The RMR Group Inc.

Welcome to the RMR Group Fiscal First Quarter 2024 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal 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 telephone keypad. To withdraw your question, please press star, then two. Please note that 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.

Good morning, and thank you for joining RMR's first quarter of fiscal 2024 conference call. With me on today's call, our 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, February 8, 2024, 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, distributable earnings, 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, distributable earnings, adjusted EBITDA, and a calculation of adjusted EBITDA margin can be found in our financial results. I will now turn the call over to Adam.

Thanks, Kevin, and thank you all for joining us this morning. Before providing an update on our first quarter results, let me first discuss the macro commercial real estate environment. There is no question that commercial real estate has been under pressure since the Federal Reserve began raising interest rates in early 2022. The higher cost of capital has resulted in significant headwinds to property values and a deterioration in capital markets activity. However, as I sit here today, we are currently seeing positive signs as the US economy continues to perform well with strong GDP growth, a healthy labor market, and declining inflation. With anticipated interest rate cuts later this year, we believe we are entering a generally more favorable environment for commercial real estate. Looking across our diversified portfolio, I also see several encouraging trends, and we are highly confident in the strength, diversity, and durability of our platform and the opportunity for our clients to benefit as the commercial real estate sector normalizes. Turning now to our quarterly results, RMR reported a strong first quarter that reflects the continued strength and stability of our operations through all real estate cycles. We delivered sequential growth and adjusted earnings per share that exceeded the high end of our guidance. This quarter, we reported distributable earnings of 53 cents per share, adjusted EBITDA of $25.3 million, and adjusted EBITDA margin of 52.1%. Our results also continue to demonstrate the strong alignment between RMR and our clients. we remain focused on assisting our clients with the execution of their business plans and expect to capitalize on the significant upside that exists from a possible recovery and share prices at some of our publicly traded clients. To put this into context, all of our managed equity REITs are paying base business management fees on an enterprise value basis. Given the depressed levels of these stock prices, We have a total annualized revenue opportunity of more than $60 million as we work to close the gap between enterprise value and the historical cost at our managed equity REITs. To this end, during the quarter, all of our perpetual capital clients achieved double-digit percentage growth in their share prices, supported by recent actions we have taken at RMR, which helped drive this quarter's revenue growth at RMR. In mid-December, we successfully closed the Carroll multifamily platform acquisition. The acquisition adds approximately 500 real estate professionals with deep residential market knowledge, value-add real estate experience, and long-term relationships with a number of high-quality global institutional partners. As of December 31st, the Carroll business, which we are now calling RMR Residential, consisted of $5.5 billion of assets under management at 66 properties with more than 21,000 units largely located across the Sunbelt. As a result of this acquisition, total AUM at RMR grew more than 15% sequentially this quarter to over $41 billion, and private capital AUM now represents more than $13 billion, or approximately 32% of our total AUM. We are especially proud of these metrics given that private capital assets under management was close to zero just over three years ago. And growing this part of our business has been a strategic objective for the company for the last few years. We believe there is significant long-term growth to be realized by RMR Residential in the future. More specifically, our current General Partner Fund, or Fund 7, which we assumed as part of the Carroll acquisition, has approximately $200 million in available equity capital remaining, which equates to approximately $3 billion of gross acquisition capabilities in residential properties. In terms of expectations for deployment of this capital, while residential transactions have remained subdued, bid-ask spreads are tightening and general market expectations are turning cautiously optimistic for more residential transaction activity as the year progresses. Accordingly, our financial expectations for the residential business are muted in the first half of the calendar year before an expected significant increase in contributions to EBITDA and distributable earnings in the second half of the calendar year. Looking beyond RMR residential, we ended the quarter with more than $200 million of cash and no corporate debt, giving us the flexibility to continue evaluating growth opportunities that build on our existing capabilities expand RMR's private capital AUM, and create long-term value for our shareholders. As a reminder, we are limited as to what we can discuss this quarter regarding our publicly traded clients as we are reporting results in advance of them. With that said, I wanted to highlight some public announcements of note across our clients. In December, GHC made significant progress towards strengthening its financial profile. issuing $941 million of zero coupon bonds. The notes generate net proceeds of approximately $732 million that was used to repay all of DHC's 2024 debt maturities. Importantly, this financing puts DHC back in compliance with its debt covenants and positions the company to access lower cost GSE financing in the future. With ample liquidity and a fully unencumbered shop portfolio, DHC is in an excellent position to continue funding the necessary capital and drive the recovery in its senior living communities. OPI has also taken significant actions to address its debt maturities and successfully execute new financings, despite capital market conditions that remain especially challenging for office owners. Last month, OPI closed new secured financing facilities for $425 million with a group of 19 banks, replacing its previous unsecured revolver. Additionally, last night, OPI priced a five-year, $300 million senior secured bond offering and announced the redemption of its $350 million senior unsecured notes maturing this May. These recent successful financings at OPI within a difficult market backdrop for office REITs speaks to the strength of OPI's assets and RMR's management, as well as positions OPI well going forward. Lastly, our mortgage REIT, Seven Hills Realty Trust, has continued to generate outsized returns for its shareholders. During a period when banks have broadly pulled back on commercial real estate lending, Seven Hills has remained active. The strength of its loan book and strong investment returns had contributed to a total shareholder return of more than 60% in 2023. We believe our lending platforms underwriting and asset management capabilities are best in class and something we can ultimately leverage to expand our private capital assets under management in the future. In closing, We are off to a strong start in 2024. We are taking meaningful actions to position RMR and our clients for long-term growth and deliver increased value for our stakeholders. We look forward to updating you on our ongoing process throughout the year. With that, I'll now turn the call over to Matt Jordan, our Executive Vice President and Chief Financial Officer, who will review our financial results for the quarter.