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 — Q4 2022 call → NOWe need to determine if management conveys that the company is charging less than the market would bear and is actively closing that gap. Look for statements about pricing below value, raising rates, etc. In the transcript, Dino Robusto discusses property rate increases, TIV increases, and terms and conditions. He says: "we are leveraging this mini hard market not only to get more rate but to continue to push for better terms and conditions... This has broadly included substantially lower sub limits and higher deductibles on severe convective storm, earthquake and named storm perils which have a significant positive impact on controlling our catastrophe exposure while allowing us to continue to offer sustainable capacity to our clients. On top of that, we continue to push hard to secure increased property valuations to ensure we have an accurate reflection of exposures. We saw high single-digit valuation increases in TIV at renewal in the fourth quarter and that has continued in January." This indicates they are getting more rate and better terms, and they are pushing for higher valuations. But is this a gap between price and value? They are raising prices due to market conditions and to cover loss costs. They mention "we expect to continue to cover our current loss cost trends" - that's cost recovery. Also they say "we are entering another significant correction period" - that's market pricing. They don't explicitly say they were undercharging relative to value. They are taking advantage of a hard market to get more rate, but that's not necessarily a claim that they were leaving money on the table. They also mention that they are growing property but cautiously. The question is whether management conveys that the company's own pricing sits below what the market would bear and that they are closing that gap. They are raising rates, but is it because they were undercharging? They say "we are leveraging this mini hard market" - that suggests they are taking advantage of market conditions, not that they discovered they were underpricing. Also they mention "we intend to underwrite growth cautiously" - so they are not aggressively closing a gap. The key is whether management explicitly says they were undercharging. They don't. They talk about rate increases and terms, but that's typical of a hard market.
| 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.