The RMR Group Inc.

Hello, and welcome to the RMR Group Fiscal Third Quarter 2023 Earnings Conference Call. All participants will be in the send-only mode. Should you need assistance, please seek to a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your touchtone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. I now turn the conference over to Kevin Barry, Director of Investor Relations. Please go ahead.

Good morning and thank you for joining RMR's third quarter of fiscal 2023 conference call. With me on today's call are President and CEO Adam Portnoy and Chief Financial Officer Matt Jordan. In just a moment, they will provide details about our business and quarterly results, followed by a question and answer session. I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on RMR's beliefs and expectations as of today, August 10, 2023, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be found on our website at www.rmrgroup.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we may discuss non-GAAP numbers during this call, including adjusted net income, adjusted earnings per share, adjusted EBITDA, and adjusted EBITDA margin. A reconciliation of net income determined in accordance with U.S. generally accepted accounting principles to adjusted net income, adjusted earnings per share, adjusted EBITDA, and the calculation of adjusted EBITDA margin can be found in our financial results. I will now turn the call over to Adam.

Thank you, Kevin, and thank you all for joining us this morning. On July 31st, RMR announced an agreement to acquire Carol, a vertically integrated multifamily platform with approximately $7 billion in assets under management. RMR will acquire 100% of the equity interest in Carol for $80 million in cash, with a potential earn-out consideration of up to an additional $20 million based on the deployment of future capital. With approximately 700 employees and long-term relationships with high-quality global institutional partners, the Carol platform gives us access to market knowledge and expertise. The business also has a pipeline of attractive opportunities to further diversify RMR's capabilities beyond core plus real estate. We expect the transaction to close this fall, in which time the founder will step down and the Carroll platform will be integrated into our organization, with the current management team remaining in place. As we have discussed in the past, an important aspect of RMR's growth strategy involves utilizing our strong balance sheet to pursue strategic acquisitions. Our focus when assessing these opportunities has been to ensure any transaction complements our already considerable scale by further diversifying our platform, increasing our private capital AUM, and providing us access to new institutional relationships. We believe the Carroll transaction achieves these objectives and is a great strategic fit for the following reasons. First, The transaction provides us an attractive opportunity to enter the multifamily space, which is the only major commercial real estate sector that we do not have a significant presence. After the closing of the acquisition, multifamily AUM will represent approximately 16% of RMR's total AUM. Outside of the industrial real estate sector, multifamily has some of the strongest tailwinds given the continued shortage of new housing in the U.S., In addition, Carroll has been focused on deploying capital for multifamily investments and Sunbelt markets, some of the strongest overall markets in the U.S. Second, expanding our private capital AUM has been a key strategic priority for us, and the Carroll acquisition doubles our private capital AUM to approximately $15 billion. RMR's total AUM will increase nearly 20% to approximately $44 billion, further advancing our position as a leading alternative asset management platform. Our institutional relationships will also increase substantially from the capital partners that invest in Carroll's funds and its managed properties. The existing Cal Fund series currently has the potential to make in excess of $3 billion of additional multifamily investments, putting us in a position to continue to scale the platform in the near term. Given the historical track record of generating returns to investors in excess of 30%, we believe deployment of this capital is achievable within the next couple of years. Third, We plan to drive growth by leveraging Carroll's vertically integrated capabilities that address all aspects of multifamily investments, from acquisitions and property management to asset management and innovative marketing strategies. Carroll's presence in the markets they operate has been achieved through their successful consumer brand, Aerium Living, which we believe has strong market awareness and a track record of exceptional resident experiences. The success of its vertically integrated platform has been demonstrated through the growth of Carol's third-party management portfolio, which should only accelerate once this transaction closes. In addition to driving revenue growth, the third-party management business also provides critical insights into the markets in which Carol operates. We anticipate that the successful operating aspects of the Carol platform will also benefit the broader RMR platform. Lastly, the acquisition is expected to be immediately accretive and presents a tremendous opportunity to create long-term value for our shareholders. Like RMR, Carroll is a profitable, scalable, and asset-light business with a recurring revenue stream and longer-term upside potential from promote fees on any new investments made after the transaction closes. Over time, we believe there is the potential to create revenue synergies as we integrate capabilities across the broader platform, including multifamily lending and new development opportunities. In summary, we believe this transaction is directly aligned with our strategic objectives to further diversify RMR and drive future growth. It is highly complementary to our current platform and represents a compelling redeployment of the $100 million in proceeds we generate from the recent Travel Centers of America transaction. We have been impressed throughout the diligence process with the management team and their commitment to the platform, their employees, and their capital partners. We think this is an incredible opportunity for both sides, and we are excited to welcome the entire Carol organization to RMR. Now turning to our third quarter results. Our results once again highlight RMR's resilient business model, especially amid the current unsettled market conditions and commercial real estate volatility. This quarter, we reported adjusted earnings per share of 48 cents and adjusted EBITDA of $24.6 million, with our quarterly dividend remaining well covered in a payout ratio of approximately 67% of distributable earnings. From a macro perspective, commercial real estate conditions continue to be impacted by market volatility and interest rate uncertainty during the quarter. While real estate transaction volume remains slower than last year, it is recovering modestly as market participants gain more confidence in transacting with improved visibility to the possible end of the Federal Reserve's current interest rate hike cycle. Our organization's focus continues to be on executing the strategic plans of our clients with the goal of delivering shareholder returns that will ultimately benefit both our clients and RMR. We are highly incentivized to improve the equity values of the public equity REITs we manage as it has a direct impact on RMR's potential revenue growth. To put this in context, if we close the gap between enterprise value and historical cost of the equity REITs underlying assets, we could generate approximately $65 million of incremental revenues annually with close to 100% flow-through to adjusted EBITDA. With respect to operating fundamentals, leasing activity across our platform remains strong as a result of the hard work and commitment of our experienced real estate professionals nationwide. Despite the challenging macro conditions impacting commercial real estate, our team arranged nearly 5 million square feet of commercial leases on behalf of our clients, which resulted in over 15% roll-up in rents and a waived average lease term of more than 10 years. These leasing results continue to demonstrate our organization's ability to deliver value to our managed assets through creative leasing strategies and a continuous focus on tenant retention. In closing, we made some progress on our strategic objectives during the quarter, despite ongoing volatility in the commercial real estate market, and we took an exciting step forward on our private capital growth strategy with the acquisition of the Carroll platform. With a healthy balance sheet and strong financial profile, we are well positioned to pursue further opportunistic growth strategies, and we remain confident in the long-term trajectory of RMR's business. With that, I'll now turn the call over to Matt Jordan, our Chief Financial Officer, who will review our financial results for the quarter.