RMR GROUP INC. Q2 FY2025 earnings call

• Q2 results were slightly below expectations with adjusted net income $0.28 per share and distributable earnings $0.40 per share, due to managed equity REITs spending less on CapEx and deleveraging. - Engaged with private capital investors regarding residential, credit strategies, and development opportunities; recent market volatility tempered investor enthusiasm but seen opportunities in residential sector with new supply decrease. - Closed two joint venture residential acquisitions in South Florida, raised $64.3 million in equity. - Value-add retail acquisition in Chicago, expected to be part of $100 million portfolio over 6-12 months. - Updates on public capital clients: DHC, SVC, ILPT had strong results; OPI faced headwinds with office portfolio. - Durable business model supported by perpetual capital, enabling initiatives in volatile environment.

Recurring service revenues for the quarter were $45.5 million, a sequential decrease of approximately $1.8 million. Adjusted net income came in at $0.28 per share and distributable earnings were $0.40 per share. The managed equity REIT spending was less on capital expenditures due to uncertain economic environment and deleveraging activities. In the residential sector, two joint venture acquisitions of residential communities in South Florida closed with an aggregate transaction value of approximately $196 million. The value-add shopping center in Chicago, acquired in April, is expected to generate EBITDA of approximately $350,000 per quarter in fiscal 2025.

• Next quarter, recurring service revenues expected to be between $44 million and $45 million. - Adjusted earnings per share expected to be between $0.28 and $0.30 per share, adjusted EBITDA between $19 million and $20 million, distributable earnings between $0.42 and $0.44 per share. - Dividend payout ratio at approximately 79%, well covered.

• Macroeconomic uncertainty impacting fundraising and REIT revenues. - OPI facing headwinds with nationwide office portfolio and upcoming debt obligations. - Economic volatility tempering investor enthusiasm for new allocations.

Q: Could you give more details on the strategic rationale for the value-add retail acquisition and plans for the area?

A: RMR has expertise in retail, seeing a turning point in retail market with low vacancies and high demand, using balance sheet to seed high-return investments.

Q: Talk about lower construction fees and outlook?

A: First calendar quarter is seasonally low, run rate likely to stick due to judicial spending and capital constraints at REIT clients.

Q: What are potential partners looking for and timeline for equity capital?

A: Partners seek higher returns, LP appetite affected by macro environment; RMR expects $1 billion in private capital initiatives in 2025.

Q: Potential to put more on balance sheet?

A: Possible in residential space, key is raising third-party capital with co-investment.

Q: Size of value-add shopping center portfolio?

A: $21 million investment, pipeline to $100 million.

Q: On construction supervision revenue?

A: All inclusive, considers planned spend and disposition activity.