Q3 2026 RMR Group Inc Earnings Call

August 6, 2026

Speaker #1: Different specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touchtone phone.

Speaker #1: To withdraw your question, please press star, then 2. And please note this event is being recorded. I would now like to turn the conference over to Brian Maher, Senior Vice President.

Speaker #1: Please go ahead.

Speaker #2: Thank you. Good morning. Thank you for joining RMR's fiscal third quarter 2026 conference call. With me on today's call are President and CEO Adam Portnoy, Chief Operating Officer Matt Jordan, and Chief Financial Officer Matt Brown.

Speaker #2: 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.

Speaker #2: 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 6, 2026, and actual results may differ materially from those that we project.

Speaker #2: The company undertakes no obligation to revise or publicly release the results of any revision to 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.

Speaker #2: 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 distributable earnings and adjusted EBITDA.

Speaker #2: 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.

Speaker #2: I'll now turn the call over to Adam.

Speaker #3: Thanks, Brian. And thank you all for joining us this morning. Yesterday, we reported third quarter financial results that were in line with our expectations, despite broad economic and geopolitical uncertainty.

Speaker #3: Our quarterly results were highlighted by distributable earnings of $48 per share, an adjusted EBITDA of $19.7 million. Our results continue to reflect the organization's focus on our two primary strategic objectives: first, we are focused on driving continued improvements in the share prices of our managed REITs through strong business execution; and second, we are focused on growing our private capital business.

Speaker #3: While Matt will talk more about private capital, as it relates to our managed REITs, over the past 2 years we have actively assisted the REITs in deleveraging efforts through strategic asset sales, refinancing debt on more attractive terms, and driving property NOI growth through increased occupancy and rent roll-ups and disciplined expense management.

Speaker #3: These efforts continue to resonate with the investment community, as both DHC and ILPT remain among the best-performing REITs in the U.S. over the past 3 years.

Speaker #3: As a result of this continued outperformance, we have seen sequential quarter growth in management fees and we are on pace to generate over $40 million in incentive fees this calendar year.

Speaker #3: Now turning to our managed REITs. At DHC, the REIT continues to experience significant operating improvement within its senior housing segment, following the transition of 116 communities to new operators over the past year.

Speaker #3: DHC has also materially improved its balance sheet metrics following over 600 million dollars in non-core asset sales, since the beginning of last year. Resulting in net debt to adjusted EBITDA declining to $7.1 times as of June 30.

Speaker #3: In the second quarter, DHC generated normalized FFO of $0.16 per share, and adjusted EBITDA of $82 million. Both exceeding consensus estimates. Same property shop NOI grew 37% over last year, and same property shop margins improved 390 basis points, to 17.3%.

Speaker #3: Importantly, we continue to believe that DHC is in the early innings of a multi-year acceleration in cash flow growth because of the demographic-driven demand for its shop communities and limited supply growth.

Speaker #3: Which are amplified by the operational improvements we are implementing across the portfolio. ILPT had a very successful quarter with its results highlighted by a record 5.4 million square feet of leasing and a weighted average rent roll-up of more than 35%, marking its 7th consecutive quarter of double-digit rent growth.

Speaker #3: Additionally, RMR recently assisted ILPT with the refinancing of $1.6 billion of new debt for its consolidated mountain joint venture, which we placed floating-rate debt with interest-only fixed-rate debt and an attractive 5.7% interest rate.

Speaker #3: Given a materially improved debt profile and strong organic cash flow growth, ILPT recently doubled its quarterly dividend to $0.10 per share, while maintaining significant dividend coverage.

Speaker #3: SVC continues to make progress strengthening its balance sheet while improving its portfolio composition through a combination of capital recycling and over 900 million dollars in non-core asset sales, since the beginning of last year.

Adam Portnoy: We continue to believe that DHC is in the early innings of a multi-year acceleration in cash flow growth because of the demographic-driven demand for shop communities and limited supply growth, which are amplified by the operational improvements we are implementing across the portfolio. ILPT had a very successful quarter with its results highlighted by a record 5.4 million square feet of leasing and a weighted average rent roll-up of more than 35%, marking its seventh consecutive quarter of double-digit rent growth. Additionally, RMR recently assisted ILPT with the refinancing of $1.6 billion of new debt for its consolidated Mountain joint venture, which replaced floating rate debt with interest-only fixed rate debt and an attractive 5.7% interest rate. Given a materially improved debt profile and strong organic cash flow growth, ILPT recently doubled its quarterly dividend to $0.10 per share while maintaining significant dividend coverage.

Speaker #1: We believe that DHC is in the early innings of a multi-year acceleration in cash flow growth because of the demographic-driven demand for SHOP communities and limited supply growth, which are amplified by the operational improvements we are implementing across the portfolio.

Speaker #3: Management's primary focus remains on working with Sinister's new leadership team to drive hotel EBITDA margins higher, while also looking to realize the anticipated benefits from nearly 650 million dollars in capital improvements made to its retained hotel portfolio over the past 3 years.

Speaker #1: ILPT had a very successful quarter with its results highlighted by a record 5.4 million square feet of leasing and a weighted average rent roll-up of more than 35%, marking its 7th consecutive quarter of double-digit rent growth.

Speaker #3: For the quarter, SVC's retained hotels saw red part increase 6.6%, and hotel EBITDA grew 4.2%, reflecting the early benefits of the recently completed renovations.

Speaker #1: Additionally, RMR recently assisted ILPT with the refinancing of $1.6 billion of new debt for its consolidated Mountain Joint Venture, which replaced floating-rate debt with interest-only fixed-rate debt and an attractive 5.7% interest rate.

Adam Portnoy: Additionally, RMR recently assisted ILPT with the refinancing of $1.6 billion of new debt for its consolidated Mountain joint venture, which replaced floating rate debt with interest-only fixed rate debt and an attractive 5.7% interest rate. Given a materially improved debt profile and strong organic cash flow growth, ILPT recently doubled its quarterly dividend to $0.10 per share while maintaining significant dividend coverage.

Speaker #3: Normalized FFO per share came in at $43 and adjusted EBITDA was $146 million. RMR was instrumental in helping SVC improve its balance sheet during the quarter using the net proceeds from its recent $575 million equity offering to redeem $550 million of unsecured notes due in 2027.

Speaker #1: Given a materially improved debt profile and strong organic cash flow growth, ILPT recently doubled its quarterly dividend to $0.10 per share, while maintaining significant dividend coverage.

Speaker #1: SVC continues to make progress strengthening its balance sheet while improving its portfolio composition through a combination of capital recycling and over 900 million dollars in non-core asset sales since the beginning of last year.

Adam Portnoy: SVC continues to make progress strengthening its balance sheet while improving its portfolio composition through a combination of capital recycling and over $900 million in non-core asset sales since the beginning of last year. Management's primary focus remains on working with Sonesta's new leadership team to drive hotel EBITDA margins higher, while also looking to realize the anticipated benefits from nearly $650 million in capital improvements made to its retained hotel portfolio over the past three years. For the quarter, SVC's retained hotels saw RevPAR increase 6.6% and hotel EBITDA grow 4.2%, reflecting the early benefits of the recently completed renovations. Normalized FFO per share came in at $0.43, and adjusted EBITDA was $146 million. RMR was instrumental in helping SVC improve its balance sheet during the quarter using the net proceeds from its recent $575 million equity offering to redeem $550 million of unsecured notes due in 2027.

Speaker #3: As a result, SVC has meaningfully reduced near-term refinancing risk, while creating runway to optimize its hotel performance and advance its broader transformation into a net-lease-focused REIT.

Speaker #1: Management's primary focus remains on working with Sonesta's new leadership team to drive hotel EBITDA margins higher, while also looking to realize the anticipated benefits from nearly 650 million dollars in capital improvements made to its retained hotel portfolio over the past 3 years.

Speaker #3: Lastly, OPI recently emerged from bankruptcy and its newly issued shares trade on the NASDAQ. As we previously highlighted, RMR will continue managing OPI for an initial 5-year term, with RMR receiving a flat business management fee during the first 2 years of $14 million per year.

Speaker #1: For the quarter, SVC's retained hotels saw red part increase 6.6%, and hotel EBITDA grew 4.2%, reflecting the early benefits of the recently completed renovations.

Adam Portnoy: For the quarter, SVC's retained hotels saw RevPAR increase 6.6% and hotel EBITDA grow 4.2%, reflecting the early benefits of the recently completed renovations. Normalized FFO per share came in at $0.43, and adjusted EBITDA was $146 million. RMR was instrumental in helping SVC improve its balance sheet during the quarter using the net proceeds from its recent $575 million equity offering to redeem $550 million of unsecured notes due in 2027.

Speaker #3: To conclude, we are pleased with the significant progress RMR has made improving the financial positions of our managed REITs. We are particularly encouraged by the total shareholder returns that have been delivered by DHC and ILPT over the past 3 years, and we are working hard to deliver similar results across all of our clients.

Speaker #1: Normalized FFO per share came in at 43 cents, and adjusted EBITDA was 146 million dollars. RMR was instrumental in helping SVC improve its balance sheet during the quarter using the net proceeds from its recent 500 and 75 million dollar equity offering, to redeem 550 million dollars of unsecured notes due in 2027.

Speaker #3: With that, I'll now turn the call over to Matt Jordan.

Speaker #1: Thanks, Adam. While our publicly traded perpetual capital clients provide RMR and its shareholders, with a stable foundation of recurring cash flows, we continue to pursue growth strategies in our private capital business, which, as a reminder, has grown from nearly zero assets under management in 2020 to over $12 billion today.

Speaker #1: As a result, SVC has meaningfully reduced near-term refinancing risk while creating runway to optimize its hotel performance and advance its broader transformation into a net-lease-focused REIT.

Adam Portnoy: As a result, SVC has meaningfully reduced near-term refinancing risk while creating runway to optimize its hotel performance and advance its broader transformation into a net lease-focused REIT. Lastly, OPI recently emerged from bankruptcy, and its newly issued shares trade on the Nasdaq. As we previously highlighted, RMR will continue managing OPI for an initial five-year term, with RMR receiving a flat business management fee during the first two years of $14 million per year. To conclude, we are pleased with the significant progress RMR has made improving the financial positions of our managed REITs. We are particularly encouraged by the total shareholder returns that have been delivered by DHC and ILPT over the past three years, and we are working hard to deliver similar results across all of our clients. With that, I'll now turn the call over to Matt Jordan.

Speaker #1: To further this initiative, over the past year we have built a global in-house sales and marketing team that continues to spend significant time increasing RMR's brand awareness.

Speaker #1: Lastly, OPI recently emerged from bankruptcy and its newly issued shares trade on the NASDAQ. As we previously highlighted, RMR will continue managing OPI for an initial 5-year term, with RMR receiving a flat business management fee during the first 2 years of $14 million per year.

Speaker #1: Given our expertise across most real estate sectors, we are in an excellent position to tailor the opportunities we are seeing in the market to potential partners capital allocation strategies.

Speaker #1: While investor meetings continue to be constructive, and have helped establish our organization in a manner that will benefit us in the long term, the ongoing conflict in the Middle East continues to be a headwind, with global real estate fundraising in the first half of the calendar year coming in at a 9-year low.

Speaker #1: To conclude, we are pleased with the significant progress RMR has made improving the financial positions of our managed REITs. We are particularly encouraged by the total shareholder returns that have been delivered by DHC and ILPT over the past 3 years, and we are working hard to deliver similar results across all of our clients.

Adam Portnoy: To conclude, we are pleased with the significant progress RMR has made improving the financial positions of our managed REITs. We are particularly encouraged by the total shareholder returns that have been delivered by DHC and ILPT over the past three years, and we are working hard to deliver similar results across all of our clients. With that, I'll now turn the call over to Matt Jordan.

Speaker #1: While we continue to make longer-term investments to build our brand and expand our investor universe, our residential business recently closed a joint venture acquisition in Greenwich, Connecticut, for approximately $350 million.

Speaker #1: With that, I'll now turn the call over to Matt Jordan.

Speaker #1: This venture involving RMR involved RMR partnering with new institutional investors that represent 95% of the equity in the venture, with RMR retaining a 5% general partner interest.

Speaker #2: Thanks, Adam. While our publicly traded perpetual capital clients provide RMR and its shareholders, with a stable foundation of recurring cash flows, we continue to pursue growth strategies in our private capital business, which, as a reminder, has grown from nearly zero assets under management in 2020 to over $12 billion today.

Matt Jordan: Thanks, Adam. While our publicly traded perpetual capital clients provide RMR and its shareholders with a stable foundation of recurring cash flows, we continue to pursue growth strategies in our private capital business, which as a reminder, has grown from nearly zero assets under management in 2020 to over $12 billion today. To further this initiative, over the past year, we have built a global in-house sales and marketing team that continues to spend significant time increasing RMR's brand awareness. Given our expertise across most real estate sectors, we are in an excellent position to tailor the opportunities we are seeing in the market to potential partners' capital allocation strategies.

Speaker #1: Our multi-year plan for this asset is to modernize the community and enhance the resident experience, and unlock embedded operating efficiencies. As general partner, RMR earned an acquisition fee at closing, and will earn asset management and property management fees of approximately $750,000 annually from this venture.

Speaker #2: To further this initiative, over the past year we have built a global in-house sales and marketing team that continues to spend significant time increasing RMR's brand awareness.

Matt Jordan: To further this initiative, over the past year, we have built a global in-house sales and marketing team that continues to spend significant time increasing RMR's brand awareness. Given our expertise across most real estate sectors, we are in an excellent position to tailor the opportunities we are seeing in the market to potential partners' capital allocation strategies.

Speaker #2: Given our expertise across most real estate sectors, we are in an excellent position to tailor the opportunities we are seeing in the market to potential partners capital allocation strategies.

Speaker #1: As a reminder, the RMR residential platform we acquired in 2023 was historically built completing joint ventures like the Greenwich transaction with large institutional partners.

Speaker #2: While investor meetings continue to be constructive, and have helped establish our organization in a manner that will benefit us in the long term, the ongoing conflict in the Middle East continues to be a headwind, with global real estate fundraising in the first half of the calendar year coming in at a 9-year low.

Matt Jordan: While investor meetings continue to be constructive and have helped establish our organization in a manner that will benefit us in the long term, the ongoing conflict in the Middle East continues to be a headwind, with global real estate fundraising in H1 of the calendar year coming in at a 9-year low. While we continue to make longer-term investments to build our brand and expand our investor universe, our residential business recently closed a joint venture acquisition in Greenwich, Connecticut, for approximately $350 million. This venture involved RMR partnering with new institutional investors that represent 95% of the equity in the venture, with RMR retaining a 5% general partner interest. Our multi-year plan for this asset is to modernize the community, enhance the resident experience, and unlock embedded operating efficiencies.

Speaker #1: To that end, while we continue to fundraise for our residential enhanced growth venture, we expect to continue executing one-off joint ventures with RMR acting as the general partner.

Speaker #1: Further, as tailwinds continue to improve for multifamily real estate, whether it be continued strengthening of fundamentals, or the continued slowdown in multifamily construction, we expect transaction activity to rebound over time.

Speaker #2: While we continue to make longer-term investments to build our brand and expand our investor universe, our residential business recently closed a joint venture acquisition in Greenwich, Connecticut, for approximately $350 million.

Speaker #1: Our residential platform regularly exceeded $1 billion in transactions a year, prior to the headwinds the sector has recently experienced. Beyond our general partner interests, RMR wholly owns 3 multifamily communities encompassing 781 units that are almost 92% occupied.

Speaker #2: This venture involving RMR involved RMR partnering with new institutional investors that represent 95% of the equity in the venture, with RMR retaining a 5% general partner interest.

Matt Jordan: This venture involved RMR partnering with new institutional investors that represent 95% of the equity in the venture, with RMR retaining a 5% general partner interest. Our multi-year plan for this asset is to modernize the community, enhance the resident experience, and unlock embedded operating efficiencies.

Speaker #2: Our multi-year plan for this asset is to modernize the community and enhance the resident experience, and unlock embedded operating efficiencies. As general partner, RMR earned an acquisition fee at closing, and will earn asset management and property management fees of approximately $750,000 annually from this venture.

Speaker #1: This quarter's earnings presentation includes expanded color on these assets, all of which are performing in line with their value-add business plans, and collectively are seeing operating fundamental improvements as supply eases, this is most notably starting to show in a continued trend of rental rate improvements and the easing of tenant concessions.

Matt Jordan: As general partner, RMR earned an acquisition fee at closing and will earn asset management and property management fees of approximately $750,000 annually from this venture. As a reminder, the RMR residential platform we acquired in 2023 was historically built completing joint ventures like the Greenwich transaction with large institutional partners. To that end, while we continue to fundraise for our residential enhanced growth venture, we expect to continue executing one-off joint ventures with RMR acting as the general partner. Further, as tailwinds continue to improve for multifamily real estate, whether it be continued strengthening of fundamentals or the continued slowdown in multifamily construction, we expect transaction activity to rebound over time. Our residential platform regularly exceeded $1 billion in transactions a year prior to the headwinds the sector has recently experienced.

Speaker #2: As a reminder, the RMR residential platform we acquired in 2023 was historically built completing joint ventures like the Greenwich transaction with large institutional partners.

Speaker #1: In closing, as investors may recall, last quarter we added a slide to our investor presentation that highlighted the material discount at which RMR shares trade relative to our peers.

Speaker #2: To that end, while we continue to fundraise for our residential enhanced growth venture, we expect to continue executing one-off joint ventures with RMR acting as the general partner.

Speaker #1: As an update, if one were to back out the carrying value of our investments, as well as the net carrying value of our wholly owned real estate in JV interest, RMR shares are trading at just over 5 times the EBITDA generated primarily by the 20-year evergreen management contracts associated with some of our managed equity REITs.

Speaker #2: Further, as tailwinds continue to improve for multifamily real estate, whether it be continued strengthening of fundamentals, or the continued slowdown in multifamily construction, we expect transaction activity to rebound over time.

Matt Jordan: Further, as tailwinds continue to improve for multifamily real estate, whether it be continued strengthening of fundamentals or the continued slowdown in multifamily construction, we expect transaction activity to rebound over time. Our residential platform regularly exceeded $1 billion in transactions a year prior to the headwinds the sector has recently experienced.

Speaker #1: This is significantly below the $16.5 times average multiple at which our peers trade, and highlights the attractiveness of our shares at current levels. With that, I'll now turn the call over to Matt Brown.

Speaker #2: Our residential platform regularly exceeded $1 billion in transactions a year, prior to the headwinds the sector has recently experienced. Beyond our general partner interests, RMR wholly owns 3 multifamily communities encompassing 781 units that are almost 92% occupied.

Speaker #2: Thanks, Matt, and good morning, everyone. For our fiscal third quarter, we reported adjusted EBITDA of $19.7 million, and distributable earnings of $48 per share.

Matt Jordan: Beyond our general partner interests, RMR wholly owns 3 multifamily communities encompassing 781 units that are almost 92% occupied. This quarter's earnings presentation includes expanded color on these assets, all of which are performing in line with their value add business plans, and collectively are seeing operating fundamental improvements as supply eases. This is most notably starting to show in a continued trend of rental rate improvements and the easing of tenant concessions. In closing, as investors may recall, last quarter we added a slide to our investor presentation that highlighted the material discount at which RMR shares trade relative to our peers.

Speaker #2: This quarter's earnings presentation includes expanded color on these assets, all of which are performing in line with their value-add business plans, and collectively are seeing operating fundamental improvements as supply eases.

Speaker #2: Both of which met our guidance. Recurring service revenues were $45.5 million, a sequential quarter increase of approximately $3.5 million, driven primarily by increases in the enterprise values of DHC and SVC, seasonal improvements in Sonesta revenues, and acquisition fees earned from our Greenwich joint venture acquisition.

Speaker #2: This is most notably starting to show in a continued trend of rental rate improvements, and the easing of tenant concessions. In closing, as investors may recall, last quarter we added a slide to our investor presentation that highlighted the material discount at which RMR shares trade relative to our peers.

Matt Jordan: In closing, as investors may recall, last quarter we added a slide to our investor presentation that highlighted the material discount at which RMR shares trade relative to our peers. As an update, if one were to back out the carrying value of our investments, as well as the net carrying value of our wholly owned real estate and JV interests, RMR shares are trading at just over 5x the EBITDA generated primarily by the 20-year Evergreen management contracts associated with some of our managed equity REITs. This is significantly below the 16.5x average multiple at which our peers trade and highlights the attractiveness of our shares at current levels. With that, I'll now turn the call over to Matt Brown.

Speaker #2: Next quarter, we expect recurring service revenues to remain consistent at approximately $45 million, as enterprise values at our managed equity REITs continue to improve, offset by acquisition fees recognized in the current quarter.

Speaker #2: As an update, if one were to back out the carrying value of our investments, as well as the net carrying value of our wholly owned real estate in JV interest, RMR shares are trading at just over 5 times the EBITDA generated primarily by the 20-year evergreen management contracts associated with some of our managed equity REITs.

Matt Jordan: As an update, if one were to back out the carrying value of our investments, as well as the net carrying value of our wholly owned real estate and JV interests, RMR shares are trading at just over 5x the EBITDA generated primarily by the 20-year Evergreen management contracts associated with some of our managed equity REITs. This is significantly below the 16.5x average multiple at which our peers trade and highlights the attractiveness of our shares at current levels. With that, I'll now turn the call over to Matt Brown.

Speaker #2: Turning to expenses, recurring cash compensation was $39.6 million, a sequential quarter increase of approximately $2 million, largely driven by year-to-date adjustments recognized in the current quarter and changes in headcount mix.

Speaker #2: This is significantly below the 16.5 times average multiple at which our peers trade, and highlights the attractiveness of our shares at their current levels.

Speaker #2: Our reimbursement rate in the quarter was approximately 42%, which we view as a good run rate moving forward based on our current headcount mix and strategic asset sales at certain of our managed equity REITs.

Speaker #2: With that, I'll now turn the call over to Matt Brown.

Speaker #2: Looking ahead to next quarter, we expect recurring cash compensation to decrease to approximately $38.5 million. As it relates to equity-based compensation, with our fiscal year-end approaching, RMR share awards to employees are expected to occur in September.

Speaker #3: Thanks, Matt, and good morning, everyone. For our fiscal third quarter, we reported adjusted EBITDA of $19.7 million, and distributable earnings of $48 per share.

Matt Brown: Thanks, Matt, and good morning, everyone. For our fiscal Q3, we reported adjusted EBITDA of $19.7 million and distributable earnings of $0.48 per share, both of which met our guidance. Recurring service revenues were $45.5 million, a sequential quarter increase of approximately $3.5 million, driven primarily by increases in the enterprise values of DHC and SVC, seasonal improvements in Sonesta revenues, and acquisition fees earned from our Greenwich joint venture acquisition. Next quarter, we expect recurring service revenues to remain consistent at approximately $45 million as enterprise values at our managed equity REITs continue to improve, offset by acquisition fees recognized in the current quarter. Turning to expenses. Recurring cash compensation was $39.6 million, a sequential quarter increase of approximately $2 million, largely driven by year-to-date adjustments recognized in the current quarter and changes in headcount mix.

Speaker #3: Both of which met our guidance. Recurring service revenues were $45.5 million, a sequential quarter increase of approximately $3.5 million, driven primarily by increases in the enterprise values of DHC and SVC, seasonal improvements in Sonesta revenues, and acquisition fees earned from our Greenwich joint venture acquisition.

Speaker #2: Based on historical grants, we expect approximately $600,000 in incremental equity compensation next quarter. Recurring G&A this quarter was $10.7 million, which is a modest sequential quarter increase driven primarily by normal course legal and professional fees.

Speaker #2: Including third-party construction management fees. We expect recurring G&A to decrease slightly next quarter. As noted in last quarter's call, our quarterly tax rate during the year is subject to fluctuation.

Speaker #3: Next quarter, we expect recurring service revenues to remain consistent at approximately $45 million, as enterprise values at our managed equity REITs continue to improve, offset by acquisition fees recognized in the current quarter.

Matt Brown: Next quarter, we expect recurring service revenues to remain consistent at approximately $45 million as enterprise values at our managed equity REITs continue to improve, offset by acquisition fees recognized in the current quarter. Turning to expenses. Recurring cash compensation was $39.6 million, a sequential quarter increase of approximately $2 million, largely driven by year-to-date adjustments recognized in the current quarter and changes in headcount mix.

Speaker #2: However, these fluctuations are not expected to materially impact our full-year estimated tax rate of 17 to 18%. This quarter, our tax rate remained elevated at 20.4%, as adjustments such as unrealized gains on our investments in SVC and 7 impacted the timing of tax expense recognition.

Speaker #3: Turning to expenses, recurring cash compensation was $39.6 million, a sequential quarter increase of approximately $2 million, largely driven by year-to-date adjustments recognized in the current quarter and changes in headcount mix.

Speaker #3: Our reimbursement rate in the quarter was approximately 42%, which we view as a good run rate moving forward based on our current headcount mix and strategic asset sales at certain of our managed equity REITs.

Matt Brown: Our reimbursement rate in the quarter was approximately 42%, which we view as a good run rate moving forward based on our current headcount mix and strategic asset sales at certain of our managed equity REITs. Looking ahead to next quarter, we expect recurring cash compensation to decrease to approximately $38.5 million. As it relates to equity-based compensation, with our fiscal year-end approaching, RMR share awards to employees are expected to occur in September. Based on historical grants, we expect approximately $600,000 in incremental equity compensation next quarter. Recurring G&A this quarter was $10.7 million, which is a modest sequential quarter increase driven primarily by normal course legal and professional fees, including third-party construction management fees. We expect recurring G&A to decrease slightly next quarter. As noted in last quarter's call, our quarterly tax rate during the year is subject to fluctuation.

Speaker #2: As Adam highlighted earlier, OPI emerged from bankruptcy in June, and we entered into amended and restated management agreements with OPI. As a result, we wrote off a contract asset associated with the previous management agreements, which was partially offset by RMR receiving 2% of the equity in the new entity, to compensate us for our efforts through the bankruptcy process.

Speaker #3: Looking ahead to next quarter, we expect recurring cash compensation to decrease to approximately $38.5 million. As it relates to equity-based compensation, with our fiscal year-end approaching, RMR share awards to employees are expected to occur in September.

Matt Brown: As it relates to equity-based compensation, with our fiscal year-end approaching, RMR share awards to employees are expected to occur in September. Based on historical grants, we expect approximately $600,000 in incremental equity compensation next quarter. Recurring G&A this quarter was $10.7 million, which is a modest sequential quarter increase driven primarily by normal course legal and professional fees, including third-party construction management fees. We expect recurring G&A to decrease slightly next quarter.

Speaker #2: The net impact of these non-cash-related items resulted in a net impairment charge of $19 million. Our investment in SVC generated approximately $420,000 in dividends in the quarter, which contributed to adjusted EBITDA and distributable earnings and serves as a good run rate moving forward.

Speaker #3: Based on historical grants, we expect approximately $600,000 in incremental equity compensation next quarter. Recurring G&A this quarter was $10.7 million, which is a modest sequential quarter increase driven primarily by normal course legal and professional fees.

Speaker #2: Aggregating these collective assumptions, next quarter we expect adjusted EBITDA to be approximately $19 to $21 million, and distributable earnings to be between $48 and $50 per share.

Speaker #3: Including third-party construction management fees. We expect recurring G&A to decrease slightly next quarter. As noted in last quarter's call, our quarterly tax rate during the year is subject to fluctuation.

Matt Brown: As noted in last quarter's call, our quarterly tax rate during the year is subject to fluctuation. However, these fluctuations are not expected to materially impact our full-year estimated tax rate of 17% to 18%. This quarter, our tax rate remained elevated at 20.4% as adjustments such as unrealized gains on our investments in SVC and Seven impacted the timing of tax expense recognition. As Adam highlighted earlier, OPI emerged from bankruptcy in June, and we entered into amended and restated management agreements with OPI.

Speaker #2: We expect full-year adjusted EBITDA to be approximately $76.5 to $78.5 million, which excludes the $23.6 million of incentive fees earned for calendar year 2025, and the possible more than $40 million of incentive fees for calendar year 2026.

Speaker #3: However, these fluctuations are not expected to materially impact our full-year estimated tax rate of 17 to 18%, this quarter our tax rate remained elevated at 20.4% as adjustments such as unrealized gains on our investments in SVC and 7 impacted the timing of tax expense recognition.

Matt Brown: However, these fluctuations are not expected to materially impact our full-year estimated tax rate of 17% to 18%. This quarter, our tax rate remained elevated at 20.4% as adjustments such as unrealized gains on our investments in SVC and Seven impacted the timing of tax expense recognition. As Adam highlighted earlier, OPI emerged from bankruptcy in June, and we entered into amended and restated management agreements with OPI. As a result, we wrote off a contract asset associated with the previous management agreements, which was partially offset by RMR receiving 2% of the equity in the new entity to compensate us for our efforts through the bankruptcy process. The net impact of these non-cash related items resulted in a net impairment charge of $19 million.

Speaker #2: We ended the quarter with over $130 million of total liquidity, including over $55 million in cash and $75 million of capacity on our revolving credit facility.

Speaker #3: As Adam highlighted earlier, OPI emerged from bankruptcy in June, and we entered into amended and restated management agreements with OPI. As a result, we wrote off a contract asset associated with the previous management agreements, which was partially offset by RMR receiving 2% of the equity in the new entity, to compensate us for our efforts through the bankruptcy process.

Matt Brown: As a result, we wrote off a contract asset associated with the previous management agreements, which was partially offset by RMR receiving 2% of the equity in the new entity to compensate us for our efforts through the bankruptcy process. The net impact of these non-cash related items resulted in a net impairment charge of $19 million.

Speaker #2: We remain well-positioned to execute on our strategic objectives and pursue growth opportunities that strengthen our competitive position and support future performance. That concludes our prepared remarks.

Speaker #3: The net impact of these non-cash-related items resulted in a net impairment charge of $19 million. Our investment in SVC generated approximately $420,000 in dividends in the quarter, which contributed to adjusted EBITDA and distributable earnings and serves as a good run rate moving forward.

Speaker #2: Operator, please open the line for questions.

Speaker #3: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchstone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Matt Brown: Our investment in SVC generated approximately $420,000 in dividends in the quarter, which contributed to adjusted EBITDA and distributable earnings and serves as a good run rate moving forward. Aggregating these collective assumptions, next quarter we expect adjusted EBITDA to be approximately $19 to $21 million and distributable earnings to be between $0.48 and $0.50 per share. We expect full year adjusted EBITDA to be approximately $76.5 to $78.5 million, which excludes the $23.6 million of incentive fees earned for calendar year 2025 and the possible more than $40 million of incentive fees for calendar year 2026. We ended the quarter with over $130 million of total liquidity, including over $55 million in cash and $75 million of capacity on our revolving credit facility. We remain well positioned to execute on our strategic objectives and pursue growth opportunities that strengthen our competitive position and support future performance.

Speaker #3: Aggregating these collective assumptions, next quarter we expect adjusted EBITDA to be approximately $19 to $21 million, and distributable earnings to be between $48 and $50 per share.

Speaker #3: If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster.

Speaker #3: We expect full-year adjusted EBITDA to be approximately $76.5 to $78.5 million, which excludes the $23.6 million of incentive fees earned for calendar year 2025, and the possible more than $40 million of incentive fees for calendar year 2026.

Speaker #3: The first question comes from Tyler Batory with Oppenheimer. Please go ahead.

Speaker #4: Hey, good morning. Thanks for taking my questions. First one is just on the private capital side of things in particular, the enhanced growth venture.

Speaker #4: It sounds like it's the just the macro. That's impacting some of the fundraising, but just wanted to double-click on that. I'm not sure if maybe some of the potential investors out there are looking for something different in terms of this sort of an investment.

Speaker #3: We ended the quarter with over $130 million of total liquidity, including over $55 million in cash and $75 million of capacity on our revolving credit facility.

Matt Brown: We ended the quarter with over $130 million of total liquidity, including over $55 million in cash and $75 million of capacity on our revolving credit facility. We remain well positioned to execute on our strategic objectives and pursue growth opportunities that strengthen our competitive position and support future performance. That concludes our prepared remarks. Operator, please open the line for questions.

Speaker #3: We remain well-positioned to execute on our strategic objectives and pursue growth opportunities that strengthen our competitive position and support future performance. That concludes our prepared remarks.

Speaker #4: It's just any updates on kind of how you think fundraising might progress over the next couple of quarters.

Speaker #1: Hey, Tyler. It's Matt Jordan. I guess there's a couple of things at play here. The fundraising cycle in general has really extended. You're looking at 18 to 24 months, and we're still about nine months in, and we've had a series of global meetings and interest levels.

Matt Brown: That concludes our prepared remarks. Operator, please open the line for questions.

Speaker #3: Operator, please open the line for questions.

Speaker #1: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchstone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Tyler Batory with Oppenheimer. Please go ahead.

Speaker #1: So I would say the fundraising process is still very much underway. I think you also which impacting it is two things. You have the Middle East conflicts and the related market volatility that's causing a lot of people to pause and a lot of the capital that is most actively deploying in real estate is Middle Eastern money.

Speaker #1: If at any time your question has been addressed, and you would like to withdraw your question. Please press star, then 2. At this time, we will pause momentarily to assemble our roster.

Speaker #1: The first question comes from Tyler Batory with Oppenheimer. Please go ahead.

Speaker #1: So it's further compounding the issue. You also have a second issue of a lot of investments made in the peak years when interest rates were zero or near zero.

Speaker #4: Hi, good morning. Thanks for taking my questions. First one is just on the private capital side of things in particular, the enhanced growth venture.

Tyler Batory: Hey, good morning. Thanks for taking my questions. First one is just on the private capital side of things, in particular, the enhanced growth venture. It sounds like it's just the macro that's impacting some of the fundraising, but just wanted to double-click on that. I'm not sure if maybe some of the potential investors out there are looking for something different in terms of this sort of an investment. Just any updates on how you think fundraising might progress over the next couple of quarters?

Speaker #1: Those investors haven't got that money back, so they don't have new monies to deploy. So we're just we just need to work through this.

Speaker #1: Through that, we're in this for the long game. Some of the effort we're doing as we market EGV and market RMR broadly is what we believe going to pay dividends in the long term when things stabilize and people start redeploying again.

Speaker #4: Are there any updates on how you think fundraising might progress over the next couple of quarters?

Speaker #2: Hey, Tyler. It's Matt Jordan. I guess there's a couple of things at play here. The fundraising cycle in general has really extended. You're looking at 18 to 24 months, and we're still about 9 months in, and we've had a series of global meetings and interest levels.

Matt Jordan: Hey, Tyler, it's Matt Jordan. I guess there's a couple of things at play here. The fundraising cycle in general has really extended. You're looking at 18 to 24 months, and we're still about nine months in, and we've had a series of global meetings and interest levels. I would say the fundraising process is still very much underway. I think what's impacting it is two things. You have the Middle East conflict and the related market volatility that's causing a lot of people to pause. A lot of the capital that is most actively deploying in real estate is Middle Eastern money, so it's further compounding the issue. You also have a second issue of a lot of investments made in the peak years when interest rates were zero or near zero.

Speaker #4: Okay. Thank you for that. And then another big-picture question. I'm just trying to think about offering leverage potential margin improvement in the business. There's I think a lot of momentum a lot of potential on the top line in terms of revenue.

Speaker #2: So I would say the fundraising process is still very much underway. I think you also which impacting it is two things. You have the Middle East conflicts and the related market volatility that's causing a lot of people to pause and a lot of the capital that is most actively deploying in real estate is Middle Eastern money.

Speaker #4: So any guidepost you could provide in terms of flow-through or you've been on margin, would that might look like in the medium term?

Speaker #1: Sure. So our

Speaker #2: current EBITDA margin is in the low 40% range. Historically, that number was trending at or above 50%. Our goal is to get there in the way we're going to get there is continue growing revenues and we'll see that flow through all the way down to the bottom line.

Speaker #2: So it's further compounding the issue. You also have a second issue of a lot of investments made in the peak years when interest rates were zero or near zero.

Matt Jordan: You also have a second issue of a lot of investments made in the peak years when interest rates were zero or near zero. Those investors haven't got that money back, so they don't have new monies to deploy. We just need to work through that. We're in this for the long game. Some of the effort we're doing as we market EGV and market RMR broadly is what we believe is going to pay dividends in the long term when things stabilize and people start redeploying again.

Speaker #2: So the goal is to get back towards that 50%-ish margin.

Speaker #2: Those investors haven't got that money back, so they don't have new monies to deploy. So we're just we just need to work through this.

Matt Brown: Those investors haven't got that money back, so they don't have new monies to deploy. We just need to work through that. We're in this for the long game. Some of the effort we're doing as we market EGV and market RMR broadly is what we believe is going to pay dividends in the long term when things stabilize and people start redeploying again.

Speaker #4: Okay. And then a couple of housekeeping questions. So the $40 million potential incentive fees, I guess I wanted to be clear. I think I know, but I just want to be clear exactly which rates are driving that.

Speaker #2: Through that, we're in this for the long game. Some of the effort we're doing as we market EGV and market RMR broadly is what we believe going to pay dividends in the long term when things stabilize and people start redeploying again.

Speaker #4: I don't know if there's any help in terms of potential sensitivity. I mean, it sounds like the 40 million is kind of a point in time from right now, so maybe there's even more upside, depending how the rest of the year plays out.

Tyler Batory: Okay. Thank you for that. Another big picture question. I'm just trying to think about offering leverage, potential margin improvement in the business. There's I think a lot of momentum, a lot of potential on the top line in terms of revenue. Just any guideposts you could provide in terms of flow-through or EBITDA margin, what that might look like in the medium term.

Speaker #2: Sure. So the two rates that are currently in the money for incentive fees right now are DHC and IOPT. With DHC representing about 75% of that total 40-ish million as of June 30th.

Speaker #4: So any guideposts you could provide in terms of flow-through or EBITDA margin, would that might look like in the medium term?

Speaker #2: Yes, the fee is volatile, but both of those rates are outperforming significantly. And as a result of it, are hitting the cap of the incentive fee, which is 1.5% of equity market cap for each of them.

Speaker #2: Sure. So our current

Matt Jordan: Sure. Our current EBITDA margin is in the low 40% range. Historically, that number was trending at or above 50%. Our goal is to get there, and the way we're going to get there is continue growing revenues, and we'll see that flow through all the way down to the bottom line. The goal is to get back towards that 50 percent-ish margin.

Matt Brown: Sure. Our current EBITDA margin is in the low 40% range. Historically, that number was trending at or above 50%. Our goal is to get there, and the way we're going to get there is continue growing revenues, and we'll see that flow through all the way down to the bottom line. The goal is to get back towards that 50 percent-ish margin.

Speaker #3: EBITDA margin is in the low 40% range. Historically, that number was trending at or above 50%. Our goal is to get there in the way we're going to get there is continue growing revenues and we'll see that flow through all the way down to the bottom line.

Speaker #2: So we feel really good about incentive fees for 2026. And even looking forward into 2027, we also expect a similar trend to what we're seeing currently.

Speaker #3: So the goal is to get back towards that 50%-ish margin.

Speaker #4: Okay. Great. And then the last one so the SVC investment that you've made, do you have an ideal holding period for that? Is that capital down the line that could be freed up and maybe an opportunity to monetize that at a gain?

Speaker #4: Okay. And then a couple of housekeeping questions. So, the $40 million potential incentive fees—I guess I wanted to be clear. I think I know, but I just want to be sure exactly which rates are driving that.

Tyler Batory: Okay. A couple of housekeeping questions. The $40 million potential incentive fees, I guess I want to be clear. I think I know, but I just want to be clear exactly which REITs are driving that. I don't know if there's any help in terms of potential sensitivity. I mean, it sounds like the $40 million is kind of a point in time from right now, so maybe there's even more upside, depending how the rest of the year plays out.

Speaker #4: I don't know if there's any help in terms of potential sensitivity. I mean, it sounds like the $40 million is kind of a point in time from right now, so maybe there's even more upside, depending how the rest of the year plays out.

Speaker #1: Hi, Tyler. It's Adam. I think you should think about that investment as a long-term investment. We really are bullish about the prospects of SVC, which is what was partially led us to make that investment.

Speaker #3: Sure. So the two rates that are currently in the money for incentive fees right now are DHC and ILPT. With DHC representing about 75% of that total 40-ish million as of June 30th.

Matt Jordan: Sure. The two REITs that are currently in the money for incentive fees right now are DHC and ILPT, with DHC representing about 75% of that total $40-ish million as of 30 June. Yes, the fee is volatile, but both of those REITs are outperforming significantly, and as a result of it, are hitting the cap of the incentive fee, which is 1.5% of equity market cap for each of them. We feel really good about incentive fees for 2026, and even looking forward into 2027, we also expect a similar trend to what we are seeing currently.

Matt Brown: Sure. The two REITs that are currently in the money for incentive fees right now are DHC and ILPT, with DHC representing about 75% of that total $40-ish million as of 30 June. Yes, the fee is volatile, but both of those REITs are outperforming significantly, and as a result of it, are hitting the cap of the incentive fee, which is 1.5% of equity market cap for each of them. We feel really good about incentive fees for 2026, and even looking forward into 2027, we also expect a similar trend to what we are seeing currently.

Speaker #1: And the business at SVC is going to the improvements that we are starting to see in the portfolio, we expect to continue but it is going to be measured in years, not quarters or months.

Speaker #1: And I think from your perspective, the answer directly, we expect to be long-term holders of SVC.

Speaker #3: Yes, the fee is volatile, but both of those rates are outperforming significantly. And as a result of it, are hitting the cap of the incentive fee, which is 1.5% of equity market cap for each of them.

Speaker #4: Okay. Great. That's all from me. Thank you.

Speaker #3: So, we feel really good about incentive fees for 2026. And even looking forward into 2027, we also expect a similar trend to what we're seeing currently.

Speaker #3: The next question is from Christopher Nolan with Lottenberg Falman. Please go ahead.

Speaker #5: Adam, was the $40 million incentive fee for calendar year or fiscal year?

Speaker #4: Okay. Great. And then the last one so the SVC investment that you've made, I guess, do you have an ideal holding period for that?

Speaker #1: It's a calendar year calculation. So it would be calculated at the end of December and typically paid, I believe, in January.

Tyler Batory: Okay, great. The last one, the SVC investment that you have made. Do you have an ideal holding period for that? I mean, is that capital down the line that could be freed up and maybe an opportunity to monetize that at a gain?

Speaker #5: Right. And then what was the driver for the $21 million investment gain? Am I missed it in the comments?

Speaker #4: I mean, is that capital down the line that could be freed up, and maybe an opportunity to monetize that at a gain?

Speaker #2: That's really just the change in share price of our investments in SVC and 7 from where they were at March 31st to where those shares ended at June 30th.

Speaker #2: Hi, Tyler. It's Adam. I think you should think about that investment as a long-term investment. We really are bullish about the prospects of SVC, which is what was partially led us to make that investment.

Adam Portnoy: Hi, Tyler. It's Adam. I think you should think about that investment as a long-term investment. We really are bullish about the prospects of SVC, which is what has partially led us to make that investment. The business at SVC is going to The improvements that we are starting to see in the portfolio, we expect to continue. It is going to be measured in years, not quarters or months. I think from your perspective, to answer it directly, we expect to be long-term holders of SVC.

Speaker #5: Great. And then I guess following up on the comments on the slowdown in commercial real estate, is it I presume it's a cross-sectors. It's not sector-specific.

Speaker #2: And the business at SVC is going to the improvements that we are starting to see in the portfolio, we expect to continue but it is going to be measured in years, not quarters or months.

Speaker #5: And has this sort of impacted valuations for commercial real estate, equity valuations for properties and so forth?

Speaker #2: And I think from your perspective, the answer directly we expect to be long-term holders of SVC.

Speaker #1: So it is broad-based generally, in terms of capital flowing into commercial real estate, for sure. There's a slowdown. Transaction volumes are down. Capital deployments are down.

Speaker #4: Okay. Great. That's all from me. Thank you.

Tyler Batory: Okay, great. That's all for me. Thank you.

Speaker #1: The next question is from Christopher Nolan with Lottenberg Falman. Please go ahead.

Operator: The next question is from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Speaker #1: Capital raising is down. Both in the private markets and the public markets. There are some exceptions. The obvious one, data centers. The other exception within the sectors we operate in, I would say that senior living is a sector that continues to see flows.

Speaker #5: Adam, was the $40 million incentive fee for the calendar year or fiscal year?

Christopher Nolan: Adam, was the $40 million incentive fee for calendar year or fiscal year?

Speaker #2: It's a calendar year calculation. So it would be calculated at the end of December and typically paid, I believe, in January.

Adam Portnoy: It's a calendar year calculation, so it would be calculated at the end of December and typically paid, I believe, in January.

Speaker #1: There are sectors performing better than others in terms of transaction activity and capital flows. Another area that seems to have some pretty good capital flows and transaction activity is industrial.

Speaker #5: All right. And then what was the driver for the $21 million investment gain? Am I missed in the comments?

Christopher Nolan: What was the driver for the $21 million investment gain? I might have missed it in the comments.

Speaker #2: That's really just the change

Matt Brown: That's really just the change in share price of our investments in SVC and Seven from where they were at 31 March to where those shares ended at 30 June.

Speaker #3: in share price of our investments in SVC and 7 from where they were at March 31st to where those shares ended at June 30th.

Speaker #1: Which we have a large presence in. And sort of an up-and-coming area that's been up-and-coming now for a couple of years and continues to accelerate is retail.

Speaker #5: Great. And then I guess following up on the comments on the slowdown in commercial real estate, is it I presume it's a cross-sectors. It's not sector-specific.

Christopher Nolan: Great. I guess following up on the comments on the slowdown in commercial real estate. I presume it's across sectors. It's not sector specific. Has this sort of impacted valuations for commercial real estate, equity valuations for properties and so forth?

Speaker #1: There's more capital flows coming into retail. So the whole sector is down, but there are some sectors doing better compared to others. In terms of pricing, pricing has not moved much.

Speaker #5: And has this sort of impacted valuations for commercial real estate, equity valuations for properties and so forth?

Speaker #1: In the last year or so, for commercial real estate with the exception of maybe a couple of the sectors I just mentioned. I think cap rates are compressing in the senior living space.

Speaker #2: So it is broad-based generally, in terms of capital flowing into commercial real estate for sure. There's a slowdown. Transaction volumes are down. Capital deployments are down.

Adam Portnoy: It is broad-based generally in terms of capital flowing into commercial real estate. For sure, there's a slowdown. Transaction volumes are down. Capital deployments are down. Capital raising is down, both in the private markets and public markets. There are some exceptions. The obvious one, data centers. The other exception within the sectors we operate in, I would say that senior living is a sector that continues to see flows. There are sectors performing better than others in terms of transaction activity and capital flows. Another area that seems to have some pretty good capital flows and transaction activity is industrial, which we have a large presence in. Sort of an up-and-coming area that's been up and coming now for a couple of years and continues to accelerate is retail. There's more capital flows coming into retail.

Speaker #1: I think cap rates are starting to compress a little bit in the retail space. They're probably even coming down in the office sector, but they're coming down off a very high point.

Speaker #2: Capital raising is down, both in the private markets and the public markets. There are some exceptions. The obvious one, data centers. The other exception within the sectors we operate in, I would say that senior living is a sector that continues to see flows.

Speaker #1: In the office sector. So there hasn't been a big there hasn't been a big move in valuations, but there is a transaction volume is way down.

Speaker #1: We're running like at 50% of, let's say, what normal transaction volumes would be. And so because you're not seeing as much capital flows in transactions volumes, that has not led to a deterioration in asset values.

Speaker #2: There. Sectors performing better than others in terms of transaction activity and capital flows. Another area that seems to have some pretty good capital flows and transaction activity is industrial.

Adam Portnoy: There are sectors performing better than others in terms of transaction activity and capital flows. Another area that seems to have some pretty good capital flows and transaction activity is industrial, which we have a large presence in. Sort of an up-and-coming area that's been up and coming now for a couple of years and continues to accelerate is retail. There's more capital flows coming into retail.

Speaker #2: Which we have a large presence in. And sort of an up-and-coming area that's been up-and-coming now for a couple of years and continues to accelerate is retail.

Speaker #1: Significantly.

Speaker #5: Okay. Thank you.

Speaker #3: The next question is from John Massocca with B. Riley. Please go ahead.

Speaker #2: There's more capital flows coming into retail. So the whole sector is down, but there are some sectors doing better compared to others. In terms of pricing, pricing has not moved much.

Adam Portnoy: The whole sector is down, but there are some sectors doing better compared to others. In terms of pricing has not moved much in the last year or so for commercial real estate, with the exception of maybe a couple of the sectors I just mentioned. I think cap rates are compressing in the senior living space. I think cap rates are starting to compress a little bit in the retail space. They're probably even coming down in the office sector, but they're coming down off a very high point in the office sector. There hasn't been a big move in valuations, but transaction volume is way down. We're running like at 50% of, let's say, what normal transaction volumes would be. Because you're not seeing as much capital flows in transactions volumes, that has not led to a deterioration in asset values significantly.

Speaker #2: In operating private capital.

Speaker #3: Okay. I'm sorry. John Massocca, could you please start your question over? I had a I didn't quite get you on the queue. Or on the podium as fast as I thought.

Speaker #2: In the last year or so, for commercial real estate with the exception of maybe a couple of the sectors I just mentioned. I think cap rates are compressing in the senior living space.

Speaker #2: No problem. I'm a very fast speaker. So maybe sticking with the theme of kind of starting with the theme of on-balance sheet real estate.

Speaker #2: I think cap rates are starting to compress a little bit in the retail space. They're probably even coming down in the office sector, but they're coming down off a very high point.

Adam Portnoy: They're probably even coming down in the office sector, but they're coming down off a very high point in the office sector. There hasn't been a big move in valuations, but transaction volume is way down. We're running like at 50% of, let's say, what normal transaction volumes would be. Because you're not seeing as much capital flows in transactions volumes, that has not led to a deterioration in asset values significantly.

Speaker #2: How are you thinking about additional investments today? Does that need to see kind of a ramp-up in that private capital fundraising before you would feel comfortable putting more investments on balance sheet?

Speaker #2: In the office sector. So there hasn't been a big there hasn't been a big move in valuations, but there is a transaction volume is way down.

Speaker #2: Or given the capacity you have with some of the debt availability for RMR proper, you would feel comfortable continuing to seed things as you see attractive opportunities in the multifamily space or other real estate sectors?

Speaker #2: We're running like a 50% of let's say what normal transaction volumes would be. And so because you're not seeing as much capital flows in transactions volumes, that has not led to a deterioration in asset values.

Speaker #1: All right, John. I think until you're sort of onto it and we're thinking about a similar ways, until there is just sort of an uptick in, let's say, fundraising around EGV for multifamily, I don't think you'll see us put another wholly owned asset on the balance sheet for, let's say, multifamily.

Speaker #2: Significantly.

Speaker #5: Okay. Thank you.

Christopher Nolan: Okay. Thank you.

Speaker #1: The next question is from John Masaka with B. Reilly. Please go ahead.

Operator: The next question is from John Massocca with B. Riley. Please go ahead. Okay. I'm sorry. John Massocca, could you please start your question over? I didn't quite get you on the queue or on the podium as fast as I thought.

Speaker #1: The only area that we are actively thinking about putting a wholly owned investment on the balance sheet would be maybe retail. We have one retail asset on the balance sheet.

Speaker #1: It's possible we could put another one or two there. We feel pretty bullish about that sector. We're not the only ones that feel bullish about that sector, but we feel pretty good about our ability to execute a value-add strategy in and around some for lack of a better word, shopping centers.

Speaker #3: In operating private capital.

Speaker #1: Okay. I'm sorry. John Masaka, could you please start your question over? I had a I didn't quite get you on the queue or on the podium as fast as I thought.

Speaker #3: No problem. I'm a very fast speaker.

John Massocca: No problem. I'm a very-

Speaker #1: And we've got one on balance sheets actually performing pretty well. We're hopeful we'll have a very good return on that investment. And so we could see that in retail.

Operator: Thank you.

John Massocca: Maybe starting with the theme of on-balance sheet real estate, how are you thinking about additional investments today? Does that need to see kind of a ramp up in that private capital fundraising before you would feel comfortable putting more investments on balance sheet? Or given the capacity you have with some of the debt availability for RMR proper, you would feel comfortable continuing to seed things as you see attractive opportunities in the multifamily space or other real estate sectors?

Speaker #1: Thank you.

Speaker #3: So maybe sticking with the theme of kind of starting with the theme of on-balance sheet real estate. How are you thinking about additional investments today?

Speaker #1: And again, that falls sort of the theme you've talked about, which is we're not really thinking about putting more money to work in multifamily because we sort of have three assets.

Speaker #3: Does that need to see kind of a ramp-up in that private capital fundraising before you would feel comfortable putting more investments on balance sheet?

Speaker #1: We're waiting to see if we can get the capital deployed or raise capital in a private format around that. We haven't really built out a strong track record in value-add retail investing.

Speaker #3: Or given the capacity you have with some of the debt availability for RMR proper, you would feel comfortable continuing to seed things as you see attractive opportunities in the multifamily space or other real estate sectors?

Speaker #1: And so that's the precipitous for us to use the balance sheet capital for that. But the goal is through the prism of we're doing this to help accelerate private capital raising so we can generate more fees.

Speaker #2: All right, John. I think until you're sort of onto it and we're thinking about a similar ways, until there is a sort of an uptick in let's say fundraising around EGV for multifamily, I don't think you'll see us put another wholly owned asset on the balance sheet for let's say multifamily.

Adam Portnoy: Hi, John. You're sort of onto it, and we're thinking about similar ways. Until there is a sort of an uptick in, let's say, fundraising around EGV for multifamily, I don't think you'll see us put another wholly owned asset on the balance sheet for, let's say, multifamily. The only area that we are actively thinking about putting a wholly owned investment on the balance sheet would be maybe retail. We have one retail asset on the balance sheet. It's possible we could put another one or two there. We feel pretty bullish about that sector. We're not the only ones that feel bullish about that sector, but we feel pretty good about our ability to execute a value-add strategy in and around some, for lack of a better word, shopping centers. We've got one on balance sheet. It's actually performing pretty well.

Speaker #1: And fee for the organization. And so that's sort of the way we think about it.

Speaker #5: Okay. In terms of

Speaker #2: the public vehicles OPI now back in the public markets, can you maybe provide a little more disclosure on how you get to some of the potential fees there and maybe how you're thinking about or how maybe you have to treat the 2% ownership stake you received as part of that transaction?

Speaker #2: The only area that we are actively thinking about putting a wholly owned investment on the balance sheet would be maybe retail. We have one retail asset on the balance sheet.

Adam Portnoy: We have one retail asset on the balance sheet. It's possible we could put another one or two there. We feel pretty bullish about that sector. We're not the only ones that feel bullish about that sector, but we feel pretty good about our ability to execute a value-add strategy in and around some, for lack of a better word, shopping centers. We've got one on balance sheet. It's actually performing pretty well.

Speaker #2: It's possible we could put another one or two there. We feel pretty bullish about that sector. We're not the only ones that feel bullish about that sector, but we feel pretty good about our ability to execute a value-add strategy in and around some for lack of a better word shopping centers.

Speaker #1: Sure. So we're likely to be a long-term hold of that 2% stake as well. OPI is sort of in the early innings of its emergence from bankruptcy and sort of executing on its business plan.

Speaker #2: And we've got one on balance sheets actually performing pretty well. We're hopeful we'll have a very good return on that investment. And so we could see that in retail.

Adam Portnoy: We're hopeful we'll have a very good return on that investment. We could see that in retail. Again, that falls sort of the theme you've talked about, which is, we're not really thinking about putting more money to work in multifamily because we sort of have three assets. We're waiting to see if we can get the capital deployed or raise capital in a private format around that. We haven't really built out a strong track record in value-add retail investing. That's the precipitous for us to use the balance sheet capital for that. The goal is through the prism of we're doing this to help accelerate private capital raising so we can generate more fees for the organization. That's sort of the way we think about it.

Speaker #1: It's in the process of selling some real estate today. But everything about OPI is being thought about through the prism of how do we increase free cash flow for the business?

Speaker #2: And again, that falls sort of a theme you've talked about, which is we're not really thinking about putting more money to work in multifamily because we sort of have three assets.

Speaker #1: How do we optimize the portfolio? How do we delever even further the balance sheet, even though we've significantly have delevered it? So those are sort of the themes that the board and management is focused on at OPI.

Speaker #2: We're waiting to see if we can get the capital deployed or raise capital in a private format around that. We haven't really built out a strong track record in value-add retail investing.

Adam Portnoy: We haven't really built out a strong track record in value-add retail investing. That's the precipitous for us to use the balance sheet capital for that. The goal is through the prism of we're doing this to help accelerate private capital raising so we can generate more fees for the organization. That's sort of the way we think about it.

Speaker #2: And so that's the precipitous for us to use the balance sheet capital for that. But the goal is through the prism of we're doing this to help accelerate private capital raising so we can generate more fees.

Speaker #1: And I think in the coming quarters, it'll become clearer sort of exactly precisely what we'll be focused on in terms of additional asset sales, if there are any, refinancing or cleaning up maybe the balance sheet as part of that.

Speaker #2: And fee for the organization. And so that's sort of the way we think about it.

Speaker #1: Those are things that I think we're focused on over the next couple of quarters. But we feel confident the company is in strong footing and we are focused on increasing free cash flow, deleveraging, portfolio optimization.

Speaker #5: Okay.

John Massocca: Okay. In terms of the public vehicles, OPI now back in the public markets, can you maybe provide a little more disclosure on how you get to some of the potential fees there, and maybe how you're thinking about or how maybe you have to treat the 2% ownership stake you received as part of that transaction?

Speaker #3: In terms of the public vehicles OPI now back in the public markets, can you maybe provide a little more disclosure on how you get to some of the potential fees there and maybe how you're thinking about or how maybe you have to treat the 2% ownership stake you received as part of that transaction?

Speaker #1: Those are the things we're focused on.

Speaker #2: And the potential 8% additional ownership stake, I mean, is that kind of contingent on more kind of going concern type of targets? Or would that be kind of more of a liquidation type scenario?

Speaker #2: Just kind of curious broad strokes, how do you maybe get to at least some of that potential ownership upside?

Speaker #2: Sure. So we're likely to be a long-term hold of that 2% stake as well. OPI is sort of in the early innings of its emergence from bankruptcy and sort of executing on its business plan.

Adam Portnoy: Sure. We're likely to be a long-term holder of that 2% stake as well. OPI is sort of in the early innings of its emergence from bankruptcy and sort of executing on its business plan. It's in the process of selling some real estate today. Everything about OPI is being thought about through the prism of how do we increase free cash flow for the business? How do we optimize the portfolio? How do we delever even further the balance sheet, even though we significantly have delevered it? Those are sort of the themes that the board and management is focused on at OPI. I think in the coming quarters, it'll become clearer sort of exactly, precisely what we'll be focused on in terms of additional asset sales, if there are any refinancing or cleaning up maybe the balance sheet as part of that.

Speaker #1: So it's a great question. John, we have not entered into the agreement yet on that what's called a management incentive plan. We are currently in discussions regarding that.

Speaker #2: It's in the process of selling some real estate today. But everything about OPI is being thought about through the prism of how do we increase free cash flow for the business?

Speaker #1: And all those things are sort of on the table. Once we get that finalized, we'll be happy to disclose the details and how it's set up.

Speaker #2: How do we optimize the portfolio? How do we delever even further the balance sheet even though we've significantly have delevered it? So those are sort of the themes that the board and management is focused on at OPI.

Adam Portnoy: How do we optimize the portfolio? How do we delever even further the balance sheet, even though we significantly have delevered it? Those are sort of the themes that the board and management is focused on at OPI. I think in the coming quarters, it'll become clearer sort of exactly, precisely what we'll be focused on in terms of additional asset sales, if there are any refinancing or cleaning up maybe the balance sheet as part of that.

Speaker #1: But we just don't have it in place yet.

Speaker #2: Okay. Understood. And that's it for me. Thank you very much.

Speaker #3: The next question is from Mitch Germain with Citizens Bank. Please go ahead.

Speaker #2: And I think in the coming quarters, it'll become clearer sort of exactly precisely what we'll be focused on in terms of additional asset sales if there are any, refinancing or cleaning up maybe the balance sheet as part of that.

Speaker #4: Great. Thank you. Your legacy investments, the first couple that you made on balance sheet, a couple of multifamily, one retail, I'm curious, I don't know, it's been a year plus or so with some of them, how they're performing relative to your original underwriting?

Speaker #2: Those are things that I think we're focused on over the next couple of quarters. But we feel confident the company is in strong footing and we are focused on increasing free cash flow, deleveraging, portfolio optimization.

Adam Portnoy: Those are things that I think we're focused on over the next couple of quarters. We feel confident the company is in strong footing, and we are focused on increasing free cash flow, deleveraging, portfolio optimization. Those are the things we're focused on.

Speaker #2: Hey, Mitch. As a reminder, we've got three wholly owned multi-deals research triangle Florida and Denver on the multi side, and then Adam touched on our Chicago retail deal.

Speaker #2: Those are the things we're focused on.

Speaker #3: And the potential 8% additional ownership stake, I mean, is that kind of contingent on more, kind of, going concern type of targets, or would that be kind of more of a liquidation-type scenario?

John Massocca: The potential 8% additional ownership stake, I mean, is that kind of contingent on more kind of going concern type of targets, or would that be kind of more of a liquidation type scenario? Just kind of curious, broad strokes, how do you maybe get to at least some of that potential ownership upside?

Speaker #2: As it relates to the multifamily, those are four to five-year business plans. So we're still somewhat in the early innings. But so far, again, they're almost 92% occupied.

Speaker #3: Just kind of curious broad strokes, how do you maybe get to at least some of that potential ownership upside?

Speaker #2: We're seeing respectable 3 to 4 percent rent growth on renewals. We're almost break even on new leasing, which these are those are phenomenal numbers versus where we were a year ago.

Speaker #2: So it's a great question. John, we have not entered into the agreement yet on that what's called a management incentive plan. We are currently in discussions regarding that.

Adam Portnoy: It's a great question, John. We have not entered into the agreement yet on that, what's called a management incentive plan. We are currently in discussions regarding that. All those things are sort of on the table. Once we get that finalized, we'll be happy to disclose details on how it's set up, but we just don't have it in place yet.

Speaker #2: In terms of the supply overhang, and on the renovations, we're doing to the apartments, which is part of the business plan in terms of turning classic units into upgraded units.

Speaker #2: And all those things are sort of on the table. Once we get that finalized, we'll be happy to disclose details and how it's set up.

Speaker #2: Thus far, we are seeing high teen ROIs that are being generated on those renovations in terms of realization of rent. So we feel really good.

Speaker #2: But we just don't have it in place yet.

Speaker #3: Okay. Understood. And that's it for me. Thank you very much.

John Massocca: Okay. Understood. That's it for me. Thank you very much.

Speaker #2: These are obviously generating recurring fees through property management and asset management. But the big goal is generating promote income. For the organization, when we realize these transactions in four to five years, in terms of their life cycle, and as of now, those are all trending on track with their business plan.

Speaker #1: The next question is from Mitch Jermaine with Citizens Bank. Please go ahead.

Operator: The next question is from Mitch Germain with Citizens JMP. Please go ahead.

Mitch Germain: Great. Thank you. Your legacy investments, the first couple that you made on balance sheet, a couple multifamily, one retail. I'm curious, I don't know, it's been a year plus or so with some of them, how they're performing relative to your original underwriting.

Speaker #4: Thanks for that commentary. Adam, you've got shares in now three of your five public vehicles. Is there any consideration to maybe grow a stake in the other two remaining?

Speaker #3: Hey, Mitch. As a reminder, we've got three wholly owned multi-deals research triangle, Florida and Denver on the multi side, and then Adam touched on our Chicago retail deal.

Matt Jordan: Hey, Mitch. As a reminder, we've got three wholly owned multi deals. Research Triangle, Florida, and Denver on the multi side. Then Adam touched on our Chicago retail deal.

Speaker #4: I know that you have incentives that are coming from there. Can you trade some cash for stock? I mean, is this some sort of strategy that you're going to embark on in the future?

Speaker #3: As it relates to the multifamily, those are four to five year business plans. So we're still somewhat in the early innings. But so far, again, they're almost 92% occupied.

Mitch Germain: Yep

Matt Brown: the multifamily. Those are four to five-year business plans, so we're still somewhat in the early innings. So far, again, they're almost 92% occupied. We're seeing respectable 3% to 4% rent growth on renewals. We're almost breakeven on new leasing, which those are phenomenal numbers versus where we were a year ago in terms of the supply overhang. On the renovations we're doing to the apartments, which is part of the business plan in terms of turning classic units into upgraded units, thus far, we are seeing high teen ROIs that are being generated on those renovations in terms of realization of rent. We feel really good. These are obviously generating recurring fees through property management and asset management. The big goal is generating promote income for the organization when we realize these transactions in four to five years in terms of their life cycle.

Speaker #1: Thanks, Mitch. It is an interesting question. It's something we have thought about. You're right. There's not just RMR. RMR has interests large interests in SVC and Seven Hills.

Speaker #3: We're seeing respectable 3 to 4 percent rent growth on renewals. We're almost break even on new leasing. Which these are those are phenomenal numbers versus where we were a year ago.

Speaker #1: I personally have a large interest in DHC. So collectively, between RMR and myself, you're right, in three of the REITs. I think it's an open question what we we're open to it.

Speaker #3: In terms of the supply overhang, and on the renovations we're doing to the apartments—which is part of the business plan in terms of turning classic units into upgraded units.

Matt Brown: On the renovations we're doing to the apartments, which is part of the business plan in terms of turning classic units into upgraded units, thus far, we are seeing high teen ROIs that are being generated on those renovations in terms of realization of rent. We feel really good. These are obviously generating recurring fees through property management and asset management. The big goal is generating promote income for the organization when we realize these transactions in four to five years in terms of their life cycle. As of now, those are all trending on track with their business plan.

Speaker #1: There's no imminent plan to do so in terms to invest in those companies. But under the rights circumstances, if they presented themselves, and we felt good about the valuation and it would help sort of accelerate the business plan at those companies, I can see a scenario where it could present itself.

Speaker #3: Thus far, we are seeing high teen ROIs that are being generated on those renovations in terms of realization of rent. So we feel really good.

Speaker #3: These are obviously generating recurring fees through property management and asset management. But the big goal is generating promote income. For the organization, when we realize these transactions in four to five years, in terms of their life cycle.

Speaker #1: But there's nothing currently planned to do so.

Speaker #3: And as of now, those are all trending on track with their business plan.

Matt Jordan: As of now, those are all trending on track with their business plan.

Speaker #4: Great. Last one from me, and I apologize. I missed some of your comments. You have a distributable earnings bridge in your presentation. And you have some higher compensation this quarter that impacts earnings.

Speaker #4: Thanks for that commentary. Adam, you've got shares in now three of your five public vehicles. Is there any consideration to maybe grow a stake in the other two remaining?

Mitch Germain: Thanks for that commentary. Adam, you've got shares in now three of your five public vehicles. Is there any consideration to maybe grow a stake in the other two remaining? I know that you have incentives that are coming from there. Can you trade some cash for stock? I mean, is this some sort of strategy that you're going to embark on in the future?

Speaker #4: Is there a recurring nature to that, or is this one-time expenses?

Speaker #4: I know that you have incentives that are coming from there. Can you trade some cash for stock? I mean, is this some sort of strategy that you're going to embark on in the future?

Speaker #2: The majority of that is one-time in nature. We do have slight change in headcount mix, which is a slight factor, but more importantly, our bonus at RMR, which get paid to employees in September, is performance-based based off of EBITDA.

Speaker #2: Thanks, Mitch. It is an interesting question. It's something we have thought about. You're right. There's not just RMR. RMR has interests large interests in SVC and Seven Hills.

Adam Portnoy: Thanks, Mitch. It's an interesting question. It's something we have thought about. You're right. There's not just RMR. RMR has interests, large interests in SVC and Seven Hills. I personally have a large interest in DHC. Collectively, between RMR and myself, you're right, in three of the REITs. I think it's an open question. We're open to it. There's no imminent plan to do so in terms to invest in those companies. Under the right circumstances, if they presented themselves and we felt good about the valuation, and it would help sort of accelerate the business plan at those companies, I can see a scenario where it could present itself. There's nothing currently planned to do so.

Speaker #2: And we've seen our EBITDA target grow as of June 30th for the balance of the fiscal year as compared to where it was in March.

Speaker #2: I personally have a large interest in DHC. So collectively, between RMR and myself, you're right, in three of the REITs. I think it's an open question—but we're open to it.

Speaker #2: So the majority of the adjustment was driven based off that.

Speaker #4: Great. Thank you, guys.

Adam Portnoy: We're open to it. There's no imminent plan to do so in terms to invest in those companies. Under the right circumstances, if they presented themselves and we felt good about the valuation, and it would help sort of accelerate the business plan at those companies, I can see a scenario where it could present itself.There's nothing currently planned to do so.

Speaker #3: This concludes the question and answer session. I'd like to turn the conference back over to Adam Portnoy, president and CEO, for any closing remarks.

Speaker #2: There's no imminent plan to do so in terms of investing in those companies. But under the right circumstances, if they presented themselves, and we felt good about the valuation and it would help sort of accelerate the business plan at those companies, I can see a scenario where it could present itself.

Speaker #1: Thank you all for joining our call today. Operator, that concludes our call.

Speaker #2: But there's nothing currently planned to do so.

Mitch Germain: Great. Last one from me, I apologize. I missed some of your comments. You have a distributable earnings bridge in your presentation, and you have some higher compensation this quarter that impacts earnings. Is there a recurring nature to that, or is this one-time expenses?

Speaker #4: Is there a recurring nature to that or is this one-time expenses?

Speaker #3: The majority of nature. We do have slight change in headcount mix, which is a slight factor. But more importantly, our bonus at RMR, which get paid to employees in September, is performance-based based off of EBITDA.

Matt Brown: The majority of that is one-time in nature. We do have slight change in headcount mix, which is a slight factor. More importantly, our bonus at RMR, which get paid to employees in September, is performance-based, based off of EBITDA, and we've seen our EBITDA target grow as of 30 June for the balance of the fiscal year as compared to where it was in March, the majority of the adjustment was driven based off that.

Speaker #3: And we've seen our EBITDA target grow as of June 30th for the balance of the fiscal year as compared to where it was in March.

Speaker #3: So the majority of the adjustment was driven based off that.

Speaker #4: Great. Thank you, guys.

Mitch Germain: Great. Thank you, guys.

Speaker #1: This concludes the question and answer session. I'd like to turn the conference back over to Adam Portnoy, president and CEO, for any closing remarks.

Operator: This concludes the question and answer session. I'd like to turn the conference back over to Adam Portnoy, President and CEO, for any closing remarks.

Speaker #2: Thank you all for joining our call today. Operator, that concludes our call.

Adam Portnoy: Thank you all for joining our call today. Operator, that concludes our call.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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