RMR - Earnings call transcript Q3 2018

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Operator

Good day, and welcome to The RMR Group third quarter 2018 financial results conference call. All participants will be in listen-only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask question [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Tim Bonang, Senior Vice President. ahead. go Please

Tim Bonang

today's moment, company. thank on and Portnoy for joining today. quarter just prohibited us Chief beliefs actual contains in Reform meaning of retransmission Act conference our the details that expectations XX, August revise Good today, XXXX. and business call and obligation are you laws. no are statements differ any me a Litigation revision of In consent today's Jordan. call the forward-looking may and Officer, XXXX Adam Company is those to of within performance will President the of statements materially the With provide Financial about other to morning, Matt securities for they as The and They of questions. prior note project. that take of the and and then results today's the conference the like would results recording call the of XXXX third These call. without made written Securities RMR's I to and we the fiscal undertakes will on Also note or release publicly Private that from statements conference forward-looking forward-looking based CEO,

factors SEC's the not any forward-looking SEC, can or upon be which Investors differences Additional is our Securities or Commission site, place contained site. that rmrgroup.com, to any concerning could cause reliance are with accessed information Exchange in statements. our undue and filings Web Web cautioned from

adjusted Accepted to adjusted accordance income adjusted reconciliation earnings discussing with EBITDA of in be non-GAAP net share, adjusted EBITDA margin will found review. U.S. our margin. Adam during call EBITDA, adjusted now, morning. can numbers call, we Adam? to Generally per Principles addition, including EBITDA A the EBITDA to this earnings Accounting In margin determined and would release we of begin this quarterly I Portnoy the over and the in to And issued news be share, like adjusted adjusted calculations per turn

Adam Portnoy

everyone this for Tim. thank Thanks, joining to afternoon. you us And

year June $X.XX ended per last compared $X.X assets on For revenues third generated share represents we same of growth to solid increase or million also quarter adjusted with of fiscal the income in the XX% year. Year-over-year management, reported increases XXXX, of an or per $X.XX EBITDA share, and net which the which under quarter. XXth, during across results company the period

current focused income assets Initially, of the marketed our quarter’s private investments infill solid made suburban multitenant making a targeting recently of the office capital combination announced goal non-gateway In X% U.S. the Fund, in we operating vehicle focused properties investment under management end be our in investments private will Office progress estate will RMR of real locations good this open primarily through core addition revenues targeted throughout launch the of urban buildings our fund with is office and middle-market is XX% in to U.S. on and stated fund, be a private The investors Fund appreciation. Fund markets. real located recently that with and on annual results, long-term to to This diversifying estate first returns investors. and Property in

million the the or ABP of is launch million to is Fund. properties unencumbered Office, the and Trust, $XXX as far of the Family As $XXX Portnoy Fund, RMR office committing contributing

significantly managed focus Fund. be is that of office have The investors with Fund’s appreciate will with well compete hopeful the equity something we with, and the any interest focus the does who high Fund are We have may our of middle-market alignment the by also investment significant we not REITs. received experience

and raise months. the to additional commitment of over the $XXX We Through we million modest million third-party a the expect of XX power. course amount $XXX to the buying $XXX an Fund immediate this next worth utilized without capital has total over capital. million of need assets Fund the And reach leverage, of be to RMR’s the expect use in

new to raise take years. within it the assets endeavor at next As Fund a time for management in But billion RMR, that this capital. long-term we business additional may is $X is least expect to under goal the have our some five gross

another companies. to term results combined under we On rent a our at just weighted an and our for quarter managed client of XXX,XXX client Turning of equity companies behalf the leases our perspective, foot square From roll years over a X.X%. weighted-average and lease basis, average up of activities REITs ranged had back strong our operations on of on for quarter. seven

in million the equity $XX approximately supervised also REITs improvements capital managed at quarter. our We during

million NOI almost Some rates well from XXX,XXX IOPT XXX,XXX and rental focused since that with of same-property $XX SNH on were than during square a including to Five senior for previously facility million leased feet same area headwinds approximately leased cash January property XXX,XXX SNH IPO. X% feet, government our skilled saw higher same property communities across space first years. rent the million the deliver for term remaining increase the last nursing selling primarily business. NOI square to the also over portfolio. during dispositions of following. NOI its two in quarter, rates compared XX.X% market stated same include basis of its X.X% revenues year-to-date on basis its weighted-average $XX XX $XX $XXX despite XXXX weighted million. Star the cash tenants highlights growth at leasing remain $XX on-fuel properties same lease X% America, for announced and total this almost the a weighted total property feet during that prior its to included selling sunrise resulting square of strong recycling in to plan, more XXX,XXX for in in including aggregate. cash $XXX client capital reported the approximately X%. Miami quarter over in saw TA's GOV by of quarter activity, average last continued increasing role which the selling acquisition property of due IOPT period to year, proceeds resulted over At leasing increased a rental noteworthy leaving performed service basis TravelCenters foot to leased by truck million, up the industrial square activity of disposition other GOV results increase the companies average of to million, of by gain and acquisition aggregate and quarter of

earnings advance of of on touch been announced. its releasing activities already its Lastly, I can client some publicly some companies, is in because RMR have only that

by This its $XXX term quarter, amended $X.XX distribution $X.XX share. facility HPT million on HPT also common to unsecured its cash raised restated its shares per unsecured and credit its and $X common regular quarterly revolving billion of At by announced building aggregate on recent origination continues million $XX.X And new loans during management quarter loan million end, loans. issuing the loan. totaling Tremont $XX.X Tremont quarter. in closing momentum after the

announced, its RMR the stronger have to beginning new year a Tremont since management’s long-term agreed period, quarter. previously represented two June companies turn three time this XXXX. from business provides we for In believe X, real-estate Tremont growing Tremont execute to for approximately the and Tremont different fee As its on July fully waive In from in able will waiver closing, be We revenues plan. has in revenues $XXX,XXX XXXX, the XX, formed RMR. three businesses. generate fee this increased client continue Management to

strategic and assets and which revenue may growth to to initiatives growth continue we and under finding forward. enhance additional lead of towards going All future, in management work

also be evaluating to it generate remains We opportunities. potential our any returns. possible complementary operation than existing continue accretive and Though acquisition important deal

higher quarter, financial the capital coming in depending also who for our are possibly the our review to of call use upon shareholders last cash over turn Matt our of the some the months, Chief form returning dividend Financial rate. in highlighted now I quarter. results to we I'll Officer will Jordan, of our considering a As

Matt Jordan

Adam. Good everyone. Thanks afternoon,

management business share, year-over-year and adjusted share formation reflective tax the this First of incremental adjusted Potomac revenues basis, non-fuel Management the of associated well driven basis, volumes reported FPO in a with a to Realty primarily of at impact by almost $X of net separation growth income per per and services quarter Trust, of recent revenue or costs million with we construction quarter, is executives fees acquisition. of $X.XX RMR rates. for quarter, of construction per due results due as and growth as quarter's in the represents which The $X.XX revenues income Fund. Property a $X.X to RMR $XXX,XXX This share this up income REITs TA as $X.XX share was net net driving acquisition retiring primarily per of in GOV's managed Office from increases, the transaction costs reductions $X.XX management on incremental On increase GOV's million, million almost sequential revenues increased service federal $XX.X revenues. were FPO

The due $X of costs was to headcount basis. XXX on to $XX.X $XX.X December of amendment which year. consistent for was incentive able other As it and based year-over-year would've million cash cash was incentive over period basis represented of on points compensation. to million, increases, by a that as year only December million we reimbursed recoverable GOV's fees, the and equity period, driven fees record a the has sequentially compensation basis. in each of million we measurement rate, of XXth $XX FPO. payroll at largely relates XX% and revenue are or million were June increase earned acquisition Reimbursed full compensation XXXX, XX, XXst on an relates $XX.X fees increase was which recovery incentive If been it over to end year-over-year ends Total reimbursed

$X.X acquisition headcount related additions attributable year-over-year on continued cash compensation million, million headcount Total benefit of and as attributable in costs. compensation additions, Turning a increase $XX.X bonus well Cash The and expense of compensation on property benefits for the to payments quarter. $XX.X compensation The of year-over-year million employee and basis expenses sequential as inflation. million, the to recurring and increase share based cash million in was separation of for in growth is quarter. which and is in of an to level million need a sequential cash is $XXX,XXX and includes $X.X $XX.X FPO compensation. $X.X wage, increase compensation primarily modest GOV's

proxy based incremental expect on grants our September compensation also share fifth I’d was expense this ahead, which all approximately of fiscal in year-end to will quarters quarter’s prior is Accordingly, consistent Looking of our occur RMR recoverable. include restricted annual that with future with operations. we highlight current fiscal be cash this conjunction a our for each with million, RMR Last stock $X quarter fourth one majority year, expense. granted. vesting years, awards when not compensation the

it rents fees and administration of to to by RMR Fund, relates asset will Property the annual property receive RMR the equal collected to Fund. X% Fund's management of Office X% As equal value, fund real the from estate owned fees net

are share remain on based expected and estimates currently These fiscal Fund incremental the annual infrastructure and cost We fund the and opportunities XXXX, per an income fiscal basis. nominal projections such change subject support for revenues million approximately to impact projecting best provide our required on a of the service raising, as $X Fund. XXXX. acquisition variable, of to RMR will on represent net approximately have Fund And $X.XX is to

Property commitment $XXX have Finally, to remarks. open hand would million with debt. quarter formal concludes and million on questions. we the Fund, cash we of continue Office to That no $XXX lines our Operator, for ended please considering you before the RMR the our

Operator

Instructions]. now [Operator We session will question-and-answer the begin

Please The go from ahead. first comes JMP Mitchell Securities. Germain question of

Mitchell Germain

for of to raising raising you high who Adam, institutions? next target for take family level it the officer, it is worth, mean fund I foresee Fund? how those? the net is is Is it the the do fund

Adam Portnoy

worth in be the won't all going the It's institutions. the some more year types it's is be net to beginnings preclude likely ratio That's come to first channel institutions. say of not office my I more that private institutional the time traction that goes to that family might sales a net from going I Mitch. than think first we investors marketing we in more up that individuals, time think it's longer. of for attraction large it's in. family not private offices, being above, and the would worth channel large these than into And fund, much high RIA course lead capital of as family private funds the we’re It's think will investors, in just I Fund. being on belief institutions. institutions offices the don't that eventually hit the to I said, in get just smaller will our we think we to equity That high high show There fund. likely institutions. raise from pick and go And

So that's how it. we’re thinking about

Mitchell Germain

that’s the property what's characteristics the being contributed? of And

Adam Portnoy

located Of middle office Portland they office years. or characteristics and the XX,XXX of principally multitenant feet, in, several last one properties market. properties what around they’re market, going That's the largest two non that that infill they’re market. urban all two but in, XX properties. are outside as, Austin market, than middle single non-gateway around they’re are of years, Northern properties of office But properties, in -- meet few closed the they’re buildings, tenant owned all those family They’re this some Virginia fund property -- the the were in buildings bought square outlined all describe There say XX for of principally -- that properties genuinely properties has just in we've sense I've all for in bigger or multi-tenant just for a are market the groups suburbs characterization. some properties There markets. multitenant are locations the properties. Those ABP Philadelphia. the some the they’re to I'd these some the Boston

Mitchell Germain

contribution And an was independent based appraisal? the on

Adam Portnoy

we directors negotiate appraiser transaction. and the Board the that's -- Yes, and with property. they them an about that used the the RMR’s -- help reached ABP group them we of made the RMR agreement. with only hired Directors we to committee And that up basically un-complicit And third-party they in are of independent hired valuing independent went was that that how of

in. determine going in just those yes, the recap for helped an to properties an X.X% And they rate. are cap -- with us of independent go are committee going RMR if third-party So independent value to they

Mitchell Germain

say. back So you RMR, I RMR look should you I when when guess took created couple years a if I or public,

in to You grow fund. wanted your your AUM the – REIT

about talking commercial fund office were You an mortgage.

ou original on But everything your do upon you dividends you of You've either what type acquisitions. is out based to assuming another I'm almost for RMR? using strategy. said may that's know strategic set or asset you, cash, front that I growth done platform. the next be your some management for

Adam Portnoy

market couple on became -- the really business. public We’ve talked largely stool You’re of RMR leg of private fund into commercial the the for getting office years other last right. mortgage been more focus about management since telegraphing side getting we’ve the that the side. The to space, that into one the space private securities is space of fund

of We have side a the management securities business. small

We haven't that really business able been much. to grow

and that to we’ve that compression, the grow, toughest of we’d an next part if with I the to passive be that’s launch way think said, business the strategies. a see dealing that’s turning be to lot that businesses money lot of grow can into that’s we flowing try of to fee that all industry tried business. out figure of That might

And acquisitions. into which it so another said, ties is you thing

forward. a to looking management medium how in marketplace reached terms capital get. they happening big are could may make, in that acquisitions. general and interested is be be ourselves. acquisition. think grow be see it But And We generally something have they But sure platform could platforms an bar looked make value, more haven't made acquisition upon could could And might I course the like size high many, to a in of area be at as also more opportunistically to we no very That really an to I can being making the or and joining complementary, for accretive be themselves they the to side. look it a or you, to walked that said, really some I but dependent of limit larger at tell become RMR securities it's much again, a at, of lot we possible management us that things. on to asset said There like go for away in stuff acquisitions many from interesting execute might add smaller one other players have can we’ve they we’ll it those look has available. around to be pretty

next So that’s thinking on what's how it. about I’m

Operator

from ahead. go Instructions] [Operator The next comes Maher Please Riley B. FBR. of question Bryan

Bryan Maher

through calculations quick? something give incentive million Two and think you you things, real you first fee put there could Can million. XX out us said something walk housekeeping, you -- Matt, today, something that XX then and that I again

Matt Jordan

Yes, million fee paying a GOV HPT no year, full the and and ILPT. for SNH be the $XX that SIR, gross assume number would and fee, are from

script XX.X% So in number half the year was projection. the the recorded

Bryan Maher

comes And like be pretty would management should Property then terms fees seems those in that Office the construction X% to getting at terms for the a with when externally the RMR Does cost at. dollar to especially start of achievable, off property where X% REITs used and it think Fund, the it managed you’re for years, five one you’ve improving. Are same currently? the a billion are for

Adam Portnoy

Yes, equity what we exactly We use did the deviate specifically, want specifically REITs. to the same for from that’s not terms.

under assets and So REITs. that’s to construction say, identical. management let's done management the business management type or because marketed space different, The the terms it fee. equivalent that’s is on differently, asset fee management asset X% in REITs value, fee, X% typically And identical are way done calculated net differently. property are that management the is terms what the the fee, the equity its and that business so to with the is That be for differently. is net the equity just fee value, private net But fund of for management asset the the convention in fee the would

Bryan Maher

on though? no is But there incentive that fee

Adam Portnoy

that’s big fund lot thought between large high no built and in it incentive would of we design are about time be digits, it And shooting this to incentive We investors fee. we audience really that And equity think of make the trying to to private large high Correct, another -- difference fees. and we group have the of a that’s investors. are funds, a was that’s a competing spend shooting There is felt REITs. that track to fund we’re -- for core that funds core going work. funds -- talking because largely most including really fund incentive for didn’t didn’t fee single don’t digit, a single marketable,

have And that to when fund. consistent launched something going so to be our didn’t want the first wasn’t market we with we

Bryan Maher

off the contributed has mean -- them, no just Was that before. I paid contributed? surprised before they had surely them have surely they it I’m And they debt on recently assets debt on were some didn’t currently

Adam Portnoy

The into on we’ve the of specifically the time it majority overtime for leverage. the has short-term but were There didn’t any we them was they no for before time the contributed, owned leverage months Fund. unencumbered -- They of went of not period before several -- the properties majority been any has debt. for repaid some short all them had were they

Bryan Maher

for your just strategy returns exit buy headquarters curious you it some which Class the are instance far urban as targets current market realize as I Is was there might as you move also SNH? you on where rely let's Or see into? the a like you're A that to going I it then and was might Boston, trade wouldn’t Mitch And than eventually on good to had something why Vertex some on the seeing urban say, better in upside? for and that. description office, include questions good what the to

Adam Portnoy

XX,XXX fund prohibition middle-market, across on than is and less office current value. call generally, we What that’s in but The the I’d so focused our a country on no square what office. feet stated there’s bigger what asset is is $XXX million buy can than we've focus

We you think markets, dollars, those a value adjusted cities We few see square-feet of also tens focusing lot those away different types closed building XX offer be of of we a today, top given think office of in a for from of country, core focusing in downtown think the So suburb history I buildings in then around when millions on top market the well in millions on RMR in manage, on centers, think York buying that the is getting risk-adjusted of of the properties can asset returns. not suburbs. away I had today’s middle-market, again, downtown lot XXX,XXX Midtown think basis a but And Manhattan, the at very away return New markets of markets, properties, four goes and dollars. today long good you what we’re City, four, from a four, -- investing billion. over call five to hundreds city properties types of urban And we We offices America of be get properties. a urban just could risk have those X,XXX five higher close-in -- five in from good there's it’s these fairly top seeing. risk-adjusted buying XX we in that benefit get gateway we returns great get

market, general months. four to on be and it we’re years from the turn around, over mandate that’s in today, today’s now, makes could could office we XX not different focused at. be what in market primarily we where we office, core think the on it’s gateway But fund, So this looking hey today environment because be be that’s say, to environment, just towers. next around and sense plan focusing could it we to turning a Three XX

Bryan Maher

this years that's next if to in really could believe XX from XX say, estimate? wise? five other us over asset about family that the lead the go you’ve to you to $X talked assets six friends do the the in billion Adam, true, colleagues you me, And this Would that to and sure, where and let's past, with managers think lastly is I'm conservative probably months. And offices

Adam Portnoy

Well, endeavor a you’ve investors. properties I it we We’ve in don’t money unless believe fund It be guessed into conversations could and unless note frankly, marketplace once don’t it billion a you’re endeavor in worth had, put have and family much enterprise. sales capital designed multibillion-dollar energy, this for for can conservative. know And first think if will is until we the quarter correctly, us. lot we as effort offices We we’ve this really the it, something or contribute $X around This that participants the this. long. could is this gotten just with of committed be that the you the I be a doing to a or there and But wouldn’t is be process be that us. believe out multi-billion-dollar do our know. attractive new

billion pick-up. party maybe for want years, so in I least conservative but I to to not But velocity it's believe, know five just I in that take get once there, the may I’m mark years, billion to three that to required success. expectation. investment being fund But billion minimum traction. five And you to call long I don’t if years. take to saying a this raising we third everybody's will build and get It long once in a an how see up once fund from we we take may it a to in that's at in I the traction, two think over could take believe for a temper build do get going year. four the us We five years, dollar

in talk a we’re the a -- obviously is office, fund have our investors. about we fund. lot with got private to You first our it’s to first to private and but public marketing the with markets Yes, long-track going remember, that it family

I somewhat also so am perhaps realistic. be conservative, being to And trying but just

Operator

The comes go ahead. Oppenheimer. Owen next Please from question of Lau

Owen Lau

know income share acquisition one take so on I million the color year on Office more guidance? $X.XX about $X assumption also guidance us give can raising it per know a more $X Fund. fund Thank want mentioned more rent do the you. when and may Property next But just effort. of clarity year. your raising thing can up. this have net assumptions color the those it and million And you to you give depends I I on get you on follow-up of and the fund opportunity. or But give out Adam I just the to $X.XX

Matt Jordan

Yes. to be are And just those clear, numbers. incremental

including dividend third-party that put have to million So of incremental fees you fund committed those million we are when of third-party around fiscal costs, throughout about imagine next $X.XX providers today assumes The a from number, fundraising receiving Fund $XXX as year can Adam limited we of that tell have incremental million rate. to as that that. that of the year, year, end from you to million, have the properties NAV dividends earning so we get has and of which somewhere next is outlined. where That assumption X.X% $X the assumes contributed in infrastructure fees amount on commitment being the RMR’s start will can the as a of work assumes $XXX earnings then we’ll $X.X about

the assuming investor, dividend And we’re So income an Fund. cash proportionate our and of we earnings. equity flows then as their method share would get from obviously

some those don’t I the if know that’s key So of helpful. assumptions. are

Owen Lau

last you. helpful. Adam want And when saw the lending an non-bank just forward? I opportunity quarter Thank going one heard lenders I CRE intense this your Thank more you maybe or that’s Matt, the think about get from sense, in some space. just the and to very in bank space I Yes, competition opportunistic across from me. look you.

Adam Portnoy

in, has become I and been the we’re it's even interesting pretty on market in estate commercial that I and operate we very what's always competitive It the is in it all going Of competitive. market. markets say -- is lending would more real think CRE a it

coupled of the years. but real last They been large that’s driven transaction transactions. capital and lot the in seeing And modestly a the not estate commercial been fact lot commercial have of the you’re always financing, at especially focused couple of has get a year-over-year in fact real for funds, the the that’s sector, And over that’s by more financings, that especially over volume volume of with a amount in estate the happen lending specifically raised, these space. last Some on declining around types time. the transaction slowdown a typically that money, couple private same And raised been years. of

for where to transaction got to a So the specific earmarked capital work. put you and less lot raise a volume it's demand typical supply imbalance sector there’s

So is yes, to that seeing our there competition taking your in us has business. I increased length loans competition. our been of would high very in tell a Tremont is it you're the assumption make in correct, And hundred percent you, There view. that time been is

We we that loans, that those than have money publicly more taken largely it's is had as and loans. us in for far much a there so originally four result fact out hoped get of lot marketplace the as announced longer the to competition a

I There in of lot a is competition your So marketplace. assumption. agree the with

Owen Lau

take lending in more the you three see the can that it’s do going two from bank or next maybe the CRE you business over space? see, forward, So trend looking Tremont years. Do

Adam Portnoy

in that of lending The loosening standards we That's the the and -- than commercial that timeframe all What of expectations on good is this so commercial What down. from away banks much haven’t market. have on business capital going is of and ‘XX side different you very several many are than residential. credit come that crisis, a in But because taking saw lending been the news what typically private is financial during That into what I transitional different I've them lending of been side, a just view I think banks, have I from is has shied result really over type don't lending of back see a the what loosened focused real saw last good called they bridge the a a last type not returns space everyone's lending. is this years. typically they of more lot we that seen see on the thing. ’XX just materially. Tremont estate the think lending commercial on that’s standards.

is seen credit you’re seeing our I’ve metrics but among standards that’s and and their underwriting people So the guns ourselves much pricing are the come so competition. the to sticking has pretty on and where what competitors in

is really years there think they expecting all think got was -- And the of I return. this, space this of I couple a level certain so was last result over lot what's of people a when into

the of level that be of return think level just because tempered to I of competition. is

on. really think I going So what's that's

Operator

over like This Portnoy for to any our I Adam the to concludes back remarks. session. conference question-and-answer closing turn would

Adam Portnoy

you Thank joining us. for

progress We forward you during thank to also updating call, call. you. fourth our our look that on quarter Operator our concludes conference

Operator

today's now for conference attending presentation. concluded. Thank The has you

disconnect. now may You

The RMR Group Inc. (RMR) 8 Aug 182018 Q3 Earnings call transcript