RMR - Earnings call transcript Q2 2019

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Operator

Good day and welcome to the RMR Group Second 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, this event is being recorded. I would now like to turn the conference over to Tim Bonang, Senior Vice President. Please go ahead.

Tim Bonang

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

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

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

Adam Portnoy

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

reported of million which For year or ended $X.XX the adjusted second XXst, XXXX, fiscal share. we $X.X of per on income net quarter March

client to benefits companies for reflect prospects. positive client we RMR, quarter have will Even our results their our remained have our operating long-term but facilitate quarter. future the for operating and created headwinds negatively positive our strengthen of results and these certain months this balance stock of We the over have operating a as efforts believe our of affected of helped last and the sheets near-term, their both efforts several quarter's improve some companies' This client companies were results. efforts at repositioning company operating client some our efforts, repositioning fundamentals prices in result the though these during

For example, prior companies during rates have an client on of rental eight average supervised behalf million companies at leases leases feet years. past These million ranged RMR the higher X% quarter. over capital X.X rents of term and $XX approximately space, our of our this resulted than quarter. RMR in also improvements client same for square average of in the approximately

million more our the we were into $XXX that two acquisitions funded financing that result of client million of ILPT's last in activity. discussed entered quarter, $XXX recently than recently busy the more it include the was following; across and companies significant as noteworthy Some Trust this Properties acquisitions deals in especially highlights XX% mortgage Hawaii during Logistics over call. on by closed reported earnings Industrial in portfolio were our leasing

properties. and strategic feet activity ILPT belief prior through than our As XX.X% continued it ILPT rates that resulted leasing average one XXX,XXX the this relates rental initiatives forward weighted announced XX% weighted These over continue weighted moving X, this for which rates. underestimate. million rental that positive entered of another average sales reinforce were $XXX.X higher continued property sales de-leveraging agreements management developments asset active rates to the quarter. representing three ground to to square same Hawaiian and lease terms Since investors into in has and leasing, feet which that were Trust million is rental ILPT ILPT of on XXX,XXX space leases, the of property rates resets Office higher of Properties average over square story OPI prior January rental in than sales nine closed Income completed in of rent years. for for resulted quarter, $XX on

announced and that XXXX. weighted should OPI activities feet the growth years. of weighted and leasing In same part future activity rental for more de-leveraging of higher terms latter than for leasing XX.X% position prior XXX,XXX OPI the of were space, rates calendar lease year well addition, average square rates These rental and and than average momentum X.X

row, by the to its Hospitality For raised cash quarterly a $X.XX $X.XX Properties Trust common eighth in dividend per year share.

approximately Senior Hotel Living and both for $XXX During XXX-room Star, business Palomar restructured largest million. and portfolio in Five HPT tenant. Senior the stabilize Washington of the Properties SNH maximize April, arrangements value senior their the also In D.C. Housing Trust living quarter, acquired Star SNH's Five to

As and this Star SNH Five Star its restructuring, to convert part into agreed managed Five senior living issue of portfolio SNH portfolio with about XX% to leased ownership shareholders. will

than Statement $XXX by deployed Five its participate quarterly its related dispositions to has completed, leverage. well momentum, strategy facility business their and This as the loan investing basis to and reduced Tremont's Star's recently Five bridge This Star's credit a of future. shareholders credit SNH ensure raised as $XXX proceeds $XX OPI can is and up new of the a Tremont has almost time, to we $X.XX origination to fully Tremont Due questions common to and keep to subject currently offering transaction Star, raised. in SNH RMR intended announced approval and our any review be Five SEC that comment remains shares. share. dividend by capital can will be strategic unable be by and dividend equity secondary to its further $XX As insiders $X.XX about Five million. ensure take network possible cash When in this the quarterly greater Completion to a facility of commitments allow financial additional with capital to are performance capital IPO offering and from facility To health of -- Tremont. we'll and origination this outstanding more additional on million flexibility per would SNH be with Star to million SEC recently XX% arrangement equity million parties raise additional Tremont until At capacity increased its any until reduce announced Trust Mortgage rules, this ultimately shareowners, recently conditions. requires of SEC's leverage own their or engaged market provides the provide a Tremont to long-term to result, and raised. the Registration execute filed

three strategies growth forward, on Looking core possible areas. RMR focused remain

growth always organic client companies. focused are at our on current we First,

we balance that our private acquisitions hope and capital to will Second, and grow new leverage our efforts are seed diversify and continuing client we strategic identify to sheet to companies. new third, vehicles leverage

fund effort On our office open-end the starting private the real officially we capital estate marketing for conjunction our front, RMR team. third-party launched in sales with in XXXX,

highlighted efforts. opportunities, year, the have we half met quarter in in of I've news and RMR's the As so or later We no lengthy, million to will Depending believe raising fundraising the any around previous have we investors progress be to year approximately ended we calls, with XXX the until commitment expect to process fundraising the to be likely made this cash called this million capital expect and don't Nevertheless, earliest. far potential contact over calendar XXXX. future $XXX we latter on at with this continue making fund in are pace $XXX our and of acquisition in debt. year

and to longer-term assess such specific cannot balance our that we speak to a opportunities grow priority Board to our other continues While opportunities, stock using buybacks. using possibly or a work. Directors continue to higher special and remains Management to capital dividend than our balance put to for sheet view with of organization I diversify revenues options, as further the believe sheet

the estate continue possible and private to In include management who as platform, our on focus our Chief for will now details over expanded securities real process to quarter. search results look terms I of firms. more growing review evolves. real calls forward Matt to financial providing our on to this we our I'll Officer, recently estate future we've Financial acquisition Jordan, turn the equity opportunities, call

Matt Jordan

business. to decreased revenues, billion this everyone. primarily fees and to of management million due from lower capitalization declines decrease revenues in related almost management of ILPT. to basis, basis, a sale services construction million as offset spend management declines of business average quarter market convenience equity the fees afternoon, at in growth a TA the declines tied REITs, result due in and OPI fees represents average base OPI, SNH, managed Good acquisition year-over-year of which the the lower lower a by On at lower capitalization Management revenues on services $X Adam. were base market sequential $XX.X Thanks, capital partially quarter, store management business non-fuel a the from $X fee

been March our lower quarter of are basis. ended business For XX, opportunity, approximately with on The all ILPT, on than on REIT, capital except quarter calculating have invested in capitalization impact revenue currently for this being monthly being a they fees business base the base market revenues our management an would paying for monthly lost measure results fees managed management XXXX, this basis. otherwise $X a lower equity million

costs. non-cash of compensation million, expenses was million and benefits inflation. compensation additions, Turning cash Total to the and million, in as $XX benefit quarter overall million is $X.X separation to are increase payments, These approximately standard primarily expense $X sequential basis. Cash compensation increases share-based of of $XX.X $XXX,XXX both on and as well attributable includes quarter. for which million, and year-over-year of an a wage $XX headcount

to at quarter. recovery from our relates remained XX% our cash compensation it companies, reimbursements this As client and rate

be severance Looking G&A the was normalized executives. and $XXX,XXX to this compensation next million, we normalized $XX a XXXX, of cash we $X.X retiring believe for costs to we which are expect run RMR quarter, projecting ahead of the fiscal million represents expense rate. remainder quarter, to related approximately quarter

highlight this growth vested I'd In to positioned annual two next from our months. to at words, closing, risk and reiterate client and I'd for increase RMR's management grants total will we $XX performance advisory million -- quarters, share potential upside equity well immediately. financial watermark potential companies, downside which To other of REITs, benefit In approximately $X we growth Directors, think believe of fiscal the to forward. revenues are periods, is from incremental third service costs the six results, million managed rather growth of than going In our quarter's be approximately all projecting quarter occur, over we now operating that you Board repositioning for This disposition our each results for RMR organic RMR. approximately takes at and the there April, Operator, capital the the quarter's when last an this like hopefully of from more actions and end, current are our our recent into companies of its strategies to like that lost the So client a opportunities please managed Accordingly, projections activity managed ILPT's formal would our line issued REITs, make our results. concludes our in projection projected G&A revenue include of of spend the future and acquisitions. will $XXX,XXX. equity to restructuring at strategic facilitated equity consideration REITs, capture open low questions? That of remarks. prices should we've share

Operator

today [Operator Germain come Securities. from Instructions] ahead. question Please go Mitch of Our JMP first will

Mitch Germain

stream. in-office, hesitancy revenue there organization other can you other might classes bandwidth I asset the Adam, I your the are your that are that in-hospitality, retail, there about curious, sense from but any industrial, think am classes the you. diversifying I that understand appreciate you? Thank given mean, any for I growing your asset maybe make the -- thoughts healthcare, of and

Adam Portnoy

argument from an could terms we're multi-family not in management. our live related but you piece to asset portfolio multi-family our multifamily. missing residential. is big That's is under it the I one an senior I the obvious living there, traditional people that obviously think, is in assets different because mean of that class, make than

exposure could forward. some retail. be You expansion area going I an that an have area also mentioned But to. for think we That's

through that do could lifting team a outlets, group. You from acquisitions and/or say another

and So think we many classes, we for the about asset company. think thinking about we ways could getting growth that as initiatives those there's into acquisitions are and about sort of

Mitch Germain

you that amount management, for toward you've maybe that Is the that more third-party management growing property considered. landlords. about something other managed, What looking obviously

Adam Portnoy

that tremendous real Oftentimes thought business. high it get to been and estate, that and only in sales provides our and facilities tied the companies our leasing think focused management, successful an that an largely around management lost focus where other have business that is do you It I'll advantage definitely RMR think parts it business the brokerage about. thought on for property to and think we the don't considered clients terms area amount companies The have and client own that of we tell management property something is clients I in we of a on management to continues margin about and not I so the typically leader I'm have it's and in don't it, say a a of growth. lot business I business, large. it's brokerage client definitely we particularly that think a have with be our to is property people those I of very but

Mitch Germain

but have the office fund initiatives moving about just deal along me. Last and that's pipeline what I and the I apologize, how initiatives there? Great. the from fundraising was third-party with do missed capital it. about I curious with one the might

Adam Portnoy

to sales XXX So, did investors. a in little are with with made have expect great certainly year, us meetings a those I I we take have towards energy It's be And also think we'll And fund investors. bit met about think, working outlined. it question. take over be and -- us. to of believe believe tracking contact Several tracking here outlined, long ultimately. time. it. of But, I potential our first around ongoing. that. or talk was us it our new originally this to our the behind till I don't we for end remarks. will news any investors. successful all we're contacts would focused our originally and I the additional while, market the will going to of it continue think we're I hard in But, very We to beginning year, Since private we're think we meaningful successful This expectations that prepared a it's cycle, us is I and that continue on a I putting We till

Mitch Germain

think that so, future any to the growth, would way And be it? that about is tied to

Adam Portnoy

of is part our Yes. private Yes. accessing We capital growth. think a future

Mitch Germain

flow So not expect much that committed? the until in deal that we capital should third-party terms of is from entity

Adam Portnoy

No, I understand question your better now.

vehicle based I at put can on be commitments Okay. -- -- there's Yes. absent $XXX least capacity maybe We that that there any that and power -- still numbers would more million, still leverage will believe the we just third-party. today round into vehicle the buying in that

the question So yes, understand I before. didn't

Mitch Germain

ask the Thanks, I No, I appreciate I it. didn't asked it -- I appreciate wrong it. first time.

Operator

question go Bryan from Riley come FBR. Please Maher will of next Our ahead. B.

Bryan Maher

afternoon. Good Yes.

the can in of RMR. SNH, the large million as Is where million, and So, names if is to sure, know, of increasingly am you your to it's I anything shares little buy of believe into believe us really shares maybe kind I frustrating, trading cash are show down OPI X done it's well with gauntlet a know, what don't many like you underlying ward relative X kind that value. kind there of X the million, that and investors throw shares. and be

to that? You're great with return a and Have and to when as yourself the any going given if meantime, guys the further in thought you align shares those earn entities. recover,

Matt Jordan

don't to thought that. But a changed. come -- certainly, of answer our to lot has given Short think is have the conclusion, we've I thinking we

we thinking to consistent it I think on about has it. think our been although continue

RMR to growing believe investing and rather balance client We capital in about think is the current than sheet continue the used base client the RMR best base. in to of that that diversifying

about that today we but no think is a base good client day, the every to we our one. is question grow shift, strategic there diversify on using It's and revenues, to focus. focused cash continue be that's balance and something our Your sheet

Bryan Maher

just from And think of have of a Star, kind going a for and the of when sales, company heavy operationally lifting one are which so in to think years the case more with year, challenging do the do OPI SNH and switching you about more SNH much and to you consuming you that structure and be with kind why? Five the be going management not to time lot is those of and challenged, asset which this

Adam Portnoy

organizations The lot if is to sniffs relatively I'll have the anything reliant have part, of the probably And would agree are is small it's don't harder only with OPI potential with not and versus the will sure be are which it's sell. I'm sales type everything hardest. nothing dollars of are easier -- of They portfolio being properties. all say enough are don't you, and I maybe small can their it. within I honest to of lot any In the a portfolio different that maybe SNH big particularly we assets you We're there time hardest. a of other Those as are say at what's with sales, the about properties meaningfully you being exception But at don't both the a the they a consuming large we heavily asset organization. selling but just Medicaid. good or a and their me. is me buying tell difficult. I one stand-alone and we the see or team that on and for push as think with sales a else, the easily do SNH the thing sniffs quite part assets at probably let's those, the those stand-alone about of, lot communities, say one it's management SNH And you hardest to

Bryan Maher

but a and we say I to where entities, or OPI SNH redeploy calls, rate listen at talk stock's of X cap kind back prospective the where then CEOs and trading are cap of rates of X these listen And we've shares ridiculous CFOs these particularly at our as point to we when the cap that goal of and at at finish assets look and selling is to some And assets to implied did what do the buy so, de-lever you not the cap gap are those the trading cap which and be rate know going the the proceeds stock earnings at to level. between the the here sold. and to us all about with rate double-digit some we're

Adam Portnoy

It's stock, cash selling both and are that's think If lever investment-grade to the into those companies would to selling Yes. a could use of I are not not to in take I and upon. investment-grade both where they OPI, the out would continue that -- those situation of is think and rating. need favorable I because delever. rating something given that tough important taking those those mean, on two to SNH the assets. their OPI, think is and delever companies are companies priority. particularly that SNH terms assets focused were I those to think incredibly companies afford sell I up, or of the don't -- that cash be boards deleveraging and they any maintain they companies, assets, to

confirmation is even I so, And don't we've secure. stock leverage that ratings see until are be conversation debated really -- got And -- buybacks and going in check. we've think to the is in maintained the don't I seriously around

Bryan Maher

back get how it that long think do late in you a process plays And comfort? XXXX scenario out. you that that Is half,

Adam Portnoy

-- of year. the that our deleveraging all think end happens the goal by disposition I this and is

Bryan Maher

Okay. Thanks, Adam.

Operator

ahead. come from [Operator Please will Instructions] Owen next Oppenheimer. of question Lau go Our

Owen Lau

be on And real is of in please more you. the for taking fund? you color the type my questions. equity What Thank target this you this is search. What color Could estate your size very rationale helpful. the strategic fund? this at provide private expanded more point funds Thank would of of any

Adam Portnoy

will searching and say have may dollar where own had XX fund with round I'm the it on turbocharge with really growth to not, sort successful and accelerate be would working partner part focused offices question. it fund in growth their around that in we size. a it, not we're to a were possibly funds, I in be dollars good something put our being equity we firm, part believe partnering millions business be capacity. them to shop, But to of of to growth, the are the certain it's say from to would there country, us. equity private hundreds or a let's private of private be that an that leapfrog real space, that why a sort of shop have employee or able they say But, us expanded the if us stage organization, to partnering of numbers large their it, thinking RMR where, So, we're a around need up acquire by become perspective, allow estate management, we billions there of $XX under our dollars, real private our basically would to their assets growing let's was is for and be meaningful of What turbocharge raising as of would with -- sort that of own under be our meaning us, estate in capital really if around and billion of is management we might would looking, base opportunity have in this they would turbocharge could they

we never be be achieve have be small if trying articulate would to would lot equity will I types is of they these again was we the folks, in would of would have conversations work if mid we think would something there, out. to meaningful It's that And way it it. issues you I there we shop, getting know, size? What's that's size. know and of relatively don't course, what a those And in I'm of involved not think did dollars conversations it I social think parties to out thinking conversations. a what be So, having And you -- private the how we're both thinking but multi-billion it mid-size. with about

And hopeful be will can do I'm we so, sure maybe able we to. but something not we’re that there,

Owen Lau

And or venture. you partial equity of clear, Right? helpful. joint make just stake That's for equity even I be want are XXX% just instead looking to sure. stake, to

Adam Portnoy

I I would describe structure XXX% accept control it to would as stake. is our a ownership, we think preferred a

So, circumstances. or It a not more than we would, would the XX, be interested But, are just I not stake. in we at do think if a venture. right position control in a necessarily minimum minority joint

Owen Lau

That's perfect.

question, revenue, a Finally What quarter light year. managed Matt, quarter little good going run drivers that quarter also operator a modeling maybe for last a compared same key also last are quarter and and this to rate of it's is this the forward? bit

Matt Jordan

of chunk or question. is of When $X It's quarters, There that good the a the the approximately TA in next up revenues to The is managed the quarters. plays tends two million projected their seasonality revenues. Owen. No. in increased the tends in about so $XXX,XXX pick a business million that to two I talk operators $XX next increase,

that in activity. So, some has this renovation

you definitely solely quarter's run this not So, off model should rate.

Operator

our any Portnoy to conclude over time, will the this for Adam question-and-answer gentlemen, remarks. closing turn session. I'd and conference this At Ladies back like to

Adam Portnoy

us. joining for you Thank

will conference We at FBR Riley in the late May. be B.

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

Operator

today's The lines. may has your for and We Thank thank now disconnect now everyone joining you sir. concluded. presentation conference you,

The RMR Group Inc. (RMR) 10 May 192019 Q2 Earnings call transcript