RMR Group, Inc. Class A Stock

Thank you. to the RMR Group Fiscal Third Quarter 2026 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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. 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.

Please go ahead.

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. 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. of today, August 6, 2026, 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 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 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'll now turn the call over to Adam. 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. Their quarterly results were highlighted by distributable earnings of 48 cents per share and 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.

While Matt will talk more about private capital, as it relates to our managed REITs, over the past two 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, real estate, and real estate. rent roll-ups, and disciplined expense management. 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 three years. 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. 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. DHC has also materially improved its balance sheet metrics, following over $600 million 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 30th. in the second quarter dhc generated generated normalized ffo of 16 cents per share and adjusted ebitda of 82 million dollars both exceeding consensus estimates same property shop noi grew 37 percent over last year and same property shop margins improved 390 basis points to 17.3 percent. 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, 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 percent, 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. 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 Sinester'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 year. over the past three years. For the quarter, SVC's retained hotels saw rev par 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 43 cents 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. 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. $100,000 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. 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, 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. strategies. 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 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 nine-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. venture involving RMR part 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. 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. residential platform regularly exceeded one billion dollars in transactions a year. prior to the headwinds the sector has recently experienced. Beyond our general partner interest, RMR wholly owns three 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. 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. 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 five times the EBITDA generated primarily by the 20 evergreen management contracts associated with some of our managed equity REITs. 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. Thanks, Matt, and good morning, everyone.

For our fiscal third quarter, we reported adjusted EBITDA of $19.7 million and distributable earnings of 48 cents 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 Senesta 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. 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. 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 VII 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 percent 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. 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 48 and 50 cents 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. That concludes our prepared remarks. Operator, please open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 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 2. At this time we will pause momentarily to assemble our roster. The first question comes from Tyler Batori with Oppenheimer. Please go ahead.

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. 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 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 kind of how you think fundraising might progress over the next couple of quarters.

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. So I would say the fundraising process 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.

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. investors haven't got that money back so they don't have new monies to deploy so So 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 going to pay dividends in the long term when things stabilize and people start redeploying again.

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. So any guideposts you could provide in terms of flow through or even on margin what that might look like in the medium term?.

Sure. So 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. So the goal is to get there.

to get back towards that 50%-ish margin. Okay. And then a couple of housekeeping questions. So 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 reads 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.

Sure. So 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 June 30th. 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. 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.

Okay, great. And then the last one, so the SBA, SPC 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? Yes.

Hi, Tyler, it's Adam. I think you should think about that investment as a long-term investment. YOU KNOW, WE REALLY ARE BULLISH ABOUT THE PROSPECTS OF SBC, WHICH IS WHAT WAS PARTIALLY LED US TO MAKE THAT INVESTMENT. AND THE BUSINESS AT SBC IS GOING TO, YOU KNOW, 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. I think from your perspective, to answer it directly, you know, we expect to be long-term holders of SVC.

Okay, great. That's all for me. Thank you. The next question is from Christopher Nolan with Ladenburg-Fallman. Please go ahead.

Adam, was the $40 million incentive fee for calendar year or fiscal year?.

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

And then, what was the driver for the $21 million investment gain?.

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.

Great. And then 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. And has this sort of impacted valuations for commercial real estate, equity valuations for properties and so forth?.

So it is broad race 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 data centers the other exception within the sectors we operate in you know i would say that um 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. And sort of an up and coming area that's been up and coming now for a couple years and continues to accelerate is retail.

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 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. So there hasn't been a big move in valuations, but the transaction volume is way down.

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 significantly.

Thank you. The next question is from John Masaka with B. Riley. Please go ahead. John Masaka, could you please start your question over? I didn't quite get you on the podium as fast as I thought.

No problem. I'm a very fast speaker. So maybe sticking with the theme of kind of on balance, starting with the theme of on balance sheet real estate, you know, So 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'd feel comfortable continuing to seed things as you see attractive opportunities in the multifamily space or other real estate sectors.

All right, John. I think there, until you're sort of on to it, and we're thinking about similar ways, until there is a sort of an uptick in, let's say, fundraising around EGV or 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 I 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. 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. 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. 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. 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 and fees for the organization.

And so that's sort of the way we're doing it.

we think about it. Okay. In terms of the public vehicles, I 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?.

Sure. So 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. But 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 de-lever even further the balance sheet, even though we significantly have de-levered it? So those are sort of the themes that the board and management is focused on at OPI. And I think in the coming quarters, you'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. Those are things that I think we're focused on over the next couple of years, but 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.

In 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, you know, broad strokes, how do you maybe get to at least some of that potential ownership upside?.

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

have it in place yet. Okay. Understood. And that's it for me. Thank you very much.

The next question is from Mitch Germain with Citizens Bank. Please go ahead.

Great, thank you. Your legacy investments, the first couple that you made on balance sheet, a couple multifamily, one retail, I'm curious, it's been a year plus or so with some of them, how they're performing relative to your original underwriting? Yes.

Hey, Mitch, as a reminder, we've got three wholly owned multi-deals. research triangle of Florida and Denver on the multi-side, and then Adam touched on our Chicago retail deal. As it relates to the multi-family, those are four to five year business plans, so we're still somewhat in the early innings, but so far, again, they're almost almost 92% occupied. We're seeing respectable 3 to 4% 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 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. 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, 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.

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?.

Thanks, Mitch. It is a, 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. So collectively between RMR and myself, you're right in three of the REITs. I think it's an open question. What we were open to it.

There's no imminent plan to do so in terms to invest in those 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,.

but there's nothing currently planned to do so. Great. Last one for me, and I apologize. I missed some of your... 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 thing?.

uh expenses the majority of that is uh one time in nature um We do have slight change in head count mix, which is a slight factor, but more importantly, 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 June 30th for the balance of the fiscal year as compared to where it was in March. So the majority of the adjustment was driven based off that.

Great. Thank you, guys. 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.

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

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good afternoon, and welcome to the RMR Group Fiscal Second Quarter 2026 Earnings Conference Call.

[Operator Instructions] Please note today's event is being recorded.

I would now like to turn the conference over to Bryan Maher, Senior Vice President. Please go ahead.

Good afternoon, and thank you for joining RMR's Fiscal Second 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. In just a moment, they will provide details about our business and quarterly results, followed by a question-and-answer session.

I would also like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company.

Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on RMR's beliefs and expectations as of today, May 7, 2026, 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 differences is contained in our filing with the SEC, 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'll now turn the call over to Adam.

Thanks, Bryan, and thank you all for joining us this afternoon. Yesterday, we reported second quarter results, reflecting distributable earnings and adjusted EBITDA at the high end of our expectations despite operating in what remains an unsettled economic environment. Our second quarter results were highlighted by distributable earnings of $0.44 per share and adjusted EBITDA of $18.5 million.

Although we continue to navigate market volatility and geopolitical uncertainty, RMR has been very active this year executing on our clients' strategic initiatives. The markets continue to recognize our efforts as both DHC and ILPT remain among the best performing REITs in 2026 from a total shareholder return standpoint, extending the significant outperformance they each achieved in 2025. As a result, RMR earned incentive fees for 2025 of $23.6 million, and we are on track to earn incentive fees again this year as both DHC and ILPT accrued incentive fees this quarter.

I would now like to go over some recent highlights at our managed REITs before turning the call over to Matt Jordan to provide an update on our private capital initiatives. At DHC, following the successful transition of 116 senior living communities to new operators in the back half of 2025, it has continued to focus on improving SHOP operating performance while also strengthening its balance sheet. In the first quarter, DHC generated normalized FFO of $33 million or $0.14 per share and adjusted EBITDA of $74 million, both exceeding analyst consensus estimates.

SHOP performance showed positive momentum with year-over-year same-property NOI growth of 13.5% and occupancy increasing by 110 basis points. In March, DHC completed the sale of 13 unencumbered noncore communities for gross proceeds of approximately $23 million. Following an active 2025 in which DHC completed approximately $605 million of asset sales, we expect asset sales to decelerate in 2026 with management focused on improving NOI across the retained portfolio. Lastly, in April, Moody's upgraded DHC's debt ratings and revised its outlook to positive from stable, underscoring the company's improving operating performance and balance sheet.

At SVC, we recently made significant progress improving its balance sheet and covenant ratios. RMR was instrumental in helping SVC complete a $575 million equity offering, which accelerated its deleveraging strategy, eliminated near-term refinancing risk and provided SVC additional flexibility to optimize its hotel performance and execute further asset sales. With the net proceeds, SVC eliminated all of its unsecured debt maturities until 2028. As it relates to SVC's equity offering, I would highlight that RMR participated with a $50 million anchor investment, further aligning our interest with shareholders and demonstrating our confidence in SVC's business plan. Following several years of strategic capital investments to reposition the retained hotel portfolio, SVC is now transitioning toward an earnings recovery phase, supported by new hotel leadership at Sonesta that is focused on improving operating performance.

ILPT continues to deliver strong results with first quarter normalized FFO of $0.33 per share and adjusted EBITDA of $87 million, both exceeding the high end of management's guidance. ILPT also executed approximately 862,000 square feet of leasing during the quarter at rental rates 26% higher than prior rents. Additionally, RMR recently assisted ILPT with the refinancing of $1.6 billion of new debt for its consolidated Mountain joint venture, which replaces floating rate and amortizing debt with interest-only fixed rate and an attractive 5.7% interest rate while also extending ILPT's debt maturity profile.

Seven Hills, our mortgage REIT, has been actively deploying capital from its December rights offering. During the quarter, Seven Hills originated 3 loans totaling $67.5 million and generated distributable earnings of $0.24 per share. Total loan commitments increased to approximately $776 million in the first quarter, achieving a record high for the portfolio. Originations thus far in 2026 are at the highest net interest margins achieved over the past 4 years, which reflects the benefits of our focus on middle market lending where there tends to be less competition for high-quality loans.

Lastly, OPI recently received court approval for its plan of reorganization, and we expect it to emerge from bankruptcy by the end of the second quarter and for its shares to be publicly traded. We also expect RMR's contract with OPI to be consistent with our previously disclosed terms. More specifically, RMR will continue managing OPI for a 5-year term with RMR receiving a flat business management fee during the first 2 years of $14 million per year and our property management agreement economics will remain unchanged.

To conclude, we are pleased with the progress RMR has made assisting our clients with their financial and strategic objectives. While there remains more work to do, we are encouraged that the markets recognize the significant improvements at both DHC and ILPT. It is important to remember that our publicly traded perpetual capital clients provide RMR with stable cash flows, which we are using to pursue new growth initiatives in the private capital space. The private capital segment of our business has grown from essentially 0 AUM in 2020 to nearly $12 billion today, and we anticipate this segment will be a key driver of our future revenue and earnings growth.

With that, I'll now turn the call over to Matt Jordan to provide added insights on our platform and private capital growth initiatives.

Thanks, Adam. As it relates to our private capital initiatives, with a global in-house sales team firmly in place, we are spending the necessary time building RMR brand awareness. As an example, I recently had the privilege of joining Peter Welch, who leads our international fundraising efforts in Southeast Asia, meeting with potential partners and participating in events where RMR stood side-by-side with larger, more well-established international brands. In aggregate, our international outreach has resulted in our leaders meeting with almost 200 global investors, representing almost $7 trillion in AUM.

With that said, the ongoing conflict in the Middle East has disrupted fundraising. This disruption has played out in the global fundraising data as fundraising in the first quarter of 2026 dropped 50% from the same time last year. The positive news for RMR is that North American real estate still garnered 65% of all dollars raised and value-add strategies represented 56% of all fundraising. Within our residential business, which today represents over $4.7 billion in value-add residential real estate across 18,500 owned and managed units.

In April, we closed on the acquisition of a multifamily portfolio in Greenwich, Connecticut for almost $350 million. The transaction was sourced off-market and marks our entry into one of the most supply-constrained and affluent housing markets in the country. RMR Residential will assume property management and will execute a multiyear strategy focused on modernizing the communities, enhancing the resident experience and unlocking embedded efficiencies. The acquisition is part of a joint venture where RMR is a co-general partner and in that capacity, made a $6 million investment for a 5% ownership interest.

The remaining equity of approximately $120 million was raised from 2 institutional partners. RMR will recognize revenues from this transaction of $600,000 in our third fiscal quarter. And as general partner, we will earn ongoing operating fees of approximately $750,000 annually. Longer term, the venture is expected to generate annual cash-on-cash returns of approximately 7.5%, and we expect to receive carried interest from the venture as certain investment hurdles are met. Finally, the venture will not be consolidated given our ownership is limited to 5% and a portion of our GP interest may become part of RMR's enhanced growth venture.

As it relates to the enhanced growth venture, which was launched last fall with the goal of raising approximately $250 million of third-party equity, there remains significant interest in both U.S. value-add multifamily real estate and our seeded portfolio of assets. This interest has resulted in ongoing diligence with a number of potential investors with the hope that we can provide a more meaningful update on our next earnings call.

As it relates to the operating performance within our Residential business, we, along with our joint venture partners remain pleased as occupancy approaches 94% with resident retention currently over 70% and retained residents absorbing rental rate increases of over 3%. Operating performance at these levels will continue to help with the fundraising in the highly competitive residential space.

I'd like to also highlight a new disclosure we've made in our investor presentation that emphasizes the discount our shares trade at when looking at our business from a sum of the parts perspective. As we illustrate, if one were to back out the cash and investments held by RMR, our shares are currently trading at only 5x the EBITDA generated from the durable cash flows associated with our 20-year evergreen management contracts from our perpetual capital vehicles. This is materially below EBITDA multiples at which our peers trade. We are hopeful this new slide illustrates the significant upside embedded in our shares.

In closing, it remains an active time for our organization as we continue to invest in our people, technology and brand awareness. We are leveraging these investments to reinvent our operating structure, materially increase productivity and ultimately drive down operating costs to deliver meaningful EBITDA growth.

With that, I'll now turn the call over to Matt Brown.

Thanks, Matt, and good afternoon, everyone. For our fiscal second quarter, we reported adjusted EBITDA of $18.5 million and distributable earnings of $0.44 per share, which exceeded or at the high end of our guidance. I'd also like to note that we reported adjusted net income of $0.11 per share, which fell $0.01 short of our guidance. Going forward, we will no longer provide guidance on adjusted net income as our investments in leveraged real estate have significantly reduced the usefulness of this metric as we incur depreciation and interest expense on these investments.

Recurring service revenues were $42 million, a sequential quarter decrease of approximately $1 million, driven primarily by hotel sales, a decrease in the enterprise values of SVC and DHC as they strategically paid off debt and the wind down of AlerisLife's business. Next quarter, we expect recurring service revenues to increase to approximately $44 million, driven by approximately $600,000 of revenue from the multifamily portfolio acquisition in Greenwich, Connecticut that Matt discussed, increased construction management fees and enterprise value improvements at certain of our managed REITs.

Turning to expenses. Recurring cash compensation was $37.7 million, a modest sequential quarter increase driven by calendar 2026 payroll tax and benefit resets. Looking ahead to next quarter, we expect recurring cash compensation to remain consistent with the second quarter. Recurring G&A this quarter was $10.1 million, after excluding $600,000 in annual director share grants, which is a slight sequential quarter decrease driven by a reduction in normal course legal and professional fees. We expect recurring G&A to remain at these levels for the remainder of the fiscal year.

It is also worth noting that this quarter's income tax rate was elevated at 22%, driven by the impact of certain fair value adjustments that we recognized during the quarter, mainly our investment in Seven Hills that are subject to different statutory rates than our ordinary income. For modeling purposes, we may continue to see fluctuations in our income tax rate each quarter as these adjustments impact the timing of tax expense recognition. However, these fluctuations are not expected to materially impact our full year estimated tax rate of 17% to 18%. Aggregating the collective assumptions I've outlined, next quarter, we expect adjusted EBITDA to be approximately $19 million to $21 million and distributable earnings to be between $0.48 and $0.50 per share.

As Adam and Matt highlighted earlier, subsequent to quarter end, we participated in SVC's equity offering by acquiring nearly 42 million shares for $50 million and acquired a $6 million co-GP equity interest in the Greenwich, Connecticut multifamily joint venture. Our investment in SVC will result in approximately $420,000 of incremental quarterly dividends. Accounting for these transactions, our current liquidity is approximately $133 million, including $75 million of capacity on our revolving credit facility. We continue to be well capitalized with a strong dividend and look forward to executing on our strategic objectives and taking advantage of opportunistic investments as they arise.

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

[Operator Instructions] And today's first question comes from Mitch Germain at Citizens Bank.

Adam, there's a whole bunch of multifamily assets that are owned in different syndication. I'm curious, is there -- is the expectation of one transaction if you can lock in a larger fund, is the expectation that this all kind of cleans up with that? Or is there the potential for some of these to just continue to remain as one-off investments?

Mitch, thank you for that question. So it's a good question. I think you got to keep in mind, part of the way you answer that question is how we put together the portfolio that is our multifamily portfolio. It's the only asset class that we manage that's 100% private.

We don't have a public vehicle around multifamily. And that portfolio was originally -- mostly constructed as part of acquisition of our Residential platform about -- little over 2 years ago. Most of those investments are in joint ventures, one-off joint ventures per investment. A few of them are small portfolios. And that's how that whole business has been structured similar to the way we bought it.

I expect that we will continue to have many of those joint ventures be the form of the investments we make, especially over the short term. But I think what you're seeing in terms of the enhanced growth fund that Matt Jordan talked about, and we've talked about on many calls, is we're starting to try to put together a portfolio among that $4.7 billion, which is mostly joint ventures of, let's say, a fund that we can raise money around.

So we're trying to do both. I don't think you will see a transaction that will suddenly, let's say, roll up all $4.7 billion into a new public vehicle. I'm not sure if that was your question, but that's not where we're going with that. It's likely to all stay private, likely to continue to be joint ventures, one-offs, small portfolio joint ventures. And our hope is that we can start to build a more dedicated fund around that strategy as well.

Taking that a little bit further, I think last couple of quarters, you seemed a little bit more positive on potential venture in, I guess, we'll call it commercial mortgage as well as I think you've mentioned development. Are those 2 products just a little bit behind multifamily right now with regards to your priorities?

They're all top priorities. I will tell you, I just think it's -- and we are continuing to talk to investors and partners about development projects. I think in the current market environment, the returns required for development projects are pretty high and development is always difficult when you have a lot of uncertainty, and it's hard to predict the next -- it's hard to predict the next quarter, let alone 18 months from now, which is typically what you got to do to sign off on development projects.

So we are continuing to work on those. I expect we will, in the course of the year or so, have some joint venture development projects underway. It's just that today, in the multifamily space, with the portfolio that we've assembled, we are generating the highest amount of interest around that. One comment on the credit that you mentioned, Mitch. We are also very active in talking to investors around credit as well. We are not -- I wouldn't say it's less of a priority, but we have a lot of money to put out in our Seven Hills mortgage REIT right now.

And I think the number is close to $0.5 billion of capacity over the next year of new investments that we are going to be able to make between new money coming into that vehicle and expected loan payoffs. So we have a pretty good pipeline and capacity with our existing vehicles there. But we are still talking to investors around credit. There's been a general pullback around credit given what's going on in the marketplace around some other funds that are in the credit space, especially retail-oriented funds. And so there's been some hesitancy among investors to take those conversations further at the moment. But that's okay from our perspective because we have a lot -- we can do a lot of work there anyways. We can put a lot of AUM to work otherwise.

Got you. Last one for me. I think at one point, you might have had close to $300 million or so million of cash on hand. I think that -- obviously, that balance has come down a bit as you're buying some of these assets and warehousing them on balance sheet in anticipation of some of your fundraising. Where are you -- and I know you're getting some benefit of these incentive fees, which is kind of renewed to the story more recently. But where are you with regards to kind of what -- how much sort of cash do you want to keep on hand for some sort of rainy day basically. So I mean, are we getting close to an amount where you're starting to become a little bit more conservative with allocating capital? Or are you still all systems go if the right opportunities are presented?

More of the -- all systems go if the right opportunities present ourselves. We have about over $100 million of liquidity between cash on hand and undrawn capacity on our revolver. We are also fairly optimistic that we will be getting some cash back, especially as we are hopefully successful in syndicating the enhanced growth value, the fund that we have built up around the multifamily strategy. We have $100 million of capital committed to that venture or just under $100 million. And if we are successful in syndicating that and getting that fund launched, which we are optimistic that we will get it done, that will be a lot of cash flow will also be coming back to us, we think.

[Operator Instructions] Our next question today comes from Christopher Nolan at Ladenburg Thalmann.

Adam, is the Seven Hills participating in this Greenwich project providing debt financing?

Chris, no, Seven Hills is not providing any sort of financing with that -- with the multifamily acquisition in Greenwich, No.

Okay. And then I guess, Matt Brown, did you say adjusted Net income in the second -- in the next quarter will be $19 million to $21 million? Or did I mishear you?

Adjusted EBITDA in the fiscal third quarter, $19 million to $21 million.

Great. I guess as a follow-up in the general, Adam, how would you characterize the market for raising equity for commercial real estate as opposed to raising debt for commercial real estate?

It's a great question. First, I'm going to let Matt Jordan to answer the question. Go ahead, Matt.

Well, in terms of the debt, there is a lot of debt available to lend against real estate. We have no lack of interest just having done this on the Greenwich asset. Adam touched on fundraising around credit, which is very challenging right now for a number of reasons, including a lot of supply in the market in terms of organizations like ours going out with credit vehicles. Fundraising for equity is a very challenging effort right now. The volatility in the Middle East has taken a large number of folks that were putting a lot of money out and put them on the sidelines. Volatility is not a good thing for those that are fiduciaries of deploying capital. The money and the allocations to real estate will be there in the long term. But right now, a lot of the conversations we've had are continuing but have slowed significantly.

And to Adam's point on the enhanced growth venture, I just think it's elongating the fundraising cycle for what we're doing. But there continues to be significant allocations. As we highlighted, we've met with a significant number of global LPs. RMR itself is still a new brand. So we're spending a lot of time getting our name out there and people are amazed at the capabilities we bring and the breadth of our organization, but things are just going to take longer until the Middle East settles down.

Okay. And then I guess as a final question, you're seeing with some private equity shops, they're setting up distressed commercial real estate funds. Is that a potential strategy that you would consider? And in my view, that tends to be the preparing for some sort of down cycle.

Chris, it's not something we're actively pursuing at the moment in terms of setting up a distressed real estate fund. We have limited pockets within RMR and the different funds that we manage in groups that I think have a really attractive distressed opportunity presented itself to us. We could seriously consider about -- consider executing on it. But we don't -- we are not building out a strategy around that today.

And our next question today comes from John Massocca of B. Riley.

Maybe kind of sticking with the big picture kind of fundraising theme. You've seen some pullback in some other types of kind of credit funds, right, private lending being the most notable. Are you seeing any indications of that capital potentially being reallocated to things that are a little more tangible like real estate? Or is that just an unrelated phenomenon in your mind?

Yes. I don't think it's unrelated. I don't think they're related. We actually -- it's interesting when you meet with LPs, lending may not even sit in the real estate bucket. It may be in fixed income and other pockets within these large organizations. So we have not yet experienced where credit allocations have been redeployed in a way that's benefited us on the equity side.

Okay. And maybe switching gears a little bit. Going back to a little bit Mitch's last question but what's the appetite today for more kind of wholly owned assets or at least consolidated assets on balance sheet to help kind of create the base for funding either the multifamily-focused fund or even maybe a retail fund going forward? Just kind of curious if you think you're at a good point in terms of the wholly owned assets you have today or there's more capacity to continue to add to that?

Yes. I think there's a little more capacity to add to it. I don't think we'll be adding until we are successful syndicating the enhanced growth venture to add wholly owned multifamily assets on the balance sheet. But you mentioned retail. Retail is an area that we could maybe add a couple more assets to the balance sheet if there's the right type of assets. So that's an area that you could see us do some more asset level acquisitions on the RMR balance sheet to help sort of get that retail strategy further along.

Okay. And then thinking about kind of the quarterly financials, kind of you predicted it a little bit, but construction supervision revenues were down pretty big, certainly quarter-over-quarter, but even year-over-year. Just kind of trying to think of how much of that is just the new normal? How much of that is maybe one-offs? How much of that is seasonality? Just kind of any color on how you would expect that to kind of trend over the remainder of the year?

Yes. So I think when you look at our construction management fee revenue sequentially, it's really just driven by the start of the year is generally a little bit slower for us as budgets are just reset. As we look year-over-year, the decline at some of our managed public vehicles, we had some pretty extensive capital improvement projects going on, mainly within DHC and SVC that have largely wound down. Those REITs are now forecasting less capital spend in '26 than they were. But we will see a little bit of a ramp expected. It's going to be a benefit to us for the next quarter as we just start to progress throughout the year.

But maybe is kind of the year-over-year decline as you think about comparing it to the comparable quarter in '25 kind of a good way to think about it going forward?

Yes, I think that's a good run rate.

Thank you. And that does conclude our question-and-answer session. I'd like to turn the conference back over to President and CEO, Adam Portnoy, for any closing remarks.

Thank you all for joining our call today. We look forward to seeing many of you at our upcoming industry conferences, including NAREIT in June, and we encourage institutional investors to contact RMR Investor Relations if you would like to schedule a meeting with management.

Operator, that concludes our call.

Yes, sir. Thank you very much, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Good morning, and welcome to the RMR Group Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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. Good morning, and thank you for joining RMR's fiscal first 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. 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, February 5, 2026, 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 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'll now turn the call over to Adam.

Thanks, Bryan, and thank you all for joining us this morning. Yesterday, we reported first quarter results that exceeded or at the high end of our expectations, highlighted by distributable earnings of $0.47 per share, adjusted net income of $0.20 per share and adjusted EBITDA of $19.5 million. I'm also happy to highlight that the strategic actions we have undertaken over the past two years at DHC and ILPT helped drive continued share price improvements at each REIT, and, in turn, resulted in RMR receiving $23.6 million in incentive fees for calendar year 2025. While there is more work ahead, the strategic steps taken thus far have helped generate significant positive returns for shareholders of DHC and ILPT.

In 2025, DHC and ILPT were the #1 and #3 best-performing REITs in the United States as measured by total shareholder return. Although, the economic environment continues to experience elevated uncertainty, RMR remained active this past quarter, executing on our clients' strategic initiatives. While we are limited in what we can discuss today because we are reporting results in advance of our publicly traded client companies, I'd like to highlight several noteworthy accomplishments from the quarter.

DHC continued its focus on improving SHOP NOI margins and selling noncore assets to further delever its balance sheet. In the fourth quarter, DHC completed its sale of 37 properties for gross proceeds of approximately $250 million. And for the full year, DHC sold 69 properties for approximately $605 million. Partially using these asset sales proceeds, DHC also fully repaid its zero coupon senior secured notes due in 2026. Leaving DHC with no debt maturities until 2028. This repayment further strengthens DHC's balance sheet, increased financial flexibility and unencumbered 45 collateral properties, representing $850 million in gross book value.

During the quarter, DHC also completed its announced transition of 116 SHOP communities from AlerisLife to new operators that have proven track records and well-established regional footprints. DHC anticipates material SHOP NOI improvements as these new operators increase revenues and rightsize operations. SVC continues to make significant progress selling noncore hotels to delever its balance sheet. During the quarter, SVC completed the sale of 66 hotels for approximately $534 million and sold a total of 112 hotels in 2025 for $859 million. SVC also announced the early redemption of $300 million of its senior unsecured notes due February 2027, using these proceeds from hotel sales.

Beyond the deleveraging efforts, we remain focused on helping SVC drive EBITDA growth across its hotel portfolio despite ongoing revenue displacement from renovation activity. Sonesta, which manages the majority of SVC's owned hotels and which is 34% owned by SVC, recently announced the appointment of Keith Pierce and Jeff Leer as Co-CEOs effective April 1st. These individuals will be instrumental in growing the Sonesta platform, while also working to improve EBITDA margins at the SVC-owned hotels.

ILPT had a successful year of leasing activity and indicated during its third quarter earnings call that it was expecting a strong end to the year as it finalized a large number of lease renewals. The REIT successfully refinanced over $1.2 billion of debt in 2025 and materially increased its dividend. ILPT is actively exploring the refinancing of its remaining $1.4 billion of floating rate debt, which currently has a final maturity date of March 2027.

Seven Hills, our mortgage REIT, completed a rights offering in December that raised gross proceeds of $65.2 million. This new capital should allow for over $200 million in gross loan investments. RMR agreed to backstop the offering, acquiring any rights not exercised as a demonstration of our confidence in Seven Hills and our Tremont lending platform. The offering resulted in subscriptions for approximately 5.5 million shares or 73.2% of the common shares offered. The RMR purchased the remaining 2 million shares for $17.4 million. With a pipeline of approximately $1 billion in potential lending opportunities, I'm confident our organization will quickly deploy these new proceeds in an accretive manner. In the fourth quarter alone, Seven Hills deployed $101 million into three new loans, which will complement its existing fully performing loan portfolio.

Lastly, as we noted on our fourth quarter earnings call on October 30, 2025, OPI filed Chapter 11 bankruptcy. The bankruptcy process remains ongoing, and we will update investors as new information becomes available. We are hopeful the process will be concluded by the summer. And in the meantime, we remain committed to supporting the assets, vendors and tenants of OPI.

To conclude, we are pleased with the progress RMR has made over the past quarter, assisting our public and private company clients with their financial and strategic objectives. Importantly, our perpetual capital clients provide RMR with stable cash flows, which we have used 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. Despite continued economic uncertainty for the full year, RMR arranged nearly 10 million square feet of leasing at rental rates approximately 13% higher than previous rents for the same space. These results continue to demonstrate the strong relationships our leasing and property management teams have with our tenants and the brokerage community. On the private capital side of our business, we continue to make the investments necessary to further scale our platform and reduce the use of third-party placement agents. To that end, we recently announced the hiring of Peter Welch to lead International Capital Formation. Peter is an experienced real estate and capital markets executive, there will be a strong complement to Mary Smendzuik, who leads our North American Capital Formation efforts. Peter is based in Australia and joins RMR with a mandate to expand RMR's brand globally, and help raise capital for current and future strategies.

Although the fundraising environment remains challenging, our current efforts are primarily focused on residential and select development opportunities, though the depth of our platform will allow us to pivot based on investor feedback. At RMR Residential, which represents $4.5 billion in value-add residential real estate across over 18,000 owned and managed units, our portfolio ended the year on a strong note. Our managed portfolio is approximately 93% occupied with resident retention for the year coming in at over 70% and resident delinquencies at nominal levels.

We are seeing similar trends within RMR's owned residential portfolio with each of the five communities remaining on track with their stated business plans. As it relates to RMR's enhanced growth venture fundraising, which launched in September, our goal remains to partner with a select group of investors to raise approximately $250 million. As we've noted before, we believe this venture is unique in the current competitive marketplace, as it provides investors with the ability to share in property level and general partner economics. We look forward to providing further updates related to this important initiative on future calls.

Turning to the retail sector. We continue to underwrite investment opportunities as we work to build a portfolio of value-add retail properties on our balance sheet to generate a track record we can raise money around in future years. Our first investment, the previously disclosed $21 million shopping center outside of Chicago, is ahead of our -- of its business plan, given our retail team's successful leasing efforts. As it relates to our credit strategy, we recently closed on the sale of two loans totaling $61.7 million, which netted RMR $16.6 million in proceeds after repaying the associated secured financing facility.

During our approximate 1.5 years holding period, these loans generated returns to RMR of just over 14%. While RMR continues to invest in our people, technology and brand building, we remain committed to improving our adjusted EBITDA margins. We have been steadfast in controlling costs and have made significant strides in headcount rationalization through process improvement, the implementation of AI initiatives and reducing functional redundancies across our more than 30 locations nationwide.

With that, I'll now turn the call over to Matt Brown, Executive Vice President and our Chief Financial Officer.

Thanks, Matt, and good morning, everyone. For our first quarter, we reported adjusted EBITDA of $19.5 million, distributable earnings of $0.47 per share and adjusted net income of $0.20 per share, all of which exceeded or are at the high end of our guidance. Recurring service revenues were approximately $43 million, a sequential quarter decrease of approximately $2.5 million, driven primarily by the wind down of AlerisLife's business and a decrease in SVC's enterprise value as proceeds from hotel sales were used to repay debt. As Adam noted earlier, we earned aggregate incentive fees of $23.6 million for the year ending December 31st, including $17.9 million from DHC and $5.7 million from ILPT, as these REITs respective total returns per share exceeded the applicable benchmark total return for the 3-year measurement period. These fees were paid in January, adding to our overall liquidity and further improving our dividend coverage.

Next quarter, we expect recurring service revenues to decrease to approximately $41 million, driven by lower construction supervision fees as calendar first quarter spend is often lower for our clients as well as decreases in certain of our managed REITs enterprise values and property management fees from strategic asset sales that were used to repay debt. During the quarter, we earned approximately $400,000 of fees from AlerisLife that will impact results in the second quarter as the business was substantially sold by December 31st. Our wholly owned portfolio of residential properties and one retail property contributed $1.4 million of increased net operating income in the quarter, mainly driven by the two residential acquisitions completed last quarter.

Turning to expenses. Recurring cash compensation was $37.4 million, a sequential quarter decrease of approximately $1 million, driven by our emphasis on cost containment and aligning our employees' total rewards to overall results. Looking ahead to next quarter, we expect recurring cash compensation to remain at or slightly below this level with a cash compensation reimbursement rate of approximately 45% as compared to 46% this quarter. Recurring G&A this quarter was $10.5 million, a modest sequential quarter increase, driven by normal course legal and professional fees. Excluding the impact of annual director share grants we expect to make in March, we expect recurring G&A to remain at these levels over the next couple of quarters.

Interest expense this quarter increased to $2.6 million as we incurred a full quarter of interest expense on the two leveraged residential properties acquired last quarter. Interest expense is expected to remain at current levels going forward. It is also worth noting that this quarter's income tax rate of 14.8% reflects the impact of incentive fees. For modeling purposes, we expect our tax rate to increase to approximately 17% in the second quarter. During the quarter, we sold two existing RMR loan investments to Seven Hills which, prior to the sale, contributed $411,000 to earnings in the quarter. In addition, we participated in Seven Hills rights offering by exercising RMR subscription rights and backstopping the transaction, which increased our ownership to 20.3%.

Beginning next quarter, we expect to see an increase of $800,000 in quarterly adjusted EBITDA from additional dividends on this increased investment. Aggregating the collective assumptions I've outlined, next quarter, we expect adjusted EBITDA to be approximately $17 million to $19 million, distributable earnings to be between $0.41 and $0.43 per share and adjusted net income to be between $0.12 and $0.14 per share. As we have stated on previous earnings calls, while our wholly owned portfolio is contributing to adjusted EBITDA and distributable earnings, it is negatively impacting adjusted net income as we incur depreciation and interest expense, which will continue to impact us until these investments are sold into private capital strategies. We ended the quarter with nearly $150 million of total liquidity, including nearly $50 million in cash and $100 million of capacity on our undrawn revolving credit facility. With the $23.6 million in incentive fees collected in January, our liquidity profile leaves us well positioned to execute on our strategic objectives.

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

[Operator Instructions] The first question today is from Mitch Germain with Citizens Bank.

Peter's addition, Adam, I think the comments from either you or Matt, I apologize where it was complementing your existing fundraising efforts. But is this really kind of globalizing what you're doing currently, or was that already part of kind of what you were trying to accomplish with your fundraising?

Sure. Good morning, Mitch. It's a good question. Let me put some context around Peter's hire. So if you go back almost 6 months ago, we had no dedicated folks focused on private capital fundraising. And now we have, including Peter and Mary, which are senior folks, and there are some people working for them. We have four dedicated people now at the RMR Group dedicated wholly to raising capital privately. If you -- if I had to very simply describe Mary and Peter and sort of, again, very senior roles, Mary's very focused sort of U.S.-focused capital raising. And Peter is very focused ex-U.S. and with a real focus on Asia and Middle East. To get to the heart of your question, is this sort of a change? No, it's not really a change. It's just sort of bolstering what we were trying to do. Again, we didn't have people dedicated 6 months ago to raise capital. But that being said, on an ad hoc basis, we were meeting with folks in Asia and the Middle East or out of those parts of the region -- those parts of the globe. I think Peter's hire really sort of supercharges that and have someone dedicated with a really, for lack of a better word, a Rolodex that -- and experience in that market raising capital from those types of sources. So we just -- we don't think it's a real change. We just think it's sort of bolstering what we've been trying to do. And look, I think as a firm, we feel really good about the team we've assembled, and we're hopeful as the year progresses, we're going to see some results.

Great. Last one for me. I think the comments were multifamily and development were initial focus or maybe that's where you're seeing the most interest, but you do have a retail asset, you talked about $1 billion debt pipeline. So can you just kind of describe to us kind of what sort of products you're looking to raise capital for in the market today?

Yes. Sure, Mitch. I think being a vertically integrated sort of middle market-oriented focused nationwide player in commercial real estate that touches all sort of major sectors. We can deploy capital for clients pretty much in any sector. And I think when we're out talking to clients or potential clients, that's a really attractive attribute about RMR and sort of our positioning in the marketplace. There's not a lot of firms to sort of check the boxes that we check. And so we're a very attractive sort of place for folks that want to deploy capital, especially in the U.S. middle market and want to pick a manager that can do lots of different things for them. That all being said, based on our conversations that are going on today and where we're focused, for 2026, we're very focused on getting our multifamily fund off the ground. As Matt highlighted, we have close to $100 million on our balance sheet deployed to sort of see that effort. We feel good and optimistic that as 2026 continues to come along that we will be able to be -- have some successes there in trying to launch that fund or that separate -- large separate account that we think we're going to put together around multifamily. In terms of deploying capital at the RMR level, as we think about across all of our clients, I think you've touched on it. As I think about 2026, I think we'll continue to put more money out multifamily. I think we'll continue to put money out on the loan side making loans. I think we will continue to put money out in retail. We talked a little bit about that, and what we're doing on our balance sheet. And I think there's going to be a select number of development opportunities that we might embark on to. So those are sort of the focuses we have. I will tell you just in conversations in the marketplace over the last -- since this year began. What's sort of interesting to me, big picture, a little less interest or people talking about industrial, a little less interest, people talking about lending, a little more interest in people talking about office and a continued interest in talking about multifamily, which has been strong throughout the cycle. So I hope that gives you some context.

[Operator Instructions] The next question is from John Massocca with B. Riley.

How would you kind of view the performance of the multifamily assets on balance sheet, maybe even relative to expectations when we were talking last quarter, it seemed like that was called out as part of the driver of relative outperformance to kind of what you were expecting at the time of the 4Q '25 earnings call.

Yes. Just -- this is Matt. It's a great question and something we did intentionally highlight. So most of the five assets are still early in their life cycle. And again, those are all value-add residential communities in the Sunbelt. So you're looking at a 3- to 5-year business plan, all targeted mid- to high-teen returns by the end of that business plan. And so again, as we look at most of those being at year-end, we're seeing really strong operational results. We're seeing the capital improvements we're making, resulting in premiums on the rent as we underwrote. We highlighted some of the key measures. A 70% tenant retention or resident retention rate is incredibly important in this market right now. You read a lot of headlines about oversupply in the multifamily space. But if you're holding on to tenants and residents, you're seeing rent growth that in our portfolio is approaching 5% versus new tenancy being rolled down in rent of 4% to 5%. So all of that has played really well in our favor, and we like where things are trending right now on those business plans.

And I guess maybe as you think about -- I mean, it's a small sample set of assets, but as you think about where your properties are performing. I mean, is that product you think of maybe a stronger performance in kind of the broader Sunbelt market than was expected when you were underwriting, or is it something property specific that's causing the outperformance?

I think that's part of the secret sauce. We're trying to fund raise around that our folks have a long history, the team we acquired back in December '23. They know those markets well. We have a long tenured management team, who knows within each submarket, where -- what intersections, what streets, where are you going to see the best demographic trends and the best resident retention and rent growth possibilities, so that -- you hit the nail on the head. We believe what we have in-house and the data we're able to maximize is something we can fund raise around and find unique opportunities even in a very challenging market like we're in right now.

Okay. And then maybe for Matt, can you maybe walk us through how you kind of get from the $0.20 of adjusted net income in kind of 1Q '26 to the $0.12 to $0.14 you're guiding for. I mean, I imagine there's some tax impact in there. And I was kind of curious on the depreciation side that got called out just given -- if you give -- basically the same amount of assets -- real estate assets on balance sheet as you did at 4Q '25. Just kind of curious what the pushes and pulls there are.

Sure. So it's a good question. A couple of things that I noted in the prepared remarks. We earned in the quarter about $400,000 on our AlerisLife contract. That business, all the assets were substantially sold by December 31st. So that's a headwind heading into the second quarter for us. The loan portfolio, we earned about $400,000 on that as well. Those loans were sold in mid-quarter, so mid-November. And then in addition to that, construction management fees are expected to be lower in the calendar first quarter. That's a normal trend we see. And then we are expecting with debt pay downs at DHC and SVC that have occurred towards the end of calendar 2025, that's going to impact management fees as well. And then lastly, in March of each year, we generally grant shares to our trustees. So that's a couple of cents impact as well in the second quarter.

Okay. I appreciate that. And then in terms of kind of the investment outlook, you mentioned loans again. What's the appetite for loan investments and just kind of the long-term strategy there, especially given the recent sale of kind of the loans you had on balance sheet at 4Q '25 and to Seven Hills?

Sure. So from a lending perspective or credit perspective, it's -- we consider it a growth engine for the RMR Group. I mean at Seven Hills, we had a very successful rights offering that we completed in December. RMR participated in that. We now own about 20% of Seven Hills, but Seven Hills has about over $200 million of new loans that it can put the work based on that rights offering, and it has just regular course loans maturing that required to be -- required capital to be reinvested. So we expect to have a pretty active 2026 in terms of new loans being put to work or are being underwritten in 2026, most of which I think will occur at the Seven Hills mortgage REIT. As we sit here today, I don't think we're planning -- there's no plan to put additional loans on the RMR balance sheet. We originally did that because we were trying to seed a vehicle around loans. As we were out in the marketplace talking to private capital about funding a vehicle, for whatever reason, it became evident to us that we didn't really need to seed the vehicle on our balance sheet. I think we are still having conversations with groups about managing a credit strategy for them, but it's less required, I guess is the right word, that we seed a portfolio on our balance sheet. I think we will have some success in the future raising capital around credit. But that all being said, even if we don't raise any additional private capital around credit 2026, I think we're going to have an active year. And I think we're going to be putting a lot of money out to work in the year, but it's mostly, if not all going to be going through the Seven Hills mortgage REIT.

Okay. I appreciate that clarity. And then one last one for me. I know you kind of mentioned the focus is really on the multifamily fund. Is there some kind of time line in your mind or expectations for when you would expect that capital to be fully raised and maybe even start thinking about moving some of those assets off RMR's balance sheet?

So not to sound flippant, but ASAP, meaning we want to do it as fast as possible. It's really the #1 focus in terms of our private capital raising discussions in the marketplace. Again, we have lots of discussions on different strategies, but where we are being the most proactive in talking to folks and having conversations is around the multifamily platform and creating a vehicle and offloading those assets from RMR's balance sheet into the -- to seed the vehicle. Look, it's very hard to put an exact pin into exactly what's going to happen. I would say the management team, myself, we would expect it to happen in fiscal year 2026. I don't know if that's early in fiscal year 2026 or late. And when we say fiscal year, we're talking September 30th. So sometime between now and the end of the fiscal year, we would like to have that vehicle funded and those assets move, but it's very hard to put a precise time line on it. But I can tell you, there's a lot of effort going in towards it. It's sort of the #1 thing that our private capital group we've invested a lot in, our private capital Capital Markets, Investor Relations group and bringing talent on board, and I'm hopeful that we will meet that time line.

This concludes our question-and-answer session. I would like to turn the conference back over to Adam Portnoy 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. You may now disconnect.

Good morning, and welcome to The RMR Group Fiscal Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] 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.

With that, I'll now turn the call over to Matt Brown, Executive Vice President and our Chief Financial Officer.

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 to $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.

[Operator Instructions] 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, I think your question -- you broke up for me -- is about OPI's fees. See, effectively, it's pretty much flat. We were earning just under $14 million a year on a business management basis. It was like $13 million and change over the last 12 months, give or take. And so we have a contract that we'll be earning $14 million fixed fee for the first 2 years per year, $14 million. On the property management agreement, nothing's changed. All the economics are the exact same as they were prior to the filing.

During -- just to be very clear, during the pendency of the bankruptcy itself, we are operating under the existing contract. So we probably will earn a little bit less than a $14 million run rate during the pendency of the bankruptcy. But upon emergence from the bankruptcy, that's when the clock starts and that's when the $14 million per year goes into effect.

I'll just say -- it might be a correlator to your question. Look, the fact that we entered into what we call a restructuring support agreement, we think leads to hopefully a much faster bankruptcy process and allows us to get out of bankruptcy, hopefully, faster than if we had not entered with an RSA. So it's a little unclear exactly when we'll emerge, but I think roughly speaking, it's first half of 2026 we'll emerge.

Got you. I think, Adam, you mentioned where your focus is on the private capital side in terms of fundraising. Maybe I missed it, but I didn't hear you mention shopping centers as a competency that you're raising capital for. Yet you guys are -- obviously, you own one and you're looking to allocate capital to others. So maybe just kind of go over where that sits with regards to your private capital strategy.

Sure. Sure, Mitch. So it's a great question. Matt touched a little bit on this in his prepared remarks. But you're right, we have it on our balance sheet. We think we have a lot of core competency in retail. We run a very large multibillion-dollar existing retail portfolio. Today, we have a very large, very competent retail asset management team on staff.

We -- it's not front and center, but already in parts of our organization, given the size and breadth of the different portfolios. We do actually run shopping centers in different parts of the business, let's say, buried within some other asset classes or buried within some of the portfolios. So we do have experience there.

We think for a lot of reasons investing in neighborhood and grocery-anchored specifically shopping centers is a great thing to be doing right now. Retail has really gone through transformation over the last 10 to 15 years, and we really have a pretty good supply-demand dynamic going on, where there's not a lot of new supply, and demand has sort of finally caught up with the existing supply.

And so we see a lot of interesting opportunities to basically put money to work. And through either capital improvements or re-tenanting a center, we can generate outsized returns. And we're doing that first on our balance sheet, but we're pretty confident that we're going to be successful with that and that we'll be able to then take that -- demonstrate that track record and raise more capital around that going forward. Matt, do you want to add anything to that?

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 don't have new -- at RMR itself, we do not have any new loan investments. We are -- I don't think we discussed in our prepared remarks, but it is in our public disclosures. We are selling or have an agreement to sell the 2 loans that we have on our balance sheet. Those are being sold. There's currently no plan to put more loans on RMR's balance sheet.

What I did mention in my prepared remarks is we have a rights offering that we're in the middle of occurring at Seven Hills. And we expect, as a result of that, we'll have about $65 million of equity, which provides for about $200 million in additional loan investments that we plan to deploy over the following, call it, 6 months to get that money out. If your average loan size is $25 million, that's, call it, 8 loans, 8 to 10 loans, give or take, that will be new loans that we will be putting money out 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.

[Operator Instructions] 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?

So the full wind down should happen by the end of this year. So while we're expecting about $1 million decrease in fee revenue this coming quarter, we will -- we did earn $1.4 million in fiscal Q4. So there'll be another kind of $400,000 deduct when we roll forward 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. So it's a 5 -- it's a term sheet we entered into with the -- what will be likely the new equity owners of OPI upon emergence. It's a 5-year term. The first 2 years are set at $14 million per year in the business management fees. The property management stays unchanged. And during the first 2 years, if -- now that $14 million stays the same, whether the portfolio shrinks or grows. It doesn't matter what the size of the portfolio is, that sort of stays in place at $14 million per year.

After 2 years, we -- there's a negotiation. And I think -- look, the reason it was set up that way is with the new owners of OPI, I think there's a little bit of a hesitancy about how to structure the fee in terms of what it should be based on because we're not quite sure exactly the size and the makeup of OPI, let's say, over the next couple of years.

We're confident and I think the new investors or new owners of OPI are confident that we will still be managing it over the next 2 to 3 years. But as part of that, I think they just want to see how the next couple of years play out, what's the size of the company. It could shrink from the size it is today. It could also grow from the size it is today.

I mean part of what we've had discussions with the new owners about is that this vehicle might be used -- and I'm not saying this will be used, I'm saying it might be used as a vehicle to roll up other distressed office portfolios in the marketplace.

I mean we're pretty encouraged that we found a group of investors. They currently own the debt. They wanted to equitize their debt and really want to go long on office because they really see as a great opportunity, both from a macro perspective -- and I think they also feel pretty good about the portfolio itself. Meaning there's a lot of pain that the OPI portfolio has gone through, but the vast majority of that pain is behind us.

Looking forward, it looks much better than what we've gone through over the last 2 or 3 years in terms of leasing prospects and cash flow or NOI that's going to be coming out from the property.

The other thing I'll mention, in the term sheet that's on file and is public is it also contemplates a significant incentive fee to be structured for RMR as well. It's anticipated that upfront, we will be getting 2% of the reorganized company and then another 8% that's a little bit more ambiguous but will be benchmarked to sort of outperforming benchmarks. Basically, think about it as sort of structured like a classic promote that you might see in a private equity type investment. That's what I think the other 8% will be structured like.

So I think there's going to also be a higher degree of alignment between the manager and the new equity owners in terms of performing -- doing a good job in managing the portfolio and generating a healthy return for those equity holders.

Okay. Kind of longer-term question given -- you have the 2-year contract, locked-in contract in place. But how kind of flexible is G&A spending to managing OPI? I guess, how much could you potentially bring down G&A if for whatever reason at the end of 2 years post emerging from bankruptcy, the portfolio goes in a different direction or the owners want to go a different way? Like is there kind of a high amount of leverage into how you can kind of pull down G&A if you're not managing OPI here in a couple of years?

The short answer is, we spend a lot of time thinking about that. As you know, John, we don't have P&Ls by business line, right? That's one of the advantages of the economies of scale for our clients that they basically manage with RMR. And we get those economies because we get the spread costs across the entire structure.

So we don't have P&Ls, let's say, by business line or client. But I can tell you this much, office as an asset class is probably the most management-intensive asset class that we manage at RMR. And so while I don't believe this will be the case, if we were to not be managing, let's say, a large office portfolio at the company, I do think there would be significant cost cuts that we could take. I don't believe to even go even further.

We're not quite sure what would happen to margins, but there's a scenario where we might have less cash flow but higher margins, if you can follow me, because we just know intuitively there's a lot of people that work on the office portfolio versus other portfolios we run.

So I think we would be able to -- in the unlike -- what I believe is unlikely situation where we are no longer managing a large office portfolio, I think we would be able to correspondingly reduce costs at the organization.

You touched on it a little bit with Mitch's question, but thinking about kind of the Seven Hills and selling kind of the loans that were on RMR's balance sheet to Seven Hills, what was kind of the logic there? Maybe I'm misremembering past calls, but it felt like there might have been an opportunity to grow the loan book within -- on the RMR balance sheet. Is there some kind of change strategically where you're no longer seeing that as attractive? Just kind of curious the thought process behind that transaction.

Yes, John, it's Matt. So if we go back in time about a year ago when we put these loans on our balance sheet, the goal was for them to be part of a seed portfolio to help us with the fundraising process. And they've been well-performing, incredibly strong loans that have contributed to RMR's earnings, quite frankly, in a significant way. But it's now been 12 to 18 months since those loans were initiated. And as we fund raise in a very competitive environment, I think it's fair to say -- one of the loans actually matures next July, I believe. So their attractiveness from a seed perspective had fallen off.

And at the same time, you have Seven Hills that's raising this significant money. We want to make sure they can quickly deploy those proceeds. And by selling these loans at par to Seven Hills, it allows them to start quickly deploying, secure their dividend, which is also critical to this rights offering. And it just was a successful transaction for both sides.

Okay. With Seven Hills in mind, any updates you can provide on how the rights offering is looking at this moment? I know it's -- obviously, there's moving pieces and things you might not be able to talk about. But just was kind of curious if there was any outlook on the amount of the rights offering you expect RMR to participate in.

Sure, John. So you mentioned it is sort of early. And the way these rights –- the way rights offerings typically work, not just this company, but the way they always do is, unfortunately, you really don't -- everyone sort of waits till the last minute, which you have to keep the rights out -- you have to have the -- about a month outstanding before people have a deadline to exercise the right.

And so for whatever reason -- and I guess it's people like to keep their options open till the very last minute. You just don't know till the very end how many people are going to be exercising their rights.

What I can tell you is that as part of the rights offering, we retained UBS Investment Bank as the dealer manager. And part of their job -- and one of their jobs is to basically solicit interest from outside investors that might want to buy the rights that other shareholders want to sell, meaning shareholders that don't want to exercise. And while there's been very little trading, it's only been a few days in the rights themselves.

What has been encouraging is that we have had quite a bit of interactions with share -- new shareholders that are interested in perhaps buying rights from other shareholders that don't want to exercise them. Existing shareholders decide they don't want to exercise them, so they want to sell them. And we are working with UBS to try to help identify potential buyers of those. And what I'm saying is it's too early to tell, but we're having lots of meetings, right? And so there is interest out there.

To get to the heart of your question, which is, well, how much is RMR going to have to spend here, or do we have to spend any? I think our base case assumption is that we don't expect that we're going to have to drop -- basically pull on the backstop beyond our 11% ownership. Meaning we own 11% today. We expect to exercise up to that 11%.

It could be that we end up exercising some amount. I think it would be less than, let's say, half, if I had to guess. And so there's a possibility somewhere between 11% and 50% of the offering itself we might have to backstop.

But again, it's very early. I mean, I do not believe it would be more than half the offering. I think that's pretty -- I don't want to say locked in stone, but it's hard to imagine that scenario. And I think it's -- our base case is that we will just be exercised -- just exercising up to the 11%. Could we end up exercising a little bit over that to fill out the backstop? Yes. But it's very hard to know for sure where the numbers are going to shake out.

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

Just quickly on the -- I know that, Matt, you talked about a bit of a true-up on interest expense because you've got a -- had it in place for a sub-quarter. Do we have a similar true-up for the -- what's the true-up for the rental income associated with the 2 residential assets that were acquired mid-quarter? How should we think about 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. And then how should we think about -- you guys are pretty flushed with cash, but obviously, with the rights offering and some acquisitions that you're making. So how should we think about that balance on a go-forward basis?

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.

Plus incentive fees that we'll be getting, hopefully, at the end of the year. So we don't think we'll be drawing on the revolver, if that's maybe the question. It's hard to know exactly where the cash balance will be.

I will say that we're not -- we don't feel cash constrained. We're still very active in terms of all of our initiatives in terms of continuing to look at other retail properties. We continue to look at sort of JV investments, GP investments on the residential side. So I think we feel that we're not constrained in our ability to continue to do things. But we are waiting to see where the rights offering shakes out and whether incentive fees actually shake out 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.