RMR - Earnings call transcript Q2 2024

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Operator

Good afternoon, and welcome to the RMR Group Fiscal Second Quarter 2024 Earnings Conference Call.

[Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Kevin Barry, Senior Director of Investor Relations. Please go ahead.

Kevin Barry

you Call. RMR's thank Fiscal Quarter and Conference XXXX afternoon, for Second joining of Good on call me Chief With today's Financial Portnoy; CEO, Officer, and Adam Matt Jordan. are President and about moment, will followed a a session. question-and-answer and just In by provide details quarterly our they results, business

would questions client, as would note I Office the and that currently Trust, last the week answering of Properties offering note I debt period exchange open. company. will not written that prior conference Income like First, the management offer the the is of like consent retransmission without be call to to about also that its announced prohibited is recording today's

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

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

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

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

principles accepted the our A these in financial reconciliation generally turn Adam. will with figures accounting I now to call to of can net determined found results. income non-GAAP U.S. over be in accordance

Adam Portnoy

support Federal of volumes transaction the clients interest commercial increase in aspects call, we uncertainty will result later this facing headwinds persistent an have over cut estate a year. regarding today. rates real us for inflation through our earnings the and remained whether of and Reserve have interest business year, rates, last for Thanks, largely current a advance all subdued Overall Kevin, thank estate. our joining you continued real our to and many Since

long-term an interest platform of our we reflect environment resiliency While this we we investments making results business by to both stakeholders. and longer, solid creating ensure about all and positioned and year over for improving second market higher a RMR cautiously acquisition optimistic growth of our to us continue value the The years gives in quarter many remain may numerous later through night, the growth residential XXXX. reported rates well future. opportunities cycles, Last take RMR revenue advantage platform for foundation and that to remains strength do recent remain driven are into

billion, This quarter, of we to ample flexibility generated cash million objectives. and of strategic further per million. share sheet nearly to With the the durability adjusted of distributable of $XX.X necessary corporate debt, and we no $XXX strength our our sectors. making The also dividend earnings and We recent with balance investments XX% have our which flows continue our all $X.XX real $XX an EBITDA of to broadly to well a announcement regarding cash ended led our payout quarter per diversified AUM of by commercial to XX.X% remains in across major ratio. quarter $X.XX the over estate covered increase recurring

on more than AUM, XX% accounts to X billion X private the we our approximately essentially While increasing from over strategically have perpetual AUM for capital years, past capital focused $XX of today. our

and Belt future which the quarter leveling rent the Sun off optimistic first of we migration, renting. including the being by of a starts cost owning between population the and Belt declining and in continued about favorable our Residential's long-term in marks market, result new quarter long-term second labor incorporated of in growth remain the region, business. Sun supply, recent Despite this in largely absorbing home RMR is fundamentals results multifamily strong fiscal the construction differential supported the Our trends, multifamily are

multifamily While back which in well new activity, believe a seen transaction been XXXX. calendar for uptick bodes in recently half has of muted, marketing powder have residential we the dry considerable we deployment deal volume of our

tracking number Our deals to Belt Sun team across currently off-market residential XXX markets, potential including of close various is acquisitions transactions. a

Beyond residential are opportunities evaluating continually strategic existing our our growth we capabilities. to platform, leverage

To track Hills Tremont returns leverages Capital. Realty has shareholder originating generated this private of on generating platform, debt a mortgage that creating REIT, and our the our lending successful Trust. the end, Seven risk-adjusted that mortgages currently commercial record, experience are demonstrated initial Tremont substantial Realty returns, we in stages and is capitalizes attractive a expertise at have public vehicle credit private of the

for up coming end began opportunity billion, volume public investors. $X resulting million sheet, managing real of transitional realized balance which With own raising in we $X.X we XX.X% Tremont gross To turn our loan average months strategic $XXX this a made XX amass using totaling to bank over approximately on it both Seven light expediate capital portfolio capital this meaningful in a lending seed private nearly loans trillion has its investments increase of investments. Hills, see by to launch for commercial to would of initiative, vehicle. new in help and plan and the with maturing the estate, Since weighted estate constrained XXXX, commercial IRR debt, for real together a value-add of

resulting These RMR's a believe bank via repurchase loans would we raising attempting private equity feedback, success be garner on in through Based commitment levered market facility, seeded venture blind of than will a a capital or to to raise be greater capital. minimal. net cash pool

off repaid managed Tremont investments identified are majority move to at sheet equity is RMR. we be are investors of balance and third-party substantial As expected making this the the investment to vehicle, a for

strategic Massachusetts secured future. this to prospective In updating you by million. loans, forward make of on additional look month, we initiative, a type last the accepted commitments similar an we coming In loan of the $XX support this commitment the floating a months, hotel to from a in of for application initiative progress rate gross in plan for for and a mortgage we borrower strategic

Turning capital clients. highlights noteworthy to our in perpetual

continues execution with our their of financial X on on the During We we with our leases behalf feet assisting in demonstrated basis cash patient and further clients maturities Cash financing over of of the a increased quarter, In square million up arranged remain on average to strengthening strategic clients results. leasing in focused and solid XX% at until points. ILPT's properties. spreads this final earnings again activity was leasing of XX% flexibility results XX%. once strong its roll-up initiatives same-property and weighted the XX%. logistics has the Occupancy be strongest operating industrial key until basis, capital operating More debt and ILPT highlighting focused liquidity XXXX, quarter's quarters. for NOI the executed to were than company's its of continued improving XXX was ILPT, rent advance improves. demand environment the quarterly grew priorities. no DHC X profile. With to

improvement to deployment increasing financial segment. capital for office continue the segment. almost rent life year-over-year results improving reflect The XX% SHOP within within DHC quarter strategies roll-ups operator First their in and cash in medical basis outlined continued portfolio also DHC's and NOI continued SHOP's performance. same transitions targeted property and has sciences

offer office continues execute launched senior senior of the since and amid and notes. beginning to The made considerable challenging an financing exchange strategies unsecured maturities its its has for sector. on its progress of company secured lending a outstanding year to for notes recently OPI certain the debt addressing the environment new

press about can found information was week. OPI's be offer Additional issued exchange this on release, last which

hotel impact as during softer the remains its portfolio at seasonal Lastly, of ongoing trends operating as the trends quarter hotel SVC, the on long-term well position enhancing overall its from improving portfolio. quality SVC to focused the best and hotel reflected operators renovations across performance growth. of intensely

company aimed profitability. renovation currently program assets been drag at investing strategy twofold advancing executing have end, is and to hotel in dispose a a that on of that To the plans lower-performing its

is by SVC's addition, challenges the within somewhat of portfolio In SVC's portfolio. stability offset lodging lease net near-term

With our that, Financial Jordan, Matt call Officer. turn Chief to now Vice I'll and the President Executive over

Matthew Jordan

good afternoon, Thanks, everyone. Adam, and

earnings EBITDA $X.XX adjusted million the per of of quarter, reported adjusted share. per second income For share, $XX.X we and of net distributable $X.XX

were results line cost the in necessary of to platform-level with investments reflect our and containment and support growth. quarter's This guidance balance long-term

the the we of occur the the announced our synergies of next financials synergies time at This periods realization The impact RMR the years. and will track acquisition. in quarter, the the remain the to over and outlined platform identify continued on on Residential we varying integration related X

capital next quarter. the markets Residential through multifamily that Given expect around expectations to least we at earlier, largely highlighted remain RMR activity breakeven Adam

of full service Residential, and clients. declines line in Turning our a slowing revenues reflects million partially $X.X management to expectations. increase of in sequential an by quarter's quarter sequentially construction The results. Recurring at fees as of result construction impact were increase spend million, this with RMR our offset the $XX.X

resetting relatively service range of normal improvements $XX estimated range $XX consistent managed flat we of levels restructuring at an current remain This assumes at in their the RMR on payroll Both well the Cash contributions actions X. which the impact spend. as tax approximately Residential compensation strategic XX January over last XXX(k) at values quarter revenues of million. fees was REITs quarter our construction Next stay related includes months. by partially which million, enterprise levels, Sonesta as recurring offset were expect to and and seasonal adverse full expected management of of taken equity $XX to million impacts

at levels remain construction technology than costs to same next includes of quarter remaining Looking related to annual of and grants $XX.X we increased rate expenses the which director and and reimbursement million, million approximately reflects our cash share $XX.X of to third-party Residential. RMR were transformation The levels G&A compensation of $XXX,XXX higher recurring expenses be anticipated ahead quarter, G&A costs. XX%. cash expenses this to expect $XXX,XXX

in Residential, are RMR revenues. properties and expenses, and costs through As it of the relates passed from of marketing service technology are majority our which to bulk included those to the are managed

per these Next from earnings to remain million we per recurring and share. range approximately adjusted to $XX quarter, share collective EBITDA per million. distributable assumptions, Aggregating expect to at quarter, $X.XX earnings $XX next be we $X.XX share, G&A $X.XX from $X.XX adjusted range between million $XX to expect to to and

continue strategic they relates and positioned million debt, our almost the leaves cash and us platform on flexibility in we our well to to with balance As it arise. corporate in investing capitalize $XXX sheet, ended as opportunities us to providing ample quarter no

X the gas first sustainable efficiency by procurement reduction sustainability question-and-answer emissions to and have our energy to net annual through gas in calendar we would having over emissions remains Through the committed achieved greenhouse the XXXX portion by attain XXXX. to on well XXXX, programs. measures, way, like reducing of and energy and we begin report. are Before emissions a acknowledge our RMR renewable call, operational publication control by we of assets XX% XX% I greenhouse

cannot address Operator, the debt exchange we earlier, our would questions. please concludes highlighted you That questions regarding formal Kevin remarks. to OPI's as Lastly, current offer. open line

Operator

[Operator Instructions]

question from Our B. Riley Maher first Bryan Securities. is with

Bryan Maher

today. could specifically that residential next through me you I relates about in what you couple you're bit will for And to RMR little years? uptick the on two how a elaborate more as hoping over Just the seeing? that the were benefit deals it was talking feeds and of and

Adam Portnoy

or pronounced actually more the been I'll in transaction most let and lot marketing it Sun I'll an get it region. months, I Matt of board, activities that -- happening. the targeting space in especially what the for market, speaking, the in, and of X multifamily that's the how why specifically to or details say, in we're on affect would about markets reasons to say, can coming it throughout generally, talk Belt maybe X happened the that's has last, bit a There's terms but But generally generally over I'd maybe area deals uptick residential a across financials. little

lot now. There for of deal quarters hasn't been activity several a

pricing. buyers -- to sellers on I think starting there's and are I converge think,

investment pressure I the are in of buyers from, of period say, market. sidelines that Broadly to to on before going put are work lending pressure. some anxious money There's getting think some sellers are ends. what's getting let's and on a think their the buyers speaking, I money lot lot a

starting see transaction to more be do on I to occur. to We expect So a they're think pricing. convergence volume

expect mean will the throughout engage We I'll we the let calendar could year. company's Matt actually financials. talk what that transactions for in about

Matthew Jordan

is done And breakeven. more stimulus than residential AUM getting get to It Bryan, currently much built the Yes. billion it's platform managing. $X.X deals beyond the really to need handle we a are

today, So every way in an terms the structured to of about acquisition of is generate XX business the XX points. basis should deal fee

So those a just deal getting to immediately. has very because impact a RMR's done sizable fees we'll acquisition P&L recognize

to like should and with of per comes that management new million way about management think and billion the property fees platform of deal, AUM property every this the that new residential obviously, equal quarter. about then new in construction, it And I construction management $X property between $X management

thing we'll to line. we to highlighted, I will to hope we the a half that So year, see And deal come that the investments Adam volume back of through. right and start acquisitions place it of need cost clearly structure growth lot is when really by And made see in people, getting to in the a because this think flow occurring. of come have we've that support through bottom some what the the starts professionals

Bryan Maher

impact as deal, of And helpful. understanding and across question transactions kind the managed the second and really maybe the over specifically see financing can REITs how positively commercial can't on you the estate next fully seeing a me can financing and activity, That's touch currently CMBS. of market comment you're broadly you you categories lot years? OPI that what for upon that And to your speak but real do in

Adam Portnoy

Sure.

start I do CMBS. I'll to conduits secured So can do you would transactions. in across It's one-off with speaking, especially for assets open. market, through well-leased CMBS is open market segments broadly the where say

do single issuer as also can transactions large well. You

typically So paying what debt. are they're generally, their than open, markets have expensive more people on been

you're So definitely more the it, market open. refinancing is debt, paying if they're but for

and Generally what around niche availability much multifamily, believe there's very office in more it you capital in markets and sort life or people to that, hotels, overall open largely of of financing the trends pockets the sentiment, terms of medical science other speaking, favor debt are in buildings, not, assets financing industrial, are apartments, see buildings, in then investment community. somewhat

it's well-leased, or it's defined general there, It's market buildings. in well-located, right toughest financing available. and toughest expensive, there newer if is building, asset, the is around segment available. office but But the financing Probably multi-tenant even

So it Everything costs open. markets general, are in more. just

Operator

[Operator Instructions]

The JMP. Citizens next question Germain with is from Mitch

Mitch Germain

is and profitability growth fees, income Is the if and recognized think the fees. near-term appreciate residential acquisition insight. the I today, residential by synergies gain I additional about get driven comments The trying in you any meaning growth? acquisition Matt, already guess that the I'm is numbers on way or more and to don't of AUM it? recurring to profitability AUM

Matthew Jordan

but get value-add today their business sold. way Yes, the would the it. for think that's do the AUM ultimately about have I pays about they And the it, season, way business, as deals we works

So year. critical, acquisitions it activity is pick up back the later this

Mitch Germain

a RMR to Got we've the you. quarter And Adam, been, in of I your guess, team thoughts of I'd love versus things are expectations? get initial original got full kind where platform. you've some the about

Adam Portnoy

of in transaction synergies with folks to RMR acquiring behind I broader volume. we the platform. business, revenue pleased clearly the Matt's planned need RMR we I alluding we're So And side, many of terms Residential from are we're integration on very it of and the into realizing the very pleased think that the think on we with the more

it's impacted little I on maybe bit is environment. market focused by just it. unfortunately, acutely or materially think, a everyone I And think

really working and that hard residential team that's focused be we able close at year. the half sourcing are is hard this finding on acquisitions working of to I We optimistic the on am really second in transactions deals them. and will

think, to there's integrated. side, where I just be. the right I'm I revenue we're think integration, But want generally, yes, think behind we'd I we're mean think And issues, I great. question we're from cost where from we'd no be. pretty are I side, well thought an a social overall, So pleased. on we But

teams well and team are -- think the I well. working working well the integrated is

I at the it, about forward. and going -- that's good feel how how that's business I'm looking So

Mitch Germain

bit me. Great. Last is sector, different capability fact that Adam, a tried -- I the that office been debt of have held how differently? managed this similar little like probably about a I'm you're assets vehicle type vehicle outside some had incubate office XXXX, must approaching 'XX. for recall you given this were how the the and curious you of and to your new REITs. for

Adam Portnoy

Yes.

memory, have X asset in obviously, good X you time, terms like It's -- we Mitch, of tried class, the different a time. something similar, at different you're this. So right, different

and -- we're very exercise I that engaged in that referencing. experiments and very twists that right create able we're maybe working difference -- this ago good fund all have is from capital was raise be to agent the learned including X, the all we to about how way biggest a also you're a We've reputable biggest raise about several organically is profile. on from with we placement that we've lot, turns, those Second, feel to learned ago capital. did our from this especially years the There best I you're mentioning now. think those years X a ability also what and the return

raise, We were single-digit IRRs. fund, office core core, to at trying meaning the return a high time,

we're levered we're what talking on a mid-teens basis, talking Here, IRRs. base levered about -- on about a

profile, on And I a what which execute good so to expectation, we our return very to investment different different feel talking about partly ability market. on the this. in it's learned is based

some be were it I'm And can't will RMR raise use unless Timing, a little have one it the able of pretty to funds. is take, actually the conviction these until we take strong it's way confident to get to at a be putting we I that's the how money, quarters? to use long know I could we here X wouldn't balance sheet wildcard. quarter, money that best of say going don't I start one -- it. I in, could but it all bit

Operator

Stanley. Morgan with Kamdem Ronald from is question next The

Ronald Kamdem

Great.

couple quick ones of a Just me. for

of you million. about with $XXX talked raising sort the Tremont, capital for of staying sort Just

pipeline there is, sense over evolve of going get to the $XXX Is is -- the a opportunity the time? What's set, this of of sort a how something sort what's be $XXX to and what is that could trying target? what million, million? of Just this thought

Adam Portnoy

Sure.

So we're just a going these to to $XXX million It's confusing up gross that, use on going -- balance to say when be little of loans. leverage clear, investment that we our that's We're to use talked sheet. will about inclusive leverage. I

of number, is will investments, cash. will of of in is That use $XX itself. $XX use seed a debt, total just that million which or the of or be round our be fund equity the loan million let's not fund $XXX which million the to the So our gross portfolio

the will that from million take. in expect that, an about you're $X We equity, itself of call $XXX fund and it, million $XXX equity total on around, perspective be billion, use or to talking leverage give investments

I see that first So but that's in the I to ultimate billion. want be -- the do what trying balance this is fundraise, the to point just size $X should sheet clear, to with we're portfolio, about out,

about good of less there terms again, on In very volume we in marketplace the pipeline, pipeline. Yes, going the the today. is feel transaction

not go some, a that's a real we're that to against estate but underwriting. or of through a refinancings risk But in what repositioning. Well, a lot used are we're financing. a As here, result of you first financing. lien half secured loans there return of making not being see value-add loans less to originations there's There going is of mortgages perspective, originated. acquisition new much. light was value-add less transaction lot of a volume, Fully new It's from performing acquisition

almost matter real folks the about and private anything ourselves really pipeline and there's credit type what of doesn't very also and lot introduces we'll in talking mid-teen lend that are strong. think of a private marketplace. it of -- we real returns. because Look, type The credit that estate. investment against differentiate is we And It's estate

a estate the What really are we is us real in operating differentiates platform. marketplace

loan more more given have perhaps underwriting itself. able, the are But middle robust also market much scale So to focused. our we of a we be

$XXX our larger versus are loan on, $XX larger million size So average players million let's $XX the loans. could be focused of say, million, many

of play we that volume call transaction many So as amount what a we players. in and tier, there's middle tremendous when market not

bit little don't investors. we So leads returns competition a and actually for much to higher the have as

we pipeline, So yes, LPs. we about investment the we're opportunity to presenting feel feel good good about the potential

Ronald Kamdem

my one And RMR Residential. Great. going just second then back was to

I second and think of you made some in powder tracking of the comments year half sort opportunities about XXX deals. the potentially dry

across talk return you're Just is there and of of a those can looking sort at? type little properties deals And the XXX profile any about the of deals? of bit you those sort thematics

Adam Portnoy

Sure.

Sun The value-add deals the characteristic hopefully to we're I operate. turnaround deal we apartment So we're like the the of hurdle type Belt about where -- space, of a investor. talking that pipeline, the sort -- targeting, turnaround in multifamily that for in or high-teen again, XXX when so properties buildings return produce when region we referenced mid- in is to that IRR going currently

of So all said that's deals of in looking mixed meet And a way. we're at. general XXX, serve those fashion when outline type I in some they the criteria

Operator

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

Adam Portnoy

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

Operator

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

You may now disconnect.

The RMR Group Inc. (RMR) 8 May 242024 Q2 Earnings call transcript