Company Profile: Target Hospitality
Published on June 30, 2023
Target Hospitality provides sustainable modular housing solutions that utilize resources efficiently and generate beneficial economies of scale.
Target Hospitality (Target) is a leading provider of fully modular housing solutions to the federal government and the oil and gas industry. The company operates a network of nearly 17,000 beds across 27 communities located in the Permian Basin in Texas and the Bakken Basin in North Dakota, with additional locations spread across New Mexico, Oklahoma, Wyoming, and Canada. Target views its ultimate responsibility as taking care of people by providing the rest, nourishment, and wellness they need to perform their best. The company has established safety, wellness, comfort, and education as the four tenants of its Corporate Social Responsibility program.
Modular housing provides many sustainable benefits to communities. Most importantly, modular structures are not permanent and can be moved to various locations for reuse. For example, the company relocated buildings that served as housing during the 2010 Winter Olympics in British Columbia all the way to the company’s Muddy River Lodge facility in North Dakota.
In addition, modular housing can be centralized to create economies of scale, which reduces the cost of packaging and shipping food and other supplies to the residents. The homes can also be easily constructed to reduce the consumption of resources, including water and energy, by installing equipment such as low-flow faucets, showers, and toilets; energy-efficient washers and dryers; centralized air-conditioning and heating; and energy-efficient lighting.
Another benefit of modular housing is that wastewater and sewage are much easier to collect. At its North Dakota site, the company built a state-of-the-art wastewater treatment facility that can treat up to 180,000 gallons per day, and the processed water can be reused for other purposes, including road dust control and agriculture. The plant’s capacity exceeds the volume generated locally, so the company collects and transports wastewater and sewage from its other facilities for treatment.
Target has also taken additional steps to reduce overall waste by implementing recycling programs at all sites. The company has also replaced single-use plastic bottles with water fountains and reusable bottles throughout its facilities.
Historically Target’s focus had been the oil and gas industry, with over 70% of revenues coming from that sector as recently as fiscal year 2020. The Covid pandemic drove down oil and gas prices, leading to meaningful revenue and EBITDA declines. Management recognized the need to diversify and successfully leveraged its existing government relationships to pivot its business. As the United States experienced an influx of women and children entering the country seeking asylum, the need to provide acceptable temporary housing to this population increased. Target’s existing government relationships and reputation for providing high quality housing solutions made it a natural partner for the federal government to help meet this demand.
Target was able to enter new contracts with the federal government and transition existing facilities away from the oil and gas segments for these new contracts. By the end of fiscal 2022, Target had transitioned its revenue mix to 72% from government contracts and 28% from oil, gas, and other industries. This shift has led to meaningful increases in revenue, EBITDA, and cash flow. The company’s fiscal 2022 revenue and EBITDA increased 72% and 123%, respectively. The company’s focus on sustainable housing solutions and its decision to diversify its business away from the volatile oil and gas industry has driven meaningful value to stakeholders.
Marcus Moore
Portfolio Manager
Written by
Marcus Moore
Portfolio Manager
Marcus Moore joined Osterweis Capital Management in 2022 as part of the Zeo Capital Advisors team transition, where he was an Assistant Portfolio Manager focused on credit research, including sustainability analysis. Before joining Zeo in 2019, Mr. Moore worked at Wells Fargo Bank for 14 years as an Analyst within Principal Investing, responsible for the retail, consumer, and gaming sectors across various asset classes including high yield bonds, leveraged loans, and structured products. Prior to working at Wells Fargo, Mr. Moore worked at Edison Mission Energy as an analyst and at Hamilton Resources, Procter & Gamble, and Goldman Sachs.
He is a Portfolio Manager for the sustainable credit strategies.
Mr. Moore graduated from Morgan State University in Baltimore, MD (B.S. in Accounting) and from the University of California, Los Angeles Anderson School with an M.B.A. He also holds the CPA designation.
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Sustainable Credit Fund Quarter-End Performance (as of 6/30/23)
| 1 MO | QTD | YTD | 1 YR | 3 YR | 5 YR | 7 YR | 10 YR |
INCEP (5/31/2019) |
||
|---|---|---|---|---|---|---|---|---|---|---|
| ZSRIX | 1.76% | -2.67% | -2.54% | -0.81% | -0.07% | - | - | - | -1.24% | |
| ICE BofA Single-B U.S. HY Index | 1.65 | 1.84 | 5.72 | 9.65 | 3.11 | - | - | - | 2.24 | |
| Bloomberg U.S. Aggregate Bond Index | -0.36 | -0.84 | 2.09 | -0.94 | -3.96 | - | - | - | -0.61 | |
Gross expense ratio as of 3/31/23: 3.00%.
The benchmark is the ICE BofA Single-B U.S. HY Index.
Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be higher or lower than the performance quoted. Performance data current to the most recent month end may be obtained by calling shareholder services toll free at (866) 236-0050.
Rates of return for periods greater than one year are annualized.
The ICE BofA Single-B U.S. High Yield Index is a subset of ICE BofA U.S. High Yield Index including all securities rated B1 through B3.
Effective 6/30/22, the ICE indices reflect transactions costs. Any ICE index data referenced herein is the property of ICE Data Indices, LLC, its affiliates (“ICE Data”) and/or its Third Party Suppliers and has been licensed for use by Osterweis Capital Management. ICE Data and its Third Party Suppliers accept no liability in connection with its use. See https://www.osterweis.com/glossary for a full copy of the Disclaimer.
The Bloomberg U.S. Aggregate Bond Index (Agg) is an unmanaged index that is widely regarded as the standard for measuring U.S. investment grade bond market performance. This index does not incur expenses and is not available for investment. The index includes reinvestment of dividends and/or interest income.
Source for any Bloomberg index is Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg owns all proprietary rights in the Bloomberg Indices. Bloomberg does not approve or endorse this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
References to specific companies, market sectors, or investment themes herein do not constitute recommendations to buy or sell any particular securities.
There can be no assurance that any specific security, strategy, or product referenced directly or indirectly in this commentary will be profitable in the future or suitable for your financial circumstances. Due to various factors, including changes to market conditions and/or applicable laws, this content may no longer reflect our current advice or opinion. You should not assume any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from Osterweis Capital Management.
There is no guarantee that securities investments will result in favorable Environmental, Social, or Governance (ESG) outcomes.
Complete holdings of all Osterweis mutual funds (“Funds”) are generally available ten business days following quarter end. Holdings and sector allocations may change at any time due to ongoing portfolio management. Fund holdings as of the most recent quarter end are available here: Sustainable Credit Fund
Short Duration Credit Fund Quarter-End Performance (as of 6/30/23)
| 1 MO | QTD | YTD | 1 YR | 3 YR | 5 YR | 7 YR | 10 YR |
INCEP (5/31/2011) |
||
|---|---|---|---|---|---|---|---|---|---|---|
| ZEOIX | 1.22% | -3.39% | -3.29% | -1.76% | -0.67% | -0.15% | 0.71% | 1.42% | 1.65% | |
| ICE BofA 0-2 Yr Duration BB-B U.S. HY Index | 1.05 | 2.05 | 4.48 | 7.76 | 3.41 | 3.01 | 3.34 | 3.53 | 3.75 | |
| Bloomberg U.S. Aggregate Bond Index | -0.36 | -0.84 | 2.09 | -0.94 | -3.96 | 0.77 | 0.44 | 1.52 | 1.78 | |
Gross expense ratio as of 3/31/23: 0.99%
The benchmark is the ICE BofA 0-2 Yr Duration BB-B U.S. HY Index.
Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be higher or lower than the performance quoted. Performance data current to the most recent month end may be obtained by calling shareholder services toll free at (866) 236-0050.
Rates of return for periods greater than one year are annualized.
The ICE 0-2 Yr Duration BB-B U.S. High Yield Constrained Index contains all securities in the ICE BofA U.S. High Yield Index rated BB1 through B3 with a duration-to-worst of less than two years.
Effective 6/30/22, the ICE indices reflect transactions costs. Any ICE index data referenced herein is the property of ICE Data Indices, LLC, its affiliates (“ICE Data”) and/or its Third Party Suppliers and has been licensed for use by Osterweis Capital Management. ICE Data and its Third Party Suppliers accept no liability in connection with its use. See https://www.osterweis.com/glossary for a full copy of the Disclaimer.
The Bloomberg U.S. Aggregate Bond Index (Agg) is an unmanaged index that is widely regarded as the standard for measuring U.S. investment grade bond market performance. This index does not incur expenses and is not available for investment. The index includes reinvestment of dividends and/or interest income.
Source for any Bloomberg index is Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg owns all proprietary rights in the Bloomberg Indices. Bloomberg does not approve or endorse this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
References to specific companies, market sectors, or investment themes herein do not constitute recommendations to buy or sell any particular securities.
There can be no assurance that any specific security, strategy, or product referenced directly or indirectly in this commentary will be profitable in the future or suitable for your financial circumstances. Due to various factors, including changes to market conditions and/or applicable laws, this content may no longer reflect our current advice or opinion. You should not assume any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from Osterweis Capital Management.
There is no guarantee that securities investments will result in favorable Environmental, Social, or Governance (ESG) outcomes.
Complete holdings of all Osterweis mutual funds (“Funds”) are generally available ten business days following quarter end. Holdings and sector allocations may change at any time due to ongoing portfolio management. Fund holdings as of the most recent quarter end are available here: Short Duration Credit Fund
The methodology for initially selecting an issuer for a Sustainability Profile requires that the issue be amongst the largest positions held by the firm’s Sustainable Credit strategies as of the quarter-end immediately preceding its selection. Issue performance is not a factor in the selection process for a Sustainability Profile. An Issue is selected to emphasize the types of issuers that the Osterweis Sustainable Credit Team seeks to invest in based on its sustainability mandates. Sustainability Profiles are shared to provide information about the sustainability evaluation process employed by the strategy. A Sustainability Profile may continue to be used after an issue is no longer one of the largest holdings in firm’s Sustainable Credit strategies. The performance for each Osterweis Fund is available at www.osterweis.com.
Target Hospitality Corp. issues bonds through its wholly-owned indirect subsidiary, Arrow Bidco LLC.
The material provided herein has been provided by Osterweis Capital Management and is for informational purposes only.
The compound annual growth rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year.
EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization.
Cash flow measures the cash generating capability of a company by adding non-cash charges (e.g., depreciation) and interest expense to pretax income.
The Osterweis Funds are available by prospectus only. The Funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The summary and statutory prospectuses contain this and other important information about the Funds. You may obtain a summary or statutory prospectus by calling toll free at (866) 236-0050, or by clicking here. Please read the prospectus carefully before investing to ensure the Fund is appropriate for your goals and risk tolerance.
Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC. [OSTE-20230626-0911]
