Good morning, and welcome to The RMR Group Fiscal Fourth Quarter 2025 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Bryan Maher, Senior Vice President. Please go ahead.

Thank you, and good morning. Thank you for joining RMR's fiscal fourth quarter 2025 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. In just a moment, they will provide details about our business and quarterly results, followed by a question-and-answer session. I would also like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on RMR's beliefs and expectations as of today, November 13, 2025, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be found on our website at rmrgroup.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we may discuss non-GAAP numbers during this call, including adjusted net income per share, distributable earnings and adjusted EBITDA. A reconciliation of net income determined in accordance with U.S. generally accepted accounting principles to these non-GAAP figures can be found in our financial results. I will now turn the call over to Adam.

Thanks, Bryan, and thank you all for joining us this morning. Yesterday, we reported fourth quarter results that were in line with our expectations, highlighted by distributable earnings of $0.44 per share, adjusted net income of $0.22 per share, and adjusted EBITDA of $20.5 million. Despite a continued unsettled economic environment, RMR was active this past quarter executing on our clients' strategic initiatives. The majority of these activities took place in our managed equity REITs, where we completed nearly $2 billion of accretive debt financings at attractive rates, and we completed over $300 million in asset sales. We believe these efforts are being recognized in the public markets, as demonstrated by the share price improvements at both DHC and ILPT. These share price improvements have resulted in DHC and ILPT both accruing potential incentive fees for RMR, which highlights the alignment of interest RMR has with the shareholders of our managed equity REITs. While subject to change, these potential incentive fees could be approximately $22 million in 2025. Turning to a few notable updates at our perpetual capital clients. DHC posted solid quarterly results led by strong sector tailwinds benefiting DHC's senior housing segment as well as the significant capital that has been invested in DHC's communities. Consolidated SHOP NOI increased 8% year-over-year to $29.6 million, led by a 210-basis point increase in occupancy to 81.5%, a 5.3% increase in average monthly rates. Beyond its continued focus on SHOP operations, DHC has also been executing on its strategic transformation. More specifically, DHC announced the successful sale of non-core assets at attractive valuations as it further deleverages its balance sheet. During the quarter, DHC also began executing on its announced transition of 116 SHOP communities from AlerisLife to new operators that have proven track records and well-established regional footprints. The transition of all 116 communities is expected to occur by year-end 2025. SVC continues to make significant progress selling non-core hotels to delever its balance sheet. During the quarter, SVC completed the sale of 40 hotels for over $292 million and is on pace to sell a total of 121 hotels in 2025 for $959 million. SVC also successfully completed a 0-coupon bond offering that raised $490 million in net proceeds that were used to repay SVC's revolving credit facility and retire the remainder of SVC's 2026 debt maturities. Beyond the deleveraging efforts, we remain focused on helping SVC drive EBITDA growth across its hotel portfolio, despite softening demand and ongoing revenue displacement from renovation activity. Further, our organization continues to keep SVC's triple net lease portfolio, which is anchored by the travel centers leased to investment-grade rated BP, well leased to ensure SVC benefits from the stable cash flows these assets generate. Seven Hills, our mortgage REIT, delivered another solid quarter, supported by a fully performing $642 million loan portfolio. Seven Hills has been exploring ways to generate new equity capital to ensure the REIT can continue to capitalize on the robust pipeline of investment opportunities our Tremont commercial lending team generates. To that end, Seven Hills recently announced a rights offering to raise approximately $65 million in new equity, which should allow for over $200 million in gross new loan investments. The rights offering is structured so that shareholders of record on November 10 were given a transferable right to buy 1 new share for every 2 shares they currently own. Importantly, RMR, which is Seven Hills' largest shareholder, has agreed to backstop this offering, essentially acquiring any unexercised rights as a demonstration of our confidence in Seven Hills' business prospects going forward. Lastly, in late October, OPI, after exploring all possible strategies to address its capital structure, entered into a restructuring support agreement, or RSA, with certain holders of its senior secured notes to restructure its corporate debt. As part of the RSA, OPI voluntarily initiated a court supervised process under Chapter 11 of the U.S. Bankruptcy Code. This agreement will meaningfully strengthen OPI's financial position and delever the balance sheet. As part of the RSA, RMR has agreed to continue managing OPI for a 5-year term that starts upon OPI's emergence from bankruptcy. RMR will receive a flat business management fee during the first 2 years of $14 million per year, and our property management agreement will remain unchanged. To support OPI's operations during this process, OPI entered into a debtor in possession financing of $125 million. We remain committed to supporting the assets, vendors, and tenants of OPI throughout this process and look forward to updating you as new information becomes available in the future. To conclude, we are pleased with the progress RMR has made over the past quarter, assisting our public company clients with their financial and strategic objectives. Our perpetual capital clients also provide RMR with stable cash flows, which we can use to pursue new growth initiatives in the private capital space to drive future revenue and earnings growth. With that, I'll now turn the call over to Matt Jordan, Executive Vice President and Chief Operating Officer, to provide added insights on our platform and private capital growth initiatives.

Thanks, Adam, and good morning, everyone. As Adam mentioned, this past quarter was active on a number of fronts across the RMR platform. From a non-residential leasing perspective, despite continued headwinds, this past quarter, RMR arranged almost 1.4 million square feet of leases, and for the full fiscal year, almost 8 million square feet of leases at rental rates approximately 14% higher than previous rents for the same space. We believe these results speak to the hard work of our people, proactively engaging both tenants and the brokerage community. Beyond leasing, the platform continues to invest in our people, technology, and brand building to ensure we stand out in a competitive fundraising environment. While fundraising remains challenging, we believe 2026 will be a better year for institutional investments in real estate, as recent conversations our capital formation team is having with potential partners have reinforced commitments to the United States in many of the sectors we operate in. Further, while many private capital investors are limiting how many new manager relationships they form, given the effort associated with underwriting a new manager, the breadth and scale of our platform remains an attractive differentiator. Our current fundraising efforts remain focused on residential, credit, and select development opportunities. Though as I noted, the diversity and scale of our platform will allow us to pivot quickly based on investor feedback. As it relates to RMR Residential, which currently manages almost $5 billion in value-add residential real estate, we formally launched fundraising for the enhanced growth venture in early September. Our efforts are focused on finding up to 3 large investors to invest approximately $250 million in multifamily real estate. This venture is targeting value-add returns and provides investors the ability to share in property level and general partner economics. RMR's commitment via almost $100 million in seed investments provides investors certainty that committed monies can be immediately put to work as well as providing them a portfolio they can readily underwrite. The seed investments include the 2 acquisitions closed this quarter for a gross aggregate cost of $143.4 million. One is a 266-unit property near Raleigh, North Carolina, and the other is a 275-unit property near Orlando, Florida. We expect there to be meaningful updates regarding the enhanced growth venture by early spring. Within the retail sector, we continue to source investment opportunities as we build a portfolio of value-add multi-tenant retail properties as part of establishing a track record in this sector. Our first investment, a $21 million community shopping center outside of Chicago, closed earlier this year and is executing on its underwritten business plan. We are currently assessing market opportunities with the goal of adding at least 2 more similarly sized deals. As it relates to our credit strategy, although we expect to close on the sale of 2 loans that are on our balance sheet later this month, we continue to explore opportunities to form a strategic venture with institutional capital. Real estate credit remains a high conviction strategy, and we believe Tremont's track record, middle market focus, and strong underwriting and asset management teams are attractive differentiators.

Thanks, Matt, and good morning, everyone. As Adam highlighted, this quarter, we reported adjusted EBITDA of $20.5 million, distributable earnings of $0.44 per share, and adjusted net income of $0.22 per share, all of which were in line with our expectations. Recurring service revenues were approximately $45.5 million, a sequential quarter increase of approximately $1.5 million, driven primarily by increases in enterprise values at DHC, ILPT, and SVC and higher construction supervision fees. Next quarter, we expect recurring service revenues to decrease to approximately $42.5 million, driven by lost fee revenue from the announced sale of AlerisLife's business and decreases in certain of our managed REITs' enterprise values from accretive debt financings and asset sales as we strategically manage their debt levels. Turning to expenses. Recurring cash compensation was $38.5 million this quarter, which was consistent with the prior quarter. Looking ahead to next quarter, we expect cash compensation to decline to approximately $37 million as recent cost containment measures continue to positively impact earnings. We expect our cash compensation reimbursement rate to be between 46% and 47% going forward. Recurring G&A this quarter was $10.1 million, a modest sequential quarter increase driven by costs associated with our ongoing private capital fundraising efforts. We expect recurring G&A to remain at these levels over the next couple of quarters. Interest expense this quarter increased to $1.7 million following the acquisitions of 2 leveraged residential properties that Matt highlighted. Interest expense next quarter is expected to increase to approximately $2.6 million as we incur a full quarter of interest on these new mortgages. It is also worth noting that this quarter's income tax rate of 21.4% reflects year-end adjustments primarily related to stock-based compensation. For modeling purposes, we expect our tax rate to decline to approximately 15% in Q1 based on our current forecast for incentive fees we may earn for calendar year 2025 and to approximately 18% for Q2 to Q4. As Matt mentioned on the call last quarter, we believe cash flow measures such as adjusted EBITDA and distributable earnings per share are becoming more relevant when comparing our results to prior periods and other alternative asset managers. Our private capital business is accretive to our cash flow, but as we continue to use RMR's strong balance sheet for strategic growth initiatives, expenses such as depreciation and interest will have an adverse impact on certain financial metrics, such as adjusted net income per share. Aggregating the collective assumptions I've outlined, next quarter, we expect adjusted EBITDA to be between $18 million and $20 million, distributable earnings to be between $0.42 and $0.44 per share, and adjusted net income to be between $0.16 and $0.18 per share. This expected decline in quarterly results is mainly due to the sale of AlerisLife's business. For the fiscal fourth quarter and full year, we earned $1.4 million and $5.7 million, respectively, of fee revenue on the AlerisLife contract. We expect to offset this lost revenue with increases in DHC's enterprise value, as new operators that have well-established regional footprints and proven track records should help drive NOI growth. We ended the quarter with $162 million of total liquidity, including $62 million in cash and $100 million of capacity on our undrawn revolving credit facility. Finally, as Adam mentioned, if September 30 was the end of the measurement period, we would earn incentive fees from DHC and ILPT of approximately $22 million in the aggregate. That concludes our prepared remarks. Operator, please open the line for questions.

The first question comes from Mitch Germain with Citizens Bank.

I'm curious about OPI's fee. Does it in effect go up quarter-over-quarter?

Mitch, your question about OPI's fees is regarding our earnings. Essentially, the fees have remained relatively flat. We were generating just under $14 million annually on a business management basis, approximately $13 million over the past year. We have a contract that guarantees us a fixed fee of $14 million for the first two years. The property management agreement remains unchanged, with all the terms being the same as they were before the bankruptcy filing. During the bankruptcy process, we will continue operating under the current contract, so we might earn slightly less than the $14 million run rate during this period. However, once we emerge from bankruptcy, that $14 million per year will take effect. Additionally, the restructuring support agreement we entered is expected to facilitate a faster bankruptcy process, which should allow us to exit more quickly than if we hadn't established the RSA. While it's difficult to pinpoint exactly when we will emerge, we're anticipating it will be in the first half of 2026.

Got you. Adam, you mentioned your focus on private capital for fundraising. I might have missed it, but I didn't hear you say anything about shopping centers as an area for raising capital. Yet, you own one and are looking to allocate capital to others. Can you clarify how this fits into your private capital strategy?

Sure, Mitch. That's an important question. Matt briefly covered this in his remarks. You're correct that we have shopping centers on our balance sheet. We possess significant expertise in retail, managing a large multibillion-dollar retail portfolio. Currently, we have a skilled retail asset management team in place. While it may not be the main focus, parts of our organization already manage shopping centers within various asset classes. We have relevant experience in this area. We believe investing in neighborhood and grocery-anchored shopping centers is a smart move at this time. Retail has undergone significant changes over the past 10 to 15 years, and we currently experience a favorable supply-demand situation, where new supply is limited, and demand has balanced with existing supply. This creates interesting opportunities to invest. Through capital improvements or re-tenanting, we can achieve substantial returns. We're starting this on our balance sheet, and we are confident in our success, which will help us raise additional capital in the future. Matt, would you like to add anything?

No. And I think, Mitch, we have the one asset outside of Chicago. And the point we were making in the prepared remarks is we're hoping to at least add a couple more of similar sized scale to build a fulsome track record that we can go out and fundraise around in hopefully a couple of years from now.

Got you. And then did I hear that you guys have a couple of additional loan investments that are under agreement? Did I mishear that?

We do not have any new loan investments at RMR. I don’t think we mentioned this in our prepared remarks, but it is in our public disclosures. We are in the process of selling the two loans on our balance sheet. There are currently no plans to add more loans to RMR's balance sheet. What I did mention earlier is that we are in the middle of a rights offering at Seven Hills, which we expect will provide us with about $65 million in equity, allowing for around $200 million in additional loan investments over the next six months. If the average loan size is $25 million, that translates to about 8 to 10 new loans that we will be funding at Seven Hills.

Last one for me. Matt, maybe just kind of go through the puts and takes to get you to your forecast in the first quarter, maybe a bridge from where you ended the fiscal fourth quarter to how you get to the first quarter in terms of your guidance, please?

Sure. I'll focus on adjusted EBITDA for that. So fiscal fourth quarter was $20.5 million. Our forecast for fiscal Q1 is $18 million to $20 million. The major impact of that is the sale of AlerisLife's business and the wind down of that. Today, we earn 60 basis points on the revenue of our senior living communities. And as that winds down, we're expecting revenues to decrease about $1 million for that alone. So that's the major headline from the decrease from fiscal Q4 to fiscal Q1.

The next question comes from John Massocca with B. Riley.

Maybe just sticking with that question quickly. Is there any expected additional negative flow through from the loss of managing AlerisLife as we think beyond next quarter?

The full wind down should happen by the end of this year. While we're expecting about a $1 million decrease in fee revenue this coming quarter, we did earn $1.4 million in fiscal Q4. There will be an additional $400,000 deduction when we progress to fiscal Q2.

Okay. And then maybe moving on to OPI. Can you just walk through what the advisory agreement looks like after 2 years? If you're still managing that portfolio?

Sure. We have entered into a term sheet with the likely new equity owners of OPI, which spans five years. For the first two years, we will receive $14 million per year in business management fees, while property management fees will remain unchanged. This $14 million will not change regardless of the portfolio's size during these two years. After two years, there will be a negotiation regarding the fees. The rationale for this structure comes from some hesitancy among the new owners about how to set the fee based on OPI's future size and makeup, which is still uncertain. We are confident we will manage the portfolio for the next two to three years, but the new owners want to observe how things unfold in that time. The portfolio could either shrink or grow. We've discussed with the new owners that this entity might be utilized to consolidate other distressed office portfolios in the market. We are encouraged by the interest of a group of investors who already own the debt and are looking to equitize it, as they see a significant opportunity in the office sector both from a macro viewpoint and regarding the portfolio itself. The OPI portfolio has faced challenges, but most of that difficulty is behind us. Looking ahead, the leasing prospects and cash flow or NOI from the properties appears much more promising than in the past two to three years. The term sheet also includes provisions for a significant incentive fee structure for RMR. Initially, we will receive 2% of the reorganized company, followed by another 8% that will be tied to outperforming benchmarks, similar to a classic promote seen in private equity investments. This structure will enhance alignment between the manager and the new equity owners in managing the portfolio effectively and generating solid returns for equity holders.

Okay. This is a longer-term question considering the locked-in 2-year contract. How flexible is G&A spending in relation to managing OPI? How much could you potentially reduce G&A if, for some reason, after the 2 years and emerging from bankruptcy, the portfolio takes a different path or the owners decide to move in another direction? Is there significant leverage available to reduce G&A if you're not managing OPI in a couple of years?

The short answer is that we spend a lot of time considering that. As you know, we do not have profit and loss statements by business line. This is one of the advantages of economies of scale for our clients, as they generally manage with recurring monthly revenue. We gain these economies because we distribute costs across our entire structure. We do not have profit and loss statements by business line or client. However, I can tell you that office is likely the most management-intensive asset class we handle. While I don't believe this scenario will occur, if we were to stop managing a large office portfolio, I think we could make significant cost cuts. We're uncertain about how margins would be affected, but there is a possibility we might have less cash flow yet higher margins, as we know there are many people involved in managing the office portfolio compared to our other portfolios. Therefore, in the unlikely event that we are no longer managing a large office portfolio, I believe we would be able to reduce costs accordingly within the organization.

You briefly mentioned it in response to Mitch's question, but I would like to know more about the rationale behind selling the loans from RMR's balance sheet to Seven Hills. If I'm recalling previous calls correctly, it seems there was potential to expand the loan portfolio within RMR's balance sheet. Has there been a strategic shift where that no longer appears appealing? I'm interested in the reasoning behind that decision.

Yes, John, it's Matt. Looking back about a year ago when we added those loans to our balance sheet, the intention was for them to be part of a seed portfolio to aid in our fundraising efforts. These loans have performed well and significantly contributed to RMR's earnings. However, it has now been 12 to 18 months since those loans were originated. As we raise funds in a highly competitive market, it's important to note that one of the loans is set to mature next July. This has diminished their appeal as seed investments. Meanwhile, Seven Hills is in the process of raising substantial funds, and we want to ensure they can swiftly utilize those resources. By selling these loans at face value to Seven Hills, it enables them to start deploying capital quickly and secure their dividend, which is crucial for their rights offering. Overall, this transaction was beneficial for both parties.

Okay. With Seven Hills in mind, can you provide any updates on how the rights offering is looking at this moment? I know there are obviously moving pieces and things you might not be able to discuss, but I was curious about the outlook on the amount of the rights offering you expect RMR to participate in.

Sure, John. You mentioned it's still early in the process. Rights offerings typically see participants waiting until the last moment to make decisions. There’s a necessary timeline of about a month during which the rights remain outstanding, creating a deadline for exercising these rights. This leads to uncertainty, as people tend to keep their options open until the very end. As part of the rights offering, we have UBS Investment Bank acting as the dealer manager. One of their tasks is to gauge interest from outside investors who might want to purchase rights from shareholders who choose not to exercise them. Even though trading has been limited so far, we've had several interactions with new investors who are interested in acquiring these rights. Existing shareholders who opt not to exercise may wish to sell, and we are collaborating with UBS to identify potential buyers. It’s too early to draw any firm conclusions, but we’re having numerous discussions, indicating there is interest. Regarding your question about RMR’s financial involvement, our current expectation is that we won’t need to draw on the backstop beyond our 11% ownership. We plan to exercise up to that 11%, and I estimate we might exercise less than half of the offering. Therefore, the amount we might backstop could range between 11% and 50%, but I don't foresee it exceeding half. I would say our base case is that we will primarily exercise just up to the 11%. There is a chance we could exceed that a little to fulfill the backstop, but it’s challenging to predict where the final numbers will land.

We now have a follow-up from Mitch Germain with Citizens Bank.

Just quickly, I know you mentioned some adjustments on interest expense because it was in place for part of the quarter. Do we have a similar adjustment for the rental income related to the two residential assets that were acquired mid-quarter? How should we approach that?

Yes. I think the best way to think about our wholly-owned portfolio, which includes the 2 residential acquisitions from the quarter, is we're expecting about $3.2 million of NOI to be contributed on a quarterly basis for those while they remain on the balance sheet.

So that's aligned with this quarter. Is that the way to think about it? I think we're at $3.2 million right now.

The owned real estate contributed about $650,000 of EBITDA in Q4. So that will grow to just over $3 million on a run rate basis.

Okay. How should we consider your cash position, especially in light of the rights offering and the acquisitions you are pursuing? What will that balance look like moving forward?

So you're right to point out the rights offering. I think it's hard for us to put a stake in the ground to say exactly where we think things will be. As we sit today, we don't believe based on all the actions we have underway that we will be drawing on the revolver. That's not something we think. But it could be that we use more cash, obviously, than we have on the balance sheet today. We will be getting proceeds from the sale of the loans themselves. There will be a liquidity event, we hope and think, as we get into 2026 as we sell the enhanced growth fund. What?

Plus incentive fees.

We expect to receive incentive fees at the end of the year. Therefore, we do not anticipate needing to draw on the revolver. It's difficult to predict our exact cash balance, but we do not feel cash constrained. We remain active with our initiatives, including exploring retail properties and joint venture investments on the residential side. We believe we have the capability to continue our activities, but we are monitoring the situation regarding the rights offering and the realization of incentive fees for the year.

This concludes our question-and-answer session. I would like to turn the conference back over to Adam Portnoy, President and Chief Executive Officer, for any closing remarks.

Thank you all for joining our call today. Institutional investors should contact RMR Investor Relations if you would like to schedule a meeting with management. Operator, that concludes our call.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.