The RMR Group Inc.

Good morning and welcome to the RMR Group Fiscal Third Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, 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 that this event is being recorded. I would now like to turn the call over to Kevin Berry, Senior Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining RMR's third quarter of fiscal 2024 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 also 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 2, 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, and adjusted EBITDA. A reconciliation of net income determined in accordance with U.S. generally accepted accounting principles to these non-GAAP figures 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. Yesterday, we reported third quarter results that were in line with our expectations, which included adjusted net income per share of 37 cents, distributable earnings per share of 45 cents, and adjusted EBITDA of $21 million. Our quarterly dividend remains well covered with a payout ratio of approximately 70%. We believe these results continue to underscore the durability of the RMR platform. As a highly scalable alternative asset manager, RMR's recurring management fees have provided stability to our business for over 35 years. We have evolved throughout our history to changing industry conditions and market cycles while generating strong cash flows with limited ongoing capital needs. Assets under management of $41 billion reflects a broadly diversified portfolio across all major real estate sectors with investments in both equity and debt and managing both public and private vehicles. Adding to the foundational stability of the business, our balance sheet remains strong with substantial cash on hand and no corporate debt. At a macro level, over the past few years, valuations have declined across the U.S. real estate industry as the Federal Reserve took aggressive action to combat inflation. Clearly, this dynamic has adversely impacted the enterprise values of our public clients and, as a result, weighed on RMR's base management fees. Fortunately, inflation continues to ease, and there is once again growing investor consensus that the Fed will begin to reduce interest rates in the coming months. This favorable shift in sentiment bodes well for the real estate industry and our clients. Along those lines, over the past few months, we began executing on strategic initiatives to best position RMR to capture the significant opportunity that exists within the private capital markets. with a near-term emphasis on real estate credit and multifamily housing. First, we recently started fundraising for our previously announced private debt vehicle that utilizes the expertise and strong track record of our existing real estate lending platform, Tremont Realty Capital. Our initial objective is to seed a portfolio with gross investments of approximately $100 million in middle market and transitional bridge loans. To that end, in July, we closed two floating rate mortgage loans with aggregate commitments of $67 million, secured by hotel and industrial properties. Initially, we are funding these loans with cash on hand, although we expect to lever the loans this quarter at an advance rate of approximately 75% via a master repurchase facility with one of our banking relationships, which will keep RMR's net cash outlay at less than $20 million. With leverage, we expect these loans to generate returns in the mid-teens. Looking ahead, as third-party investors are identified through our fundraising efforts, a substantial majority of the equity investments we are making in these loans are expected to be repaid, and the loan portfolio and related repurchase facility will shift off RMR's balance sheet. Our second initiative is focused on expanding the RMR residential platform, which will simultaneously help move that platform closer to our initial underwriting and overall profitability. We continue to have conviction that the U.S. multifamily market is primed for long-term growth, supported by an overall shortage of housing, the high cost of home ownership, and favorable demographic tailwinds for the Sunbelt market. which is where RMR Residential has extensive operating experience. I'm pleased to report that this week RMR Residential closed its inaugural multifamily investment with the acquisition of a 240-unit garden-style community in Denver for approximately $70 million. The acquisition, which is value-added in nature, was made with a combination of cash on hand and a $46.5 million five-year fixed-rate interest-only mortgage. RMR's total equity commitment, inclusive of transaction costs, will be approximately $25 million. The property is expected to generate returns to investors in the high teens based on the opportunity for operational upside, including future rent growth. While RMR acquired this multifamily investment utilizing our balance sheet, in the coming months, we plan to syndicate the majority of the equity in this acquisition, with RMR remaining as the general partner. As a result, once this equity is syndicated, the investment and its associated debt will move off balance sheet for RMR. Our current multifamily investment pipeline reflects an increase in both on and off market deals. We currently have over 125 deals in various stages of review that we hope to capitalize on now that we have demonstrated RMR Residential is, again, an active market participant. Beyond our strategic initiatives, we remain focused on assisting the managed equity REITs with the execution of their operational and financial strategies in an effort to maximize their long-term performance. During the quarter, we arranged 1.2 million square feet of leasing and executed over $1.8 billion of new financings on behalf of our clients, turning to a few highlights across the managed equity REITs. OPI is intensely focused on executing on strategic strategies to address its upcoming debt maturities, as well as navigating the ongoing challenging office market conditions. Since the beginning of the year, OPI has completed $1.3 billion of secured financings, including a debt exchange in June that reduced total debt by nearly $300 million and reduced their upcoming 2025 debt maturity to approximately $500 million. We continue to evaluate all possible strategies to address OPI's debt maturities along with OPI's third-party advisor, Mollis and Company. Last night, DHC reported strong quarterly results reflecting continued momentum within their shop segment in double-digit rent growth from leasing activity in the medical office and life science segment. DHC's shop portfolio generated a same property cash basis NOI increase of 27% on a year-over-year basis driven by improved occupancy and a continued focus on operating expenses. As you will hear later today, DHC's management remains laser-focused on driving long-term shareholder value through targeted capital investments in underperforming communities, strategic operator transitions, and property sales. SVC will not report earnings until next week, limiting what we can discuss today, although I do want to highlight some recent capital markets activity. In June, SVC closed $1.2 billion of senior guaranteed unsecured notes, including $700 million of five-year notes and $500 million of eight-year notes. SVC used the proceeds from this offering and cash on hand to fully redeem its 2025 debt maturities, which leaves SVC virtually free of any debt maturities until 2026. In closing, RMR's business remains strong, with stable recurring revenues, a diversified client roster, and a solid balance sheet. We are taking actions necessary to best position our clients to navigate the current economic environment and challenges in the real estate sector, while advancing private capital initiatives to drive future growth and create long-term value for RMR and its shareholders. With that, I'll now turn the call over to Matt Jordan, Executive Vice President, and our Chief Financial Officer.