UBS analyst Brock Vandervliet has initiated coverage of Tremont Mortgage Trust at "buy," saying the company's bridge lending should generate 7% to 8% yield and that its stock is trading well below others in the sector.
The analyst expects the company to successfully scale from zero to a roughly $155 million portfolio, considering its historical run rate of more than 60 loans per year as a private fund manager. Vandervliet said the company may be fully deployed with around 10 loans by the end of its first quarter as a public company.
He said the partnership with RMR Group Inc., Tremont's external manager, will give the company a national reach and "greater operational capacity." RMR has about $28 billion in assets under management, and its decision to cover the IPO's offering and legal expenses for Tremont highlighted its commitment to a "deep linkage" between the entities, the analyst wrote.
Vandervliet also sees "significant" upside potential in Tremont's stock valuation because it has dropped nearly 20% since its September IPO.
His price target for the company is $21.00. Vandervliet's 2017 EPS estimate is a loss of 5 cents. His EPS estimates for 2018 and 2019 are $1.63 and $1.82, respectively.