Executive Summary / Key Takeaways

• Strategic Pivot to Private Capital: The RMR Group is undergoing a significant transformation, rapidly expanding its private capital AUM from virtually zero to over $12 billion in less than five years, with a goal for it to comprise over half of total AUM in the next five years. This pivot aims to diversify revenue streams and drive long-term growth.
• Balance Sheet as a Growth Engine: RMR is strategically deploying its strong balance sheet, including $121 million in cash and an untapped $100 million credit facility, to "seed" new private capital ventures in residential, credit, and value-add retail. This approach addresses investor preference for committed capital and aims for mid-to-high teens returns.
• Mixed Financial Performance Reflects Transition: Recent financial results show a mix of headwinds from deleveraging efforts at managed REITs (e.g., Q3 2025 management services revenue down $5 million year-over-year) and the initial costs of seeding new private capital initiatives (e.g., increased depreciation and interest expense). Management emphasizes cash flow metrics like Adjusted EBITDA and Distributable Earnings as more relevant during this growth phase.
• Robust Pipeline and Clear Guidance: RMR boasts a $1 billion pipeline in residential and credit, with concrete plans for new acquisitions and fund launches in 2025-2026. Q4 2025 guidance projects Adjusted EBITDA of approximately $20.5 million and Distributable Earnings of $0.44-$0.46 per share, signaling a stabilization and slight uptick in performance.
• Durable Model with Incentive Upside: Despite a challenging fundraising environment, RMR's durable business model, supported by a diverse client base and a significant portion of perpetual capital, provides stability. Share price improvements at managed REITs like DHC and ILPT have accrued over $17 million in potential incentive fees for RMR, highlighting alignment and future upside.

The Foundation: A Real Estate Powerhouse in Transition

The RMR Group Inc., established in 1986, has long been a foundational force in real estate asset management. Operating primarily through its majority-owned subsidiary, The RMR Group LLC, it built its reputation by managing a diverse portfolio of publicly traded equity REITs, including Diversified Healthcare Trust (DHC), Industrial Logistics Properties Trust (ILPT), Office Properties Income Trust (OPI), and Service Properties Trust (SVC). This "perpetual capital" client base has historically provided a stable revenue stream, forming the bedrock of RMR's business model.

RMR's competitive advantage stems from its integrated platform and deep expertise across nearly every sector of commercial real estate. Unlike many diversified asset managers, RMR focuses exclusively on real estate, offering a comprehensive suite of services from property management to advisory and development. This specialized, end-to-end capability, coupled with investments in technology driving increased automation, allows for efficient asset management and cost containment. While specific quantifiable metrics for RMR's internal technology platform are not publicly detailed, the strategic intent is clear: to enhance operational efficiency, improve client outcomes, and strengthen its competitive moat by leveraging data and streamlined processes across its extensive portfolio. This operational excellence is a critical differentiator in a crowded real estate services market.

The company's strategic evolution is now marked by an aggressive pivot towards private capital. This initiative, which has seen private capital AUM surge from virtually zero to over $12 billion in less than five years, aims to diversify RMR's client base and revenue streams significantly. Management anticipates private capital could comprise over half of RMR's total AUM in the next five years, signaling a profound shift in its growth trajectory. This expansion is a direct response to evolving market dynamics and investor demand for higher-return, value-add strategies.

Fueling Growth: The Private Capital Engine

RMR's private capital strategy is built on a "seed investment" model, where the company leverages its own balance sheet to acquire properties or originate loans. These initial investments serve as a track record and a foundation for larger, third-party capital raises. This approach directly addresses the current fundraising environment, where institutional investors are "less inclined to fund a blind pool" and prefer "underwriting committed capital," allowing them to deploy funds immediately. The appointment of Mary Smendzuik as Senior Vice President and Head of Capital Formation further underscores RMR's commitment to expanding its institutional investor relationships and accelerating private capital growth.

Residential Sector: Sun Belt Tailwinds

The residential sector is a cornerstone of RMR's private capital expansion, benefiting from strong market tailwinds like decelerating supply growth and favorable migration trends, particularly across the Sun Belt. RMR Residential, acquired in December 2023, is central to this strategy. While the platform initially experienced some AUM shrinkage due to managed assets realizing their business plans, management expects this to stabilize, with AUM of approximately $4.6 billion across nearly 60 assets remaining consistent over the next 9 to 12 months.

RMR has a robust pipeline of approximately $1 billion in residential deals. The company recently closed two joint venture acquisitions in South Florida for $196 million, with RMR contributing $11 million as general partner and retaining a 15% interest. Building on this, RMR anticipates closing two more value-add acquisitions in August 2025 for an all-in cost of $147 million: a 266-unit property near Raleigh, NC, and a 275-unit property near Orlando, FL. These, along with existing assets, will form the "RMR Residential enhanced growth venture," targeting mid-to-high teens returns. The goal is to raise an additional $300 million in equity for this venture, creating approximately $1 billion in buying power, eventually leading to fully discretionary closed-end funds.

Credit Strategies: Differentiated Lending

RMR's credit strategies, managed through Tremont Realty Capital, also boast a robust pipeline of approximately $1 billion. The company is actively fundraising for a private debt vehicle, targeting $300 million, which has been seeded with just under $70 million in bridge loans. These loans, focused on middle-market and transitional commercial real estate, are expected to generate mid-teens returns. RMR's on-balance sheet loan portfolio currently stands on $67 million in aggregate commitments, performing at or ahead of their business plans. A $200 million master repurchase agreement with UBS (UBS) provides leverage, allowing RMR to efficiently deploy capital with a net cash outlay of approximately $15 million for these seeded loans.

Value-Add Retail and Development Initiatives

Leveraging its 15 years of retail investment experience and a portfolio of over $5 billion in retail AUM, RMR is building a portfolio of value-add multi-tenant retail assets. Its first acquisition, a $21 million community shopping center outside Chicago, closed in Q3 2025. This 204,000 square foot center, currently 77% occupied, aims for mid-teen returns through capital improvements and strategic leasing. RMR plans to accumulate approximately $100 million in such assets on its balance sheet to establish a track record for future third-party capital raises.

Furthermore, RMR is exploring development opportunities within its embedded portfolio. These initiatives include redeveloping older structures into industrial warehouses, multifamily residential, or mixed-use projects. Notable examples include a potential 2 million square foot mixed-use project in Nashville and a 40-story tower redevelopment in Boston. These projects offer opportunities for construction management fees and potential promote income, with RMR potentially bringing in partners or funding some on its balance sheet.

Steadying the Ship: Public Capital Clients

While the private capital expansion drives future growth, RMR remains deeply involved in assisting its Managed Equity REITs through a challenging commercial real estate environment. The focus has been on deleveraging, asset sales, and accretive refinancings to right-size balance sheets. This strategy, while sometimes leading to "short-term pain at RMR" through reduced base management fees, is deemed "the right thing to do" for the REITs' long-term health and stock price performance.

Recent successes include:

• DHC: Achieved 18.5% year-over-year same-property cash basis NOI growth in its SHOP segment in Q2 2025. Completed the sale of a San Diego life science campus for $159 million and expects to close the sale of 18 senior living communities for $135 million.
• SVC: RevPAR in its hotel portfolio increased 40 basis points year-over-year in Q2 2025, outpacing the industry. It has earmarked 114 hotels for sale in H2 2025, with over $900 million under binding agreement, targeting $1 billion in proceeds.
• ILPT: Refinanced $1.2 billion of floating rate debt with new 5-year fixed rate debt at a weighted average interest rate of 6.4%. Its board increased the dividend to $0.05 per share per quarter, reflecting strong operating results and leasing activity (2.3 million sq ft leased in Q1 2025 at 19% higher rental rates).
• OPI: Addressed $1.8 billion in financings and repaid its 2025 debt maturity in January 2025 through asset sales.
• SEVN (SEVN): Delivered a total shareholder return of over 12% in 2024, significantly outperforming its industry benchmark's negative 8%.

These efforts have resulted in the client companies accruing over $17 million in potential incentive fees for RMR in Q3 2025, demonstrating the alignment of interests and the potential for future upside as market conditions improve.

Financial Performance and Outlook

RMR's financial performance in Q3 2025 reflected the ongoing strategic transition and market dynamics. Adjusted net income was $0.28 per share, distributable earnings were $0.43 per share, and adjusted EBITDA reached $20.1 million, all in line with expectations. Total management, incentive, and advisory services revenues decreased by $5.2 million year-over-year to $44.1 million, primarily due to lower construction supervision fees (down $1.9 million) and reduced base business management fees (down $1.1 million) from managed REITs. However, income from loan investments, net, contributed $677 thousand, and rental property revenues surged by $1.8 million due to recent acquisitions.

Cost containment measures, including headcount reductions, led to a $6.4 million decrease in compensation and benefits expense, to $38.6 million. General and administrative expenses also decreased by $1.8 million. Depreciation and amortization increased by $1.8 million, and interest expense rose by $982 thousand, reflecting the impact of RMR's balance sheet investments. Management emphasizes that as RMR uses its balance sheet for strategic growth, traditional metrics like adjusted EPS will be "adversely impacted by expenses RMR has not historically incurred," making cash flow measures like adjusted EBITDA and distributable earnings more relevant.

Looking ahead to Q4 2025, RMR provides concrete guidance:

• Service Revenues: Expected to increase to approximately $45 million, driven by favorable trends in managed REIT enterprise values and consistent construction/property management fees.
• Recurring Cash Compensation: Expected to remain at $38.6 million.
• Recurring G&A: Expected to remain at $9.5 million.
• Owned Real Estate Adjusted EBITDA: Expected to generate approximately $2.2 million, including $900 thousand from the two pending Sun Belt residential acquisitions.
• Interest Expense: Expected to increase to $1.7 million due to leverage on residential acquisitions.
• Adjusted EBITDA: Approximately $20.5 million.
• Distributable Earnings: Between $0.44 and $0.46 per share.
• Adjusted EPS: Between $0.21 and $0.23 per share.
• Year-End Cash: Approximately $60 million, with no borrowings on the $100 million line of credit.

RMR maintains a strong liquidity position, with $121 million in cash and cash equivalents as of June 30, 2025, and an untapped $100 million revolving credit facility. The dividend, currently $0.45 per share quarterly, is well-covered, with $0.32 coming from RMR LLC's operating business and $0.13 from RMR Inc.'s cash balance, which has "over 3 years of life" and is partially replenished by tax distributions.

Risks and Investment Considerations

Despite the optimistic outlook, RMR faces several risks. The fundraising environment for private capital remains "challenging," albeit "improving," with investors seeking higher returns and taking longer to commit capital. This "elongated fundraising cycle" could delay the full realization of RMR's private capital growth ambitions. Furthermore, RMR's revenues remain dependent on a limited number of clients, and the ongoing deleveraging efforts at its managed REITs could continue to impact base management fees in the near term. The RMR Residential platform, while strategic, is currently a "breakeven business," impacting overall EBITDA margins until AUM growth accelerates. The situation at OPI, facing headwinds in the office sector and upcoming debt obligations, also presents a potential risk to RMR's management fees.

Conclusion

The RMR Group is executing a bold and necessary strategic pivot, leveraging its established real estate expertise and robust balance sheet to seed a new era of private capital growth. While the transition entails some near-term financial adjustments, notably in management fees from public REITs and increased expenses from balance sheet investments, the long-term vision is clear: to diversify revenue streams, capture higher-return opportunities in residential, credit, and value-add retail, and significantly expand its AUM. The company's unique platform, operational efficiency, and commitment to strategic capital deployment position it to capitalize on improving real estate market conditions. Investors should monitor the pace of private capital fundraising, the successful execution of value-add business plans, and the continued stabilization of its public capital clients, as these factors will be critical determinants of RMR's future profitability and shareholder value.