RMR Group is an asset management company providing management services to four publicly traded REITs (HPT, SNH, SIR and GOV), three real estate operating companies and one mutual fund.
The company trades at a substantial and unwarranted discount principally due to technical trading factors, limited marketing and timing of its December 2015 spinoff/ IPO listing. Lack of sell-side coverage and the controversial controlling Portnoy family added to the disconnect. Given managements’ history of acting in a less than friendly manner to shareholders, our diligence efforts were focused on evaluating the corporate structure and how we could lose. Our work led us to conclude that the Portnoy’s incentives were sufficiently aligned with those of the other shareholders.
Incidentally, I personally led several IPOs for the RMR companies over a decade ago when I was an investment banking analyst—providing additional insights into the modus operandi of these operators. Despite the stock’s appreciation to date, we still believe that it offers an attractive upside.
Given the quality of its cash flows (20-year management contracts from a relatively diversified asset base), we value RMR at a 5% FCF yield or 12x EV/ EBITDA (excluding potential inventive fees) which equates to $40 per share versus its trading price of $31 at June 30.
This post has been excerpted from a letter of Half Moon Capital, LLC.
THIS DOCUMENT, WHICH IS BEING PROVIDED ON A CONFIDENTIAL BASIS, SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY LIMITED PARTNERSHIP INTERESTS OF HALF MOON CAPITAL PARTNERS, LP (THE “FUND”) WHICH MAY ONLY BE MADE AT THE TIME A QUALIFIED OFFEREE RECEIVES A CONFIDENTIAL PRIVATE OFFERING MEMORANDUM (“CPOM”), WHICH CONTAINS IMPORTANT INFORMATION (INCLUDING INVESTMENT OBJECTIVE, POLICIES, RISK FACTORS, FEES, TAX IMPLICATIONS AND RELEVANT QUALIFICATIONS), AND ONLY IN THOSE JURISDICTIONS WHERE PERMITTED BY LAW. IN THE CASE OF ANY INCONSISTENCY BETWEEN THE DESCRIPTIONS OR TERMS IN THIS DOCUMENT AND THE CPOM, THE CPOM SHALL CONTROL. THE INTERESTS SHALL NOT BE OFFERED OR SOLD IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL UNTIL THE REQUIREMENTS OF THE LAWS OF SUCH JURISDICTION HAVE BEEN SATISFIED. THIS DOCUMENT IS NOT INTENDED FOR PUBLIC USE OR DISTRIBUTION. WHILE ALL THE INFORMATION PREPARED IN THIS DOCUMENT IS BELIEVED TO BE ACCURATE, HALF MOON CAPITAL, LLC (THE “INVESTMENT MANAGER”) MAKES NO EXPRESS WARRANTY AS TO THE COMPLETENESS OR ACCURACY, NOR DOES IT ACCEPT RESPONSIBILITY FOR ERRORS, APPEARING IN THE DOCUMENT. ANY PROJECTIONS, MARKET OUTLOOKS OR ESTIMATES IN THIS PRESENTATION ARE FORWARD LOOKING STATEMENTS AND ARE BASED UPON CERTAIN ASSUMPTIONS. OTHER EVENTS WHICH WERE NOT TAKEN INTO ACCOUNT MAY OCCUR AND MAY SIGNIFICANTLY AFFECT THE FUND’S RETURNS OR PERFORMANCE. ANY PROJECTIONS, OUTLOOKS OR ASSUMPTIONS SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF THE ACTUAL EVENTS WHICH WILL OCCUR. THERE IS NO GUARANTEE THAT THE FUND’S INVESTMENT OBJECTIVE WILL BE ACHIEVED. THE PARAMETERS AND RESTRICTIONS CONTAINED HEREIN MAY BE CHANGED AT ANY TIME IN THE SOLE DISCRETION OF THE INVESTMENT MANAGER WITHOUT NOTICE TO OR CONSENT OF THE FUND’S INVESTORS. MOREOVER, THE PAST PERFORMANCE OF THE INVESTMENT TEAM SHOULD NOT BE CONSTRUED AS AN INDICATOR OF FUTURE PERFORMANCE. THIS PRESENTATION IS NOT INTENDED FOR PUBLIC USE OR DISTRIBUTION.