The RMR Group Inc. Q3 FY2025 earnings call

• Third quarter results were in line with expectations, with adjusted net income, adjusted EBITDA, and distributable earnings meeting expectations.
• Managed REITs initiatives included deleveraging via asset sales and accretive refinancings, with share price improvements of certain REITs like DHC and ILPT.
• Private capital platform totals over $12 billion, with activities in retail, residential, credit, and development. First retail investment, a $21 million community shopping center near Chicago, closed. Residential sector has robust pipeline, with 2 acquisitions expected in August. Credit sector also has strong pipeline.
• Specific REIT updates: DHC had solid second quarter with SHOP segment growth; SVC results in line with consensus, benefiting from stable cash flows; ILPT refinanced debt and increased dividend; OPI faces headwinds with office properties.
• Recurring service revenues expected to increase to ~$45 million next quarter; cash compensation to remain at current level; equity compensation expected in September; recurring G&A to stay consistent.

The quarter saw adjusted net income of $0.28 per share, adjusted EBITDA of $20.1 million, and distributable earnings of $0.43 per share. Recurring service revenues were approximately $44 million, a sequential decrease of ~$1.5 million. Recurring cash compensation was $38.6 million, down ~$3.5 million sequentially. Recurring G&A was $9.5 million, a sequential decrease of $1.2 million. Upcoming Sun Belt residential acquisitions are expected to generate incremental adjusted EBITDA of ~$900,000 next quarter, with owned real estate expected to generate ~$2.2 million in adjusted EBITDA next quarter.

• Service revenues expected to increase to approximately $45 million next quarter.
• Cash compensation expected to remain at current level next quarter.
• Incremental equity compensation of ~$600,000 expected next quarter due to share awards.
• Upcoming Sun Belt residential acquisitions expected to generate incremental adjusted EBITDA of ~$900,000 next quarter.
• Adjusted EBITDA expected to be ~$20.5 million next quarter; distributable earnings between $0.44 and $0.46 per share; adjusted earnings per share between $0.21 and $0.23 per share.
• Expect to end fiscal year with ~$60 million of cash and no borrowings on $100 million line of credit.

Q: How is the fundraising environment for private capital?

A: The fundraising environment is challenging but improving. Meetings with potential capital providers have ramped up, and thawing is seen with possibility of lower interest rates and more capital allocation.

Q: Can you expand on the RMR resi enhanced growth venture mechanics?

A: The venture is seeded with ~$100 million of equity investments in 5 assets. LPs can buy out majority of investments, with RMR likely retaining 5%-10% as GP. Goal is to raise ~$300 million for the venture, with hope to grow to $1 billion in buying power.

Q: Sizing of residential fund raising?

A: Hope to raise ~$300 million for residential venture, seeded with just under $100 million of assets.

Q: Performance of RMR Residential and service revenues change?

A: RMR Residential's business plan conclusion leads to service revenue changes. AUM at RMR Residential is ~$4.6 billion across ~60 assets, with no material movement expected in next 9-12 months.

Q: Dividend funding and coverage?

A: Dividend funded by $0.32 from operating business (74% coverage ratio) and $0.13 from RMR Inc. using $22 million cash. Leakage from tax distributions means $22 million will bleed down over 3+ years but takes time as LLC contribution grows.