In 2006, British mathematician Clive Humbly coined the phrase "data is the new oil." Since then, the value of this sentiment and the ways that data is and is not like oil have been debated frequently.
If you're a real estate investor, though, you've probably thought a lot more about data in the past year than ever before. When you can't physically tour properties, you have to rely on data. The race for the most accurate, actionable data remains one of the top trends in real estate.
MSCI (NYSE: MSCI) has been one of the go-to sources for the types of indices and tools that large investors use to make major decisions. Its acquisition of Real Capital Analytics for $950 million earlier this month beefs up its position in real estate, making it potentially intriguing for investors who are looking to invest in data providers.
Let's take a closer look at what the company does, where it could be headed, and why the race to build the most powerful commercial real estate platform is only getting hotter.
What MSCI does
You may have seen the letters MSCI before, especially when used to describe a real estate benchmark. The Vanguard REIT Index Fund follows the MSCI US REIT Index, and the Vanguard Real Estate ETF (NYSE: VNQ) is an exchange-traded fund (ETF) that tracks the MSCI US IMI Real Estate 25/50 Index. The real estate indices cover a wide variety of sectors and markets and can be used as a source for research, benchmarking, and valuation.
MSCI is far more than real estate. It also offers climate and ESG tools, regulatory solutions, and risk management. The company sees increased value in offering solutions that deal with climate change. As CEO Henry Fernandez put it on the second-quarter earnings call: "We believe that addressing the impact of climate change will require the largest reconstruction of the global economy since the Industrial Revolution some 200 years ago."
That reconstruction will take many forms, including decarbonization, alternative energy sources, and reducing emissions. MSCI has a stated goal of being the top provider of climate-related portfolio decision-making tools. That naturally includes real estate, and this may be where the Real Capital Analytics acquisition comes into play.
Real Capital Analytics was founded in 2000 and provides data and analytics for commercial real estate, aggregating transaction data and providing insights on pricing and trends. Its treasure trove of data will give MSCI additional firepower for many of its existing tools and allow it to potentially build out more accurate models in the future.
Is MSCI investible?
Whether data is the new oil is debatable, but it's certainly priced like oil used to be. MSCI stock has risen by over 44% in the past year and now trades at over $630 a share. Its operating revenues were up 22% in the second quarter, and it has $214 million in free cash flow. It achieved a solid 12% increase in subscription run rate. Perhaps even more important for the future of the business, it achieved 44% rung growth in the ESG and Climate category, the best quarter so far in that segment.
MSCI isn't alone in seeing the value of climate change data. CoreLogic, which went private in a $6 billion deal last year, provides substantial information on climate risk. However, MSCI's largest publicly traded competitor in the real estate data space, CoStar, is less focused in this area.
Given increased governmental focus on climate change, as well as the amount of venture capital being raised to address climate-related concerns, it appears that MSCI is positioning itself well to be at the forefront of growing interest in ESG issues. This alone could be one reason to bet that MSCI's growth could just be beginning.