Altus Group Limited, Management’s Discussion & Analysis, March 31, 2021

Altus Group Limited, Management’s Discussion & Analysis,

March 31, 2021

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Cloud adoption rate is a metric that represents the percentage of the total AE user base contracted on the ARGUS Cloud platform. It includes both new AE cloud users as well as those who have migrated from our AE on‐premise software.  

Bookings is a new metric we are introducing in the first quarter of 2021 for the Altus Analytics business segment. We define Bookings as the annual contract value (“ACV”) for new sales of our recurring offerings (software, Appraisal Management solutions and data subscriptions) and the total contract value (“TCV”) for one‐time engagements (consulting, training and due diligence).

Overview of the Business  

Altus Group Limited is a leading provider of software, data solutions and independent advisory services to the global commercial real estate (“CRE”) industry. Our businesses, Altus Analytics and Commercial Real Estate Consulting (“CRE Consulting”), reflect decades of experience, a range of expertise, and technology‐enabled capabilities. Our solutions empower clients to analyze, gain insight and recognize value on their real estate investments. Headquartered in Canada, we have approximately 2,400 employees around the world, with operations in North America, Europe and Asia Pacific. Our clients include many of the world’s largest CRE industry participants. Altus Group pays a quarterly dividend of $0.15 per share and our shares are traded on the Toronto Stock Exchange (“TSX”) under the symbol AIF.

We have two reporting business segments ‐ Altus Analytics and CRE Consulting.  

Altus Analytics

Our Altus Analytics segment primarily consists of Over Time revenues, comprising software subscriptions and maintenance, and data solutions that are made available to clients through our Appraisal Management solutions and through data subscription products. A smaller portion of the segment includes non‐recurring revenues primarily from software services. Altus Analytics clients predominately consist of CRE asset and investment management firms, including large owners, managers and investors of CRE assets and funds, as well as other industry participants including service providers, brokers, appraisers, developers, financial institutions and the public sector.  

Our globally sold ARGUS software solutions are among the most recognizable in the CRE industry. Our cloud‐enabled product stack for global CRE asset and investment management comprises end‐to‐end integrated software solutions that provide visibility at the asset, portfolio and fund level to help clients enhance performance of their CRE investments. Our flagship AE software is the leading global solution for CRE valuation and portfolio management and is widely recognized as the industry property valuation standard in key CRE markets and is primarily offered on a cloud platform. AE’s suite of functionality enables organizations to manage and predict the performance of their CRE assets throughout the investment cycle supporting property valuations, investments, portfolios and budgeting. In addition to AE, we also sell other cloud‐based software solutions to address key workflows in the areas of fund modeling and forecasting, data management, development feasibility, and acquisitions. Following the April 1, 2021 acquisition of Finance Active SAS (“Finance Active”), we now also offer debt management SaaS solutions for treasury and investment management. In addition to standard technology services related to education, training and implementation, we offer strategic advisory and managed services for real estate organizations’ front‐to‐back‐office strategies, processes and technology.  

Fueled by our ARGUS software solutions, we also provide information services on a global basis through our Appraisal Management solutions and data subscription products. Our global Appraisal Management solutions combine data and analytics functionality with a managed service delivery to enable institutional real estate investors to perform quarterly performance reviews, benchmarking and attribution analysis of their portfolios. Through these offerings we provide an end‐to‐end valuation management solution for our institutional clients, providing independent oversight and expertise while leveraging our data analytics platform. We primarily offer Appraisal Management solutions in the U.S., and we are expanding into Europe and Asia Pacific. Our Appraisal Management clients primarily consist of open and closed real estate funds, including large pension funds. Altus Analytics also includes data analytics products that are sold on a subscription basis. Our Altus Data Studio provides comprehensive real estate information on the Canadian residential, office, industrial and investment markets with unique data visualization capabilities. Our Canadian data covers new homes, investment transactions and commercial market inventory in key markets, and provides intelligence on the national housing market and consumer home buying and borrowing patterns.  

Prior to 2020, the majority of our customers had licensed our AE software products on an on‐premise basis, and had either paid on perpetual terms with ongoing maintenance, or on subscription terms. As of the start of 2020, our Altus Analytics software products have been sold only on a subscription‐based model and increasingly as cloud solutions. Our software subscription agreements vary in length between one to five years, and the subscription fee depends primarily on the number of users and the applications deployed. We enjoy industry leading retention rates for our AE software. In addition to software subscriptions, our software services are charged primarily on a time and materials basis, billed and recognized monthly as delivered. The contractual terms of our Appraisal Management agreements are generally for three years and pricing is primarily based on the number of real estate assets on our platform, adjusted for frequency of valuations and complexity of asset class. We enjoy very high contract renewal rates. Our Appraisal Management teams are also engaged from time to time to perform due diligence assignments in connection with CRE transactions. Our data products are sold on a subscription basis.

Commercial Real Estate Consulting

Our CRE Consulting segment consists of the Property Tax, and the Valuation and Cost Advisory business units. Through our various practice areas, we are well‐equipped to serve clients with an end‐to‐end solution that spans the life cycle of CRE assets ‐ from feasibility, development, acquisition, management and disposition. Our professionals possess extensive industry, market and asset‐specific knowledge that contribute to our proprietary internal databases that help drive successful client outcomes. We have long‐ standing relationships with leading CRE market participants  ‐  including owner operators, developers, financial institutions, and various CRE asset holders and investors.   

Our largest revenue contributor to CRE Consulting is our Property Tax business which operates in Canada, the U.S. and the U.K. Our team of Property Tax professionals help clients minimize the tax burden and reduce the cost of compliance. Our core real estate property tax services include assessment reviews, management and appeals, as well as in the U.S., personal property and state and local tax advisory services. The majority of our Property Tax revenues are derived on a contingency basis, representing a percentage of the savings we achieve for our clients. As such, we recognize contingency revenues when settlements are made, which in some cases could span multiple years. A smaller portion of our fees are based on a time and materials basis. Valuation services, which are predominantly provided in Canada, consist of appraisals of real estate portfolios, valuation of properties for transactional purposes, due diligence and litigation and economic consulting. Our Cost Advisory practice, offered in both the private and public sectors in Canada and Asia Pacific, provides expert services in the areas of construction feasibility studies, budgeting, cost and loan monitoring and project management. Pricing for our Valuation and Cost Advisory services is primarily based on a fixed fee or time and materials basis. Given the strength of our brand, our independence and quality of our work, we enjoy a high rate of client renewals across all of our CRE Consulting businesses

Strategy

Commercial real estate continues to see a steady rise in investment allocation by global institutions, solidifying it as an important and well‐defined asset class. Higher volumes of cross‐border transactions and institutional capital flows are adding new complexity and pressure on top of increasing risk and regulatory demands. To better cope, the CRE industry is rapidly re‐examining their digital strategies and demanding more sophisticated processes and data to drive returns. Customers are increasingly looking for interoperability across software applications, data and workflows in a manner that drives real‐time business insights. In addition, investors, regulators and the broader CRE community are demanding greater transparency on worldwide asset and portfolio performance, valuations, risk and Environmental, Social, and Governance (“ESG”) compliance, and are increasingly relying on independent expert service providers in this pursuit.  

With a global footprint, a prominent customer base, and through our Altus Analytics solutions, Property Tax and other CRE technology‐enabled offerings, Altus Group is uniquely positioned to capitalize on the opportunities presented by these trends and to drive significant value for the industry. We are at the forefront of innovation in our industry and are well equipped to help our clients navigate the complexities of the CRE market to make better informed decisions and maximize the value of their real estate assets and investments.  

Our vision is to be the leader for the valuation and management of risk for real estate assets by enhancing the decision making across the value chain through the use of technology, data, analytics and services. Over the past several years, we have positioned ourselves as a leading CRE technology and technology‐ enabled services provider through our investments in cloud technology, the integration of our software technology stack, the expansion of our products and services into Europe and the Asia Pacific region, and the digitization of our Property Tax and other service lines. We have also initiated the transition of our Altus Analytics business to a predominately recurring revenue model by moving from on‐premise software sales, sold on perpetual and subscription terms, to cloud SaaS products.

Our next phase of growth involves driving deeper penetration across the CRE value chain by accelerating cloud adoption, creating greater interoperability of customers’ embedded software and data applications, providing new and adjacent data and software solutions, and further integrating our existing product and service offerings to provide end‐to‐end data‐driven insights.

 

Strategic Priorities

Our 2021 strategic priorities consist of:

Accelerating the global adoption of ARGUS Cloud and increasing the proliferation of our

applications across clients’ workflows and the CRE value chain; 

 

Expanding into the CRE debt markets through a combination of organic and acquisitive initiatives; 

 

Expanding our data capabilities and developing new areas of opportunities;

 Continuing to build market leadership in Property Tax; and   

Enhancing our go‐to‐market strategies across the Company.

Our top priority is accelerating global adoption of ARGUS Cloud. We remain focused on establishing ARGUS Cloud as the foundational enterprise platform for global CRE asset and investment management, which in the long run we envision will leverage data and predictive data analytics to deliver real‐time business insights. In support of this vision, we continue our transition from high‐value point solutions to a more ubiquitous model that unifies our valuation and asset management capabilities on to a single, cloud‐ based platform that integrates numerous key workflows and enhances data‐driven insights for the CRE industry. In order to drive faster adoption, we are focused on creating a much deeper differentiation in the value proposition between our cloud and on‐premise products. Future version releases will see greater functionality developed exclusively on ARGUS Cloud, including additional application programming interfaces (“APIs”) and interoperability that facilitates enhanced workflows and collaboration.

Our early foray into the CRE debt markets validates that there is a significant opportunity for us in this market adjacency. Although we currently provide valuation and risk management solutions to some clients in the debt space, deeper capabilities are required to fully address this growing market segment. Our customers and the industry would derive significant value and be better equipped to manage risk performance from a fulsome 360‐degree view of their assets that combines equity and debt considerations. The April 1, 2021 acquisition of Finance Active, a European provider of debt management SaaS solutions for treasury and investment management, is an important step to accelerate our growth in the CRE debt market. It provides us with the immediate benefit of approaching a much larger client segment while expanding our reach across use cases and workflows. In addition, Finance Active provides us with greater cross‐sell opportunities and a strengthened footprint in Europe that we plan to leverage to further our international expansion. As part of our product roadmap, we plan to integrate Finance Active’s debt management SaaS solutions with our ARGUS Cloud platform.

A key company‐wide initiative in 2021 is to expand our data capabilities and develop new opportunities. The market for real‐time insights from data present  a substantial opportunity. Typical industry data is complex, voluminous, and unstructured. The data that is collected and generated by our various cloud solution products and by our Appraisal Management, Property Tax, and Valuations and Cost Advisory businesses is specific, timely and precise. Our opportunity lies in the ability to provide our clients with data architecture and data model solutions, enabled by ARGUS Cloud, allowing clients to aggregate data sourced from internal systems, Altus data and potentially other third‐party data providers. Such a data platform with predictive analytics and alert capabilities would enable both equity and debt stakeholders to drive investment performance and manage risk. In support of this opportunity, we have formed a dedicated team and initiated internal workstreams to establish market use cases, feasibility studies and a technology roadmap. The May 4, 2021 acquisition of certain assets of StratoDem Analytics (“StratoDemAnalytics”) (as discussed on page 11) is a core component to our long‐term data strategy, bringing valuable data science technology and talent, and accelerating our speed to market for future data analytics products.

With market leading practices in Canada, the U.K. and the U.S., our Property Tax practice is one of the largest and fastest growing property tax advisors globally. Our global Property Tax practice continues to represent an attractive growth opportunity in a consolidating industry, driven by solid market fundamentals and our strong competitive position. We will continue to invest organically and in tuck‐in acquisitions of both core tax practices and adjacencies in order to grow our market share. Additionally, we will further digitize our data and workflows to drive efficiencies, gain incremental insights, and deliver greater client value. Lastly, we are re‐organizing the tax business under a centralized leadership model with a global president and chief operating officer, in order to better align our regional tax practices under a common global model, drive best practices, and accelerate digital transformation. Our strategy is centered on strengthening this business with technology and data, and in doing so, improving the repeatability and growth of our revenues and our operating leverage.

Finally, we will align and enhance our go‐to‐market strategies across our businesses. By leveraging investments we have made in core platforms such as Salesforce, we will re‐tool and scale our sales organization to better address the market opportunities in North America and Europe. We will evolve our customer success and drive deeper marketing programs to strengthen business development and sales initiatives. Our focus on account planning will better position us to identify our clients’ enterprise needs, enabling us to provide them with an enterprise solution of our various offerings, rather than taking a single point selling approach. We believe this will drive higher client value and customer satisfaction, which in turn will result in higher, recurring revenue streams.

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Source

https://www.altusgroup.com/wp-content/uploads/2021/05/Shareholders-report-Q1-2021.pdf

 

https://www.altusgroup.com/company/investor-relations