Market Overview

The RMR Group Inc. Announces $100 Million Commitment to and Launch of the RMR Office Property Fund LP

Share:

Portnoy Family Office Contributing $206 Million of Properties to
the Fund

The RMR Group Inc. (NASDAQ:RMR) today announced an agreement between
RMR and ABP Trust (the "Portnoy Family Office"), by which RMR is
committing $100 million and the Portnoy Family Office is contributing
$206 million of owned office properties to launch the RMR Office
Property Fund LP (the "Fund").

The Fund will be a private, open end core fund focused on the
acquisition, ownership and leasing of a diverse portfolio of office
properties throughout the U.S. The Fund plans initially to focus its
investments in middle market, multi-tenant office buildings located in
urban infill and suburban locations in non-gateway U.S. markets. The
Fund considers middle market office properties to be larger than 50,000
square feet but valued at less than $100 million. The Fund will be
marketed to private investors and is targeting 8% to 10% annual returns
through a combination of current income and long-term capital
appreciation.

RMR has made a $100 million commitment to the Fund and this capital is
expected to be drawn and invested by the Fund within the next year. RMR
will manage the Fund and it will receive annual fund administration fees
equal to 1.0% of the Fund's net asset value. In addition, RMR will
receive property management fees equal to 3.0% of all rents collected
from commercial real estate investments and 5.0% of costs of
construction or any improvement at commercial real estate investments
held by the Fund. As of March 31, 2018, RMR had $276 million in cash and
no debt.

The properties being contributed to the Fund by the Portnoy Family
Office include 15 office properties with 1.1 million rentable square
feet. On a combined basis, these properties are currently 89% occupied
for a 3.5 year weighted (by rental revenues) average remaining lease
term. The properties are located in Austin, TX, Northern Virginia,
suburban Boston, MA and suburban Philadelphia, PA. The Portnoy Family
Office previously acquired these properties and they are being
contributed to the Fund at a value of $206 million, or approximately an
8.5% GAAP cap rate.

The Fund has approximately $300 million of immediate capacity for new
acquisitions and should be able to achieve more than $500 million in
total assets without the need for additional capital from third parties
because of the $100 million commitment by RMR and by using approximately
40% leverage on the Fund's total assets. All of the 15 properties being
contributed to the Fund by the Portnoy Family Office are currently
unencumbered by any debt.

Adam Portnoy, President and Chief Executive Officer of RMR, made the
following statement regarding today's announcement:

"With approximately $30 billion of AUM and almost all these assets
consisting of investments in commercial real estate that are owned by
publicly traded equity REITs, forming a fund that makes investments in
commercial real estate for private investors is a natural extension of
RMR's business. By focusing on middle market, multi-tenant office
properties in urban infill and suburban locations, the Fund also should
benefit from RMR's experience in acquiring over $16.5 billion worth of
office properties throughout the U.S. since the mid-1990s without any
significant conflict with the publicly traded equity REITs that are
currently managed by RMR. In addition, the $100 million commitment by
RMR and the $206 million property contribution by the Portnoy Family
Office provides significant alignment of interests for new investors in
the Fund. Finally, since this is a new business endeavor for RMR, it may
take some time for the Fund to raise additional capital from private
investors, but we expect the Fund to be at least $1 billion in total
assets within the next five years."

The Fund's General Partner will be a wholly owned subsidiary of ABP
Trust. ABP Trust is a private company that directly and indirectly owns
approximately 52% of the economic interest in RMR as well as has
investments in other related businesses and commercial real estate. ABP
Trust is controlled by Adam Portnoy and it is owned by members of the
Portnoy family.

The valuation for the 15 properties contributed to the Fund by the
Portnoy Family Office was agreed to by a special committee of RMR's
Board of Directors consisting of members that were unaffiliated with ABP
Trust and with the assistance of an independent third-party appraiser.
This same special committee also approved RMR's $100 million commitment
to the Fund.

The RMR Group Inc. is a holding company, and substantially all of its
business is conducted by its majority-owned subsidiary, The RMR Group
LLC. The RMR Group LLC is the entity that is party to the agreement with
the Portnoy Family Office and it will be the investor in, and provider
of administrative and property management services to, the Fund. The RMR
Group LLC is an alternative asset management company that primarily
provides management services to publicly traded REITs and real estate
operating companies. As of March 31, 2018, The RMR Group LLC had
approximately $30.0 billion of total assets under management, including
more than 1,700 properties, and employed over 550 real estate
professionals in more than 35 offices throughout the United States; and
the companies managed by The RMR Group LLC collectively had
approximately 52,000 employees. The RMR Group Inc. is headquartered in
Newton, Massachusetts.

WARNING REGARDING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND
OTHER SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON
RMR'S PRESENT BELIEFS AND EXPECTATIONS, BUT THESE STATEMENTS AND THE
IMPLICATIONS OF THESE STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT
OCCUR FOR VARIOUS REASONS, SOME OF WHICH ARE BEYOND RMR'S CONTROL. FOR
EXAMPLE:

  • THIS PRESS RELEASE STATES THAT THE FUND IS TARGETING 8% TO 10% ANNUAL
    RETURNS. AN IMPLICATION OF THIS STATEMENT IS THAT THE FUND WILL
    ACHIEVE RETURNS THAT ARE AT LEAST WITHIN THIS RANGE. THE ACQUISITION
    ENVIRONMENT FOR OFFICE PROPERTIES IN THE U.S. IS HIGHLY COMPETITIVE
    AND THE ACTUAL ANNUAL RETURNS MAY BE LESS THAN THIS RANGE;
  • THIS PRESS RELEASE STATES THAT RMR'S $100 MILLION COMMITMENT TO THE
    FUND IS EXPECTED TO BE DRAWN AND INVESTED BY THE FUND WITHIN THE NEXT
    YEAR. THE ACQUISITION ENVIRONMENT FOR OFFICE PROPERTIES IN THE U.S. IS
    COMPETITIVE AND THE FUND MAY NOT BE SUCCESSFUL IN DRAWING AND
    INVESTING ALL, OR ANY, OF THIS CAPITAL WITHIN ONE YEAR OR OTHERWISE;
  • THIS PRESS RELEASE STATES THAT THE FUND HAS APPROXIMATELY $300 MILLION
    OF IMMEDIATE CAPACITY FOR NEW ACQUISITIONS. THE ACQUISITION
    ENVIRONMENT FOR OFFICE PROPERTIES IN THE U.S. IS COMPETITIVE AND THE
    FUND MAY NOT BE ABLE TO MAKE ACQUISITIONS WORTH $300 MILLION, OR ANY,
    ACQUISITIONS IN THE FUTURE;
  • THIS PRESS RELEASE STATES THAT THE FUND SHOULD BE ABLE TO ACHIEVE MORE
    THAN $500 MILLION IN TOTAL ASSETS BY USING APPROXIMATELY 40% LEVERAGE
    ON THE FUND'S TOTAL ASSETS. HOWEVER, THE FUND MAY BE UNABLE TO ACCESS
    DEBT FINANCING THAT WOULD PROVIDE THIS AMOUNT OF, OR ANY, LEVERAGE ON
    THE FUND'S TOTAL ASSETS. FURTHER, THE COSTS OF ANY LEVERAGE THE FUND
    MAY OBTAIN COULD REDUCE THE FUND'S RETURNS;
  • MR. PORTNOY STATES THAT THE FUND IS EXPECTED TO GROW TO AT LEAST $1
    BILLION IN TOTAL ASSETS WITHIN THE NEXT FIVE YEARS. RMR HAS NEVER
    BEFORE MANAGED A PRIVATE, OPEN END FUND AND COMPETITION TO ATTRACT
    PRIVATE CAPITAL IS HIGHLY COMPETITIVE. BECAUSE OF THIS, THERE IS NO
    GUARANTEE THAT THE FUND WILL GROW ASSETS UNDER MANAGEMENT TO AT LEAST
    $1 BILLION, OR AT ALL, WITHIN THE NEXT FIVE YEARS OR ANY OTHER PERIOD
    OF TIME; AND
  • THIS PRESS RELEASE STATES THAT A SPECIAL COMMITTEE OF RMR'S BOARD OF
    DIRECTORS CONSISTING OF MEMBERS THAT WERE UNAFFILIATED WITH ABP TRUST
    AGREED TO THE VALUATION OF THE PROPERTIES BEING CONTRIBUTED BY ABP
    TRUST TO THE FUND AND WITH THE ASSISTANCE OF AN INDEPENDENT
    THIRD-PARTY APPRAISER. THIS PRESS RELEASE ALSO STATES THAT THIS SAME
    COMMITTEE ALSO APPROVED RMR'S $100 MILLION COMMITMENT TO THE FUND. AN
    IMPLICATION OF THESE STATEMENTS MAY BE THAT THESE TERMS ARE AS
    FAVORABLE TO US AS TERMS WE COULD OBTAIN FOR SIMILAR ARRANGEMENTS FROM
    UNRELATED THIRD PARTIES. HOWEVER, WE COULD STILL BE SUBJECTED TO
    CLAIMS CHALLENGING THESE TERMS OR OUR ENTRY INTO THE TRANSACTION
    AGREEMENT.

FOR THESE REASONS, AMONG OTHERS, INVESTORS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE UPON ANY FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE.

THIS PRESS RELEASE SHALL NOT CONSTITUTE AN OFFER OF SECURITIES OR OTHER
INTERESTS IN THE FUND.

View Comments and Join the Discussion!