The RMR Group Inc. (RMR) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presents a mixed outlook. While there is a positive increase in service revenues and liquidity, the forecasted decline in adjusted EBITDA and the wind-down of AlerisLife present concerns. The Q&A revealed some uncertainties, especially in the management's vague responses about future cash balance and the Seven Hills rights offering. The unchanged guidance and lack of new partnerships or significant shareholder return plans contribute to a neutral sentiment.

Key Financial Performance

Distributable Earnings $0.44 per share, no year-over-year change mentioned.

Adjusted Net Income $0.22 per share, no year-over-year change mentioned.

Adjusted EBITDA $20.5 million, no year-over-year change mentioned.

Consolidated SHOP NOI (DHC) $29.6 million, an 8% year-over-year increase due to a 210-basis point increase in occupancy to 81.5% and a 5.3% increase in average monthly rates.

SVC Hotel Sales 40 hotels sold for over $292 million during the quarter, part of a plan to sell 121 hotels in 2025 for $959 million, aimed at deleveraging the balance sheet.

SVC 0-Coupon Bond Offering Raised $490 million in net proceeds, used to repay revolving credit facility and retire 2026 debt maturities.

Seven Hills Loan Portfolio $642 million, fully performing, no year-over-year change mentioned.

Seven Hills Rights Offering $65 million in new equity raised, enabling over $200 million in gross new loan investments.

OPI Debtor in Possession Financing $125 million to support operations during Chapter 11 bankruptcy process.

Non-Residential Leasing (RMR) 1.4 million square feet leased in the quarter, 8 million square feet for the fiscal year, with rental rates approximately 14% higher than previous rents for the same space.

Recurring Service Revenues $45.5 million, a sequential quarter increase of $1.5 million due to increases in enterprise values at DHC, ILPT, and SVC, and higher construction supervision fees.

Recurring Cash Compensation $38.5 million, consistent with the prior quarter.

Recurring G&A Expenses $10.1 million, a modest sequential quarter increase due to private capital fundraising efforts.

Interest Expense $1.7 million, increased due to acquisitions of 2 leveraged residential properties.

Total Liquidity $162 million, including $62 million in cash and $100 million of capacity on an undrawn revolving credit facility.

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Operating Highlights

Residential Real Estate Fundraising: RMR launched fundraising for an enhanced growth venture targeting $250 million in multifamily real estate investments. Two acquisitions were made this quarter for $143.4 million in Raleigh, NC, and Orlando, FL.

Retail Sector Investments: RMR is building a portfolio of value-add multi-tenant retail properties. The first investment, a $21 million shopping center near Chicago, is executing its business plan, with plans for two more deals.

Leasing Activity: RMR arranged 1.4 million square feet of leases this quarter and 8 million square feet for the fiscal year, with rental rates 14% higher than previous rents.

Senior Housing Segment: DHC's senior housing segment saw an 8% year-over-year NOI increase to $29.6 million, driven by a 210-basis point occupancy increase to 81.5% and a 5.3% rise in average monthly rates.

Debt Financing and Asset Sales: RMR completed $2 billion in accretive debt financings and $300 million in asset sales for managed equity REITs.

Hotel Sales and Deleveraging: SVC sold 40 hotels for $292 million this quarter and plans to sell 121 hotels in 2025 for $959 million. A $490 million bond offering was completed to repay debt.

Leasing Revenue Growth: Recurring service revenues increased to $45.5 million, driven by higher enterprise values and construction supervision fees.

Bankruptcy Restructuring: OPI entered a restructuring support agreement under Chapter 11 to strengthen its financial position. RMR will manage OPI for five years post-bankruptcy, earning $14 million annually for the first two years.

Rights Offering for Seven Hills: Seven Hills announced a $65 million rights offering to fund $200 million in new loan investments. RMR, as the largest shareholder, will backstop the offering.

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Risk or Challenges

Economic Environment: Continued unsettled economic environment poses challenges for executing strategic initiatives and maintaining financial stability.

Debt and Financing: Significant reliance on debt financing, including $2 billion in accretive debt financings and $125 million debtor-in-possession financing for OPI, increases financial risk and exposure to interest rate fluctuations.

Asset Sales and Deleveraging: Ongoing asset sales to deleverage balance sheets (e.g., SVC's sale of 121 hotels and DHC's non-core assets) may impact revenue streams and operational focus.

Bankruptcy and Restructuring: OPI's Chapter 11 bankruptcy and restructuring support agreement highlight financial distress and operational risks, despite efforts to stabilize through management agreements and financing.

Revenue Displacement: SVC faces revenue displacement from renovation activities and softening demand in its hotel portfolio, impacting EBITDA growth.

Fundraising Challenges: Fundraising for private capital initiatives remains challenging, with limited new manager relationships and competitive pressures in the fundraising environment.

Operational Transitions: DHC's transition of 116 SHOP communities to new operators introduces execution risks and potential disruptions in operations.

Interest Expense: Increased interest expenses due to leveraged acquisitions and new mortgages may strain financial performance.

Regulatory and Legal Risks: Potential risks associated with forward-looking statements and compliance with securities laws, as highlighted in the disclaimer.

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Guidance & Outlook

Potential Incentive Fees: RMR anticipates earning approximately $22 million in incentive fees in 2025, contingent on share price improvements at DHC and ILPT.

DHC Strategic Transformation: DHC is transitioning 116 SHOP communities to new operators by year-end 2025, aiming to enhance operational efficiency and NOI growth.

SVC Hotel Sales: SVC plans to sell 121 hotels in 2025 for $959 million to deleverage its balance sheet.

Seven Hills Rights Offering: Seven Hills announced a rights offering to raise $65 million in new equity, enabling over $200 million in gross new loan investments.

OPI Restructuring: OPI entered a restructuring support agreement under Chapter 11, with RMR managing OPI for a 5-year term post-bankruptcy.

Private Capital Fundraising: RMR expects improved institutional investments in real estate in 2026, focusing on residential, credit, and select development opportunities.

RMR Residential Growth Venture: RMR launched a fundraising initiative targeting $250 million for multifamily real estate, with updates expected by early spring 2026.

Retail Sector Investments: RMR aims to add at least 2 more value-add multi-tenant retail properties to its portfolio.

Credit Strategy: RMR is exploring strategic ventures with institutional capital for real estate credit investments.

Next Quarter Financial Projections: RMR expects adjusted EBITDA of $18-$20 million, distributable earnings of $0.42-$0.44 per share, and adjusted net income of $0.16-$0.18 per share.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Does OPI's fee go up quarter-over-quarter?

A:OPI's fees are effectively flat. The company earns a fixed fee of $14 million per year for the first two years under the business management agreement. During the bankruptcy period, earnings will be slightly less than the $14 million run rate, but the $14 million annual fee will go into effect upon emergence from bankruptcy, expected in the first half of 2026.

Q:What is the focus of the private capital strategy regarding shopping centers?

A:The company has core competency in retail and manages a large retail portfolio. They see opportunities in neighborhood and grocery-anchored shopping centers due to favorable supply-demand dynamics. They are building a track record by investing in shopping centers on their balance sheet and plan to raise more capital for this strategy in the future.

Q:Are there any new loan investments under agreement?

A:RMR does not have new loan investments. They are selling the two loans on their balance sheet and do not plan to add more loans. Seven Hills, however, plans to deploy $200 million in additional loan investments over the next six months, with an average loan size of $25 million.

Q:What are the factors affecting the forecast for fiscal Q1 adjusted EBITDA?

A:Fiscal Q4 adjusted EBITDA was $20.5 million, and the forecast for fiscal Q1 is $18 million to $20 million. The decrease is primarily due to the wind-down of AlerisLife's business, which is expected to reduce revenue by $1 million in Q1.

Q:Is there any expected additional negative impact from the loss of managing AlerisLife?

A:The full wind-down of AlerisLife is expected by the end of the year. While Q1 will see a $1 million decrease in fee revenue, there will be an additional $400,000 reduction in fiscal Q2.

Q:What does the advisory agreement for OPI look like after two years?

A:The agreement is a five-year term. The first two years have a fixed $14 million annual fee, regardless of portfolio size. After two years, the fee will be renegotiated based on the portfolio's size and makeup. The agreement also includes a 2% equity stake for RMR and an additional 8% incentive fee tied to performance benchmarks.

Q:How flexible is G&A spending for managing OPI?

A:G&A spending is flexible. If RMR were to stop managing a large office portfolio, significant cost reductions could be made. Office management is the most resource-intensive, so losing it could result in lower cash flow but higher margins.

Q:What is the rationale behind selling loans from RMR's balance sheet to Seven Hills?

A:The loans were initially part of a seed portfolio for fundraising but have become less attractive as seed assets over time. Selling them to Seven Hills allows for quick deployment of proceeds, securing dividends, and supporting the rights offering.

Q:What updates are there on the Seven Hills rights offering?

A:It is early in the process, and most shareholders wait until the last minute to exercise rights. RMR expects to exercise up to its 11% ownership and may backstop up to 50% of the offering, though this is uncertain. UBS Investment Bank is managing the process and has seen interest from potential buyers.

Q:What is the true-up for rental income from the two residential assets acquired mid-quarter?

A:The owned real estate portfolio, including the two residential acquisitions, is expected to contribute $3.2 million of NOI quarterly. In Q4, it contributed $650,000 of EBITDA, which will grow to over $3 million on a run-rate basis.

Q:How should the cash balance be viewed going forward?

A:RMR does not expect to draw on its revolver and anticipates proceeds from loan sales, a liquidity event in 2026, and potential incentive fees. They feel unconstrained in pursuing initiatives like retail property acquisitions and residential investments.

Q:Review of Unclear Management Responses

A:Management avoided providing a clear timeline for the Seven Hills rights offering outcome, stating it is too early to tell and that most shareholders wait until the last minute to exercise rights. Additionally, they did not specify the exact cash balance expected going forward, citing multiple variables like rights offering results and incentive fees.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

RMR Transcript

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RMR Slides

RMR Group Q4 2025 slides: earnings miss expectations despite strategic acquisitions

2025-11-12

RMR Report

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