Room to raise the ceiling: management says its own prices, rates, or terms sit below what the market would currently bea
The model's full reasoning — Q2 2018 call → NOWe need to determine if management conveys that the company is currently charging less than the market would bear, and that they are actively closing that gap while customers stay. Looking at the transcript: The company is doing value-add renovations. They are renovating units and leasing them at higher rents. They mention "renovated units are generating average rent premiums of $186 per month, which translates into a 21% return on investment." They also mention "pre-leased units" and "backlog of approximately 100 pre-leased units." They say "renovated units are currently being leased faster than they are being completed." This indicates that after renovation, they are charging higher rents, and customers are accepting them. But is this a gap between what they charge and what the offering is worth? They are adding value through renovations, so the higher rent is justified by the improved product. That is not necessarily "undercharging" before; it's that they are upgrading the product and charging more. The question is whether management claims that they were leaving money on the table relative to what the offering is worth today. They are not saying that the existing unrenovated units are under-priced; they are saying that after renovation, they can charge more. That is a value-add strategy, not a pricing gap on existing product. However, they also mention "we have a backlog of approximately 100 pre-leased units" and "renovated units are generating average rent premiums" - this shows that the market accepts the higher rents. But is that a gap? They are not saying that they were undercharging before; they are saying that by investing in renovations, they can increase rents. That is a capital improvement, not a pricing gap. Also, they talk about "organic rent growth" and "new leases grew at a rate of 1.6% and renewals grew at 3.6%" for Q2, and for Q3 they see "new lease rates growing by 6%, renewals growing by 5.3%". That is market rent growth, not necessarily a gap. They don't say that they were below market and are now catching up. They also mention "we are seeing new lease rates growing by 6%" - that could be market conditions, not a claim of undercharging.
| Ticker | Company | Call | Date | Call grade |
|---|---|---|---|---|
| MEC | Mayville Engineering Company, Inc. | Q3 2022 | 2022-11-05 | B+ |
| CAG | Conagra Brands, Inc. | Q2 2017 | 2016-12-22 | C+ |
| SOHO | Sotherly Hotels Inc. | Q3 2016 | 2016-11-08 | D |
| RCL | Royal Caribbean Cruises Ltd. | Q1 2016 | 2016-04-29 | C+ |
| HPP | Hudson Pacific Properties, Inc. | Q4 2015 | 2016-02-25 | C |
HPP · Q4 2015 → YESThe question is: Does management convey that the company is currently charging LESS for what it sells than the market would presently bear — that its own prices, rates, fees, or terms sit meaningfully...YES The transcript shows management explicitly describing a gap between its current charges and what the market now supports, then confirming that the company is already closing it through mark-to-market resets and higher new/renewal rents. Victor Coleman states that the company has “rolled out 80% plus mark to market” on recent leases 2.5 years old, and that cash rent spreads on 1.6 million square feet executed since the acquisition were “north of 30%” with “20%, 25% mark-to-market for 2016 and 2017.
MEC · Q3 2022 → YESThe question is: Does management convey that the company is currently charging LESS for what it sells than the market would presently bear — that its own prices sit meaningfully below the value custom...YES Management explicitly states that they have taken pricing actions in 2022 and have "more room for margin expansion through continued value pricing even beyond the pricing actions taken during 2022." This conveys that their current prices sit below what the market would support, and they are actively beginning to close that gap with further value pricing.
SOHO · Q3 2016 → YESThe question is: Does management convey that the company is currently charging LESS for what it sells than the market would presently bear — that its own prices, rates, fees, or terms sit meaningfully...YES The transcript shows management explicitly identifying a rate gap at the Laurel hotel (and similar situations at other properties) where current charges sit below the competitive set/market, while describing active steps already underway to close that gap through continued ramp-up and occupancy/rate improvements.