Good day and welcome to The RMR Group First Quarter 2017 Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Tim Bonang, Senior Vice President. The floor is yours sir.

Thank you, and good morning everyone. Thank you for joining us today. With me on the call are President and CEO, Adam Portnoy and Chief Financial Officer, Matt Jordan. In just a moment, they will provide details about our business and our performance for the first quarter 2017. They will then take questions. I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Also note that 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 09, 2017 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 revisions to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause any differences is contained in our filings with the Securities and Exchange Commission or SEC, which can be accessed from our website rmrgroup.com or the SEC's website. Investors are cautioned not to place undue reliance on any forward-looking statements. In addition, we will be discussing non-GAAP numbers during this call, including adjusted EBITDA, adjusted EBTIDA margin and the impact of incentive business management fees earned this quarter on a per share basis. Reconciliation of net income determined in accordance with U.S. Generally Accepted Accounting Principles or GAAP to adjusted EBITDA and calculations of the earnings-per-share impact of the incentive business management fees earned and adjusted EBTIDA margin can be found in the News Release we issued this morning. And now I would like to turn the call over to Adam Portnoy to begin our quarterly review. Adam?

Thanks Tim and thank you to everyone for joining us this morning. For the first quarter of fiscal 2017, which ended on December 31, we reported net income attributable to RMR of $23.5 million or $1.46 per share which is a 36% increase in earnings-per-share compared to last year. During the quarter, we also recognized $52.4 million of incentive business management fees for calendar year 2016. Last year we recognized $62.3 million of incentive business management fees. Net income attributable to RMR for the quarter ended December 31 excluding incentive business management fees was $7.2 million or $0.45 per share compared to $6 million or $0.38 per share for the same period last year. At the end of the first quarter, our assets under management were approximately $27.2 billion compared $25.9 billion for the same period a year ago. Excluding incentive business management fees, recurring management services revenues for the first quarter were $42.7 million an increase of $2.9 million or 7% on a year-over-year basis. The year-over-year increase in revenues is primarily due to the growth in the market capitalization at some of our managed REITs specifically HPT, SNH and SIR. At this point of the call I usually talk about our managed REITs operating result in some detail however, because RMR has a September 30 year-end and our managed REITs in operating companies have December 31 year-ends, we are reporting RMRs quarterly results in advance of our client companies this quarter. That said, I can talk about some aggregate leasing results and some activities that have been publicly announced. On a combined basis, RMR ranged almost one million square feet of leases during the quarter on behalf of our managed REITs. These leases resulted in average rental rates that were approximately 7.8% higher than prior REITs for the same space based on GAAP and average terms for these leases were 9.5 years based on square feet. In January, HPT issued $600 million of unsecured senior notes at a weighted average interest rate of 4.8%. HPT subsequently announced plans to redeem $290 million of preferred shares with a coupon of 7% and one eighth percent. Growing our existing client companies continues to be a priority for us, but our ability to grow these businesses is hampered by the continued high cost of assets in the marketplace today and our client companies cost of capital. We also continue to look to take advantage of our strong operating cash flows and solid balance sheet and exploring possible future strategic growth opportunities. I will now turn the call over to Matt Jordan, our Chief Financial Officer who will review our financial results for the quarter.

Thanks, Adam. Good morning, everyone. This morning we reported net income attributable to RMR of $23.5 million or $1.46 per share for the quarter ended December 31, 2016. As Adam highlighted earlier we earned an incentive business management fee of $52.4 million this quarter or $1.01 per share. For the quarter ended December 31, 2016, we generated adjusted EBITDA of $26.1 million, which we measured against our recurring contractual management and advisory fees of $46.1 million, resulted in adjusted EBITDA margin of 56.6%. On a year-over-year basis, adjusted EBITDA increased $2.8 million or 12.1% and our adjusted EBITDA margin increased 210 basis points. These increases were primarily the result of growth in revenues from our client companies and in increasing compensation and benefits recoveries from our managed REITs. On a sequential quarter basis, adjusted EBITDA decreased $1.3 million or 4.6% in our adjusted EBITDA margin decreased 170 basis points. These decreases were primarily the result of declines in the market capitalization of certain of our managed REITs adversely impacting our base business management revenues. Recurring management service revenues earned from the managed REITs was $35.8 million or approximately 84% of total recurring service revenues. Other revenues earned from the managed REITs $27.8 million represents bases of management fees. For the quarter ended December 31, base business management fees were calculated for each month in the quarter using total market capitalization for HPT and SIR while GOV is calculated using historical cost of assets in the management each month in the quarter. SNH's base business management fees were based on historical costs of assets under management in October while SNH share price declined thereafter resulting in fees being calculated using the total market capitalization for the months of November and December. Turing to expenses for the quarter. Compensation and benefit expense…

[Operator Instructions] The first question we have comes from Brandon Dobell of William Blair. Please go ahead.

Thanks guys, good morning. Couple ones, maybe if you could give us some color around the breadth of different opportunities you guys are looking at to deploy capital or just to grow the service offerings, that breadth now compared to - what it was at fiscal year-end or even maybe two quarters ago, still same opportunity set or has the environment given you some different ideas on where to and how to deploy capital?

Sure. I think what has changed over the last year or maybe even the last couple of quarters is, we started year ago 2016, we became a public company at the end of 2015, and we really talked at that time about looking at ways to expand our service offerings. We just put a lot of different plans in 2016 and I think it's safe to say that we're starting to now our focus a little bit on what we're going to do, it's within the same things or same realm of opportunities that we've been talking about over the last year which is, the logical place rest to think about expanding, obviously trying to grow our mortgage business, the Tremont Realty Capital business that we bought. So obviously, that's a strategic growth opportunity that we talk about and continue to focus on. We're also very focused on trying to raise different source of capital to manage investments in real estate. Obviously, historically almost all of our assets under management is publicly owned vehicles or vehicles that are publicly traded. It's about 90% to 95% of the assets we manage fall into that realm. The logical place for us to think about expanding into is to manage more private capital in and around investments in commercial real estate. And so, I think it's safe to say broad strokes, we're still going down the same path, but I can tell without going into any too much detail because we have nothing to specifically announce today, I can tell you that we are becoming a little bit more focused. We have become a little bit more narrow within those pass in terms of what we're going to be doing. And look we're hopeful that we'll have stuff to announce in 2017. Nothing can be guaranteed. We're working very hard to try to get some of these initiatives off the ground in '17 but I can't - until they're done, I can't really announce them.

Okay. Maybe, I'm not sure that you - given the timing around your report versus the managed REITs, if you can answer this in full or not. But, as you think about the leverage that those companies are carrying right now in the current rate environment, and just with what the regulations are going through with financial service companies, et cetera, how do you guys view the leverage situation or the opportunity to deploy more or less debt capital at the managed REITs?

Yes, I think at the managed REIT almost maybe three out of the four are getting close to the upper end of the historical range that we've typically operated the REITs. And those REITs are probably GOV, SIR and SNH. HPT probably has a little bit more room on its leverage compared to the other three REITs. We're not - I guess the way we are thinking about leverage is we still have a little bit of room on leverage. We can still - we think we can comfortably take leverage up a little bit more if we have to and not risk the investment grade rating that those vehicles have. So, I don’t think we're sure concerned about the level of leverage, but we are getting to the upper end of the range where we would probably feel comfortable. So, yes, we would like to be able to take leverage down if we could at some of those REITs to take advantage of opportunities going forward. But you have the other side of the equation which is the cost of our equity of those REITs and unfortunately we have few REITs that are trading 8% plus dividend yield that's pretty pricey cost of equity. So, it's hard for us to take leverage down through a traditional means of issuing equity. We've always been pretty creative at the RMR Company. If you look historically over the last 30 years we've done interesting things and raised money in interesting ways and use that capital to basically reduce leverage at the REITs over time. And we're thinking about - we're constantly - we think it's our job to constantly think about ways. Okay if we can't just do regular equity offering and we want to bring leverage down what we do? And there are lots of different ways - levers that we think about. Again, nothing to announce today, but that's how we think about it, that's how we approach it.

Okay. And then maybe for Matt or Tim, obviously we were calculating an incentive fee that was much higher than what the final result was. Is there anything, I don't know, calculation wise, mechanics wise, that surprised you guys and how that number turned out relative to your expectations or anything that was, maybe that 30-day average price kind of thing. We're just trying to figure out where we were off on our calculation, any color there?

Yes, I think there is two primary differences when we think of our contract is structured versus pure SNL. Number one is the closing price at the end of the period. When you aren’t using just the December 31 price and you're using the highest 10-day consecutive average over the last 30 days trading - 30 trading days. That cost us about $0.75. And then when you think of how the SNL handles dividend versus how the contract requires we handle dividends, the SNL is assuming dividend that are used to purchase additional shares as they are issued for it is we do total return and add total dividends paid at the end. Those were the two primary movers and then you have the impact of any issuances that happened throughout the period and prorating them for the applicable period.

Got it. Okay. Thanks. I'll turn it over.

And next we have Bryan Maher of FBR.

Yes, good morning. So a couple of quick questions there from prior person. Kind of, when you look at where the three externally managed REITs are trading, specifically, SIR, GOV and SNH, not really talking about HPT here. And their discount, when you look at EBITDA multiple relative to their peers. Are you surprised that, that has not narrowed more over the past year with RMR being public and really open kimono with respect to the numbers in the fees and the ability to calculate those. Do you find that discount to be unwarranted?

Bryan, thank you for the call, yes. You asked me personally, we were surprised the stock prices having reacted better. We have not raised equity. It's got to be close to two years other than at HPT in any of our REITs. We have been pre-subdued on the acquisition front, partly because the assets are pretty pricely but also partly because it's - we don't have a great way to fund it, because we know it's hard to underwrite large acquisitions if we are not confident we can raise equity in a acceptable price. And so yes, it is little frustrating and our hope is that overtime the REIT prices - REIT share prices the specifically that you mentioned and again even HPT for that matter will perform better. That being said, we get asked a lot by investors about these incentive management fees. Our stock has in our stock price - these REITs have been outperforming their indices. They did outperform in 2016. First five, six weeks here they are outperforming their indices as well. But they still have to do even - they are doing a good job of outperforming their peers, but they have to do even a better job to make up for the discount from where they are trading. So again we are directionally going in the right direction and stock prices are doing better than their peers. But you are right we need to do better. But again what we talked about and I answered this in the last call too, it's a priority to grow our existing business. We'd love to grow our existing businesses. In many ways it would be the easiest way to grow RMR. But if those opportunities aren’t there we will look to other areas to grow the business. We will diversify, we will hopefully start of vehicles, we'll start new strategies. That is the way I approach the business. I'd say to myself, okay I love to get these stock prices up. It will be good for everybody, it's good for us, it's good for shareholders, it's good for the companies. And then held because we get the stock prices up maybe we can try to grow these vehicles. But if that's not going to happen, well then we're also exploring lots of alternative ways to grow RMR and HPT revenues and the number of clients it has. And so that's how we approach the business, but yes to get back to your basic question it is frustrating for us that the stock price is where they are and our hope is they continue to outperform the benchmarks which they have been doing, but they continue to do it.

And then as in a side question, when you look at the four externally managed REITs, where - given what's transpired, given the economy and the outlook since the election, where among the four do you see more opportunity, whether it's prices for acquisitions closer to where you think you could execute, whether it's administrative changes, regulation, new regulation, where do you of the four do you think you see the most opportunity? And then as it relates to SIR and we've seen some pretty decent moves in industrial REITs which own warehouse space, that's particularly in gateway markets with the e-commercing of the world or at least this country, do you see some opportunities for SIR to get more aggressive on the industrial side of the portfolio?

Sure, with regards to our four REITs, it's pretty easy mathematically, HPT has among the four REITs, the lowest cost of capital and what you can just look at the dividend yields alone and you will see that. So that if I look at it from that perspective of the four REITs, you got - we have the easiest time figuring out how to accretively buy things at HPT. That said, we've seen generally a movement, I would say a little bit of movement in cap rates across the Board especially outside of Gateway markets around the country, across all the assets that we invest in Healthcare, hotels, office and industrial. That said, there is - transaction volumes have declined for the first - if you look at the first five, six weeks of 2017 versus what we were looking at in 2016 there were less stuff that we have been looking at, there is less stuff out there in the market. We still have a very deep reach in CLR things, but I will tell you there is less that we have been able to see over the last call it several weeks compared to let's say year ago same period. So cap rates have moved a little bit and there is just not as many opportunities as we saw even a year ago. So that's basically the landscape. With regards to search itself, historically we haven’t bought, we haven’t buying a lot. So just given where the cost of capital is, we have been very - picking our spots very carefully. We have found better value for our serve specifically in today's environment that lease single tenant office buildings is where we think we've been able to find better value than in the warehouse space and that's not to say we certainly can do - we certainly know how to buy warehouses and industrial buildings, we just think in the value spectrum we are getting more value looking at single tenant net lease office buildings serve today.

All right, thanks. That's helpful Adam.

The next question we have comes from Mitch Germain of JMP Group.

Good morning, guys. I just want to phrase on Bryan's question a little differently in terms of opportunity. Some of the property service, and I know, it's not exactly what they're looking at, for sure, if some of the property service companies, clearly management teams talking about pricing in terms of capital deployment has gotten a bit out of hand, is that helping? Is that slowing your efforts down in terms of thinking about your growth moving forward or you're not really seeing the same kind of elevated pricing?

Well I guess yes, pricing in the gateway markets is still very elevated. We have seen - I think cap rates have moved actually in our favor in many of the sectors we focus on outside of the gateway markets and I would say generally around 50 basis points and look I am basing this on the fact that we haven’t been buying a lot, but the few things we have been buying, almost all of them come through a circumstance where we were not the winning bidder and somebody goes with the winning - goes with the higher bid, it's levered bid and they can't get the financing or something happens and the deal falls apart. And so the deals we are getting are almost - they're coming back to us after they were awarded to somebody else and they're being awarded to us at a lower price than what they originally awarded to somebody else and so we're not - I'm not seeing that. And as I said in the last call, transaction volume while there is still very healthy amount of deals to look at and our acquisitions group stays very busy looking at stuff. But if you did look, if you cut through the raw numbers, the number of deals is a little less than it was about a year ago and especially large portfolios, you're not seeing many large portfolios the way you did about a year ago. A lot of one-off - seeing a lot of transaction more - that's a disproportionately higher proportion of the deals that are presented out there at least our experience.

What about deployment for RMR specifically, something that you guys would be looking at rather than the managed REITs?

For more specifically, yes we would be looking to deploy capital, think of it side-by-side with launching the new strategy. So, let's say we were for some reason going to started a new REIT or we were going to start and managing some sort of private capital, some sort you would likely see us use our capital to help launch one of those strategies. So, we would be let's say a seed investor or we would put some money in side-by-side with let’s say a large institutional investor so, that's how we're trying to leverage the capital or more to be used to launch new strategies, new fee streams for the company and that's how we look at it. We are not specifically looking at. I mean we haven't spent a lot of time looking at a lot of large acquisitions per say of businesses at RMR. We certainly are open to it and could do it but we haven't spent a lot of time doing that. We think will be more successful, we have been more successful sort of the DNA of the business. We've traditionally built the businesses that we are now running and we think we’ve done a pretty good job of building and launching these vehicles. Not all of them, some of them we bought but the majority as a vehicles and strategies we were running today are we built them and so, were trying to figure out ways to build new fee streams.

Great, that's helpful. And then last one from me. Obviously, it seems like there is a bunch of incentive fees that could be coming your way, a year from now. If some of these efforts to create new fee streams slow a bit, how do you think about your capital allocation strategy given the fact that you can have a pretty significant buildup of cash?

Yes, good question. Mitch, we get asked that a lot so what we’re going to do with all the cash if we don’t actually use it to grow the business. If we are unsuccessful in getting some or any of the strategies that we are hopeful to get off the ground in 2017, look I think we’ll have a serious conversation at the board at the end of the year about whether a special dividend or some sort of dividend out the shareholders makes sense. Obviously myself I'm a very large shareholder in the shares and so I have every incentive that, if I can - if we can’t find a good use to put the money to work to grow the business we'd obviously, seriously consider whether to make some sure distribution back to shareholders and again for shareholders I’m very aligned with them on this point because I would obviously be the beneficiary of that dividend as well.

Great, thanks a lot for your time.

Next we have a follow-up from Bryan Maher of FBR.

Yes, thanks. Mitch had a good question there as it relates to other opportunities and your response as it relates to potentially feeding maybe a new fund. When you look back at the last 18 months, relative to your expectations then, and what we've seen now, would you structure a new externally managed fund the same or is there something that you might change relative to what you have in place now?

Bryan, look I would love to have all the funds with the same contract any new strategy at the same contract that we have with our existing REITs that would be ideal. It would very much depend on the circumstances and specifically what we were trying to do. For example I'm - if we would have a launched let’s say a vehicle that invested private capital obviously I don’t think, we’d be able to attract private capital to agree to a 20 year contracts where we have with the managed REIT. So, we would not be, it would not be the same, it would not be the sound in the same terms. If we were to launch another REIT it will depend how that REIT was launched whether we could and rather the market with Baird the same terms that we have with the management contracts. I think that's the nature of your question. It really depends what the vehicle is, who are the investors. At the end of the day in many ways I think we can still be, I think we can still make a lot - we can still launch profitable strategies that will generate lots of fees for RMR and doesn't help that to be the same type of contract we have today that's for new vehicles going forward that’s my hope.

Right, I guess what I was driving at is, in hindsight now, kind of a year and a half into this, is there anything in the structure that you set up back in 2015, that you wish you would have tweaked one way or the other?

Not, but I know not really. I think we’ve done - if anything that’s grown on me I have thought its very good structure. I think we've really aligned everybody's interest. REITs own shares of RMR the principles of RMR and large amounts of shares in the REITs. Shareholders can have perfect transparency into a manager. They can buy shares into the manager. I feel pretty good about the structure we put in place. I think - I think since the announcement the share price while taking for most of our managed companies once RMR got public and became public in December 2015, since that period the share prices have largely outperformed. I’m talking about the client companies especially the managed REITs. And so I still feel very good about the transaction, the formation transaction we did to year and half ago. So no reps and honestly nothing that I could think of lost out my head that I want to change.

And just lastly, you guys in the managed REITs, were all pretty visible in 2016 out meeting with investors, et cetera. Do you expect to have the same level of visibility in 2017 as in 2016?

The answer is yes and probably more. We’re trying to even do better than what we did in 2016.

Thanks

Well, at this time we have no further questions. We'll go ahead and conclude our question-and-answer session. I’d now like to turn the conference call back over to Mr. Adam Portnoy for any closing remarks Sir.

Thank you for joining us this morning. We look forward to updating you on our progress during our second quarter conference call. Operator that concludes our call.

And we thank you Sir and to the rest of the management team for your time also today. The conference call is now concluded. Again we thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you, take care and have a great day everyone.