Earnings call transcript Q1 2023

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Operator

Good morning and welcome to the RMR First Quarter of Fiscal 2023 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 Melissa McCarthy, Manager of Investor Relations. ahead. go Please

Melissa McCarthy

Officer, thank fiscal and call joining first Chief RMR's President Good conference you call. of Financial and Portnoy; XXXX CEO, today's Jordan. With quarter and morning Adam for Matt me are on

without details of retransmission In and our call of question-and-answer I'd today's quarterly will that the note prohibited a business like by conference about to just the followed the they consent a session. moment, company. prior provide written results recording is and

meaning the securities within the statements statements we forward-looking February contains call and results of and other conference Litigation Xrd, Securities and are beliefs actual that Act project. today, may laws. of Reform as RMR's Today's Private forward-looking of differ expectations XXXX, those based materially XXXX on These from

no publicly call. The any made obligation results of forward-looking or to conference in today's to the revise revision release the statements company undertakes

Commission, our any on contained Additional the cautioned Securities information differences Investors upon www.rmrgroup.com. place those concerning not Exchange is statements. can cause are those to that undue with filings website could at which reliance be forward-looking in factors and our found

EBITDA, we adjusted numbers may discuss adjusted call, margin. this adjusted EBITDA income, addition, adjusted per share, during net earnings In including non-GAAP and

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

over the to like call And turn would Adam. now, I to

Adam Portnoy

morning. Melissa you Thanks us and thank joining for this

last enhanced is our more our peer and results earnings digest to it comparisons manager our by the alternative Before we align highlighting analysts efficiently quarter like This closely be the group. first for enhanced format issued format we asset to we easier release investors make start to to and with peers, results, to and would I expect intended that discuss night.

them presented evolved private a earnings clients capital and as as see or the result define either our capital way release We XX-Q, have our throughout you'll perpetual also we clients. clients, and

environment, here large the the significantly sit has I economic a market uncertainty estate the with has taking Fed's estate more market The impact year. returns traded the slowed commercial REIT and negative overall created last XX% rate significant many, by been transaction see with industry since wait real the the returns including ongoing As respective rapid trade volumes This each our down interest uncertainty XXXX, industry. U.S. increases, driven today in has index organization, a generating and for headwinds real survey REIT REIT approach. significant on publicly and also over sector publicly part

In light our to billion We ended of and management diversity billion under in RMR these of capital. testament the first XXXX clients results strong financial with of our the business a durability $XX representing assets year with challenges, the perpetual $XX.X model. quarter calendar are

the increased end XX% over the our of year billion. to Additionally, course almost $XX.X XXXX, fee earning at AUM

of EBITDA reported net earnings adjusted XX.X%. we distributable $.XX of share, per million, per $X.XX quarter This and of share, EBITDA adjusted margin income adjusted $XX.X of

this quarter, share remains XX.X% covered ratio. evidenced our declared Finally, as which by per we payout and dividend our again secure $X.XX of well distribution

real our From managed amenity leasing and our slowing remained continued high-quality to on tenants. an perspective, a buildings cautious Despite and fundamentals across focus operational perspective, organization its rich delivering commercial a market, our assets estate favorable. from

of during X% X.X almost up a the behalf which arrange combined of we years. ended of quarter the estate leased, million helped a leases nearly nine in real managed of and our resulted quarter, roll feet term on of square rents lease and and weighted in XX% clients, portfolio average Our model

restrictions to them. this across items what highlight the With July, we some we of in publicly dividends facilities are I SVC and reporting capital limited our clients traded date we debt. quarter maturity reminder, are results to of as want as regarding remove issuing a to can advance facility revolving paying As to In XXXX discuss that our said, extend clients. perpetual its note on amended credit and October, secure

increased behind amendment to share, per XX% quarterly cash at covered the is share them, the With SVC's dividend $X.XX a board which per from conservative ratio. payout well $X.XX

industry. occupancy pandemic. and and event volumes aspects SVC SVC mature week to business available discussions past of management currently was the Conference with the to upbeat have of perform well industry continue focused a because the hotel on as million Alice and will also by refinancing hotel June, options that sector included and higher major the the TSA in momentum that been beginning checkpoint is was both from Bond RevPAR across Angeles, evidenced remain positive where in at currently Sonesta, mood the levels refinancing increase bonds This SVC representation travel since most the XXX them. at helped this evident this multiple all fundamentals solid, Los its

it of as the to on As and business, to evident lease household resilient majority of remain the all above consumer continues momentum across retail also levels, income cushions positive their levels, pre-pandemic relates tenants cash is SVCs portion this obligations. well remain SVC's current same spending retail discretionary remain

mortgage approaches Seven loan an be against platform, increase the $X.XX Seven the per This in from its access declared with differentiating signal in estate commercial loan the organization share. XX% portfolio. like strong to Trust, book a and share And generate its Turning returns. to for billion. to stability a rate January the equity Realty growth $X times real coupled platform, Hills adjusted our in dividend our dividend same for Hills' Hills momentum track to $X.XX a real real continues record, a trade us. factor to to company's Board continues REIT, quarterly be the In our per is broader estate new Seven story RMR free confidence is of of its ability as lending default estate lending high-risk the estate these as compared to attractive the way real publicly uncertain owning

remains OPI, and bid across headwinds above despite At occupancy from measures corporate arrangements cutting work XX% high cost America.

tracking our which diverse improving, most reliance its nature office data and ahead limited suggest indicators on geographic the assets averages, portfolio OPI's internal shows is markets. gateway of reflects likely OPI's national national usage of While

office to the we specifically growth growth remain current subdued, velocity. environment, and fundamentals expect leasing rent Given lease rent and

organization in the ahead such, of investing and is on properties. lease upcoming tenants XXXX getting and As focused expirations actively thoughtfully XXXX engaging by OPI's OPI's

senior its At operators are performance. with operating to we DHC, working DHC's improve living

consistent consecutive industry, and though in profitability its trend to the and labor margin challenges third quarter remain of the inflationary occupancy in calendar its a DHC As third senior with in supply a broader reminder, the entire pressures industry. reported the communities. That sixth is quarter growth -- for quarter, headwind living

to XXth, confident success weather maturities can refinance investing and critical are of we challenges in These assets. DHC continue over $XXX with as long-term its to both these efforts upcoming are cash ability XXXX September million strategically DHC's and debt near-term its in in

only milestones five now private in ended of Up The our given our close business billion our Mountain which $X XX% early is including capital our about over in Monmouth the ILPT was of assets, consolidated year private at XXXX. significant earning years our and AUM business with portion Both AUM. joint acquired this REIT fee managed of old. the overall portion of created that business, when XX% represents venture capital

well-positioned from pursuing capital our debt, take simultaneously developing At capital private advantage With M&A to we with strategic new partners, over organic assessing are they volatility. vehicles time, are capital existing the cash believe opportunities present we result this that $XXX we we million no will growth market strategic as opportunities in private of believe themselves. ongoing and and

now the our to I'll Financial Chief over Matt turn call Jordan, Officer.

Matthew Jordan

morning, Good Adam. everyone. Thanks

million per of and million, share, first guidance. the with net of of financial being quarterly line adjusted $X.XX quarter reported with EBITDA adjusted or For XXXX, we both measures fiscal our income in $X.X $XX.X

million offset $XX.X Total at Sonesta, attributable seasonal declines on in million service and $X management almost manage though million primarily increases year-over-year sequential supervision declines which was fees. The REITs was at $X partially advisory enterprise quarter a higher and decrease normal the approximately and by to TA this quarter, value revenues construction equity down basis, sequentially. were

fees client's supervision value as maximize for and to efforts. repositioning Construction period doubled RMR continues almost our redevelopment year same the through last ways from assets at look to

we second between generate values our enterprise the million management of fiscal equity of and million of $XX.X expect to the advisory and current REITs. $XX For quarter based upon XXXX, managed revenues service

peer As groups, not relates year we incentive for to a respective did comparison based return REITs calendar equity on a it fees, reminder, managed unfortunately which incentive of their XXXX. to total fees any earn shareholder as three our

said, three-year group With exceeded over by peer basis its XXX OPI return that points. total

due being the for returns the from headwinds which in sector in resulted the So, facing incentive given OPI were no fees cumulative negative, office sector, OPI. broadly office

respective both over Additionally, incentive which shareholder exceeded return basis XXX fees. and future peer calendar by for SVC's OPI XXXX creates groups hopefully for points, total a foundation their

Turning cash quarter approximately to X. a due million this on basis, of annual sequential was $X.X Recurring expenses. effective merit October million, to $XX.X that an primarily quarter compensation were increases increase

further moderating, levels secondary and expense select look and mitigate in staffing are inflation to outsourcing continue scarcity wage growth. to assessing While labor vigilant remain we solutions to hiring continually and locations

expect XXX(k) and to moderating recurring approximately approximately quarter ahead due payroll million resetting X and to to $XX.X each increase on million then quarter, we cash January next Looking at compensation $XX to contributions thereafter. tax

transformation includes approximately costs, $X.XX per were $XXX,XXX excluded EPS $X.X adjusted from of of quarter G&A and which expense EBITDA. share technology million adjusted or this

to our as harness the environment and generate Over to internally have we ensure the innovation we $XX decision-making drive infrastructure ensure as technology efficiencies. a up have million to to well next of the to an leverages data strategic operating two committed technology that we breadth years, we

the it's will spend to technology both our noting by next exact portion a XX of so clients. but it's worth still be early capitalizable our speak and of to journey, investments these we technology months, reimbursed are this time, transformation unable that the pattern in over At

adjusted March. from investments share G&A approximately basis, annual Board expect $X the operate the quarter and prospective fiscal generated in, $X.X million assumptions quarter, quarter previously interest range of all in next should million with the expect $X.XX to range per the of quarter technology grants XXXX. be over we EBITDA both closed quarter, share and $XXX $X.XX million exceed we to this approximately we $X environment million our and in a Aggregating next $XX.X number $XX.X to cash. remainder million currently share from rate On of per throughout income Directors to interest adjusted to outlined, normalized earnings this should million. rising given We I And per excluding

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

Operator

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

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

Bryan Maher

that funds us some kind you've dealt those seeing I or asset and you partner for appreciate it what year from a to as on sovereign Can Good comments. you're on Matt. And either morning, Adam capital? and/or give relates sales? wealth ILPT and hearing private with potentially this an of second the update reengaging

Adam Portnoy

I sovereign not all business. groups, unique, are you for at much bit relationships Good think, have, very little business, Bryan. say can't partners for open much with that which we Sure. question. they those the for specifically I very but open are specifically a business. morning, With the with dealing happens -- Thank open funds, sovereign the for wealth to ones are wealth I with we funds dealing but to be to we're would regard the that are I name,

would investors are sort or science on niche data centers institutional surprisingly, favorite or that of industrial focused like are real estate more be I the estate, and life buildings. real focused they then not asset think, which residential sectors MOBs most on, multifamily and/or classes

opportunities think given more by the be little I I half them there in half think to year, our to with we on year I the of it's more market, second in if and the With in but XXXX going they in do just this first put to it are going the occur with see to than their portfolio broadly in in the what's by the to much because to opportunities time is vehicles of it, going around calendar a rather this if the ability think there manage, the appetite more on firm those growth things more grow of and that think you will nature had year would specifically and first And sort half a in that line were I That's platform the of them to I of what's it grow would at the regards year. there'll be -- likely AUM year. on driven things. be than open doing very our half. bit second probably the

we're And so at. where that's of sort

who're they be same this -- or largely assets they some the in are because, would ways, the aggregate non-traded some competing of core existed, call market, the opportunity real REITs market for frank, to and see they the have of real buyer to assets think now largest the they that plus largely also as their I perfectly today. have only and I in estate exited what buyers the

if them, have deal So, would I to because perspective, -- with. ask this this to their opportunity competition less is were you is them real a from think say for a they they real

And into in the turn opportunities future. think will so, it us I for

Bryan Maher

CapEx, make managed REITs function is the it cash appetite set year availability keeping it's acquisitions it's for questions of cetera on regarding or What second can cetera? we've sheet? hand. been Maybe to CapEx, So you're that et cash that their of borrow managed have kind aside from for think for some you balance four address is, is my segues getting to refinances well of things, I refinancing, et question certain REITs, just into Obviously, whether investors whether that. that this or on the you acquisitions. the Or a powder

Adam Portnoy

Sure.

see I for limited across REITs the think reasons. acquisitions board four will at board, across there's you that various the

X property reasons from there speaking, different at are of an to property and/or around is add-on let's that. and be case an each the say related appetite. there's smaller could adjacent in acquisitions, REITs. existing acquisitions they existing that or value think broadly why But I properties limited properties, some an adds the to that acquisition something like If the

in construction be especially portfolio into management very development numbers looking fees. we're deploy to the across focused of REITs, well We are our first in at And the our hotel this this of we half -- to the a putting living it can year. lot certainly and supervision of around capital see hundreds activity There's dollars work. you to that millions senior year our portfolio, this plan of

that create of there's a because underway in so, fees respect, on And which construction management lot working the we're side itself that. effort of for RMR does

depending timing REITs opportunities, around at the acquisition at they second the more of end in repayments, to the That have half some the for of the as specifically hand, up to of XXXX could all being especially be may said, of the actually cash year, debt on opportunities the there second and half REITs some on maturities at open do year.

Bryan Maher

remiss last just us you And be And this to to announced any for at all AlerisLife RMR And might be involved plan I all? me. extra on me. DHC? color give Is Any Thanks. that? Thanks. impact for the mean, I mention that's going can morning. be there? there What not would acquisition is the on

Adam Portnoy

we that. release, for so not same we fully question. day This anticipated really Thanks anticipate the out question, our did question It this a was morning Sure. the that have a coincidence. Bryan. We planned like that announcement getting to on was earnings

if go scheduled tender that be, transaction. by not to it's not in encourage in what days, form your the will this when the Unfortunately, SEC all, will you offer I've which will relation to of a or with There to to it. document the be is. answer anticipate proper questions that TO that in coming announcement filed will I into review it related is advised because document transaction, that have most, been I filed And information of that a that counsel lot

maybe fee just the transaction can we The address I impact. it's think RMR's only really directly from say because perspective, other the Matt, thing about

Matthew Jordan

pretty no to AlerisLife. revenues much relates impact we be as all it say. will to There that's can RMR's And Yeah.

Bryan Maher

Thank Okay. you.

Adam Portnoy

Yeah.

Operator

Instructions] [Operator

Ronald come Morgan next question will go our Please ahead. Kamdem And of Stanley. from

Ronald Kamdem

Hey, morning. good

smaller where ones. Just in today? a process, the couple maybe, past, quick just us just acquisitions of in we managers -- where at that you is it Can the at can are sort you update us of head smaller looked and of asset your update potential

Adam Portnoy

that Sure. for question. No, thanks

have couple in continue themselves around reappeared. as and presented of discussions, evaluate have are we a -- that There where more sort opportunities -- that last present have that again the in involved come themselves. couple opportunities were opportunities We were been are they've they have they months to and of presented anecdotally we --

I I people environment firm, pretty -- a operating some think environment. there's There looking to because importantly, a distressed know difficult are be be join are XXXX. in larger anticipate going if interesting or, into going to it's where there more we a it's will to it's be I going to don't entering perhaps exit but that -- sales, opportunities be

let's example, asset larger be favorite that's inclined their could might an firm example, assets diversified. in real estate, to larger office situation. the you join opportunities, theoretical sort to give at around a And more have, that not of a and be moment, And a portion is around of firm might a that say, class for which more there

of have think is there's announced hopeful get as that into certainly. could be dialogue some activity, which to I'm XXXX, uses some we be regular sheet. And But and sort continue. we ongoing the and items, earmarked one folks, cash would on balance M&A imminent our we to that that I anticipate for of our into with that turn will dialogue later I of primary nothing So, actionable see that

year. that so, that are And in the will we coming hopeful materialize something like

Ronald Kamdem

on on just sort Great. And comment of office you last of -- would the one the side. sort be, if then my could just

and points about job talked Sort got losses potentially space. the couple data of about reducing a of return to tenants office,

Thanks. side? where seeing -- the are you hearing, guys you what what curious office Just on are guys

Adam Portnoy

real calm discussing are, well. occupancy about I'm meaning vehicles is a a XXXX -- on But that horizon, things almost we all it's all portfolio. pretty paying clip. pretty leasing but large as high, being to we looking perspective an in okay. -- been the at office this And a It's very are the thinking clouds. amount spend an the we We've talking manage other almost rents. and analogy are are people what's in like you're regular going macro just a not portion space like XXXX, high into storm of At Things across, of going are our and are estate year, enormous it's that the We later going XXXX, you see signs Yeah. their to said, are slow. OPI, -- to level, waters looking to today, time from

know don't storm just if at just X office storm. They're a And You the office you X REITs, if worst. into a we're are or assuming the Category X sector, going I investors think a into Category storm. look going the Category market, assuming

tell will are from a perspective, planning. I you, we obviously planning

to As and be our think the It's it. not plan we very office that can portfolio, rough as as rough a about to we it's going do planning we're we best for environment hope for.

We of economy, slowing environment and triple plan You not threat a be to the going a the interest a for the hope it's and in way. difficult abating rising know of you have of best. because just major work-from-home that's operating sort worst sort for rates

impact whole so across having that's industry. And an the

the as higher affected a or a occupancy that portfolio market whole, backward, Even of of sort by go you we that. because recedes if have get whole do, the have nonetheless, industry utilization which we or properties than

just know we we're much bad we're slow how don't what quite it's hope planning. that's as so going slowdown. a not to planned by to and that We know and for. It's going seeing. We as down quite And bit it's

company. what focus precisely know on our prepared OPI, focused, talked of we facing level, those dealing to out. downs that. have industry even big a going sort And it's -- we portfolio office That's sit leases roll industry in be out, basis. hard XXXX, the anyone of knows it's we're about have the there And where are at for XXXX example, a occupancy, remarks, rent a to and don't precisely is today. varying I But by expirations. our going macro largest shake buildings, going real the yes, how going general but where to be views think just lease shake on to sense be. how where It's XXXX a good to my don't will And and we We much. it's that's lower very whole at with In really for

for along at office due Which, way, debt so into it opportunities is as present conversely same can into slightly and industry the sort does industry, great just comes a much because that an interesting especially certain specifically. of there's so very a that the the buildings, presents assets contrarian take we at may not downdraft of There in but for in the ourselves, but time by good as the of marketplace you negative worst, properties, opportunity, further assumes when marketplace and office the in others the caught buy view XXXX, might might sort price. the around be be XXXX get

what's opportunity to converse, the that's downturn -- let's office. on the going the the side corn, in So the other of in say,

Ronald Kamdem

Helpful. Thank you.

Operator

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

Adam Portnoy

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

Operator

Thank and The you now conference may disconnect. concluded. now for attending you today's has presentation,

The RMR Group Inc. (RMR) 3 Feb 232023 Q1 Earnings call transcript