RMR Q4 2026 earnings call transcript, November 13, 2026

I would now like to speak about some selected highlights across our managed REITs. At DHC, strong operating results were highlighted by Same Property Shop occupancy increasing 200 basis points year-over-year to 84.4%, while Same Property Shop NOI increased more than 50% year-over-year to $48 million. DHC also recently announced...

are expected to improve cash flows while reducing DHC's future capex. Further, DHC announced that the remaining 76 shop communities not already operating under revised management agreements will transition to updated structures effective January 1st, 2027. These transitions are expected to further align operator incentives with property-level performance to increase cash flows at DHC.

7Hills has successfully reduced its office exposure to approximately 10% with limited losses realized as part of that effort. 7Hills remains committed to its dividend and expects to achieve sustainable dividend coverage during the first half of calendar 2027. Given the meaningful reduction in office exposure, the strong demand for its flexible financing solutions, and the attractive opportunity set,

given our significant ownership stake in the company. At SVC, the significant investments that the REIT has made over the past few years are starting to show up in its results. In the third quarter, SVC's 77 retained hotels grew REVPAR 8.3%, outperforming the U.S. hotel industry for the eighth consecutive quarter, and the adjusted hotel EBITDA grew 60%.

that it believes could add approximately $109 million of EBITDA to its 77 retained hotels over the next 12 to 24 months. In addition, SVC illustrated that with this increased cash flow, the 77 retained hotels could be worth between $3 and $4.1 billion in aggregate. As a reminder, SVC is in the middle of executing a multi-year plan.

Leverage from its current above-market leverage ratio of nine times net debt to adjusted EBITDA to no more than five times, which would be in line with its triple net lease repairs. As part of this plan, SVC has sold 142 mostly select service hotels for $1.1 billion and largely used the proceeds to repay debt over the last three years. With this as background, I want to take a few moments to address the publicly disclosed letters that SVC has received over the last several weeks. In early October, a company called TKO issued a public letter which offered to buy SVC's hotel portfolio for $2 billion. They followed up by issuing a press release in mid-October, which largely reiterated their desire to...

not engage in any discussions, nor have we had any prior business relationship with them, and the only communications we have seen from TKO are the same ones that the public has seen. Last week, the SVC Board, including all six of its independent trustees, unanimously rejected the TKO offer. The principal reason was that the offer was significantly below what management and the SVC Board believe

over the next 12 to 24 months. Shortly after announcing earnings last week, SVC received another publicly disclosed letter from an investment firm called Blackwells. Similar to TKO, Blackwells made no direct outreach to SVC or RMR before issuing its public letter. The letter from Blackwells makes numerous claims and demands, but in essence, it wants

He issued a press release that includes a letter from SVC's board responding to Blackwells. After talking with many SVC shareholders over the last several weeks, I think it is important for me to make clear some things about SVC's plans to sell its remaining hotels and to remove any ambiguity or confusion in the marketplace about RMR's motivations and incentives with regards to me.

triple net lease read. At the same time, we think it is important that SVC emerges from this transition at significantly lower leverage so that the company can be successful going forward. To that end, it is not a matter of if SVC will sell its remaining hotels, but a matter of when is the right time to do so. With that in mind, I would like to expand on when we currently think is the right time to sell.

And what is left is a portfolio of 77 performing hotels that are well positioned for significant cash flow growth. Given that SVC has spent $628 million renovating these hotels over the last three years, and that we believe EBITDA is likely to increase by roughly $109 million over the next 12 to 24 months, is our view that SVC

we believe SVC will receive significantly higher proceeds in the future as Hotel EBITDA improves, rather than be a forced seller of these hotels today at what we believe would be lower values. I would also like to discuss how we see future hotel sales at SVC unfolding. Because the 77 retained hotels are a mixed collection of select service, upscale... In upper upscale hotels located in suburban, airport, urban, and resort locations, it is our view that SVC will likely receive significantly higher total proceeds selling these hotels individually or in small portfolios rather than in one large transaction. Also, given that the timing of EBITDA improvement will vary by hotel, it is our view that these sales will...

year-end 2028. With regard to how SVC will sell these hotels, we think they will likely be sold through competitive marketed processes using experienced brokers similar to how we sold the prior 142 hotels over the last three years. Nevertheless, if SVC were to receive an unsolicited offer from a credible party that values an individual...

If we believe they would be worth in the future after the cash flow increases significantly, then we would, of course, seriously consider it together with SVC's board as a means to accelerate SVC's transition to a de-levered, pure play, triple net lease read. Finally, I want to address RMR's motivations and incentives in managing SVC. RMR's contract with SVC... ...is highly aligned with SVC shareholders. RMR's management fee is currently calculated based on SVC's total market capitalization. So, if SVC's stock goes up, RMR makes more money. And if SVC's stock goes down, RMR makes less money. RMR also has the opportunity to earn meaningful incentive fees tied to SVC's total shareholder return.

RMR underlines RMR with SVC shareholders and makes RMR one of SVC's largest shareholders. While earning higher management fees as SVC's stock price improves is obviously attractive, the opportunity to earn meaningful incentive fees, along with a high return on its investment in SVC, is very compelling for RMR. Said plainly, RMR is highly incentivized to manage SVC. In a manner that would benefit all SVC shareholders. With that, I'll now turn the call over to Matt Jordan.

While a number of our clients have benefited from improvements in operating fundamentals, the broader macroeconomic environment remains challenging. Higher interest rates, inflation, and geopolitical uncertainty have weighed on commercial real estate fundraising, with global fundraising this past quarter reaching its lowest level since 2012.

to real estate investing. While recent fundraising efforts for RMR-sponsored vehicles have been muted, we remain focused on increasing RMR's brand awareness and strengthening relationships with institutional investors to position us to capitalize as fundraising conditions improve. To that end, as a diversified real estate manager, we are finding increasing levels of interest from institutional investors as they seek out managers whose vertically integrated platform to perform.

And most importantly, our deep bench of investments and operations professionals, we are finding new investor engagement heading into calendar 2027 across a number of the sectors RMR manages. As it relates to RMR's operating margins, as our clients have executed on their ongoing strategic investments, most notably asset sales, we have remained focused on ensuring that RMR's platform reflects those changes. In response to these aspects.

Together with continued expense discipline, contributed to a 460 basis point sequential increase in adjusted EBITDA margin to 45.9% during the fourth quarter. While we have rationalized resources in certain functional areas, we have continued to make strategic investments to support our long-term growth. For example, over the past year, we have expanded our marketing and capital formation efforts and increased investments in technology. We are also active.

These investments have allowed us to drive significant operating leverage, as demonstrated by AUM per employee, increasing from $77 million in 2021 to over $105 million today, which we expect will only continue to expand. Taken together, we believe the combination of a more efficient operating platform, targeted investments and growth initiatives, and continued value creation leaves ARM are well positioned. With that, I'll turn the call over to Matt Brown.

RMR. We expect recurring G&A to increase slightly next quarter. Below the operating line, we recognized a $22.7 million loss on investments this quarter, largely reflecting non-cash unrealized losses from changes in the share prices of certain of our investments during the quarter. These unrealized losses were the primary driver of our gap net loss of $12.4 million and are excluded from adjusted EBITDA and distributable earnings. As noted on prior calls, our quarterly tax rate is subject to fluctuation. This quarter, we recognize an income tax benefit of approximately $2 million, primarily reflecting the unrealized losses on our investments, and our effective tax rate for the full fiscal year was 17.8%, consistent with the range we previously guided to. For modeling purposes, we expect our tax rate to be approximately 16% for fiscal 2027. Aggregating these collective assumptions... Next quarter, we expect adjusted EBITDA to be approximately $18.5 to $19.5 million, a sequential quarter decline, largely driven by the declines in total market capitalization at certain of our managed REITs. We expect distributable earnings to be between $0.42 and $0.44 per share, and this guidance is impacted by an increase in estimated tax distributions for fiscal 2027, which adds approximately $1.3 million of additional quarterly distributions. We are also interested in...

...exclude any incentive fees, which we would recognize in the quarter ending December 31st. We ended the fiscal year with approximately $103 million of total liquidity, including approximately $48 million in cash and $55 million of capacity on a revolving credit facility. Our quarterly dividend of $0.45 per share remains well covered, with a distribution payout ratio of approximately 60% this quarter. In addition, we remain on pace to earn aggregate incentive... ...fees of nearly $38 million in the upcoming quarter ending December 31st, as DHC and IOPT have been among the top performing REITs in the U.S. over the last three years. While these amounts remain subject to change, the significant outperformance to their respective benchmarks gives us continued... confidence in earning these fees. This structure reflects the strong alignment of interest RMR has with the shareholders of our managed equity REITs. Any incentive fees earned, which would be paid in January 2027, would further enhance our liquidity position. Our liquidity profile continues to give us the flexibility to execute on our strategic objectives, invest in our private capital business, and pursue growth opportunities as they arise. That concludes our prepared remarks.

Thank you very much.

Our first question today comes from Christopher Nolan from

Our next question comes from Michael Diana from Maxim Group. Please go ahead with your question. Okay. Thank you. Adam, a little more macro level. We have a relatively new Fed chair. We have a brand new Congress. What do you think are the implications of those things for RMR?