$6.60
$21.50
bear $6.60
base $17.30
bull $21.50
margin of safety $9.50
market price* $18.32
Business condition attached to the margin of safety
OPI's court-approved restructuring takes effect with its new management agreements with RMR in place on the terms agreed in the October 2025 restructuring support agreement (five-year initial term).
The RMR Group manages real estate for other people and gets paid fees. It runs four publicly traded REITs (DHC, ILPT, OPI and SVC), Seven Hills Realty Trust (SEVN), a private-capital business (including RMR Residential) and hotel and senior-living operators, about $39.0 billion of assets in all at September 30, 2025. It has done this since 1986. Revenue looks large ($700 million in fiscal 2025) but $507 million of that is reimbursement of costs at cost, so the real earning base is about $183 million of management, incentive and advisory fees. The public company owns 53.2% of the operating company, The RMR Group LLC, and a subsidiary of the ABP Trust owns the other 46.8%. We first measure earnings per ownership unit across both owners and then trim for the public company's own costs, as explained below. How we measure earnings. We start from operating cash flow, remove swings in working capital (mostly what related clients owe RMR and what RMR owes on their behalf), subtract the share-based costs that cash flow adds back, and subtract maintenance capital spending (small, about $3.7 million a year). On that basis earnings per ownership unit were $1.79 in fiscal 2025 and $1.88 in fiscal 2024. Two things are excluded from the level we rely on. Fiscal 2023 ($3.51) contained a one-time $45.3 million termination fee when TravelCenters of America was bought and ended its contract. Fiscal 2020 to 2022 still included TravelCenters' ongoing fees, which are gone. We therefore anchor on fiscal 2024 and 2025, about $1.83 per unit. Incentive fees from the four REITs, which made up 39.9% of management and advisory revenue in fiscal 2019, have not been earned in any year since; we give them no value. Real estate purchases and loans that RMR has made with its own money in the last two years are not treated as maintenance spending, and we give no credit for growth from them. The moat, and what we do not count. Each REIT's business and property management agreements roll forward every December 31 to a fresh 20-year term. If a REIT ends them for convenience, it owes RMR the present value of the remaining fees, and 60 days' notice is required. That is a strong, documented protection. But fees are tied to the lower of asset cost or market value, and they have been drifting down: base fees from the REITs were $85.6 million, $84.2 million and $80.0 million in fiscal 2023, 2024 and 2025, and construction supervision fees across all property management clients fell from $18.4 million to $9.3 million over the same period. Private capital assets grew from about $1.3 billion to $12.3 billion in four years, but that is a new line with no record through a downturn, so no growth from it is included in any case. Two known events. First, DHC is moving 116 senior living communities run by AlerisLife to new operators and AlerisLife expects to wind down in the first half of 2026; RMR expects to stop receiving AlerisLife fees ($5.7 million in fiscal 2025). Second, OPI, which paid RMR $24.0 million in fees in fiscal 2025, filed for chapter 11 on October 30, 2025. RMR agreed new management agreements in the restructuring support agreement; they run five years but OPI could end them without penalty after two, and they still need court approval. Growth check. Owner earnings per unit fell 4.8% in fiscal 2025 ($1.787 versus $1.878). Our base case first year is lower still, about $1.61, a fall of about 10% from fiscal 2025, so it does not depend on any turnaround. The first nine months of fiscal 2026 showed net income of $36.3 million against $31.1 million a year earlier, although quarterly results were uneven and we did not move our anchor on them. Base case, $17.3 per share. AlerisLife fees disappear, remaining fees erode 3% a year for three years (in line with the recent 3% a year fall in REIT base fees), then hold flat. OPI continues on its new terms. We carry the level for 20 years, matching the rolling contract term, then fade it to zero over the following ten years, because nothing beyond that is contracted. After discounting at 6% this is about $19.2 per unit, and we trim about 10% because the public company pays its own income tax ($5.7 million in fiscal 2025) and tax receivable agreement payments ($2.4 million) that fall on the public company alone. Bear case, $6.6 per share. OPI's agreements are rejected in bankruptcy and AlerisLife ends, taking $29.8 million of annual fees; remaining fees erode 3% a year for ten years and then fade to zero over the next ten. We treat the lost fees as falling almost entirely to profit, which is harsh but consistent with the fact that reimbursed costs are only paid at cost. Nothing is credited for any termination payment. Building real estate and loan holdings financed partly by mortgages, and a REIT ending a contract after RMR missed performance measures for three consecutive years, are additional named pressures. Bull case, $21.5 per share. AlerisLife fees are lost, but the remaining base of about $1.66 per unit holds without erosion and the contracts keep rolling for 30 years (RMR has operated since 1986), then fade to zero over ten more years. What would make this wrong: further REIT market-value declines or asset sales shrinking fees faster than 3% a year, additional client bankruptcies or terminations, or the new OPI agreements being altered. Things we could not fully reconcile: in fiscal 2025 the income statement shows $9.7 million of equity-based compensation while cash flow adds back only $3.8 million of expenses paid in shares, and we subtract only the added-back amount; and quarterly net income in the first nine months of fiscal 2026 swung from $26.8 million to $2.1 million to $7.4 million without our finding the cause. The margin-of-safety price is about $9.50, roughly 45% below the base case and about 1.4 times the bear case, because of client concentration, the OPI situation, and the ABP Trust holding 46.8% of the economics.