Long RMR Group Based On Sum Of The Parts

Dec. 31, 2015 8:06 AM ETThe RMR Group Inc. (RMR)34 Comments
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General Expert


  • RMR Group Inc. is in the real estate management business.
  • Revenue is extremely scalable, since it is dependent on cost of assets or total market cap.
  • Controlling shareholders have the power to increase assets under management.
  • Revenue is largely underpinned by a "perpetual" 20-year agreement.
  • Significant growth opportunity exists in Managed Operators.

*Note: This article first appeared in the Premium Service "The V20 Portfolio"

Investment Thesis

Company: RMR Group Inc.


Year End: September 30th

RMR GroupRMR Group Inc. (NASDAQ: NASDAQ:RMR) (RMR Inc.) is a real estate management company, whose value is concealed by a complex organizational structure and a lack of coverage, as it recently went public quietly through a distribution of existing shares on December 14th, 2015.

Due to the company's complex organizational structure, we will first analyze the company without dealing with the corporate structure.

Understanding The Company

RMR Inc. is a holding company of RMR Group LLC (RMR LLC), the company's operating subsidiary. RMR LLC was founded in 1986, so it's got quite a history. Its primary business activity consists of providing business and property management services to real estate companies (e.g. REITs).

RMR LLC currently has four REITs (Managed REITs) and real estate operating companies (Managed Operators) as clients. The majority of the revenue is derived from service provided to REITs (80.5%). This is important because the revenue from REITs is supported by a "perpetual" 20-year agreement, in that the agreement is automatically extended every year so that the agreement will end on the twentieth anniversary of every year. In the event of termination without cause, RMR LLC will be entitled to the present value of the payments.

Also worth noting is that the management fee scales with the growth of the REITs. The management fee is calculated based on either total market cap (equity and debt) or the historical cost of real estate properties, whichever is less. The rate is 0.7% for the first $250 million and 0.5% for any amount beyond that.

In addition to the management fee, RMR LLC is also entitled to incentive payments, which is based on the total return (i.e. including dividends) over a selected

This article was written by

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Creator of the Core Value Portfolio. The goal is simple but not easy. By shooting for an extraordinary goal of compounding capital at 20% annually over the long-term, the portfolio embraces concentration and goes through dramatic swings. Those without conviction will sell when positions don't go their way, but the Core Value Portfolio always takes advantage when the market is wrong.The Core Value Portfolio has significantly outperformed the market since its inception, but it also experienced extended periods of underperformance. This is a sacrifice that I'm willing to make for the sake of achieving superior returns over the long-term."No one can know everything. But still try."Contact: generalexpert86 [g]mail

Disclosure: I am/we are long RMR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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