RMR - Earnings call transcript Q3 2019

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Operator

Good afternoon, and welcome to the RMR Group Third 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. Mr. ahead. go please Bonang,

Timothy Bonang

moment, consent thank call joining Adam are Officer, just Chief and our details me and business Portnoy; today. on Financial performance a take conference the note third In Jordan. recording that quarter the President Matt will then and XXXX. the call I without analysts. of you retransmission They afternoon provide us fiscal the from about written for With would today's is the prior prohibited for will and of of they questions Good and Company. like CEO, to

August that made today's on Securities forward-looking statements any Litigation RMR's as may of Actual beliefs note The the forward-looking other undertakes within materially Private no of that conference Act publicly These the those to and to revisions and results XXXX the expectations of results Also call Reform Company from securities today, in today's release based the we are revise conference contains statements or laws. call. meaning statements project. obligation of X, XXXX. differ forward-looking

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

net income, and we discussing this EBITDA, In including non-GAAP adjusted be may adjusted EBITDA during addition, margin. numbers adjusted call

in we morning. EBITDA margin adjusted A calculation adjusted and per be EBITDA, reconciliation Generally found share, a with U.S. Accepted Accounting of income earnings the Principles issued to accordance net determined release in of this news can adjusted

begin Adam review. turn over to our would the like to Portnoy And now, quarterly I Adam? call to

Adam Portnoy

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

reported income basis. a an which quarter per net the $X.X year of $X.XX or share, increase fiscal on sequential adjusted of quarter is million per XXXX, we $X.XX For third of share

sequential points. XXX a a X.X% adjusted which $XX.X of adjusted and which generated of million quarter We EBITDA basis increase margin EBITDA is increase also his quarter XX.X% of sequential

As and the were a quarter's positive and positioned the as earnings we year. we last over all facilitated we And low call, companies from to client organization. highlighted repositioning momentum I a the last that some benefit RMR during had well believe last key quarter's restructuring metrics, that sequential reminder highlighted results of watermark. across actions represented we such, just The our generating its are reinforce in operating growth

of call, Since have been certain significant client companies. our and two earnings impacting last our there RMR events

Properties be agreement Spirit $X.X entered announced Hospitality First for high XXX or and a service-oriented of secured and entirely properties billion property had diversity in tenant with profile SMTA. The based it increased into funded a retail in definitive MTA acquisition, financial REIT quality which from Trust will lease June, with more to net acquire unsecured scale and HPT type geography. provide will debt, portfolio greater

$XX million X. close approximately revenues The shareholders RMR. favorable September. is will in on transaction will a the annual end outcome, HPT This vote expected to acquisition of And September before SMTA assuming the on generate for

recent investor during note increasing question consistent the difficulty] prospect meetings The has RMR's the about XXXX, relates of of second float. secondary December most we public event in Since public asked to been went offering. [technical

are North story time. majority for as first respects a many hearing OPI three owned, our X.X they that XX This of America, our common our vast with at in million marketing our meetings part of over re-IPO was HPT, public completed of July secondary of of client them as has offering RMR. more we engaged shares X This question offering across companies answered efforts, and float. public the was And in than a investors on which SNH, the doubled stock the

this priced investment. of REITs at completion recognized on is return offering, the their share, $XX a With per XXX% the which

operating relates to space, it almost approximately X.X than RMR quarter prior rents X% this and the leases higher average positive million of arranging companies to square for of with companies, fundamentals on had remain our same term client nine behalf client an our As years. feet of

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

activity Some momentum SMTA quarter increase this positive that more of HPT points occupancy with to XXX overall noteworthy of client companies basis the XXX,XXX its to of the XX.X%. of the square highlights continued leasing following, outside our across OPI feet transaction include leasing helped

to X of More for Since importantly, long-term goal OPI X.X made beginning of leverage the has realized OPI agreements target either debt sell or proceeds negotiating million and from disposition levels property its and sale of program EBITDA. of times RMR getting to progress $XXX substantial range strategic on of is to a sales sold, to its shares. XXXX, has $XXX the in million agreement net under

with as arrangement Star quarter tenant, stock by leverage, as to sold has or Five SNH shareholders continued the $XXX goal to million Five of has under yearend total the make expected proceeds shareholders Further During of June, on In SNH's Living. SNH million. XX $XXX it for to its reduce its restructuring. the approved of issuance progress of SNH properties agreement condition Senior selling a relates of sell to assets business Star its largest restructuring and to

the received shares used RMR sale the SNH from its addition, $XX of leverage. In reduce to million

has in restructuring and Star, second its Five quarter increase XXX,XXX average approximately XX.X% of that increased reported As it the were of rates this profitable feet that relates rental weighted quarter. rental XXX higher ILPT to rates. than prior saw since results. an X.X% overall cash XXXX points Star is of first resulted NOI Five same producing occupancy leasing activity basis square quarter registered property already and positive the basis

mainland and In year this strengthens its completed industrial addition, further $XXX in and portfolio. property ILPT logistic million has that over diversifies acquisitions

we forward, come our market expect to Looking continue needs. primary two in growth from

of example that. a client performance improving growing we companies. the The by is SMTA and of our First, of remain good acquisition on HPT focused

effort asset continuing our private our capital are we business. expand to management Secondarily,

Sovereign Given continue Funds. Wealth the develop to operations, breath such our sources capital, with of large as of we relationships private

venture opportunities As our identifying may relationships at medium-term over that opportunities time, arrangements capital business. to short of of in expand possible and part growth companies, expect the client to could these lead most these our types private joint likely

For the into example, it for managed is possible in of that some separate relationships account RMR private may these turn business future.

by this longer and it regards funds With are are firm, through fund, have RMR this distributing real-estate more to marketing do any growing fund's using not institutional clarity to for to until third-party on providers the a the of this we focused $XXX open-end RMR now on we future. We we regarding fund private of million sourcing plan no larger of for capital capital. committed fund

accelerate capital fundraising to activities. possible our In addition, continue we capabilities M&A exploring private to opportunities

private in the We may with our growth to and transaction of in private business. help these and firm asset being engaged are preliminary That equity real-estate groups agreed. nature, discussions requirement all close said discussions accelerate is could management asset that in capital no result are

the now the over Financial I'll quarter. Matt our Officer, results call review turn to who financial Jordan Chief will for or

Matthew Jordan

everyone. afternoon, Thanks, Adam. Good

to adjusted As $X.XX Adam we share per reported million $X.X or highlighted net quarter. RMR income attributable of this earlier,

in due ILPT. the on our earnings TA adjustments, included back separation Tremont an our addition ad investment this Mortgage quarter adjusted share to per to per recurring investment's costs impairment of an unrealized and of In Trust. share gains revenues business quarter, and at losses $X.XX offset million decrease were related represents a growth primarily advisory based acquisition fee and from and $XX.X management Total this partially a service fees at which year-over-year on by OPI billion basis $X.X lower management SNH

approximately related acquisition managed XXXX. development a quarter revenues to our growth and activities On ILPT construction are capitalization increased except opportunity fees June basis. XX, measure lost business client quarter based on sequential impact revenue $X the paying in increased currently for basis, The being market our ILPT companies. fee on $X.X million The management resulted million quarter. at at this All REIT approximately and ended this equity of of lower a

million. strategic equity are disposition acquisition be occur approximately revenues are the capital we on estimated will advisory and prices today. share service Projections activity where to quarter, Next management total Based when around expense. projecting $XX and REIT in manage

million sequential This a both with Turning expenses in cash by to compensation to compensation favorable driven changes this the rate is cash modest also to our in reimbursements and due mix our favorable of on shift leadership retirements. increasing $XX.X basis decline workforce quarter for quarter impacts year-over-year our recovery quarter, a workforce XX%.

recoverable It the from as significant companies. fiscal note increase is acquisition. After expected Looking with important approximately in our of to cash be compensation XXXX supporting client is increase ahead, we to consistent effect staffing fiscal per us cash to quarter compensation giving with expect quarter increases annual and and fourth SMTA that XXXX. be in $XX.X quarter this this a million associated merit portion to to the

of Management as for on Board such share grants using and dividend to other this using a no director and special debt. than expenses balance of the quarter. represents G&A primarily an in organization Directors $XXX RMR higher increase cash buybacks. million year-over-year remains million due continue a basis that $XXX,XXX to million of quarter quarter $X.X or grow our the in to $X.X annual with our sheet ended approximately options believe priority We stock capital this

and recently of of property questions, property Before work and eight the been U.S. as Green sustainability people BOMA acknowledge management, awards want across of we I engineering, to the winner number Counsel. our has to RMR hard go by the a teams. Building recognized

U.S. of was addition, These Leader energy-efficient Energy. honors recently OPI recognized high properties. named to a performance RMR Green Lease by Department In promote Silver-Level the efforts

you please formal That remarks. the questions. Operator, concludes line to our would open

Operator

Yes.

Our from Lau question-and-answer begin Please Instructions] session. with We Oppenheimer. first will comes go the now question [Operator ahead. today Owen

Owen Lau

taking Matt, Adam, Hi, you. hi, Thank for questions. my you thank

float, you terms next you. higher EPS $X.XX how think cash and much given addition mean, base your stable REIT also, buybacks return me is quarter. should in be to have there versus this for of of room base it raise Thank dividend? earnings, high I should we think Spirit balance, we So MTA And increased a quarter. about seems your that dividend should with about capital that? How the public than

Adam Portnoy

Owen. for you Thank Sure. those questions,

capital, around his that growth first, the using sheet, theme about the Matt as cash. is today, of said cash on using today, believe balance is view, highest probably overarching best which for of capital our initiatives remarks, $XXX use in and is in we our allocation for The million

dividend in very management we nine about something recurring regular streams, That's a think diversifying we and the have capital I ago, and the think about right RMR think that we would grow. our is that recurring something increased coming right could focus could in months increasing XX% on as about towards now for about revenue the think it's its consider I overall we doing. to But as important using Board and our work I that and think are we quarters. debate You dividend

today to on While clients REITs and us them we're in well, I of the long-term to performing of it's in interest can sources that capital think all diversify very of our to medium primary try focused fantastic are best RMR into we outlook especially private raise. the revenues, our clients, for

We clients very use types to that growing about cash. want you our why take us so -- very of why terms asset often, I the prudently of and hear on help will in sitting much where we're we've goal the us strategic company strategically service. been that's strategically. base focus achieve cash And that and growing we I pretty think talk pretty our that's to that's of it the And

your answer Owen? that question, Does

Owen Lau

your to adding Yes, sense think rate about I helpful. direction. think very that; get about sort the I macro it's interest view of the But

about indicated if So how high whether U seeing your opportunities as the having guess that managed drives And RMR cash level, for your what position interest cash and the doesn't the about as rate recent your but movement year? are now. not I'm that go by And maybe, of it's rest are through cut what decision fed your expectation predicting? companies your you right to many curve going times the to I the market this the you're sure level, movement is given

Adam Portnoy

Yes, great questions.

real being likely beginning estate bit and the as of said, ask at myself I I real if year. up rates would the rate manager that over of more year are operator of of -- as have predicting you'd estate. movements. a going at the a interest said I'm it course a was me interest an the that not great little think of But of

fast. me ask like probably change they're it you so so has going down. market The If radically now, looks

XX-year where to about the beginning think of yield the Just we we the are treasury at was eight where into were the and where months year. seven year

they be would that people interest than rates think at I were points that where were lower at there thought very the year XXX the the basis of few time. beginning

of I can rate tailwind decisions go rates about hard say, interest that lot historically They can movements. performed down benefit can as So, our market, receiving and have that strategic based revenues our rather interest be stock get better. will REITs generally, because be some they the a we that, it's our to and historical revenues -- prices make REITs, off assets. than for then cost helpful of of lower currently are can from

based -- So the continue to could really changing, and a if guess. environment. that's that strategy be that benefit on my But interest rates so not go best that's much down, honestly, we're

follow of And back-end and the there's I I XXXX. It's changes operating strategic -- think our on been bit a well I just on through of in year, I companies if perform have the execute we're businesses of of lot think we to will and our we've those through client over our more that months. we remainder think will, last and -- the lot a that, which initiatives And made little well this we a on then XX strategic of into think return. most

we're how thinking really that's things. So about

our and interest that a we impact very actually receive on rate, movement our floating the match only is But on interest our do the is of basis, -- lending by fund business the affected from so business, has the part it's a all big rates, lending. floating other also mortgage we we And it little mortgage earnings not we is of our business. that rate part rates of

Owen Lau

That's maybe of for back or you potential your strategic kind going actions, great. joint of I pension the maybe Final me, some venture opportunities question to think sovereign to alluded funds. funds with

you a of past you. direction the in kind to Thank makes guess little in your that is interested what you my think I are controlling I question indicated more you change bit? stake.

Adam Portnoy

question. great a It's Sure.

You up. back know, let's

and in irons years sourcing It's of real focused nine in better. what the private capital. the amount to wholly markets. sort on For company's of accessing lot, been in about say, six the first a in lot a the XX a there's of existence, a effort fire, we've we been put around in activity RMR's been really that only have effort last capital terms I'd that have there's And market had the this been of of existence, we learning this understanding public tremendous months market, the strategic

us to I up capital, think, a with match that let's wealth are on type basis pension that type will new I given we that's most think willing fundraising, are that likely of plans funds, going to say, well partner us, the are willing of big of and account to work work with pools forward. separate we with sovereign

separately we're are what I two I doing that think we the at And a we there's of private having with this to opportunity some is discussions about, M&A in about multiple those early time, multiple start do real all at sort simultaneous, these possibility and them gets things are discussions sourcing platform. Separately, the bit same directly front. into then M&A we're think funds, but our little to stage, managing parties. having to we're it's of were parties this but capital are and once, talking integrating you things with

say, let's if something a AUM be interested platform business very would say been engage let's transaction. conversations, like those market we'd in control we're a management that, that has the clear an that in be existing controlled we or under already about of billion in transaction We've when buying only and that. that And several a

about. we're the controlled transactions going front, talking private when what's capital and reference on, you on what that's that's So

Owen Lau

That's Thank it you much. from very me.

Operator

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

Bryan Maher

Good afternoon, Adam.

to in question Owen's our million Are on Are up through correct that now if bit, $XXX to when me it Following your -- you a a was the I'm comments confused little not fund you little because you contributing section. mark? I now discussed wrong?

Adam Portnoy

investments. raising No, has better fund some We're that we're till we're investors. XXX that off individuals saying out actually get we continuing exists. distributor, What the We still making call grow work holding third-party some that it chunk high so per having my in it. we're been of marketing effective focused be focused commitment. to to look very very at might in it on over network traction that third-party some looking going to we channel for And just conversations and way no that probably is prepared A be remarks, through we're And reasons sub well after -- very for still not it distributor was at in us, thought, And is not million it's candid, I and -- $X not. investments. it into on tapping most turned is business. it It that's we're from and until ROI longer well funds, sort meetings the market various get a saying to said per

This in not first millions time. Because, of Since more fund. also to strategic that of a us this pivot in XXs trying think and in a sort help big focus of side-by-side involved requires of that on a we we're getting go to to might And lot ticket is if invest it's initiative of my to in with fact, for investor anchor hundreds through that time capital new dollars, for dollars, the us. an fund, raise personal it. it sense makes millions basically, of investors to looking

traction. just after also larger time very of a myself, requiring are my And time, to of investor capital by sort say, it's us. until pools to at to big interact some And making these lot go in and we're anchor lot involving a holding side-by-side that just, to I we find get shall we of to these investment until it's we efficient, off a meetings with this take that and it's lot of take me should folks. So with come of since

Bryan Maher

how it a through et Sovereign meetings Is Funds it with being relationships investment just Okay. these entities? and the those Is sourced? deal basis? And set cetera? up getting are that your meetings on with regular How these Pensions, are Wealth you banks with

Adam Portnoy

Both.

and us been into inquiries back contacts have we we've have that We we've going existing the that inquiries to reverse as third been, And over have time those we've introductions had. REITs. of we've been getting into we of we're had sort well. -- several investment mining -- the bankers to some them reverse approached at it's But like also, parties relationships

Bryan Maher

to will HPT That's Okay. in properties. be some fourth And I gears the Spirit properties, the then know of a quarter. the that lot XXX shifting transaction. And divested

credit, some profile, I internally and and down to, and of that checks, rent have or have of that So people what of monitor them of how -- concerns are it or Amazon XXX it's the still brings could it but that you doing maybe lot planning kind these How still entities it about triple or collecting know it's you whether credit what is but businesses to not just lot you, or get you're quality know, I to it's whatever. have properties. fair a are the or are in say some on don't a XXX, net

new on are about So taking into or staffing properties so thinking how RMR the internally many Group? you

Matthew Jordan

add national across assets staffing will touch of I you a additional And of and will acquired on our the them in, set and reside will quite what feel they I this got assess And the on corporate be benefit here this have bring to lot will platform Bryan, the incremental we've these Matt. be of that that and the is and to infrastructure a top that manager. very active roll easily think the transaction. we every day clearly real we've into. We in some experience. country it's able people of markets that offices, properties But retail RMR Hey, think going

and into. additional techniques, will asset you management have platform the these the We that technology capabilities can credit slide build and but monitoring

of outside can we adding that pretty take we're comfortable execute. additional So on and manpower, this

Bryan Maher

a then And you've making probably think shop Great. been controlling I from do or private What a about thinking would find that. last that quarter now or in think least inning platform you Okay. And the taking you you me. equity a about something you're of for two the what go/no-go kind just Adam, at that a position consummate? talked probability longer lot than in decision? you say is possibly in,

Adam Portnoy

think I it's Bryan, we what find XX-XX inning. several, on have that to predict truly we hard something it's

is a private talking enterprises, we're often or vast are generational traction, the most of And are and these change. let's most gain there's to say is Now, the interest get the we going everyone majority that when leadership private. through firms

way a about And so, the to exit. and good amount, they older generations be and have them exiting a have, could they thinking for this good a staff

And career. so, the getting their them there's of obviously social comfortable, issues end involved be might it's that with

that those And are managers don't managers our are profile, are anymore, that might really it having. they say professional have day-out going think so, talking And, not conversations there's fit go have characterize you a but firm let's of all social and could how -- let's the active best to day-in the way and the that we're call the not, running professional firm are interesting to it into the XX-XX, of the also there they is, that we're invest some way, pretty and it's then to group founders integrate own firm, we issues but it there's that firm. groups I that at now either

multi-billion-dollar in on that then us as different of is it work just move right economically to top on the it's it's don't that And groups with, as -- we make many of levels. a think. sense find market, folks know, multi-billion-dollar be raising that forward that enterprises, Look, to today's private every out. do got what's want Blackstone in a talk real-estate, to they are of that, funds that there's going but we it in be we folks fit there's going be ends are there's lot likely are to There's with a interested to one happening has the barbell. especially finding I groups of likely equity a and that that it's to folks private of we dozen that two want lot be believe half equity and go just time -- going and to But in you a sort it's about as other

And $XX the that the local call it's can then one make more they're the you than call specialists. jump market, the barbell $X billion they $XX folks to they not, billion, considered billion, even less $X of big barbell of of to are and happening enough specialized in than up maybe end they're are obviously it billion at other really, to the big be is to that end interesting, going to really shops. be are too middle be it's that sort that billion $X And what sharpshooters to what's

could of what and are firms many in sense they that are turning be reaching they of So starting in to explain middle real that of with I us, in and is a partly jump to big private having they're out dialoguing to do. might I'm there's too sharpshooter group able they're lot middle, not ways equity a the think because are trouble that's rationale pretty dollar real-estate the here them that market billion trying interesting that on mega be side. to specialized stuck been firm, we sort into what have of and the become interested to And why which be seems to a help make to talking sort the in we they

Bryan Maher

what's just holdup or bigger you price control? the see, do Thanks. And That's it helpful. is lastly,

Adam Portnoy

price, bit it's both. probably I probably of a little

Bryan Maher

Yes.

Adam Portnoy

this if I'm control are it we hang-up. not are these early make let conversations These -- sure and -- way. We ongoing it, question it's the me upfront. a there in tackle is a put

quite makes discussion, in somebody's there's no it just that And so interested not if easy. that, just so

And so that say it price. becomes they guess that's if through I why threshold, I the make then down it

Bryan Maher

Okay, great. Thank Adam. you,

Adam Portnoy

Yes.

Operator

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

Adam Portnoy

you our that concludes call. us. joining Operator, Thank for

Operator

is now today's conference you attending This presentation. included. for Thank

You may disconnect. now

The RMR Group Inc. (RMR) 9 Aug 192019 Q3 Earnings call transcript