RMR Group (RMR) Q4 2026 Earnings Call Transcript

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DATE

Friday, Nov. 13, 2026

CALL PARTICIPANTS

• Senior Vice President - Bryan Anthony Maher
• President and CEO - Adam David Portnoy
• Chief Operating Officer - Matthew Paul Jordan
• Chief Financial Officer - Matthew C. Brown

TAKEAWAYS

• Distributable Earnings -- $17.2 million or $0.53 per share, exceeding the high end of the company's previously issued guidance range.
• Adjusted EBITDA -- $21.5 million, representing a level that exceeded management's guidance for the fiscal fourth quarter.
• Recurring Service Revenues -- $45.2 million, which includes a sequential decrease resulting from $600,000 in acquisition fees earned in the preceding quarter.
• Adjusted EBITDA Margin -- 45.9%, reflecting a 460 basis point sequential increase driven by headcount rationalization and expense discipline.
• AUM Per Employee -- $105 million, representing an increase from $77 million in 2021 due to investments in technology and operational centralization.
• DHC Operating Performance -- 84.4% SHOP occupancy and $48 million in same property NOI, reflecting a 200 basis point and 50% year-over-year increase, respectively.
• SVC Hospitality Metrics -- 8.3% RevPAR growth and 16.2% hotel EBITDA growth, outperforming the U.S. hotel industry for the eighth consecutive quarter.
• SVC Asset Valuation -- $3 billion to $4.1 billion for the 77 retained hotels, which management believes can be achieved following a projected $109 million EBITDA increase over the next 12 to 24 months.
• Seven Hills Loan Originations -- $120 million in new loans during the quarter, the highest quarterly origination level in five years for the commercial mortgage REIT.
• Seven Hills Office Exposure -- 10% of the total portfolio, following a strategic reduction in office-related holdings.
• SVC Capital Investment -- $628 million spent on hotel renovations over the last three years to position the portfolio for higher future proceeds.
• Quarterly Liquidity -- $103 million total, consisting of $48 million in cash and $55 million of availability on a revolving credit facility.
• Anticipated Incentive Fees -- $38 million, which the company expects to earn in the quarter ending Dec. 31, 2026, based on the three-year performance of DHC and ILPT.
• Q1 2027 Revenue Guidance -- $43.9 million, reflecting anticipated declines in total market capitalization at certain managed equity REITs.
• Q1 2027 Adjusted EBITDA Guidance -- $18.5 million to $19.5 million, a sequential decline primarily driven by market capitalization changes.
• Q1 2027 Distributable Earnings Guidance -- $0.42 to $0.44 per share, impacted by an estimated $1.3 million increase in quarterly tax distributions.
• Fiscal 2027 Adjusted EBITDA Guidance -- $77 million to $81 million for the full fiscal year, excluding potential incentive fees.
• Effective Tax Rate -- 16% projected for fiscal 2027, following a full-year fiscal 2026 rate of 17.8%.
• Recurring Cash Compensation -- $38.9 million, a sequential decrease of approximately $700,000 resulting from headcount rationalization.
• SVC Strategic Investment -- $50 million recently invested by the company in SVC to align management interests with SVC shareholders.

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RISKS

• Jordan stated, "Higher interest rates, inflation, and geopolitical uncertainty have weighed on commercial real estate fundraising with global fundraising this past quarter reaching its lowest level since 2012," noting the challenging macroeconomic environment for private capital.
• Brown warned that recurring service revenues are expected to decline next quarter, "largely driven by recent total market capitalization declines at certain of our managed equity REITs," which impacts management fee calculations.
• Portnoy noted that the company must be deliberate in the timing of hotel sales because if "the market see[s] us as forced sellers," it could result in receiving lower values for the assets during the transition of SVC.

SUMMARY

The RMR Group Inc. (NASDAQ:RMR) reported fiscal fourth quarter results that exceeded internal guidance, supported by operational improvements and strategic asset sales across its managed REIT platform. Management stated that the company is executing a multiyear plan to transition SVC into a pure play triple net lease REIT, involving the sale of 77 retained hotels by the end of calendar 2028. The firm reported that it has significantly reduced office exposure within its managed mortgage REIT and is prioritizing deleveraging across its equity REIT clients to navigate a higher-for-longer interest rate environment. Despite a global slowdown in commercial real estate fundraising, the company is focusing on brand awareness and technological investments, including artificial intelligence, to drive operating leverage and long-term private capital growth.

• Portnoy noted that TKO had not contacted the company before issuing its public acquisition offer, stating, "the only communications we have seen from TKO are the same ones that the public has seen."
• The SVC board unanimously rejected the TKO offer on the grounds that the valuation was significantly below management's internal assessment of the portfolio's potential value after EBITDA improvements.
• The company is deploying artificial intelligence across its platform to improve back-office productivity and establish tools for investing, underwriting, and driving net operating income at managed assets.
• Management expects Seven Hills to achieve sustainable dividend coverage during the first half of calendar 2027 as it deploys capital into middle market commercial real estate.
• Jordan reported that the capital formation team has engaged with 105 of 131 identified non-U.S. institutional investors with over $50 billion in investable assets to position the firm for future deployment cycles.
• DHC recently entered a new 15-year triple net lease with the Ensign Group for a portfolio of skilled nursing facilities, which management stated will improve cash flows and reduce future capital expenditure requirements.

INDUSTRY GLOSSARY

• SHOP: Senior Housing Operating Portfolio, a structure where a REIT owns the property and its operations rather than leasing it to an operator.
• RevPAR: Revenue Per Available Room, a performance metric in the hotel industry calculated by multiplying a hotel's average daily room rate by its occupancy rate.
• Distributable Earnings: A non-GAAP financial measure used to assess the company's ability to generate cash for distribution to shareholders.
• Triple Net Lease: A lease agreement where the tenant is responsible for all costs of the property, including taxes, insurance, and maintenance, in addition to rent.
• NOI: Net Operating Income, a calculation used to analyze the profitability of income-generating real estate investments.
• AUM: Assets Under Management, the total market value of the investments that a person or entity handles on behalf of clients.

Full Conference Call Transcript

Operator: Good day, everyone, and welcome to the RMR Group Fiscal Fourth Quarter 26 Results Investor Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your questions, you may press star and 2. Please note today's event is being recorded. At this time, I would like to turn the floor over to Bryan Anthony Maher, senior vice president. Please go ahead.

Bryan Anthony Maher: Good morning, and thank you for joining RMR's fiscal fourth quarter 26 conference call. With me on today's call are President and CEO, Adam David Portnoy Chief Operating Officer, Matthew Paul Jordan and Chief Financial Officer, Matthew C. 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 2 thousand and other securities laws.

These forward looking statements are based on RMR's beliefs and expectations as of today, November 13, 2026, and actual results may differ materially from those that we project. 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 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. 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 principles to these non GAAP figures can be found in our financial results. With that, I will now turn the call over to Adam.

Adam David Portnoy: Thank you, Bryan, and good morning, everyone. The fourth quarter capped off a productive fiscal year for our platform. As both continued operational improvements and the ongoing execution of strategic actions were seen across our clients. While we also continued our efforts to expand our private capital business. Our quarterly results were highlighted by distributable earnings of $17.2 million or $0.53 per share, and adjusted EBITDA of $21.5 million with both measures exceeding the high end of our guidance. Our REIT management teams have worked to improve operating performance, strengthen balance sheets, optimize capital allocation and improve portfolio quality.

Many of these initiatives remain in the early stages and have the potential to support additional earnings growth and shareholder value creation in the years ahead. I would now like to speak about some selected highlights across our managed REITs. At DHC, strong operating results were highlighted by same property SHOP occupancy increasing 200 basis points year over year to 84.4% while same property SHOP NOI increased more than 50% year over year to $48 million DHC also recently announced that it had entered into a new 15-year triple net lease with the Ensign Group for a portfolio of skilled nursing facilities which is expected to improve cash flows while reducing DHC's future CapEx.

Further, DHC announced that the remaining 76 shop communities not already operating under revised management agreements will transition to updated structures effective January 1, 2027. These transitions are expected to further align operator incentives with property level performance to increase cash flows and shop communities in the future. 7 Hills, our commercial mortgage REIT continued to productively deploy capital funding more than $120 million in new loans this quarter which represented the highest level of quarterly origination activity in 5 years. Additionally, 7 Hills has successfully reduced its office exposure to approximately 10% with limited losses realized as part of that effort.

7 Hills remains committed to its dividend and expects to achieve sustainable dividend coverage during the first half of calendar 27. Given the meaningful reduction in office exposure, the strong demand for its flexible financing solutions and the attractive opportunity set in middle market commercial real estate, we believe 7 Hills is well situated to drive earnings growth, which will also benefit RMR given our significant ownership stake in the company. At SBC, the significant investments that the REIT has made over the past few years are starting to show up in its results. In the third quarter, SVC's 77 retained hotels grew RevPAR 8.3% outperforming The US hotel industry for the eighth consecutive quarter.

And the adjusted hotel EBITDA grew 16.2% year over year. Alongside announcing its results last week, SVC also outlined operating initiatives that it believes could add approximately $109 million of EBITDA to its 77 retained hotels over the next 12 to 24 months. In addition, SVC illustrated that with this increased cash flow, the 77 retained hotels could be worth between $3 billion and $4.1 billion in aggregate. As a reminder, SVC is in the middle of executing a multiyear plan to transition from being principally a hotel REIT into a pure play triple net lease REIT.

At the same time, SVC is focused on reducing leverage from its current above market leverage ratio of 9x net debt to adjusted e. EBITDA to no more than 5x which would be in line with its triple net lease REIT peers. As part of this plan, SVC has sold 142 mostly select service hotels for $1.1 billion and largely used the proceeds to repay debt over the last 3 years. With this as background, I wanna take a few moments to address the publicly disclosed letters that SVC has received over the last several weeks. In early October, a company called TKO issued a public letter which offered to buy SBC's hotel for $2 billion.

They followed up by issuing a press release in mid October with. Which largely reiterated their desire to buy the hotels. it is worth noting, however, that TKO has never reached out directly to s SBC or RMR asking to engage in any discussions nor have we had any prior business relationship with them And the only communications we have seen from TKO are the same ones that the public has seen. Last week, the SBC board, all 6 of its independent trustees, unanimously rejected the TKO offer. The principal reason was that the offer was significantly below what management and the SBC Board believe SBC's retained hotel portfolio is worth.

And especially what it believes these hotels will be worth after EBITDA significantly increases over the next 12 to 24 months. Shortly after announcing earnings last week, SVC received another publicly disclosed letter from an investment firm called Blackwells. Similar to TKO, Blackwells made no direct outreach to SVC or RMR before issuing its public letter. The letter from Blackwell's makes numerous claims and demands but in essence, it wants SVC to immediately sell all its remaining hotels at the highest price available today. As this call began, SVC issued a press release that includes a letter from SVC's board responding to Blackwells.

After talking with many SVC shareholders over the last several weeks, I think it is important for me to make clear some things about SVC's plans to sell its remaining hotels and to remove any ambiguity or confusion in the marketplace about RMR's motivations and incentives with regards to managing SVC. As the manager of SVC, RMR is 100% committed to transitioning it into a pure play triple net lease REIT. At the same time, we think it is important that SBC emerges from this transition at significantly lower leverage so that the company can be successful going forward.

To that end, it is not a matter of if SVC will sell its remaining hotels, but a matter of when is the right time to do so. With that in mind, I would like to expand on when we currently think is the right time. To sell the 77 re. Retained hotels at SVC. First of all, we have already largely pruned the hotel port portfolio. Having sold nearly all the underperforming hotels. And what is left is a portfolio of 77 performing hotels that are well positioned for significant cash flow growth.

Given that SVC has spent $628 million renovating these hotels over the last 3 years, and that we believe EBITDA is likely to increase by roughly $109 million over the next 12 to 24 months It is our view that SBC should allow EBITDA to grow at the hotels over the coming months before selling them. In order to maximize their values. Said simply, we believe will receive significantly higher proceeds in the future as hotel EBITDA improves rather than be a forced seller of these hotels today. In what we believe would be lower values I would also like to discuss how we see future hotel sales at SBC unfolding.

Because the 77 retained hotels are a mixed collection of select service, upscale, and upper upscale hotels located in suburban, airport, urban, and resort locations, it is our view that it will likely receive significantly higher total proceeds selling these hotels individually or in small portfolios rather than in 1 large transaction. Also, given that the timing of EBITDA improvement will vary by hotel, It is our view that these sales will likely happen through multiple transactions starting in 2027 with the goal of selling substantially all of the hotels by year-end 2028.

With regard to how SBC will sell these hotels, we think they will likely be sold through competitive marketed processes using experienced brokers similar to how we sold the prior 142 hotels over the last 3 years. Nevertheless, if SBC were to receive an unsolicited offer from a credible party that values an individual hotel small portfolio, or the entire portfolio of hotels ahead of our timeline at a price that is close to what we believe they would be worth in the future after the cash flow increases significantly then we would, of course, seriously consider it together with SVC's board as a means to accelerate SVC's transition to a delevered pure play triple net lease REIT.

Finally, I want to address RMR's motivations and incentives in managing SVC. RMR's contract with SVC is highly aligned with SVC shareholders. RMR's management fee is currently calculated based on SVC's total market capitalization. So if SVC stock goes up, RMR makes more money. And if SVC stock goes down, RMR makes less money. RMR also has the opportunity to earn meaningful incentive fees tied to SVC's total shareholder return compared to its peers. Finally, RMR recently made a $50 million investment in SVC. Which further aligns RMR with SVC shareholders and makes RMR 1 of SVC's largest shareholders.

While earning higher management fees as SVC stock price improves is obviously attractive, The opportunity to earn meaningful incentive fees along with a high return on investment in SVC is very compelling for RMR. Said plainly, RMR is highly incentivized to manage SBC in a manner that would benefit all SVC shareholders. With that, I will now turn the call over to Matthew Paul Jordan.

Matthew Paul Jordan: Thanks, Adam. While a number of our clients have benefited from improvements in operating fundamentals, the broader macroeconomic environment remains challenging. Higher interest rates, inflation, and geopolitical uncertainty have weighed on commercial real estate fundraising with global fundraising this past quarter reaching its lowest level since 2012. Despite these headwinds, we continue to believe the long term opportunity in private capital remains compelling and continues to represent a significant pool of monies dedicated to real estate investing. While recent fundraising efforts for RMR sponsored vehicles have been muted, we remain focused on increasing RMR's brand awareness, and strengthening relationships with institutional investors to position us to capitalize as fundraising conditions improve.

To that end, as a diversified real estate manager, we are finding increasing levels of interest from institutional investors as they seek out managers whose vertically integrated platform can generate alpha through operational innovation. As investors learn about investments we have made in technology, consumer marketing, centralized operational cost containment, and most importantly, our deep bench of investments and operations professionals, we are finding new investor engagement heading into calendar 2027 across a number of the sectors RMR manages. As it relates to RMR's operating margins, as our clients have executed on their ongoing strategic investments, most notably asset sales, we have remained focused on ensuring that RMR's platform reflects those changes.

In response to these asset sales, we have been diligent in rightsizing portions of the organization where operating and asset management requirements require less resources. These actions together with continued expense discipline contributed to a 460 basis point sequential increase in adjusted EBITDA margin, to 45.9% during the fourth quarter. While we have rationalized resources in certain functional areas, we have continued to make strategic investments to support our long term growth. For example, over the past year, we have expanded our marketing and capital formation efforts and increased investments in technology. We are also actively deploying artificial intelligence across our platform to ensure RMR remains at the forefront of AI innovation.

Beyond obvious back office productivity gains, our primary focus has been establishing tools that assist in investing and underwriting, as well as driving NOI improvements at our managed assets. These investments have allowed us to drive significant operating leverage. As demonstrated by AUM per employee increasing from $77 million in 2021 to over $105 million today which we expect will only continue to expand. Taken together, we believe the combination of a more efficient operating platform, targeted investments in growth initiatives, and continued value creation leaves RMR well positioned With that, I will turn the call over to Matthew C. Brown.

Matthew C. Brown: Thanks, Matthew, and good morning, everyone. For our fiscal fourth quarter, we reported adjusted EBITDA of $21.5 million and distributable earnings of $0.53 per share both of which exceeded our guidance. Recurring service revenues were $45.2 million, a modest sequential quarter decrease, was in line with our expectations largely driven by nearly $600 thousand of acquisition fees earned last quarter. These decreases were partially offset by higher construction supervision fees and total market capitalization improvements at DHC and ILPT. Next quarter, we expect recurring service revenues to decline to approximately $43.9 million, largely driven by recent total market capitalization declines at certain of our managed equity REITs. Turning to expenses.

Recurring cash compensation was $38.9 million, a sequential quarter decrease of approximately $700 thousand driven by headcount rationalization and the cumulative compensation adjustments we recognized in the prior quarter. Our cash compensation reimbursement rate increased to approximately 45% this quarter. Looking ahead to next quarter, we expect recurring cash compensation to be approximately $38 million with a reimbursement rate of approximately 43%. As noted on last quarter's call, RMR's annual share awards to employees occurred in September which increased our non reimbursable, non cash equity based compensation by approximately $700 thousand this quarter. Recurring G&A this quarter was $9.7 million, a sequential quarter decrease of approximately $1 million driven primarily by reductions in normal course legal fees.

We expect recurring G&A to increase slightly next quarter. Below the operating line, we recognized a $22.7 million loss on investments this quarter largely reflecting non cash unrealized losses from changes in the share prices of certain of our investments during the quarter. These unrealized losses were the primary driver of our GAAP net loss of $12.4 million and are excluded from adjusted EBITDA and distributable earnings. As noted on prior calls, quarterly tax rate is subject to fluctuation. This quarter, we recognized an income tax benefit of approximately $2 million primarily reflecting the unrealized losses on our investments and our effective tax rate for the full fiscal year was 17.8%, consistent with the range we previously guided to.

For modeling purposes, we expect our tax rate to be approximately 16% for fiscal 27. Aggregating these collective assumptions, next quarter we expect adjusted EBITDA to be approximately $18.5 million to $19.5 million, a sequential quarter decline largely driven by the declines in total market capitalization at certain of our managed REITs. We expect distributable earnings to be between $0.42 and $0.44 per share and this guidance is impacted by an increase in estimated tax distributions for fiscal 27 which adds approximately $1.3 million of additional quarterly distributions. We are also introducing full year adjusted EBITDA guidance for fiscal 27 with a range of $77 million to $81 million.

Both our quarterly and full year guidance exclude any incentive fees which we would recognize in the quarter ending December 31. We ended the fiscal year with approximately $103 million of total liquidity including approximately $48 million in cash and $55 million of capacity on a revolving credit facility. Our quarterly dividend of $0.45 per share remains well covered with a distribution payout ratio of approximately 60% this quarter. In addition, we remain on pace to earn aggregate incentive fees of nearly $38 million in the upcoming quarter ending December 31. As DHC and IOPT have been among the top performing REITs in The U. S. Over the last 3 years.

While these amounts remain subject to change, the significant outperformance to their respective benchmarks gives us continued confidence in earning these fees. This structure reflects the strong alignment of interest RMR has with the shareholders of our managed equity REITs. Any incentive fees earned which will be paid in January 2027, would further enhance our liquidity position. Our liquidity profile continues to give us the flexibility to execute on our strategic objectives, invest in our private capital business and pursue growth opportunities as they arise. That concludes our prepared remarks. Operator, please open the line for questions.

Operator: At this time, we will begin the question-and-answer. To withdraw your questions, you may press 2. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then 1. To join the question queue. We will pause momentarily to assemble the roster. Our first question today comes from Christopher Nolan from Ladenburg Thalmann. Please go ahead with your question.

Christopher Nolan: Adam, thank you very much for the details on the SEC issue. I guess my question is, do these letters just come out of the blue, or did you know, this private equity group supposedly take any sort of equity position in SBC? And if they did, why do not. I mean, the market cap at is $720 billion. Why do not you just buy the company?

Adam David Portnoy: So I will answer the question around you asked whether we have heard from these guys prior to their letters. No. In both instances, TKO made no outreach nor have they made any additional outreach directly to the company. We never heard of them, to be honest with you, We have no business relationship with them. The only thing we have seen is what the public has seen. And with regards to Blackwell's we. Was no communication to the company prior to them issuing that letter publicly. We had no idea they were interested or were focused on the business at all. Terms of how much they own, they do not publicly disclose their ownership.

And they have not made that disclosure. So I cannot really comment on that.

Christopher Nolan: And in general, are you seeing more private equity interest in commercial real estate?

Adam David Portnoy: Generally across the board in commercial real estate, transaction volume is low. And fundraising is low, for funds focused on commercial real estate. Transactions are happening But in terms of private equity putting capital to work, I guess I could say 2 things. If you read a lot of the industry publications or talk to folks in the industry, what you find is that there is a lot of people that are sitting on a lot of dry powder that are reluctant to put it to work. And that a lot of allocators of capital are also not putting new allocations out to managers because they have a lot of capital tied up in existing funds that have not been.

That have not round-tripped. there is a lot of investments that sort of stuck out there. LPs have not been able to get their money back, and so they have not been able to recycle it in. that is generally speaking what is going on in the real estate private equity world. I will tell you it is similar to the general private equity world too, but especially it is definitely happening in the real private equity world. Right.

Christopher Nolan: Final question. You talked about the increase in EBITDA for SVC and how the portfolio is sort of diversified and you might be doing sales of individual or small groups. Is that-- is there going to be a particular order in terms of the renovations or the investments that you make in the portfolio so you can move groups of hotels or the ones which have the best sales prospects sooner?

Adam David Portnoy: Yeah. that is a good question. So the way we see it is most of the CapEx has been spent. There is still additional money to be spent in the next couple of years. But the lion's share of the renovations have occurred and now we are really looking towards the benefit of that. Benefit of those renovations in addition to there is a lot of improvements going on at the operating day in and day out operating the hotels as well. Especially through the. Have managed. The hotels managed from Sonesta, but as well as Hyatt and Radisson. As well. I expect that starting in 2027, there will be there will be groups of hotels.

If I had to guess the probably be more the folk. The few focused-service we have let's say, in either the Hyatt or the Radisson and then some of the Sonestas. That we might look to first because at a first blush, they are probably closer to reaching sort of maximum EBITDA or ready for sale. And I think as time goes on, you will see that more of the full service hotels will probably have the longest views on them, not all of them. But generally speaking, that have the longest views on them. And they might, you know, take some time until we able to sell them.

But generally speaking, I think you will see us as EBITDA improves or gets to sort of where we think we sort of topped off or getting close to topping off We will start selling hotels either individually in small portfolios it is very important that, you know, in order to maximize value the market cannot see us as forced sellers either. So there is an interesting, you know, process we have to go through because the market is efficient. If they think you are a forced seller, they take advantage of you.

So we wanna be very deliberate in these sales over the next couple years on our timetable, but I am confident we can get it done by the year substantially done. By the end of 28. Is that fiscal 2020. Yeah. Calendar year 2028. Yeah. Okay. Thank you.

Christopher Nolan: that is it for me. Thank you.

Operator: And our next question comes from Mitchell Bradley Germain from Citizens Bank. Please go ahead with your question.

Mitch Germain: Thank you, and thank you for your comments, Adam. I am curious, you have a pretty wide range there, 3 billion to 4.1 billion What peak fee sensitivity wise, what is the-- the low end of the range or the high end of the range?

Adam David Portnoy: Sure. The 2 biggest variations, 1, there is a multiple, obviously, what are they worth? And 12 to 14x or give or take, what you apply that. But it is also really important to look at the margins. At the high end, I think we are talking about 22% to 24% margins are in that range. At the base case, we think we just want to get margins up to about 20%. But at these hotels over the next couple of years, there is a tremendous amount of room to grow in the margins at SVC. And that is what we talk about we talk about improving EBITDA.

At a level, you look at these hotels, you look at the comparable hotels, and you say these hotels should be able to operate well into the 20% margins. We do not have to get all the way into well into the 20% margins. But as long as we get close and that is sort of what we think we need to do and what we can do, we will be able to generate significant proceeds selling them to. In the future rather than today And in doing so, and this is a really important part. We need to delever SVC.

To separate the hotels from the company and leave the company hobbled with a lot of debt in a very high leverage ratio is not gonna be beneficial to shareholders at SVC. We are large shareholders at SBC. We do not think that makes any sense. But if you are able to improve the hotels, sell them in an orderly fashion over the next couple years at high prices, use those proceeds to delever the company you will have a very successful company on the back end of that it is a delevered pure play net lease REIT that will likely trade well and a well above where it trades today. And we are large shareholders in the company.

Firmly believe that at RMR, and the SBC board believes that as well.

Mitch Germain: And Adam, how much of that 109 million I believe, dollars EBITDA improvement? I mean, I think that brings you above kind of what you have been doing the last several years with significantly lower population of hotels. How much of that is driven just by a improvement in the broader backdrop versus initiatives that you have either done, I. E. Capital or you know, look to do in terms of, you know, maybe getting better service agreements or whatever it might be in terms of some of the maintenance or whatever other things that are done at the hotel, centralized operations, I should say.

Adam David Portnoy: Yeah. that is a great question, Mitchell. I think it is less market tailwind. it is a very small piece of that. I think it is do not hold me this 90%-plus is being driven by operational improvements and the benefit of the CapEx that is coming. This is really unique to this portfolio terms of what we are producing. This is not market driven principally. Meaning, and that is a good thing. And it is good because yes, RevPAR generally in the hotel industry is improving and it is expected to continue to improve into 2027. But even if the industry wanes a little bit, the improvements we are talking about are sort of divorced from that.

We are talking about unique improvements at our hotels and really that is coming from the benefits of the CapEx, but also the operating that have started and it will continue over the next year or so to try to improve the performance of the hotels, increase those margins so that they are worth much more.

Mitch Germain: Maybe for Matthew Paul Jordan. I appreciate your commentary on the fundraising environment. It does seem like capital is migrating toward known type of platforms. I mean, guys have a significant amount of a track record, both public and when you were private You. You have been in the private capital industry. I mean, what is it gonna take to truly ignite and lock in potential investors? Is it maybe the asset class that you are looking at is not kinda top of mind? Just maybe just provide some perspective in terms of some of the conversations you are seeing.

Matthew Paul Jordan: Yeah, Mitchell. I guess, we are in private capital. We are proud of the $12 billion we have today that was negligible at the start of this decade, if you will. But I would say the investments we have made as a firm have really been turbocharged the last 18 to 24 months. Through our capital formation team's effort, which is a group we did not have prior to that point.

And we are doing this all in the face of an incredibly challenging fundraising environment So what we are doing and what that team has done and where we are really trying to be sector agnostic to be quite frank and spend time, I kept using the word brand awareness in my prepared remarks. Our team, just to give you a sense, has been getting the RMR name known globally over the last 18 months. And in our calculations, there is 131 LPs around the world, non US, with over $50 billion in investable assets. Some of that will be dedicated to real estate. As of today, we have made inroads with 105 of those.

So our team has direct engagement with senior decision makers. And we are just speaking to them about the platform as a whole. So whether it be have interest in multi and credit, in medical office, We wanna be responsive to their needs when they are ready to start deploying. I do not think it is a migration to just 2 or 3 managers. I think it is what Adam talked about, about the lack of transaction volume and the ability to get that trapped capital from earlier this decade when rates were zero or near zero. Plus the geopolitical, plus interest rate volatility. The folks we are we are dealing with are fiduciaries.

And right now, the world is a is a uneasy place in many ways, and they are looking for a better line of sight to where they are and we wanna be. To them where they are today, and we are putting ourselves in a position when they are ready to deploy that RMR is front and center. So we will play in a long game, Mitchell, and I am I am comfortable. I wish I. We had more to report at this point. But over the long term, I think we are doing the right things to be well positioned.

Mitch Germain: Great. Last 1 for me. Matthew, what if just what are. Matthew C. Brown. Sorry. What are those additional distributions? Just I forget. I am sorry. I think you said it was around $1.3 million in the quarter.

Matthew C. Brown: Yes. So that is our forecast for 2027. Each quarter, we make tax distributions. From RMR LLC up to Inc. And our non controlling interest. Last year fiscal 26 we benefited from over distributing in the year prior in fiscal 25. So In 2027, this is a more normalized quarterly run rate, which is about $1.3 million higher per quarter.

Mitch Germain: Higher than what you realized in 2012. Paid out for the quarter or that is the Correct. I am sorry. Just wanna make sure. So 1.3 million on top of what you already your kind of typical run rate in Correct. 2026 or 1 point. Okay. Great. Thank you. Bye. Yes.

Operator: And our next question comes from John James Massocca from B. Riley. Please go ahead with your question.

John Massocca: Good morning. Maybe starting off on the SEC comments, understanding the differences between you and TKO or any other potential or hypothetical buyer seem primarily around price. With PKO specifically, have they provided you with any additional documentation about kind of their standing to even begin a negotiation? I am thinking either kind of proof of funds or any kind of, like, locked in financing to do a deal if there was a price out there that made sense for both parties Just kinda curious I know you kinda said that the only communication you had are the ones that are kind of publicly available to everyone, but this is.

Is that truly all of the communications that the SBC board has received? And have you requested that additional kind of detail on TKO from them.

Adam David Portnoy: Yeah. Sure. So the answer to the question directly, we have not received any other materials from TKO. They have not reached out to have any discussions with us at all. Know, you know, we are we are a commercial real estate asset manager. We manage $37 billion. We have 1.8 thousand properties, not just hotels. Think it is important to note that you know, we get unsolicited offers, I do not know if it is the words common, but they happen. They do not typically happen in a public format the way TKO does it. Did it.

And, you know, usually, see if you unsolicited offers, and I would say most of the time, the people do not want it public for their own reasons, not us. They themselves do not want us telling the world that they. They have made an unsolicited offer. They do not wanna be named in the public. And when those offers that we received are from credible buyers, and from folks that you know, at a price that makes sense, we engage We engage wholeheartedly and we would and we have sold properties, not just at SBC, but across the platform. What TKO is doing is extremely unusual. Mhmm. And the fact that nothing they have provided.

They have not provided or communicated with us in any way that is other than what you see in public. They know I am assuming, how to conduct a normal course discussion. They have chosen not to pursue that, with SBC or RMR. And so I nothing else out there. it is a highly unusual thing they did We could all speculate as to why they chose to do it this way. But it is highly unusual. And they are there are ways to make unsolicited offers that people can respond to. They just chose not to do it.

John Massocca: Okay. Understood. And then maybe thinking about kind of unsolicited offers in mind, I understand it is kind a normal course of business for any kind of real estate portfolio or REIT, but just to confirm, you have in the past received unsolicited offers for the entire hotel portfolio beyond just the TKO 1 that is kinda publicly out there?

Adam David Portnoy: We have had discussions with parties on a confidential basis for all sorts of combinations of hotel sales. Individual, small portfolios, maybe even the whole portfolio Those conversations have been confidential. With parties What. Some of them included numbers that you might say to yourself, oh, that is an unsolicited offer. Others were just inquiries and discussions. it is a normal course business that we would have So John, yes, we have talked to people. We get unsolicited offers. We engage in dialogue. We have sold properties to people based on those inquiries in the past because it makes sense to. They have the funds. They have a reasonable. it is an offer. Look.

Generally speaking, because we manage properties, for public investors, we have a philosophy that we typically like to go to market because we wanna guarantee because we have public shareholders that we are getting the highest price. And the only way you can typically guarantee that is you do a fully marketed process where you then ask investors that are interested using experienced brokers to solicit to solicit bids and you weigh those bids. And usually on an unsolicited basis, generally speaking, not just SVC, but across the running real estate for public companies because you have fiduciary duties to your board. As a manager and to the shareholders, you wanna get the highest price generally go to auction.

If somebody comes in, and say. And offers you a price, that is truly above where you think it would clear in the market we engage and we have engaged, and we will engage. that is just the way the business operates.

John Massocca: Understood. And then switching gears a little bit. Apologies if I missed this. In the prepared remarks, but any kind of update on the status with Office Properties Trust, kinda how you are thinking about that vehicle today. Any additional kind of indications with the long term strategy is there for that platform?

Adam David Portnoy: Sure. I mean, they had their earnings earlier this week, and I think they have made announcements they are selling additional properties and that they are really focused. They are going to be down to a core portfolio of about 64 hotels That is the current plan for the company is what? I am sorry. Office buildings, hotels. 64, office buildings and that is their current plan is to continue to operate that portfolio, that core portfolio.

There could be additional asset sales in the future We will likely will execute on all the sales that are out in the market, but there is possibility that 1 or 2 or some of them may not trade But that is generally the course for the company at this time. You know, we really at RMR, you know, as we do with all the companies, we take the direction from the board. And that is the current that is the current plan from the board at OPI. Understood.

John Massocca: And then last 1, just kind of a technical question. I am thinking about the guidance that was laid out there. Can you remind me that would. Essentially, you have the incentive fees that you. You know, in the disclosure for the quarter that would occur if they were measured at the end of September, but you are not including any of that in the guide for the upcoming year?

Matthew C. Brown: That is correct, John. Our adjusted EBITDA and DE guide exclude incentive fees.

John Massocca: Okay. And alright. That makes sense. Okay. that is it for me. Thank you very much.

Operator: To withdraw your questions, you may press star and 2. Our next question comes from Michael Diana from Maxim Group. Please go ahead with your question.

Michael Diana: K. Thank you. Adam, a little more macro level We have a relatively new Fed chair. We have a brand new Congress. What do you think are the implications of those things for RMR?

Adam David Portnoy: So from a macro perspective, look, you know, generally speaking in real estate, lower interest rates would be better rather than higher interest rates. Generally, a more stable macroeconomic environment, geopolitical environment generally better for real estate. You know, we are an economy that is, you know, pretty much at full employment although. And that is generally pretty good for real estate. You know, I think generally speaking, we are of the view. You know, we are not we are not great at predicting interest rates or macroeconomic environment, but, you know, we can see the world just like everybody else.

And we are taking the view and trying to set up our companies for the fact that you know, we are probably in an environment where interest rates are gonna be higher for longer it is gonna be a very different environment than we probably operated, you know, from the great financial crisis through COVID. And even the first couple years into COVID. You could really rely on a very low interest rate environment And yeah, you had to be good operators in real estate.

But a lot of times that low interest rate you know, kept cap rates down and you did not have to do as much I think today, you are much more in a show me story. I mean, I think there is gonna be a lot of shakeout in the real estate asset management space. A lot of smaller firms probably cannot survive in this environment. I think, we are fortunate enough that we have reached enough scale and we have enough diversity that I think we are gonna be able to hopefully thrive in this type of environment where it is much more about demonstrating operational excellence.

Know, we have the scale, and we can make the investments in technology and people. That we can really sort of drive cash flows. Mean, if you look at all of our companies, RMR, all the managed companies, they have increased cash flow and NOI this past quarter year over year. So things are all going in the right direction, Yes. Some of that might be, you know, lack of new supply in the market generally speaking. From real estate. I think it is because we have a really excellent team at RMR and we really distinguished ourselves from being great operators of real estate and that is what is driving the growth in cash flow.

But, you know, we are in a higher interest rate environment for longer, know, it is all the more important that we try to delever the vehicles all of the vehicles. And generally speaking, that is what we have been doing at the equity REIT especially is engaged in a process over many years where we are trying to delever them 1, we think the stock prices react well to that, are more benefits from that. But 2, I think it sets the companies up to better thrive in an environment where you have higher interest rates.

Michael Diana: Alright. Thank you very much.

Operator: And with that, we will be concluding today's question and answer session. I would like to turn the floor back over to Adam David Portnoy, President and Chief Executive Officer for any closing remarks.

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

Operator: And with that, ladies and gentlemen, we will be concluding today's conference call and presentation. We do thank you for joining. May now disconnect your lines.

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