The RMR Group Inc. Q4 FY2025 earnings call

• Fourth quarter results were in line with expectations, with distributable earnings, adjusted net income, and adjusted EBITDA reported.
• Managed equity REITs were active with nearly $2B accretive debt financings and over $300M asset sales; share price improvements at DHC and ILPT could lead to ~$22M in potential incentive fees in 2025.
• DHC had solid quarterly results with SHOP NOI growth, occupancy and rate increases, and non-core asset sales for deleveraging.
• SVC sold 40 hotels, did a 0-coupon bond offering, and focused on EBITDA growth despite market challenges.
• Seven Hills had a solid quarter, explored equity capital generation, and announced a rights offering with RMR backstopping.
• OPI entered Chapter 11 restructuring, with RMR to manage for 5 years at $14M per year for the first 2 years.
• Non-residential leasing had nearly 1.4 million sq ft of leases in the quarter. RMR Residential launched fundraising for an enhanced growth venture, and retail sector invested in a community shopping center. Credit strategy explored forming a strategic venture with institutional capital.

The RMR Group reported fourth quarter results in line with expectations. Distributable earnings were $0.44 per share, adjusted net income was $0.22 per share, and adjusted EBITDA was $20.5 million. In managed equity REITs, nearly $2 billion of accretive debt financings and over $300 million in asset sales were completed. DHC had consolidated SHOP NOI increase 8% year-over-year to $29.6 million, with occupancy up 210 basis points to 81.5% and average monthly rates up 5.3%. SVC completed the sale of 40 hotels for over $292 million and a 0-coupon bond offering. Seven Hills had a solid quarter with a fully performing $642 million loan portfolio and a rights offering. OPI entered Chapter 11 restructuring. Recurring service revenues were approximately $45.5 million, a sequential increase, but expected to decrease next quarter due to factors like the AlerisLife sale.

• Next quarter, recurring service revenues are expected to decrease to ~$42.5 million. Cash compensation is expected to decline to ~$37 million. Adjusted EBITDA is expected to be between $18 million to $20 million, distributable earnings between $0.42 and $0.44 per share, and adjusted net income between $0.16 and $0.18 per share.
• The major impact on guidance is the sale of AlerisLife's business, expected to cause a ~$1 million decrease in fee revenue next quarter.
• Seven Hills' rights offering is expected to provide ~$65 million in new equity for over $200 million in gross new loan investments.

• Forward-looking statements are subject to actual results differing materially, with factors in SEC filings. Economic environment uncertainties, changes in property performance, and potential impacts from OPI's Chapter 11 restructuring are risks.

Q: I'm curious about OPI's fee. Does it in effect go up quarter-over-quarter?

A: Effectively, it's pretty much flat. We were earning just under $14 million a year on a business management basis, and we have a contract for $14 million per year for the first 2 years upon OPI's emergence from bankruptcy.

Q: Maybe just sticking with that question quickly. Is there any expected additional negative flow through from the loss of managing AlerisLife as we think beyond next quarter?

A: The full wind down should happen by the end of this year. While expecting about $1 million decrease in fee revenue this coming quarter, there'll be another ~$400,000 deduct when rolling forward to fiscal Q2.

Q: Maybe moving on to OPI. Can you just walk through what the advisory agreement looks like after 2 years? If you're still managing that portfolio?

A: It's a 5-year term. The first 2 years are set at $14 million per year in business management fees. The property management stays unchanged. After 2 years, there's a negotiation. There's also an anticipated significant incentive fee structure for RMR.

Q: Just quickly on the -- I know that, Matt, you talked about a bit of a true-up on interest expense because you've got a -- had it in place for a sub-quarter. Do we have a similar true-up for the -- what's the true-up for the rental income associated with the 2 residential assets that were acquired mid-quarter? How should we think about that?

A: The owned real estate contributed about $650,000 of EBITDA in Q4. It will grow to just over $3 million on a run rate basis.