RMR - Earnings call transcript Q1 2019

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Operator

Good day, and welcome to the RMR Group First Quarter 2019 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 questions. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Tim Bonang, Senior Vice President. sir. ahead, go Please

Timothy Bonang

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

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

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

Adam Portnoy

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

to am cold Before want times. and a couple just a of sound and I cough bit begin, in over I getting congested advance, I a apologize may I

of income quarter We to $XX.X on million RMR first ended $X.XX December the XX. XXXX, reported fiscal which attributable For or per share. net of

XX%. incentive earnings Our in fees years and from $XXX.X the over talk three include Each $X.XX some point SIR call, their benchmarks industry client least last these share business outperformed and results HPT, this this or our managed equity per detail. the quarter At million I of REITs in usually SNH. respective at by management companies about

our a resulted square these than average year XXst our However, year-end, companies, talk X% years. companies. of I September in quarterly been publicly ends, rates announced. the leasing client can for and were results because were over client during RMR's basis, leases in companies. combined behalf and leases the XXth terms feet space, companies prior RMR as advance over we of quarter, themes said, well most That activities have of million of client average RMR approximately X.X has On a that some ranged about the have XX client overarching reporting on rents same our higher These results our are leases rental that and of December across as

our approximately at $XX capital million quarter. supervised during in client also improvements the We companies

Government Trust REIT was most the client Properties This of merger OPI. this companies Trust or Office Income of Select our the to One form and at Income Properties events significant entities. quarter owning advancing with OPI's and look buildings quality government high such and strategy to investment we support leased tenants characteristics, merger credit single as received significant primarily to of shareholder forward Income tenants

for the the facilitate resulted of three is annual $XXX underestimate. reduction term of reduction helped extended annual in TA quarter, to In $XX unsecured of amendment a in January, agreed points million a interest their a from centers quarterly XXXX XX the in XX-year companies than that years April January highlights rent, $XXX at travel continue both the with is to by to loan-to-value and basis facility, we TA million million, of XX%. investors further for facility's XX XXXX. and ILPT term XX provides OPI's in also which overall ratio a beneficial this rent in mortgage ILPT the $XXX underappreciated rate. through of the transaction credit ILPT's a less TA to assets million, extended stability During week, will executed think HPT and on transaction story leases in to of installments, $XXX We relationship. beginning to the and over one purchase deferred that the assets increased the repay TA resulting with million. significant industrial also believe Last discount, HPT Hawaii. its We Hawaiian This value market,

initiatives, to momentum. terms we RMR's on At significant Tremont, build updates. newer platforms had and recent management some quarter, In this of growth has continued

raised repay week this a is of rate issued month. facility origination ultimately a this credit any facility with business can the order new in pay million provide until momentum, deployed will used its their RMR. business and to basis, provides greater annum. for quarter, at time, additional a to X.X% proceeds, million will Tremont, Tremont's of this with Tremont monies its Tremont $XX entered per to $XX $XX.X approximately a new which This capacity flexibility its million million first loans, of RMR to in execute engaged. loans time Tremont on intended bridge, In dividend closing and maintain third-party later fixed This at Tremont be capital we quarter be end. will investing and IPO has arrange after another almost with At fully portion $XXX company, a strategy keep facility This leveraged network

X.X% January calendar the RMR first the its acquisition Depending fund on commitment and $XXX Richmond, cap rate. to to half of Class of Fund, the in opportunities, XX, future be relates called million pace A Property expect in to announced this Fund building a the would RMR's on it a latter office acquisition, we million multi-tenant XXXX. $XX Virginia, Office As

This across quarter, been also sales officially channels for we third-party has with launched efforts potential Fund, in our conjunction feedback marketing sales positive. and our initial the team all

and previous highlighted until we fundraising is be later in any expect this the As process around don't capital earliest. calls, news will have to year at lengthy the raising

growth on cash, In and the million management we to providing collected fees, January, almost the in no out seeking with opportunities. incentive updates, $XXX us these our to we opportunities remain debt. pursue strategic We diversify ended focused capacity Beyond quarter business additional possible platform.

speak the financial sources. diversify to possibly to consistent Jordan, results I'll cannot I past, turn our with specific Matt I assess in what now for CFO, the further communicated we continue review revenue While call opportunities, opportunities to the acquisition quarter. our to over our will who

Matthew Jordan

Adam. Thanks

earlier, business share. equity was income year-over-year attributable decreases or were the million of quarter. $XX After to highlighted $XX.X a million REITs. $X.XX $X.XX which on capitalization million per costs, management quarter, Management sequentially. adjusted a income attributable fees, unrealized investments, net Adam RMR our this the represents excluding in a losses of incentive to million of $XX.X primarily net average per result to were and on separation decrease method fees RMR was lower revenues These declines $X.X certain managed and basis As $X.X fees due equity market decrease million excluding incentive or services share this

except and fees, base With ILPT, in market capitalization in quarter our our lower, measure being equity revenue for their the The XXXX, would there managed the the on decline dispositions, services our for quarter share the revenue standard. total equity we REIT monthly of expect $X are million have revenues basis, of been noting, be managed REITs, for XXX, than that quarter worth capital management adopted been, it also along prices the paying currently impact It's the this of results REITs in had basis. business Based on prices management new being base to on on fact sequential this approximately a OPI's business accounting quarter. are $XX approximately paying management on current REITs, we ASC two with latter next lower otherwise and share advisory million managed portion fees strategic fewer all calculating our monthly days the a equity invested basis.

are with an property application we required a costs offsetting of present result, we publicly amount and a is expenses. in large other in equal As prospectively. ASC consistent This we basis, operating managers, will operating XXX client one source company with traded helped capital and a gross apply to on any

impact no income to resulting again statement the was cash income quarter, which gross-up flows. This million, has $XX.X our or of net

additions increase million, compensation, as and benefits Turning These basis. $XX.X quarter. primarily $XX is compensation increases $X.X million equity-based includes to are of on sequential quarter growth, which year-over-year Total compensation basis, a executives. support on cash well $X.X million, million increases. to $XX million million as to of and expense a compensation attributable expenses of the Cash standard in an related headcount for $X.X costs and million merit was to separation former in $X.X

X expect ahead and would cash that each considering both be XXX(k) next compensation payroll after $XX approximately expenses million, tax January Looking we on normalized quarter, to to reset year.

an retirement of on $X.X right agreement under X.X unrealized That held formal price the quarters, place common XXXX, TA please TA with continue President the October CEO TA's we open he line in the shares of changes million. loss Operator, to we quarter in each of mark-to-market first in million the and and questions? in and will million. and In Lastly, These the this of shares $X.X provisions gains based of the be losses recorded our former refusal we our to concludes purchased approximately period, remarks. will TA, exercised for shares. recognize you the would future

Operator

Thank you.

comes now begin Owen go from [Operator session. ahead. question at the first Instructions] Please Lau Oppenheimer. will question-and-answer We Today's

Owen Lau

this few I Thank the it my is finally, or forward? Property looking the should related million you cash? Would million XXXX a how for you you. about Office after Also going all that average you impact for questions. Fund. to Thank transaction? we is questions earnings use And that size $XX are debt $XX the for for taking acquisition for have any think

Adam Portnoy

I'll pick part. let and two first Matt the then up take second the parts, I'll

debt, of credit line of terms itself. to has the a the on itself fund credit, acquisition the actually In drew line and working we working of fund

that be whole think for we levered. XX% imagine term, it to As vehicle, longer we XX%, about

level so assets but all good And of have them will will. a not debt, property the amount

have We it. haven't asset whether specific debt long-term on will a that determination itself made

what million sized of mean, to good $XXX a pretty we've in terms terms we'd size. average saying invest looking average pretty investment of be I the In in. think – less size, been that's I good than

think for a $XX pretty million, is $XX around size good I average million investment us.

average probably do Now, I we we stuff some some a will good Matt? investment. bigger, and say it's stuff will pretty and size but do that, small

Matthew Jordan

Yes. Richmond incremental earnings. revenue, with Owen, guiding we think million $X with baked that $X.XX of about And of was our $X.X to I forecast where we've guidance. into consistent been we're million had incremental The acquisition something in

Owen Lau

deal me, that's follow-up $XXX for at balance and about combined was perfect. million. One the looking Okay, sheet, cash

to good be you So money the into if income? Office more we would have. Would the into about it goes in securities cash more you. should Thank putting problem be Fund Any Would management generate you a helpful. term? be shorter to think color investing very well? Property strategy How cash more

Adam Portnoy

It's a Sure. question. great

right. You're million ended of with got quarter incentive and $XXX $XXX we've about million fees. cash about of the We

$XXX committed do that do of second we with spent Of have going calendar about about will we're the sometime capital. million, the million and in probably to half it's what question great that's million, the which fund, So to XXXX. $XXX a $XXX be

loan $XX today or help a making loan Tremont to million We we've made also to announced million $XX that business. be that will

of about good $XXX still million capital, that's do the you a So the capital, quickly as leaves that of math. chunk can

in our preference and the around that capital continue increase deploy new try for in opportunities. specifically the our to revenues revenues ways business, I will to to is think

cash. we if would in excess business maybe to look help we to So that a line, line by business our start were with that line business some start investing new of

think to every job which and very have we for I our quarters, also is looking make are think acquisitive, are sense opportunities to the an and we been several we that quarter, acquisition. do, opportunistic and we in

in on significance is we think of get well-established of likely. if the I asked unable something public since client to should and it pulled haven't as money – we see whether might work don't again come to the growth bias, we was on would new our that end we obviously that's anything get put to I We where not build say, that, of in do we the end as use what a trigger increasing the company, Board times, likely to dividend the closer return have well-established and that's initiatives second year. let's we the we'll spend would opportunity. year, been we found that capital highly will and of of continue say, and at be right get the to half I some in end the we then capital up revenues, manner, near initiatives, expand that could second invest some the And lines for, we've not, around the were platform businesses. that if if investing the able think think business is and dividend, don't shareholders. companies, back to towards our about We've but or if don't XXXX, if of to the think we're of, the to many a regular growth I I cash, been But let's meaning or there we're half think of we in, some our that year the – or way the diversify would a consider

Owen Lau

Okay. Thank you.

Adam Portnoy

Yep.

Operator

next And Mitch JMP of Securities. from comes go question Please ahead. our today Germain

Mitch Germain

right over to is now, today loan, is time? or or drawn Adam, the as Tremont that going that them

Adam Portnoy

be They to drawn. months have six on to it. draw it's Yes,

will it need be So as it. they

them window is they have to of there the want carry want to – So the have money. sitting a on have didn't Tremont we to cash. did to negative draw holding But six-month the

Mitch Germain

million I guys to office cadence, trying you Gotcha, have fund, commitment. I know out with to $XXX the then okay. And figure just regards mean that

pipeline? the that's line back fundraising of in deals the what probably there? are funding. kind with expected? or a of Was of said initial Is How that deal You half year a reflection materializing that you

Adam Portnoy

with assume. terms it hope in purposes, nothing just of line letting year, expectations. in for really mean it's we fundraising has planning with purposes. for We think regard We I'm third-party raise I we to raise just planning So, – this do nothing some, I but haven't capital.

of takes meaning money that it the – it It’s very have time We that there. first successful we And I in are us takes first a just planning think to that's time investors fact have the are the we we the private fund. to historically really of talked whole and group we the – the we year over that time get not – that takes nature with talking money not too. a a time year, start get first sales the are lead to raising

a quarter So half many of and a the robust we second and of we money to just in that's for terms pipeline that will at it of was second quarter. going reason it's in of Last But that introducing the universe to out the last has also a half we we're very platform changed have deal us money the a since be deals XXXX, whole of takes I'm get fund, time. looking putting the the opportunities, as to I think new in our of timing investors and XXXX. confident don't work the and thought reflection

Mitch Germain

office fund sectors could public looking which healthcare, type at right that got your for other looking with fund, have at got you've a business property, you've of you've markets? the now, you've a involved the lodging, OPI, you business alternative obviously not you you're the more of be multi-tenant in got industrial, private And is got

Adam Portnoy

I'm Yes, to about if way giant the a format. in obvious we do we get one we which not That's it's is multifamily, not we we could. residential public it, in that asked biggest lean. format – would and enter, were it's even private someday that a sure or could marketplace a sector a we The sector in. that do the play

too that there first which lot trying We're we're Core it’s have, or We to to we to want are around think what the things it be to talking sectors, pitch before I these on capital raise think I think strategies. present are not with Remember is, effort trying raise at which this it doing multi-family. to in is once. distracted got too us get additional the then traction and our But side to Plus the themselves that, strategy, successfully, gain run. capital time private you're we opportunities of to now think I again, on about a Fund. right obviously investors. There then we up to trying first fund, this multi-tenant got opens out We private focused for successful there. right. for opportunities we office very other that walk do to other If many

Mitch Germain

Matt, my think guidance Got I $XX revenues. of some you. for And million you last provided question,

sure that. want kind I make understand of Just

sales So the you've number. that potential in OPI got

HPT-TA got are anticipated You've the reflect then for number? quarter, the will your you think average currently? kind that that transaction, where and stock that assumptions stock create prices does what that where kind underlying prices Is – of are of

Matthew Jordan

$XX case to move is but have like stays forward, your that and to that those at activity the dispositions static. the be we'd prices and through OPI execute, see of January, or to the and million share That share not would nothing Obviously, assuming had looking change month see be price were the improved, were number.

Mitch Germain

you. Thank

Operator

of go Bryan FBR. Riley Please question comes Maher And B. our ahead. next from

Bryan Maher

Yes, good guys. afternoon,

new sourcing there of acquisitions, the relates skittishness So And assets, you up on free pretty or last whether as of or you're or are rates owners what that the assets? relates it's part those three could it you market that volatile manage, and anything, funds cap had the for it seeing the any a the from as out when for funds, we've to seeing, months. if you any movement are to four

Adam Portnoy

in has – quarter, get like cycle the right the to calls transactions now, reason. are of and try closed come offers year-end, for they before early the a offers period no lot meaning all pricing one to then or due. not live brokerage where into we have February call to January, a deals for have We really being come The try fourth by got are community starting seen whatever a in that market, to free

for – of seen we for a we're or in there's out I seen lot seen offer coming there's in for dates offer a calls have of month weeks, not dates movement though, just any going or lot is and so, haven't next set February. we nobody January not – week guess the I few if pipeline, just yet. we that's market. haven't or lot a – offers They I have for – January. second are their first, many call the So, set within call in books, the not offers a tell and transact know more to that's it's calling think there lot in transactions a will been you that I up a sent

answer, think of been a not points. of so I'm where we're there's giving and don't at sorry, data great that's I'm lot And sort a because I you

way will have side, started we spreads is on that debt the happening say on have we you, very the But side, bit that's say the the Of have loans. There least of since little what's And that one Termont that's the eventually. move the I indirect it going to cap area we seen a have beginning did maybe again, maybe the little to impact up, on on to spreads. rates, bit, the But I insight have doing point cap an well. I to if in widening would course bottomed going rates. that the been of close But is seeing the of to as is since even of seeing depends that's out loan at and last we year on. what because mean tell course, and some on year. sort – we an get beginning so side really a the benchmarks of the have are to the some

Bryan Maher

we you do All helpful. then aggressive various move across your be which XXXX? you look through most right. That's think the And active platforms, when will or as

Adam Portnoy

talked be have on bought, the and is million about the ILPT, most we by this tremendous that invested on $XXX debt fund. But $XXX just ILPT of put of on. has think asset an will probably the then amount that right capacity I Company a We acquisitive million call. we it followed now.

million. we than $XXX $XXX it So took – million less total just in $XXX bought that's for and We loan-to-value. million invested out, dollars XX%

So compared you what those to do can bought them value the we are what for. the math, of properties

a and then it's ILPT. that sitting go where in position market, and frees think lot acquisitive a right revolvers its on and undrawn out is a has up the company So for of that a lot in and so, I good that completely product that to ILPT space, be of coming cash, seeing a coming really now, The market. we're up offers and and can fortune that's calls it industrial

XXXX, in million there. ILPT a will just the continuation dollars so work So most acquisitive it's think put in we and to what probably I hundred and saw Fund, and do XXXX. that's be we can a few followed by continuing of XXXX, into have Then

– think $XXX making are lending capacity do they've into more Tremont, that. next be, that loan would more got the million six in behind And they I put work we the then and we'll with probably right months. can for to that Tremont, of

So fairly I think will also they be active.

side, growth first of in probably three those active this half our think the year. most the will I So certainly vehicles be on

Bryan Maher

away a transactions Is there of anything comment seeing coming on is to San a product those lot ILPT, secondary or that market. you you just Francisco, areas? see comment stuff planning to very as of really those markets New just newbuild your York, on a cap is low made of from you giving that cap are follow-up staying rate what And and that or New kind some LA, Jersey, rate low at you like are

Adam Portnoy

Yes, and secondary there's product market. both to coming new

of cap much, moved five referenced. again, is – expectation our rates But is, that not terms certainly rates, much you those in in the cap have transacted that not In markets top transaction yet. country

very don't be expect top very in we And and that five will rates XX-year of to sort have so XX so really And years. dipped X%. to acquisitive those right, on for not much loan markets, markets, below you're debt do quick, ILPT five top I the for just value just those are of math fixed cap very it, XX% rate less because than X.X% at

least So got we over have anything say accretive. in X.X%. And million deals capacity, bunch at are we done – mentioned, you you being at a X.X% unfortunately of therefore $XXX some markets whole could be the should at

opportunities a So the probably product, new can't are five tenants, I buy four, there, product, but lease in outside to in credit buy if think higher there we buy there much, country, a anything and long-term to X% functionally get is top rates. if three, markets good cap modern you opportunities the with

be so real estate. I think very accretively high work we'll money the And to to quality able in put very

Bryan Maher

you and would but at rid it strategic it, TA at point? in and as it Great. plan a to lastly it's some you'll – O'Brien, Tom RMR, just it an guys away which obligation, by fulfilled the sell point of is from just owned about to forget you that, just stock there get talk the And is you not on bought or hold be

Adam Portnoy

a me is time. we'll I think on don't likely I for on But at that stock I'd yet. lot we'll period it don't quite good time. on nothing It discussed factors. – you – push for a if some my sure. probably we've that of hold think it, length I gut is, different gut I hold But reaction of depends say to says, for it think my

Bryan Maher

Adam. Thanks,

Adam Portnoy

Yes.

Operator

question And a from Germain Securities. ahead. our Mitch JMP next Please of go is follow-up

Mitch Germain

couple announced C-Suite of last in the Adam, bunch a months. of obviously changes

transitioning to seems be everything how about curious there? Just

Adam Portnoy

question, Great this We one. Mitch. anticipated

yes, bit was, say, a So would None the movement there been quite senior of in this has of ranks. I acrimonious.

over was time, they of decided our that folks them success, have that and long our being more was I this more also of coincide. has good the natural had had organization, fortune leadership assuming change All my company the may retiring. with from have year-ago. passing last for dated did with a year, it the was there They really They been think with father a retire. to and successful. with I benefited myself guess, was responsibility a about time the it for company There a in – of

it to because is some on there look And running do. is going to wanted and is what time was he Probably Adam think well, all quite he on correlation put that because the retiring? the said, I energy. this mixing bowl so so that, is business about probably doesn't low this they be to people Simply decide think is for some time, and like right people had to to it

And that's so, to think what retirements. I those led

These – a and also It's were were successful good at story. both they especially it's what internally. it's think well here were in accomplished but and well did accomplished, are I largely, folks story very that and successful financially. good

great it's a XXXX. see much XXXX So – to at trending think And think into least, that much it's continue a it don't it's great I a story. foresee no, I don't into very we're I or trend going

Mitch Germain

going in Gotcha. on can't maybe you update of that but what's original some Star, be One little more maybe can much sort No, one. emerging a a an sort grateful. of with is of provide? any for on there I'm provide me, Five be color or this but that sure you I'd try more that's to timeline

Adam Portnoy

the its Obviously, great called growing is Star November. a was market a issued, for It's Five concern, quarter, third question. announced earnings when what it aware Sure. is that

of with SNH. better half and the to has discussions Those second sooner the in the versus I certainly led I that to in the they anticipate of first and think year, half ongoing. this be are Five will Star this basically. discussions the did year that it, And SNH around November – it. between around closer when announced something the

Star, the think I think give I do math few next in Five can here. needs you something on with to just months and the

announced, And and announce for what's sooner now. it we RMS Star enormous at I to so, of and something I Five on the think can both going hope and is focus SNH Star Five be right it, tell a can you

Mitch Germain

helpful. you very much. that's Thank Great,

Adam Portnoy

Yep.

Operator

question-and-answer your remarks. ladies and any like to over And this Portnoy gentlemen, the for conference to turn closing concludes back I'd Adam session.

Adam Portnoy

call. concludes on that our look Thank We you this progress for afternoon. our forward updating you to during call. quarter Operator, joining second conference us our

Operator

has and Thank we for you, concluded, all sir. Today's today's thank now presentation. conference you attending

You have a lines disconnect your may wonderful now day. and

The RMR Group Inc. (RMR) 7 Feb 192019 Q1 Earnings call transcript