The RMR Group Inc. Class A Common Stock 2026 Q3 Earnings Call

Good morning. Thank you for joining RMR's fiscal third quarter 2026 conference call. With me on today's call are President and CEO, Adam Portnoy, Chief Operating Officer, Matt Jordan, and Chief Financial Officer, Matt Brown. In just a moment, they will provide details about our business and quarterly results, followed by a question and answer session. I would also like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Today's conference call 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 on RMR's beliefs and expectations as of today, August 6th, 2026, and actual results may differ materially from those that we project.

The company undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be found on our website at rmrgroup.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we may discuss non-GAAP numbers during this call, including distributable earnings and adjusted EBITDA. A reconciliation of net income determined in accordance with U.S. Generally Accepted Accounting Principles to these non-GAAP figures can be found in our financial results. I'll now turn the call over to Adam.

Thanks, Bryan, thank you all for joining us this morning. Yesterday, we reported third quarter financial results that were in line with our expectations, despite broad economic and geopolitical uncertainty. Our quarterly results were highlighted by distributable earnings of $0.48 per share and adjusted EBITDA of $19.7 million. Our results continue to reflect the organization's focus on our two primary strategic objectives. First, we are focused on driving continued improvements in the share prices of our managed REITs through strong business execution. Second, we are focused on growing our private capital business. While Matt will talk more about private capital as it relates to our managed REITs, over the past two years, we have actively assisted the REITs in deleveraging efforts through strategic asset sales, refinancing debt on more attractive terms, and driving property NOI growth through increased occupancy, rent roll-ups, and disciplined expense management.

These efforts continue to resonate with the investment community as both DHC and ILPT remain among the best performing REITs in the U.S. over the past three years. As a result of this continued outperformance, we have seen sequential quarter growth in management fees, we are on pace to generate over $40 million in incentive fees this calendar year. Now turning to our managed REITs. At DHC, the REIT continues to experience significant operating improvement within its senior housing segment following the transition of 116 communities to new operators over the past year. DHC has also materially improved its balance sheet metrics following over $600 million in non-core asset sales since the beginning of last year, resulting in net debt to adjusted EBITDA declining to 7.1 times as of June 30th.

In the second quarter, DHC generated normalized FFO of $0.16 per share and adjusted EBITDA of $82 million, both exceeding consensus estimates. Same property shop NOI grew 37% over last year, Same property shop margins improved 390 basis points to 17.3%. Importantly, we continue to believe that DHC is in the early innings of a multi-year acceleration in cash flow growth because of the demographic-driven demand for its shop communities and limited supply growth, which are amplified by the operational improvements we are implementing across the portfolio. ILPT had a very successful quarter with its results highlighted by a record 5.4 million square feet of leasing and a weighted average rent roll-up of more than 35%, marking its seventh consecutive quarter of double-digit rent growth.

RMR recently assisted ILPT with the refinancing of $1.6 billion of new debt for its consolidated Mountain joint venture, which replaced floating rate debt with interest-only fixed rate debt at an attractive 5.7% interest rate. Given a materially improved debt profile and strong organic cash flow growth, ILPT recently doubled its quarterly dividend to $0.10 per share while maintaining significant dividend coverage. SVC continues to make progress strengthening its balance sheet while improving its portfolio composition through a combination of capital recycling and over $900 million in non-core asset sales since the beginning of last year. Management's primary focus remains on working with Sonesta's new leadership team to drive hotel EBITDA margins higher, while also looking to realize the anticipated benefits from nearly $650 million in capital improvements made to its retained hotel portfolio over the past three years.

For the quarter, SVC's retained hotels saw RevPAR increase 6.6% and hotel EBITDA grow 4.2%, reflecting the early benefits of the recently completed renovations. Normalized FFO per share came in at $0.43 and adjusted EBITDA was $146 million. RMR was instrumental in helping SVC improve its balance sheet during the quarter using the net proceeds from its recent $575 million equity offering to redeem $550 million of unsecured notes due in 2027. SVC has meaningfully reduced near-term refinancing risk while creating runway to optimize its hotel performance and advance its broader transformation into a net lease-focused REIT. OPI recently emerged from bankruptcy and its newly issued shares trade on the Nasdaq. We previously highlighted, RMR will continue managing OPI for an initial five-year term, with RMR receiving a flat business management fee during the first two years of $14 million per year.

To conclude, we are pleased with the significant progress RMR has made improving the financial positions of our managed REITs. We are particularly encouraged by the total shareholder returns that have been delivered by DHC and ILPT over the past three years, and we are working hard to deliver similar results across all of our clients. With that, I'll now turn the call over to Matt Jordan.

Thanks, Adam. While our publicly traded perpetual capital clients provide RMR and its shareholders with a stable foundation of recurring cash flows, we continue to pursue growth strategies in our private capital business, which as a reminder, has grown from nearly zero assets under management in 2020 to over $12 billion today. To further this initiative, over the past year, we have built a global in-house sales and marketing team that continues to spend significant time increasing RMR's brand awareness. Given our expertise across most real estate sectors, we are in an excellent position to tailor the opportunities we are seeing in the market to potential partners' capital allocation strategies.

While investor meetings continue to be constructive and have helped establish our organization in a manner that will benefit us in the long term, the ongoing conflict in the Middle East continues to be a headwind, with global real estate fundraising in the first half of the calendar year coming in at a nine-year low. While we continue to make longer-term investments to build our brand and expand our investor universe, our residential business recently closed a joint venture acquisition in Greenwich, Connecticut for approximately $350 million. This venture involved RMR partnering with new institutional investors that represent 95% of the equity in the venture, with RMR retaining a 5% general partner interest. Our multi-year plan for this asset is to modernize the community, enhance the resident experience, and unlock embedded operating efficiencies.

As general partner, RMR earned an acquisition fee at closing and will earn asset management and property management fees of approximately $750,000 annually from this venture. As a reminder, the RMR Residential platform we acquired in 2023 was historically built completing joint ventures like the Greenwich transaction with large institutional partners. To that end, while we continue to fundraise for our residential enhanced growth venture, we expect to continue executing one-off joint ventures with RMR acting as the general partner. Further, as tailwinds continue to improve for multifamily real estate, whether it be continued strengthening of fundamentals or the continued slowdown in multifamily construction, we expect transaction activity to rebound over time. Our residential platform regularly exceeded $1 billion in transactions a year prior to the headwinds the sector has recently experienced.

Beyond our general partner interests, RMR wholly owns three multifamily communities encompassing 781 units that are almost 92% occupied. This quarter's earnings presentation includes expanded color on these assets, all of which are performing in line with their value add business plans and collectively are seeing operating fundamental improvements as supply eases. This is most notably starting to show in a continued trend of rental rate improvements and the easing of tenant concessions. In closing, as investors may recall, last quarter we added a slide to our investor presentation that highlighted the material discount at which RMR shares trade relative to our peers.

As an update, if one were to back out the carrying value of our investments, as well as the net carrying value of our wholly owned real estate and JV interests, RMR shares are trading at just over five times the EBITDA generated primarily by the 20-year evergreen management contracts associated with some of our managed equity REITs. This is significantly below the 16 and a half times average multiple at which our peers trade and highlights the attractiveness of our shares at current levels. With that, I'll now turn the call over to Matt Brown.