Patient Opportunism

Patient Opportunism

An edited excerpt of Howard Mark's classic work, 'The Most Important Thing'

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The boom-bust cycle associated with the global financial crisis gave us the chance to sell at highly elevated levels in the period 2005 through early 2007 and then to buy at panic prices in late 2007 and 2008. This was in many ways the chance of a lifetime. Cycle-fighting contrarians had a golden opportunity to distinguish themselves. But one of the things I want to do in this chapter is to point out that there aren’t always great things to do, and sometimes we maximize our contribution by being discerning and relatively inactive. Patient opportunism—waiting for bargains—is often your best strategy.

So here’s a tip: You’ll do better if you wait for investments to come to you rather than go chasing after them. You tend to get better buys if you select from the list of things sellers are motivated to sell rather than start with a fixed notion as to what you want to own. An opportunist buys things because they’re offered at bargain prices. There’s nothing special about buying when prices aren’t low.

At Oaktree, one of our mottos is “we don’t look for our investments; they find us.” We try to sit on our hands. We don’t go out with a “buy list”; rather, we wait for the phone to ring. If we call the owner and say, “You own X and we want to buy it,” the price will go up. But if the owner calls us and says, “We’re stuck with X and we’re looking for an exit,” the price will go down. Thus, rather than initiating transactions, we prefer to react opportunistically.

At any particular point in time, the investment environment is a given, and we have no alternative other than to accept it and invest within it. There isn’t always a pendulum or cycle extreme to bet against. Sometimes greed and fear, optimism and pessimism, and credulousness and skepticism are balanced, and thus clear mistakes aren’t being made. Rather than obviously overpriced or underpriced, most things may seem roughly fairly priced. In that case, there may not be great bargains to buy or compelling sales to make.

It’s essential for investment success that we recognize the condition of the market and decide on our actions accordingly. The other possibilities are (a) acting without recognizing the market’s status, (b) acting with indifference to its status and (c) believing we can somehow change its status. These are most unwise. It makes perfect sense that we must invest appropriately for the circumstances with which we’re presented. In fact, nothing else makes sense at all.

In Berkshire Hathaway’s 1997 Annual Report, Buffett talked about Ted Williams—the “Splendid Splinter”—one of the greatest hitters in history. A factor that contributed to his success was his intensive study of his own game. By breaking down the strike zone into 77 baseball-sized “cells” and charting his results at the plate, he learned that his batting average was much better when he went after only pitches in his “sweet spot.” Of course, even with that knowledge, he couldn’t wait all day for the perfect pitch; if he let three strikes go by without swinging, he’d be called out.

Way back in the November 1, 1974, issue of Forbes, Buffett pointed out that investors have an advantage in that regard, if they’ll just seize it. Because they can’t strike out looking, investors needn’t feel pressured to act. They can pass up lots of opportunities until they see one that’s terrific.

Investing is the greatest business in the world because you never have to swing. You stand at the plate; the pitcher throws you General Motors at 47! U.S. Steel at 39! And nobody calls a strike on you. There’s no penalty except opportunity. All day you wait for the pitch you like; then, when the fielders are asleep, you step up and hit it.

One of the great things about investing is that the only real penalty is for making losing investments. There’s no penalty for omitting losing investments, of course, just rewards. And even for missing a few winners, the penalty is bearable.

Oaktree has always been explicit about our belief that missing a profitable opportunity is of less significance than investing in a loser. Thus, our clients are prepared for results that put risk control ahead of full participation in gains.

Standing at the plate with the bat on your shoulders is Buffett’s version of patient opportunism. The bat should come off our shoulders when there are opportunities for profit with controlled risk, but only then. One way to be selective in this regard is by making every effort to ascertain whether we’re in a low-return environment or a high-return environment.

You simply cannot create investment opportunities when they’re not there. The dumbest thing you can do is to insist on perpetuating high returns—and give back your profits in the process. If it’s not there, hoping won’t make it so.

When prices are high, it’s inescapable that prospective returns are low (and risks are high).

That single sentence provides a great deal of guidance as to appropriate portfolio actions. How are we to factor such an observation into our practices?

How might one cope in a market that seems to be offering low returns?

• Invest as if it’s not true. The trouble with this is that “wishing won’t make it so.” Simply put, it doesn’t make sense to expect traditional returns when elevated asset prices suggest they’re not available. I was pleased to get a letter from Peter Bernstein in response to my memo, in which he said something wonderful: “The market’s not a very accommodating machine; it won’t provide high returns just because you need them.”

• Invest anyway—trying for acceptable relative returns under the circumstances, even if they’re not attractive in the absolute.

• Invest anyway—ignoring short-run risk and focusing on the long run. This isn’t irrational, especially if you accept the notion that market timing and tactical asset allocation are difficult. But before taking this path, I’d suggest that you get a commitment from your investment committee or other constituents that they’ll ignore short-term losses.

• Hold cash—but that’s tough for people who need to meet an actuarial assumption or spending rate; who want their money to be “fully employed” at all times; or who’ll be uncomfortable (or lose their jobs) if they have to watch for long as others make money they don’t.

• Concentrate your investments in “special niches and special people,” as I’ve been droning on about for the last couple of years. But that gets harder as the size of your portfolio grows. And identifying managers with truly superior talent, discipline and staying power certainly isn’t easy.

The truth is, there’s no easy answer for investors faced with skimpy prospective returns and risk premiums. But there is one course of action—one classic mistake—that I most strongly feel is wrong: reaching for return.

Given today’s paucity of prospective return at the low-risk end of the spectrum and the solutions being ballyhooed at the high-risk end, many investors are moving capital to riskier (or at least less traditional) investments. But (a) they’re making those riskier investments just when the prospective returns on those investments are the lowest they’ve ever been; (b) they’re accepting return increments for stepping up in risk that are as slim as they’ve ever been; and (c) they’re signing up today for things they turned down (or did less of) in the past, when the prospective returns were much higher. This may be exactly the wrong time to add to risk in pursuit of more return. You want to take risk when others are fleeing from it, not when they’re competing with you to do so.

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The Most Important Thing, Howard Marks

Tourmaline Announces Guidance Update, 2022 Approved Budget and Free Cash Flow Allocation Strategy; Declares Special Cash Dividend

Tourmaline Announces Guidance Update, 2022 Approved Budget and Free Cash Flow Allocation Strategy; Declares Special Cash Dividend

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Tourmaline Oil Corp. (TSX: TOU) ("Tourmaline" or the "Company") is pleased to announce a guidance update, the approved budget for 2022 and details on its free cash flow ("FCF") (1) allocation strategy, including the declaration of a special cash dividend and an increase in its regular quarterly cash dividend

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2H 2021/2022 EP CAPITAL BUDGET

The recently approved 2022 EP capital budget of is expected to deliver average production of 500,000-510,000 boepd, of cash flow ("CF") (2) and of FCF on strip pricing (3) . The 2022 EP capital budget, essentially a maintenance program, is less than previous estimates given specific facility projects and select drilling accelerated into 2H 2021.  Production, CF, and FCF are all higher than previous 2022 guidance.  The Company expects capital efficiencies to improve further in 2022 as a significant portion of the planned 2022 facility expenditures have been accelerated into 2H 2021.

The 2021 EP capital program has been increased to with the 2H 2021 increase focused on liquids business/production increases and related liquids margin improvements, and the modest acceleration of drilling activities.  Full-year 2021 average production is now expected to be 440,000-445,000 boepd and increased full-year CF of is now anticipated along with of FCF. The majority of the incremental facility capital is being expended in Q3, yielding estimated capital spending of in Q3 and in Q4. The updated 2H 2021/2022 EP capital program is consistent with previous guidance.

Material reduction in drilling times throughout 2021, particularly in NEBC, will result in completion of the originally planned full-year 2021 drilling program by November.  BC per-well drilling times have been reduced by approximately 20% in 2021 (two days less per well).  As a result, the Company has elected to accelerate the drilling of approximately 21 wells from 2022 into Q4 2021 in order to maintain the existing top-tier, Company operated drilling fleet at full capacity, rather than release rigs at this time.  The majority of these incremental wells will not be completed and brought on production until 2022.

The Company will monitor natural gas supply/demand balances and schedule new production startups appropriately through the course of winter and the balance of 2022.  Tourmaline has incremental egress on the GTN system of 100 mmcfpd in 2022 and a further 50 mmcfpd in 2023, as well as 140 mmcfpd of egress to the Gulf Coast accessing international LNG commencing in 2023.  Total volumes on the GTN system will grow from 330 mmcfpd currently to 480 mmcfpd by 2H 2023, with over 80% of these volumes accessing the market.  Incremental Company gas volumes in 2022/2023 will not be directed at AECO or Station 2.

Acceleration of both the Gundy Phase 2 and Nig Creek deep cut installations/expansions will add approximately 15,000 bpd of condensate and natural gas liquids ("NGLs") (including 5,000 bpd of propane) by exit 2021/Q1 2022.  Liquids margins will also be improved through utilization of Company operated facilities rather than third party processing options.  Margin improvement will also be realized through an increase in Ripet propane exports.  2022 average annual liquids production of approximately 115,000 bpd is now expected, up 2,000 bpd from previous estimates. propane and butane prices are up over 200% and 40%, respectively, over the past 12 months.

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2021 FREE CASH FLOW ALLOCATION TO DATE

FCF in 2021 to date has been consistently directed towards modest, sustainable base dividend increases and continued net debt (4) reduction until the long-term net debt target of to is achieved.

The base dividend has now been increased twice in 2021; in aggregate a 21% increase over the Q4 2020 dividend level.  The net debt target is now anticipated to be achieved during Q4 2021.

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FREE CASH FLOW ALLOCATION STRATEGY

Tourmaline intends to return the vast majority of FCF to shareholders on a go-forward basis.

This FCF return will be achieved through modest, sustainable base dividend increases, special dividends when appropriate, and tactical share buybacks.

Given stronger than anticipated 2021 commodity prices and production volumes, and early achievement of the long-term net debt target, Tourmaline is in a position to increase its base quarterly dividend by /share to /share payable on , which represents an annualized payout of /share as well as declare a special cash dividend of /share, payable on , to shareholders of record on with an ex-dividend date of , 2021.  Given the observance of new statutory holiday on th , this day will be considered a non-settlement day and as such the TSX requires the ex-dividend date on dividends with an record date to be , 2021.  This special cash dividend is designated as an "eligible dividend" for Canadian income tax purposes.

Based on current strip pricing, the Company will be in a position to continue to distribute special dividends, the size of which will depend upon the magnitude of excess FCF generated by elevated commodity prices in 2022 and beyond, and the relative return offered by other FCF allocation opportunities.

On current strip, 2022 FCF is estimated to be which represents over /diluted share and a 19% free cash yield based on a share price.

FCF above the required maintenance capital and the long term 3-5% per annum growth embedded in the five-year EP program may also be allocated to modest asset acquisitions in existing core complexes and continued capital investments in liquids midstream opportunities.

The Company expects annual expenditures of up to for these 'bolt-on' style asset acquisitions and land sales, generally proximal to existing Tourmaline operated infrastructure.  Future acquisitions will have similar FCF accretion metrics to the successful 2019-2021 acquisition program already completed.  In Q3 2021, the Company closed one asset acquisition in the Peace River High complex (449 boepd, 5.4 mmboe 2P reserves, 12 gross (10.1 net) tier 1 Charlie Lake oil locations, associated minor facilities, based on internal estimates).

Liquids midstream expenditures are expected to continue over the next several years and the Company is evaluating a series of opportunities within existing core complexes.  These are high return projects.  The Nig Creek deep cut installation provides an estimated return of over 100% over the next four years.  The Company intends to grow the corporate liquids midstream business segment and views these investments as a profitable allocation option for growing future FCF.

The Company expects exit 2021 net debt of approximately , after giving effect to the Q4 2021 special dividend.  The Company intends to keep long term net debt in the - range.

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500,000 BOEPD 2021 EXIT

The Company expects to achieve the 500,000 boepd average production milestone by exit 2021, earlier than originally anticipated.  The accelerated timing is driven by the impact of improved drilling efficiencies and acceleration of the aforementioned liquids midstream projects.

Tourmaline estimates annual maintenance EP capital of - to maintain average production at the 500,000 boepd level.

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SHARE BUYBACKS

Tourmaline renewed its NCIB effective and plans to utilize buybacks under the NCIB to complement the return to shareholders.

The Board has also approved the repurchase of up to in common shares over the next two years through issuer bids, contingent upon share price performance, and subject to the terms of the issuer bid and receipt of necessary regulatory approvals, including the TSX..

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Source

https://money.tmx.com/en/quote/TOU/news/6097278845125420/Tourmaline_Announces_Guidance_Update_2022_Approved_Budget_and_Free_Cash_Flow_Allocation_Strategy_Declares_Special_Cash_Dividend

Benjamin Graham and the Power of Growth Stocks...Book Review

Benjamin Graham and the Power of Growth Stocks...Book Review

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Benjamin Graham is best known as the author of Security Analysis and the Intelligent Investor, two seminal books in the pantheon of value investing texts. He’s also widely known as Warren Buffett’s first investment mentor. Almost anyone who has heard about Benjamin Graham knows that he is in many ways the “father of value investing”. He brought not only credibility to the profession of equity analysis but also developed the earliest formal methodologies and processes for systematic valuation analysis. Frederick Martin in his book, Benjamin Graham and the Power of Growth Stocks, highlights the long lost methodology Graham created to analyze and value growth stocks. Martin is the Founder and CIO (Chief Investment Officer) of Disciplined Growth Investors a Minneapolis, Minnesota-based investment management firm with USD 3 billion under management.

The first edition of Security Analysis was actually published in 1934. The last edition published by Graham himself was the 4th edition in 1962. In this edition of the book, Graham actually included a new chapter titled “Newer Methods for Valuing Growth Stocks.” Martin highlights that this chapter was subsequently omitted from the 5th and 6th editions, which were originally published in 1988 and 2008, respectively. Martin not only reprints this lost chapter in Benjamin Graham and the Power of Growth Stocks but also spends the majority of the book outlining the insights he’s gained from practicing Graham’s growth stock methodology throughout his investing career.

Why is Benjamin Graham and The Power of Growth Stocks different?

The financial industry tends to conveniently categorize growth and value as two separate approaches to investing. I think in large part, it’s due to the ease of marketing a fund as either being growth or value oriented. Unfortunately, this is a false dichotomy. Warren Buffett himself stated the following in his 1992 annual report.

“In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.”

The main distinction between a growth stock and value stock is that your future return is dependent upon future growth in earnings vs current tangible asset value. In either case, your goal is to purchase the shares at a discount to intrinsic value. Benjamin Graham and the Power of Growth Stocks attempts to close the gap between both sides in the growth vs value debate. Martin states explicitly that the objective of the book is to highlight Graham’s lost formula and methodology for growth stock investing.

What are the three most important ideas?

The first major idea in the book is that companies that can sustain high growth in earnings will produce excellent returns for investors. Even if an investor pays what appears to be a hefty multiple relative to current earnings, the overall return achieved can still be excellent if growth in earnings is maintained.

The second major idea is that your long-term return from a stock will be determined by your purchase price. The price of a stock has much more volatility than the actual intrinsic value of the underlying company. In the short-term, factors unrelated to the fundamentals of the business such as sentiment can push the price of the shares to over or under-valuation. If you remain patient, the market will ultimately serve you up amazing opportunities. Martin himself states the following:

“An investor must take advantage of the volatility in stock prices at the time of purchase, and do so to a lesser extent at the time of sale. The rest of the time, however, the investor should ignore the market fluctuations and concentrate on the fundamental progress of the companies behind the stocks. The ability to do this requires discipline and preparation.”

The third major point in the book is that accurately assessing the future earnings potential of a company can result in tremendous gains relative to traditional value investing. The main evidence provided for this viewpoint is derived from Graham’s own investing experience. In the book, Martin states the following:

“The most powerful argument for growth in Graham’s experience came later in his career, when he purchased a major stake in GEICO. That single transaction, which accounted for about a quarter of his assets at the time, ultimately yielded more profit than all his other investments combined. He paid $27 per share for GEICO stock and watched it rise over the ensuing years to the equivalent of $54,000 per share. Ironically, although Graham is universally associated with value investing, his greatest profit came from a growth company.”

Essentially of all the thousands of investment decisions that Graham made over his career, his biggest gain came from taking a concentrated position in a company that had huge growth potential and a significant sustainable competitive advantage. I don’t think it’s a coincidence that Graham’s best student, Warren Buffett, eventually achieved investing success following a similar strategy.

Is the book worth reading?

In short, Benjamin Graham and The Power of Growth Stocks is definitely worth reading. Mr. Martin’s track record provides ample evidence that purchasing growth companies with a margin of safety produces superior long-term returns. This is the same strategy that Warren Buffett has used to achieve his stellar investing record. Both individual and institutional investors can improve their investment performance by incorporating the concepts and formulas that Graham derived into their own investing process. At a minimum, by reading the book you’ll most likely increase your time horizon when looking at potential investments. You want to own stocks not rent them. The book provides an investor with the tools to purchase growth stocks for the long-term with a reasonable margin of safety based on Graham’s methodology. Ultimately, I think Mr. Martin summarized his entire book quite effectively when he stated,

“Buy great companies when their stocks are priced at fair value or less. Then leave your holdings alone.”

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Source

https://www.valuewalk.com/2016/04/benjamin-graham-long-lost-formula-valuing-growth-stocks/

BNN-Bloomberg, Market Outlook, Robert McWhirter, Sep 3, 2021

 BNN-Bloomberg, Market Outlook, Robert McWhirter, Sep 3, 2021

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MARKET OUTLOOK:

The fundamental outlook appears cloudy as COVID-19 is causing supply chain disruptions resulting in shortages and price increases of labour, semiconductors, and shipping containers. 

While equity market seasonality usually calls for caution at this time of year, technical analyst Leon Tuey had positive comments on August 26th “…the Mid-Caps and Small-Caps (which) have been of great concern to many, have bottomed and their bull market has returned. Record highs are assured ..The fun now really begins.”

J.P. Morgan’s Global Equity Research team supported this positive view for small/mid-cap (SMid) stocks, noting this morning “we continue to believe the underlying “tide” is still very positive for small/mid-caps and should continue to serve as a tailwind for Small/Mid investors through at least the first half of next year.

…. nominal GDP growth is expected to remain strong, which should help corporate margins recover, pushing earnings growth into double digits for the first time in four years… a scenario that should eat into valuation multiples, giving Small/Mid-Caps an undemanding (attractive) valuation against that of most other asset classes.”

We believe equities will rise over the next 12 months.

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Robert McWhirter, president, Selective Asset Management

FOCUS: Canadian dividend and small-cap stocks

Watchlist...Altus Group Limited ...AIF on the TSX

Watchlist...Altus Group Limited ...AIF on the TSX

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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 2,600 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 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”) (as discussed on page 10), 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 contracts generally provide for terms of 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. 

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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 presents 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, LLC (“StratoDem Analytics”) (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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Management’s Discussion & Analysis June 30, 2021

Source

https://www.sedar.com/GetFile.do?lang=EN&docClass=7&issuerNo=00030966&issuerType=03&projectNo=03261287&docId=5021755