus may be based on the criteria of demand, functionality, physical condition and financial performance.
Disposal of an asset may be identified if:
- It is functionally inadequate and unsuitable for refurbishment (there are economic or technical constraints)
- It is financially under-performing and there is little potential for improvement
- Its physical condition has deteriorated and it is uneconomical to rehabilitate
- There is negligible demand for it.
The following issues may need to be considered:
- Land title issues — location of title, ownership, Native Title check
- Encumbrances, encroachments, work orders
- Existing accommodation/use arrangements
- Community and/or public health issues
- Environmental issues — including heritage, contamination, Workplace
Health & Safety
- Town planning and zoning issues, other local organization requirements
- Impact of service utilities
- Internal expertise — other organization utilities, private sector consultant, private property or relevant utilities
- Marketing expertise.
The following may also need to be taken into account as part of the disposal decision process:
- Impact of disposal on asset portfolio — rationalization issues
- Timing of disposal relative to utility budget cycle
- Community consultation and feedback
- Whole-of-organization issues
- Liaison with other utilities with complementary service provision and/or
with lead utilities
- Potential benefit to the organization of ownership transfer to private
sector
- Impact on organization services in a regional context
- Political environment, initiatives, limitations.
The following possibilities may be considered:
- Transfer to another organization utility at full market value
- Open market sale
- Special circumstances, eg. sale to adjoining owner
- Highest and best use assessment to maximize value and sales potential
- Alternative uses
- Other value adding options to maximize market potential — rezoning, demolition, site preparation, upgrade, refurbishment
- Timing of disposal.
The evaluation process may include the following:
- Economic cost/benefit analysis
- Social analysis — community consultation
- Broad estimate asset valuation
- Preliminary financial analysis
- Select preferred disposal option
- Evaluate timing of disposal in relation to market trends
- Emphasis on marketing.
The disposal program will:
- List, in priority order, the assets identified for disposal
- Identify when disposal will occur
- Identify any associated costs which may need to be incurred in order to dispose of assets
- Quantify expected returns on sale
- Detail the amount of funds available from disposal for reinvestment in capital works
- Provide information to meet annual reporting and budget forecasting requirements.
A brief outline of the process steps follows.
Define the preferred disposal option
- Specify all existing aspects of the property
- Detail any required development or administration
- Affirm the desired outcome.
Obtain reliable cost estimates
- Ascertain all costs
- Financial analysis
- Detail the financial benefits.
Develop a reliable timeframe
- Outline planning deadlines, targets and submission dates
- Cash flow projections.
Property disposal programming
- Complete standardized disposal documentation
- Submit disposal program to co-ordinating authority
- Review of disposal program by co-ordinating authority.
For other assets the disposal program should be developed having due regard to:
- The results of community consultation
- Economic feasibility and outcomes
- Timing of disposal to optimize market advantage
- Service delivery imperatives/time frames
- Environmental and heritage issues (if appropriate)
- Technical issues
- Statutory considerations, such as local organization requirements
- Maintenance issues
- Reinvestment of realized capital.
Before disposing of assets, a number of factors need to be considered to minimize the risk to the organization of an incorrect disposal action.
Identifying surplus property assets as part of the Capital Investment Strategic Plan forms part of an organization’s corporate/strategic planning process.
Organizations should provide sufficient information about a surplus asset to enable the various levels of organization to put forward their views on that property, including any interest to transfer.
To maximize the use of assets for community and organization needs, inter-utility transfers should be given priority over the sale of assets on the open market or by private treaty.
Inter-utility transfers should be arranged at market value as determined by an independent valuer.
Disposal of assets on the open market should seek to maximize the return to the organization from the sale. An asset valuation undertaken by a qualified or registered valuer should be used as a benchmark for the sale.
Sale through public competition (i.e. public auction or public tender) is preferred and should be used wherever possible to ensure that the maximum return is achieved.
Disposal of an asset by private treaty may be approved if this is necessary for practical reasons or if it is commercially advantageous and does not disadvantage the community.
Surplus assets should be examined to determine their best use before a decision is made on their disposal. The best use of an asset is the use that provides the greatest net community benefit, by balancing:
- Planning objectives
- Community requirements
- Financial benefits, by maximizing returns.
Other factors should be taken into consideration on sale preparation and after disposal.
Clearance, marketing and sale arrangements
- Legislative clearances (including Native Title)
- Obtain asset valuation
- Clear applicable loan fund debt
- Negotiate retention of sales proceeds
- Commence planned improvements and development
- Arrange marketing and sale
- Credit sales proceeds to appropriate accounts.
Post-sale administrative requirements
- Amend asset register
- Develop and update property performance indicators.
Post-sale performance review
- Review internal performance — monitor and review disposal program, assessment methodologies, performance eg., document difficulties, suggest future improvements
- Advise co-ordinating organization of any concerns with the disposal process.
As the disposal phase is a critical element of the asset life cycle process, it is important that results are measured.
Performance of the process of disposal planning, including any professional assistance, can be measured in terms of the level of assistance provided to decision-makers/planners by:
- Relevant and supportable options
- Level of certainty of decisions made, and direction provided
- Funds achieved from disposals
- Public reaction to the disposal program
- Client satisfaction with the disposal outcomes
- Costs of disposal in relation to return.
The disposal performance review should also consider the actual outcomes of the disposal process and compare them to the planned disposal performance. The review could assess:
- Actual time of disposal against planned time of disposal
- Actual disposal return against planned return
- Actual disposal strategies that were applied against those that were planned.
This review process should form part of an ongoing continuous improvement program.
Continuous improvement for disposal involves identifying strengths and weaknesses in the planning and implementation of project strategies.
This process is important in disposal management to ensure that the projects are responding to the specific needs of users and to the asset. It involves:
Benchmarks for disposal of the assets should provide a base level for performance monitoring. They can be based on the history of disposal projects.
Disposal project processes should be periodically evaluated against these figures. This will allow for adjustment and correction.
The results of the disposal projects should be monitored and reported. This can help asset managers understand the performance of assets' life cycles.
The management and delivery of the disposal projects should at least achieve the benchmarks and standards of performance. Information about the performance of projects can help plan for more effective and efficient projects in the future.