Intrinsic value of The RMR Group Inc. - RMR

Previous Close

$50.90

  Intrinsic Value

$524.69

stock screener

  Rating & Target

str. buy

+931%

Previous close

$50.90

 
Intrinsic value

$524.69

 
Up/down potential

+931%

 
Rating

str. buy

Our model is not good at valuating stocks of financial companies, such as RMR.

We calculate the intrinsic value of RMR stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  28.30
  25.97
  23.87
  21.99
  20.29
  18.76
  17.38
  16.14
  15.03
  14.03
  13.12
  12.31
  11.58
  10.92
  10.33
  9.80
  9.32
  8.89
  8.50
  8.15
  7.83
  7.55
  7.29
  7.07
  6.86
  6.67
  6.51
  6.35
  6.22
  6.10
Revenue, $m
  520
  655
  811
  989
  1,190
  1,413
  1,659
  1,926
  2,216
  2,527
  2,858
  3,210
  3,582
  3,973
  4,384
  4,813
  5,261
  5,729
  6,216
  6,722
  7,249
  7,796
  8,365
  8,956
  9,570
  10,208
  10,872
  11,563
  12,283
  13,031
Variable operating expenses, $m
  65
  82
  102
  124
  150
  178
  208
  242
  278
  317
  359
  403
  450
  499
  550
  604
  660
  719
  780
  844
  910
  978
  1,050
  1,124
  1,201
  1,281
  1,365
  1,451
  1,542
  1,636
Fixed operating expenses, $m
  106
  109
  111
  113
  116
  119
  121
  124
  127
  129
  132
  135
  138
  141
  144
  147
  151
  154
  157
  161
  164
  168
  172
  175
  179
  183
  187
  191
  195
  200
Total operating expenses, $m
  171
  191
  213
  237
  266
  297
  329
  366
  405
  446
  491
  538
  588
  640
  694
  751
  811
  873
  937
  1,005
  1,074
  1,146
  1,222
  1,299
  1,380
  1,464
  1,552
  1,642
  1,737
  1,836
Operating income, $m
  348
  464
  598
  751
  924
  1,117
  1,329
  1,561
  1,811
  2,080
  2,367
  2,672
  2,994
  3,333
  3,689
  4,062
  4,451
  4,856
  5,278
  5,718
  6,175
  6,650
  7,143
  7,656
  8,190
  8,744
  9,321
  9,921
  10,546
  11,196
EBITDA, $m
  349
  465
  600
  753
  927
  1,120
  1,333
  1,565
  1,816
  2,085
  2,373
  2,679
  3,001
  3,341
  3,698
  4,071
  4,461
  4,868
  5,291
  5,731
  6,189
  6,665
  7,160
  7,674
  8,209
  8,764
  9,342
  9,944
  10,570
  11,222
Interest expense (income), $m
  0
  0
  3
  7
  12
  18
  25
  32
  40
  49
  59
  69
  80
  92
  104
  117
  130
  145
  160
  175
  191
  208
  225
  243
  262
  282
  302
  323
  345
  368
  392
Earnings before tax, $m
  348
  461
  591
  739
  906
  1,092
  1,297
  1,520
  1,762
  2,021
  2,298
  2,592
  2,903
  3,229
  3,572
  3,931
  4,306
  4,697
  5,103
  5,527
  5,967
  6,424
  6,900
  7,394
  7,908
  8,442
  8,997
  9,576
  10,177
  10,804
Tax expense, $m
  94
  124
  160
  200
  245
  295
  350
  410
  476
  546
  621
  700
  784
  872
  965
  1,061
  1,163
  1,268
  1,378
  1,492
  1,611
  1,735
  1,863
  1,996
  2,135
  2,279
  2,429
  2,585
  2,748
  2,917
Net income, $m
  254
  337
  431
  540
  662
  797
  947
  1,110
  1,286
  1,476
  1,678
  1,892
  2,119
  2,358
  2,608
  2,870
  3,143
  3,428
  3,725
  4,034
  4,356
  4,690
  5,037
  5,398
  5,773
  6,163
  6,568
  6,990
  7,429
  7,887

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  354
  446
  552
  674
  810
  962
  1,130
  1,312
  1,509
  1,721
  1,947
  2,187
  2,440
  2,706
  2,986
  3,279
  3,584
  3,903
  4,234
  4,579
  4,938
  5,311
  5,698
  6,101
  6,519
  6,954
  7,406
  7,877
  8,367
  8,877
Adjusted assets (=assets-cash), $m
  354
  446
  552
  674
  810
  962
  1,130
  1,312
  1,509
  1,721
  1,947
  2,187
  2,440
  2,706
  2,986
  3,279
  3,584
  3,903
  4,234
  4,579
  4,938
  5,311
  5,698
  6,101
  6,519
  6,954
  7,406
  7,877
  8,367
  8,877
Revenue / Adjusted assets
  1.469
  1.469
  1.469
  1.467
  1.469
  1.469
  1.468
  1.468
  1.469
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
  1.468
Average production assets, $m
  5
  7
  8
  10
  12
  14
  17
  19
  22
  25
  29
  32
  36
  40
  44
  48
  53
  57
  62
  67
  72
  78
  84
  90
  96
  102
  109
  116
  123
  130
Working capital, $m
  14
  18
  22
  27
  32
  38
  45
  52
  60
  68
  77
  87
  97
  107
  118
  130
  142
  155
  168
  181
  196
  210
  226
  242
  258
  276
  294
  312
  332
  352
Total debt, $m
  47
  130
  225
  335
  458
  595
  745
  909
  1,087
  1,277
  1,481
  1,696
  1,924
  2,164
  2,416
  2,679
  2,954
  3,241
  3,539
  3,850
  4,172
  4,508
  4,857
  5,219
  5,595
  5,987
  6,394
  6,818
  7,259
  7,718
Total liabilities, $m
  319
  401
  497
  606
  729
  866
  1,017
  1,181
  1,358
  1,549
  1,752
  1,968
  2,196
  2,436
  2,687
  2,951
  3,226
  3,512
  3,811
  4,121
  4,444
  4,780
  5,128
  5,490
  5,867
  6,259
  6,666
  7,089
  7,530
  7,989
Total equity, $m
  35
  45
  55
  67
  81
  96
  113
  131
  151
  172
  195
  219
  244
  271
  299
  328
  358
  390
  423
  458
  494
  531
  570
  610
  652
  695
  741
  788
  837
  888
Total liabilities and equity, $m
  354
  446
  552
  673
  810
  962
  1,130
  1,312
  1,509
  1,721
  1,947
  2,187
  2,440
  2,707
  2,986
  3,279
  3,584
  3,902
  4,234
  4,579
  4,938
  5,311
  5,698
  6,100
  6,519
  6,954
  7,407
  7,877
  8,367
  8,877
Debt-to-equity ratio
  1.320
  2.910
  4.080
  4.970
  5.650
  6.180
  6.600
  6.930
  7.200
  7.420
  7.600
  7.760
  7.890
  8.000
  8.090
  8.170
  8.240
  8.300
  8.360
  8.410
  8.450
  8.490
  8.520
  8.550
  8.580
  8.610
  8.630
  8.660
  8.680
  8.690
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  254
  337
  431
  540
  662
  797
  947
  1,110
  1,286
  1,476
  1,678
  1,892
  2,119
  2,358
  2,608
  2,870
  3,143
  3,428
  3,725
  4,034
  4,356
  4,690
  5,037
  5,398
  5,773
  6,163
  6,568
  6,990
  7,429
  7,887
Depreciation, amort., depletion, $m
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  9
  10
  11
  11
  12
  13
  14
  16
  17
  18
  19
  20
  22
  23
  25
  26
Funds from operations, $m
  255
  338
  433
  542
  664
  800
  950
  1,114
  1,291
  1,481
  1,684
  1,899
  2,126
  2,365
  2,617
  2,879
  3,154
  3,440
  3,738
  4,048
  4,370
  4,705
  5,054
  5,416
  5,792
  6,183
  6,590
  7,013
  7,454
  7,913
Change in working capital, $m
  3
  4
  4
  5
  5
  6
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
Cash from operations, $m
  252
  334
  429
  537
  659
  794
  944
  1,107
  1,283
  1,472
  1,675
  1,889
  2,116
  2,355
  2,605
  2,868
  3,142
  3,427
  3,725
  4,034
  4,356
  4,691
  5,038
  5,400
  5,775
  6,166
  6,572
  6,995
  7,435
  7,893
Maintenance CAPEX, $m
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -25
New CAPEX, $m
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
Cash from investing activities, $m
  -2
  -2
  -3
  -4
  -4
  -4
  -5
  -6
  -7
  -7
  -8
  -10
  -10
  -11
  -12
  -13
  -14
  -16
  -16
  -17
  -18
  -19
  -22
  -23
  -24
  -25
  -27
  -29
  -30
  -32
Free cash flow, $m
  250
  332
  426
  534
  655
  790
  938
  1,101
  1,276
  1,465
  1,666
  1,880
  2,106
  2,344
  2,593
  2,855
  3,128
  3,412
  3,708
  4,017
  4,337
  4,671
  5,017
  5,377
  5,751
  6,140
  6,545
  6,966
  7,404
  7,861
Issuance/(repayment) of debt, $m
  47
  83
  96
  109
  123
  137
  151
  164
  177
  191
  203
  216
  228
  240
  252
  263
  275
  287
  298
  310
  323
  335
  349
  362
  377
  391
  407
  424
  441
  459
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  47
  83
  96
  109
  123
  137
  151
  164
  177
  191
  203
  216
  228
  240
  252
  263
  275
  287
  298
  310
  323
  335
  349
  362
  377
  391
  407
  424
  441
  459
Total cash flow (excl. dividends), $m
  297
  415
  522
  643
  778
  926
  1,089
  1,265
  1,454
  1,655
  1,870
  2,096
  2,334
  2,584
  2,845
  3,118
  3,403
  3,699
  4,007
  4,327
  4,660
  5,006
  5,366
  5,739
  6,128
  6,532
  6,952
  7,390
  7,845
  8,320
Retained Cash Flow (-), $m
  -31
  -9
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
Prev. year cash balance distribution, $m
  229
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  494
  406
  511
  631
  764
  911
  1,072
  1,247
  1,434
  1,634
  1,847
  2,072
  2,309
  2,557
  2,817
  3,089
  3,372
  3,667
  3,974
  4,293
  4,624
  4,969
  5,327
  5,699
  6,086
  6,488
  6,907
  7,343
  7,796
  8,269
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  474
  371
  445
  519
  592
  661
  724
  779
  824
  857
  877
  884
  878
  858
  827
  785
  734
  675
  612
  545
  478
  412
  349
  290
  237
  189
  148
  114
  85
  62
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

The RMR Group Inc. is a holding company. The Company's business is primarily conducted by its subsidiary, The RMR Group LLC (RMR LLC). The Company's segments include RMR LLC and All Other Operations. RMR LLC manages a portfolio of publicly owned real estate and real estate related businesses. RMR LLC manages Government Properties Income Trust, a real estate investment trust (REIT) that primarily owns properties that are leased to government tenants; Hospitality Properties Trust, an REIT that primarily owns hotels and travel centers; Select Income REIT, an REIT that primarily owns properties leased to single tenants across the United States and leased lands in Hawaii, and Senior Housing Properties Trust, an REIT that primarily owns senior living communities and medical office buildings. As of June 30, 2016, RMR LLC managed over 1,300 properties, which were located in 48 states, Washington, District of Columbia, Puerto Rico and Canada.

FINANCIAL RATIOS  of  The RMR Group Inc. (RMR)

Valuation Ratios
P/E Ratio 37.7
Price to Sales 5.8
Price to Book 10.5
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 12.7
Growth Rates
Sales Growth Rate 1.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 11.6%
Ret/ On Assets - 3 Yr. Avg. 8.5%
Return On Total Capital 30.9%
Ret/ On T. Cap. - 3 Yr. Avg. 22.8%
Return On Equity 30.9%
Return On Equity - 3 Yr. Avg. 22.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 63.2%
Gross Margin - 3 Yr. Avg. 61.8%
EBITDA Margin 51.1%
EBITDA Margin - 3 Yr. Avg. 50.1%
Operating Margin 50%
Oper. Margin - 3 Yr. Avg. 49%
Pre-Tax Margin 50.4%
Pre-Tax Margin - 3 Yr. Avg. 49.3%
Net Profit Margin 15.4%
Net Profit Margin - 3 Yr. Avg. 11%
Effective Tax Rate 20.4%
Eff/ Tax Rate - 3 Yr. Avg. 14.5%
Payout Ratio 38.1%

RMR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RMR stock intrinsic value calculation we used $405 million for the last fiscal year's total revenue generated by The RMR Group Inc.. The default revenue input number comes from 0001 income statement of The RMR Group Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our RMR stock valuation model: a) initial revenue growth rate of 28.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for RMR is calculated based on our internal credit rating of The RMR Group Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of The RMR Group Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of RMR stock the variable cost ratio is equal to 12.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $104 million in the base year in the intrinsic value calculation for RMR stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for The RMR Group Inc..

Corporate tax rate of 27% is the nominal tax rate for The RMR Group Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the RMR stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for RMR are equal to 1%.

Life of production assets of 4.2 years is the average useful life of capital assets used in The RMR Group Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for RMR is equal to 2.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $232.762 million for The RMR Group Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 31.294 million for The RMR Group Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of The RMR Group Inc. at the current share price and the inputted number of shares is $1.6 billion.

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