Alternative Assets And Demographic Trends Will Drive Future Opportunities

Key Takeaways

• Expansion into alternative assets and demographic-driven sectors is boosting stable fee income and positioning the company for long-term earnings growth.
  
• Diversification of clients and operational efficiencies are reducing earnings volatility while unlocking incremental cash flows and higher net margins.
  
• Weak fundraising, shrinking service revenues, sectoral headwinds, and concentration risks threaten recurring income, dividend sustainability, and long-term growth in fees and assets.

Catalysts

Through its subsidiary, The RMR Group LLC, provides asset management services in the United States.

• Rising institutional demand for alternative assets-including real estate strategies like residential, retail, and credit-positions RMR to grow AUM and fee-based revenue, as demonstrated by active fundraising efforts, new capital formation leadership, and pipeline development.
  
• Demographic shifts, especially increased demand for senior living and medical office properties, are driving strong operating results and NOI growth for RMR-managed healthcare REITs (e.g., DHC's SHOP portfolio), supporting stable recurring management fees and potential incentive fee payments.
  
• RMR's proactive expansion and diversification of its third-party client base-through new ventures in residential and retail sectors, along with seeding portfolios to attract institutional fund commitments-reduces earnings volatility and sets the stage for future revenue acceleration.
  
• Capital recycling (e.g., asset sales, selective reinvestments, and refinancings within managed REITs) and adoption of value-add initiatives in retail and residential assets are unlocking incremental cash flows, generating incentive fees, and expanding net margins.
  
• Implementation of operational efficiencies (cost containment, technology adoption, and sustainability initiatives) is decreasing expense run rates and improving net margins, which when combined with incremental AUM growth, is likely to enhance long-term earnings power.

RMR Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming RMR Group's revenue will grow by 27.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.3% today to 2.3% in 3 years time.
• Analysts expect earnings to reach $28.6 million (and earnings per share of $1.65) by about August 2028, up from $19.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.6x on those 2028 earnings, up from 14.2x today. This future PE is greater than the current PE for the US Real Estate industry at 31.8x.
• Analysts expect the number of shares outstanding to grow by 0.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.8%, as per the Simply Wall St company report.

RMR Group Future Earnings Per Share Growth

Risks

• The company's service revenues are currently shrinking due to realized business plans and asset sales in RMR Residential, and the challenging fundraising environment has stalled the "flywheel" effect needed to offset AUM declines-potentially leading to lower recurring revenues until capital markets meaningfully improve.
  
• RMR's earnings and dividend funding rely in part on drawdown from a finite cash reserve at RMR Inc., which will deplete over the next 3+ years if not replenished by higher contributions from the operating partnership; if operating income does not grow sufficiently, long-term dividend sustainability could be at risk-impacting net margins and earnings.
  
• The fundraising environment for private capital, while showing early signs of improvement, remains "overall challenging," and delay or failure to scale new private capital ventures or attract committed institutional capital could limit RMR's growth in AUM and associated management/advisory fees, directly affecting long-term revenue and earnings expansion.
  
• There is ongoing exposure to sectoral risks such as structurally reduced demand for office properties (as illustrated by persistent headwinds at OPI), and any inability to reposition or offload these assets amid hybrid work trends could suppress asset values, reduce associated management fees, and weigh on overall earnings and fee streams.
  
• RMR maintains a complex external management structure with dependence on fee income from a concentrated set of managed REITs; this creates reputational and concentration risk, with the potential for adverse client developments, fee pressure, or conflicts of interest reducing the company's ability to win new clients and maintain/expand net margins and revenue over the long term.

Valuation

• The analysts have a consensus price target of $24.0 for RMR Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $28.6 million, and it would be trading on a PE ratio of 34.6x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $16.4, the analyst price target of $24.0 is 31.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.