Good morning, and welcome to The RMR Group's Fiscal Second Quarter 2025 Earnings 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'd now like to turn the call over to Matt Murphy, Manager of Investor Relations. Please go ahead.

Good afternoon and thank you for joining RMR's second quarter fiscal 2025 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, May 7, 2025, 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 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 Matt and thank you all for joining us this afternoon. Yesterday we reported second quarter results that were slightly below our expectations with adjusted net income coming in at $0.28 per share and distributable earnings of $0.40 per share. The shortfall to our expectations primarily related to our managed equity REIT spending less on capital expenditures given the more uncertain economic environment and deleveraging activities adversely impacting RMR's revenues. While in recent months we've been forced to navigate economic volatility, we continue to engage with private capital investors regarding our various investment initiatives across the residential sector, credit strategies, and select development opportunities. While we found most partners ready to start investing in a significant way in the latter part of 2024 and into early 2025, recent market volatility has modestly tempered enthusiasm and caused some investors to temporarily pause new allocations. With that said, across many of our investment strategies, we believe now is the time to take advantage of opportunities when others are pulling back. As an example, we were already seeing new supply decrease in the residential sector, which bodes well for rent growth and occupancy gains heading into 2026. With the recent tariff actions, we believe this will further slow new construction starts and strengthen residential fundamentals in many of our Sunbelt markets where migration trends continue to drive housing shortages. During the quarter, we closed two joint venture acquisitions of residential communities in South Florida, for an aggregate transaction value of approximately $196 million. RMR raised an aggregate $64.3 million in equity from institutional investors to capitalize these joint ventures, with RMR acting as the general partner and contributing a total of $11 million, or retaining a weighted average 15% interest in the combined ventures. Another example of a real estate sector where we…

Thanks, Adam. Good afternoon, everyone. As Adam highlighted earlier, this quarter's results were slightly below our expectations, as RMR generated adjusted net income of $0.28 per share and distributable earnings of $0.40 per share. Recurring service revenues were $45.5 million this quarter, a sequential quarter decrease of approximately $1.8 million, driven primarily by lower-than-expected capital spend as well as declines in the enterprise values of the managed equity REITs both of which were partially offset by $700,000 in acquisition fees earned from the two residential joint ventures Adam discussed earlier. Next quarter based on the current enterprise values of our managed equity REITs and continued muted levels of capital spend, we expect recurring service revenues to be between $44 million and $45 million. As it relates to the value-add shopping center in Chicago that Adam highlighted earlier, we expect this acquisition to generate EBITDA of approximately $350,000 per quarter in fiscal 2025. Turning to expenses. Recurring cash compensation was $42.1 million this quarter, a decline of approximately $500,000 sequentially, which reflects the impact of headcount actions taken in recent quarters. Looking ahead to next quarter we expect recurring cash compensation to decrease to approximately $39 million through continued cost containment measures, driven by strategic asset sales. Given that a significant number of the headcount actions were associated with strategic asset sales and were thus reimbursable roles, next quarter's cash compensation reimbursement rate is expected to decline to 48%. Recurring G&A this quarter was $10.7 million after excluding $600,000 in annual director share grants. Recurring G&A of $10.7 million, represents a modest sequential quarter decrease due to lower third-party construction costs and continued expense management. Next quarter we expect recurring G&A to be closer to $10.5 million. Aggregating these collective assumptions, next quarter we expect adjusted earnings per share to be between $0.28 and $0.30 per share, adjusted EBITDA to be between $19 million and $20 million and distributable earnings to be between $0.42 and $0.44 per share. Our dividend remains well covered with a payout ratio of approximately 79%, which is shown on Page 12 of our financial results. With $137 million of cash on hand and no corporate debt, we remain poised to take advantage of strategic opportunities. Before we take questions, I would like to highlight the recent publication of our annual sustainability report. This report provides a comprehensive overview of our commitment to addressing sustainability, across our portfolio of approximately 2,000 properties. A link to the report can be found on our website at rmrgroup.com. That concludes our prepared remarks. Operator, please open the line for questions.

Thank you. [Operator Instructions] And today's first question comes from Tyler Batory with Oppenheimer. Please go ahead. Q – Tyler Batory: Hey. Good afternoon. Thank you. My first question I thought the value-add retail acquisition was interesting. So could you give a little bit more details on the strategic rationale for doing this? I think you talked about using the balance sheet to do about $100 million over the next six to 12 months. So, why keep these on balance sheet? And just talk a little bit more about plans for this area of the business.

Sure. Thank you for that question. So, you're right that the retail -- value-add retail acquisition this year -- this quarter, is a little different for us. It's different for us, because we typically have not bought much value-add retail or community shopping centers in the past. We're really building off of a deep bench of expertise in retail within RMR. We've been investing in retail for about 15 years. Today's entire -- today we have an entire portfolio about $5 billion of our AUM is in retail. And it's over 500 properties that we have today that are classified as retail properties, which we manage and oversee. So we feel like we have a very good understanding of the market. And we've been watching the retail market now for some years and we really think there's a turning point going on in parts of retail that make a lot of sense to generate very high returns specifically, around community shopping centers or grocery-anchored or drugstore anchored shopping centers. What we've observed in the retail space both in market and within our own portfolio, is in the last couple of years vacancies have become very low. And there's really been a lot of positive absorption. We've seen that in the marketplace and we're also seeing that, within our own portfolio. Anecdotally, if space comes up in one of our existing retail locations, we often nine times out of 10 have a list of folks that we can go to that will backfill. And often, they backfill and pay higher rents. And you can ask what's driving this within our own portfolio, but also more generally in the market, it's really a lack of supply that's happened. There hasn't been much retail building going on for over a decade, and demand…

Yeah. Good question. The first calendar quarter of every year tends to be a seasonally low quarter as people kind of -- as you may remember, the last quarter of last calendar -- the last quarter of last calendar year, is always a high number for us as people use up their budgets. Unfortunately, I think the seasonality, this run rate is going to stick for a couple of quarters, given some of the judicial spending and capital constraints at our REIT clients right now. Q – Tyler Batory: Okay. Makes sense. Last one for me. I'll be getting a few questions from folks on the dividend. And I think you added a new slide in the presentation that helps address that. But I'm curious if you can just talk a little bit more about how you feel about coverage for the dividends. And when you look at capital allocation broadly, I mean, with stock yielding where it is right now, are you kind of thinking about other uses for capital instead of the dividend? Just kind of walk through some of the thinking there if you could please.

Sure. So I'll let Matt say a couple of words about some of the information we've put in the slide and how we calculate our payout ratio. But we feel very comfortable, generally speaking, with our payout ratio as it sits today, and I'll let Matt get into that in a second. But more broadly, in terms of your question around capital allocation, we still feel we have very -- we have no corporate level debt. And we are still sitting on a sizable amount of cash. We have an untapped corporate credit facility. We still feel that we have a tremendous amount of capacity to add investments on our balance sheet. And when you think about capital allocation, we do believe it's important to provide some return given we have a high margin, high cash flowing business to our shareholders. And so we've always felt the best balance was to provide some return to shareholders in the form of a dividend. But on top of that, the type of investments that we are then using our cash and liquidity for, we believe are very high returning investments meaning, we think very high in terms of return on investments and we expect them to return those -- have a very high return in the short-term two to three -- maybe two to three at most five years. And as we think about capital allocation, until we sort of get closer to even possibly exhausting our liquidity which we are very far from doing, I think that's going to be -- continue to be where we focus on allocating capital and keep the dividend relatively stable.

And from a coverage perspective and the questions you may be getting, as we illustrated in our earnings, the dividend is covered at about 79%. And I guess what I would remind folks, is this is always the low point for us for a number of seasonal reasons both on the top line and in the expense line for compensation. And when you look at our guidance at $0.42 to $0.44 and as I think further out as we get some of this AUM growth happening on the residential side, the REIT share price is improving, I really think this is a low point and we're still covered at 79%. So the -- any risk around the dividend is not something we're focused on right now. Q – Tyler Batory: Okay. I appreciate all the details. That’s all for me. Thank you.

Thank you. [Operator Instructions] Our next question comes from John Massocca with B. Riley Securities. Please go ahead.

Good afternoon. As you kind of talk to your potential partners on either the JV side or some of these potential future funds you might see, what are they looking for, in either the macro environment or the real estate environment, before they get comfortable again? And maybe kind of what are you thinking in terms of a timeline for when that kind of equity capital might be available again?

Sure. So the short answer is that our partners, generally speaking, the private capital LPs of the world are seeking a higher return on their dollars, generally speaking than they were let's say five years ago, which is partly to explain why we as a firm have decided to invest and devote more resources into what we call value-add investments and that type of strategy because that's a strategy that's typically going to generate a mid-teen to high-teen return for investors. And so that's what we're seeing from LPs, generally speaking, that would come into let's say funds. The good thing -- the thing I think is important to point out is LPs and investors are still investing. Just our last quarter that we brought in tens of millions of dollars in JV capital for two properties, we bought down in Florida. Investors are willing to open their chequebook and they are willing to make investments. In terms of when do we think that we could see a substantial increase in the amount of AUM and fees we generate? Look, today we are in a -- one of the most difficult fundraising environments for private equity, and especially around real estate private equity, that's existed since the great financial crisis almost 15 years -- more than 15 years ago. And so I think it's going to take probably another short period of time. I think as the world becomes more stable and there's more stable outlook around interest rates, I think LPs will be more interested in opening up their chequebook and allocating more resources to that. With regards to RMR itself look we expect and we said this during our last earnings call upwards of $1 billion in calendar year 2025 will be spent in and around private capital initiatives. And what do we mean by that? That's total assets that's us putting JVs together and that's also buying some properties on our balance sheet. That's what I think we'll do this year and I think it ramps from there.

Is there potential for you to put more on your balance sheet as you look at it this quarter versus last quarter just given the appetite you're seeing for LPs today?

I think it's entirely possible in the residential space. And as Adam highlighted obviously we're going to look for a couple more value-add retail centers. But the key to our growth and accelerating AUM growth is going to be raising third-party capital with RMR co-investing as most third-party capital partners request.

Okay. And then I mean I may have missed it but the value-add shopping centers beyond the one you closed in April what's the size of that portfolio? Apologies I didn’t have the prepared remarks.

Sure. It's $21 million investment. It's about 204,000 square feet. And I think we could grow it to about $100 million in aggregate assets.

But are those $100 million things that are like kind of in the pipeline under contract? Or is that just kind of -- is that more of a pipeline number? Or is that kind of an under contract under LOI type of number?

That's a pipeline number. We have nothing under LOI or contract at this moment in addition to what we've closed on, but we're actively underwriting and bidding and evaluating those type of investments.

Okay. And then lastly on kind of the construction supervision revenue. As we kind of think about March 31 number as a run rate is that taking into account some of the disposition activity particularly from DHC and SVC Essentially is that already accounted for given maybe capital isn't being put into assets they're going to sell? Or could that further decline as they look to dispose of some assets for capital recycling and deleveraging purposes?

No fair question. It is all inclusive and would consider all planned spend and all active disposition activity.

I appreciate the color. That's if for me.

Thank you. This concludes our question-and-answer session. I'd like to turn the conference back over to Adam Portnoy for closing remarks.

Thank you all for joining our call today. We look forward to seeing many of you at the upcoming NAREIT conference in June. Institutional investors should contact RMR Investor Relations if you would like to schedule a meeting with management. Operator, that concludes our call.

Thank you sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.