Good morning, and welcome to the RMR fiscal fourth quarter 2022 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 one on your touch-tone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Michael Kodesch, Director of Investor Relations. Please go ahead.
Good morning, and thank you for joining RMR's fourth quarter of fiscal 2022 conference call. With me on today's 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 quarterly results, followed by a question and answer session. I'd like to note 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 15, 2022, 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 www.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, adjusted earnings per share, adjusted EBITDA, and adjusted EBITDA margin. A reconciliation of net income determined in accordance with U.S. generally accepted accounting principles to adjusted net income, adjusted earnings per share, adjusted EBITDA, and the calculation of adjusted EBITDA margin can be found in our earnings release. Now I would like to turn the call over to Adam Portnoy.
Thanks, Michael, and thank you all for joining us this morning. For the fourth quarter, we reported adjusted net income of $0.57 per share and adjusted EBITDA of $29.5 million, both increases of at least 12% on a year-over-year basis. This quarter's results are indicative of RMR's resilient business model, which can perform well in all economic cycles. While commercial real estate transaction activity has slowed meaningfully, we think there remains a strong investment case to be made for RMR and its clients as our collective organization continues to proactively work through the ongoing headwinds related to inflation, increasing interest rates, and capital markets volatility.
From a leasing perspective, fundamentals across our managed assets continue to trend favorably as we arrange 2.7 million sq ft of leases on behalf of our clients, which resulted in a 23% roll-up in rents and a weighted average lease term of 5.8 years. For the entire fiscal year 2022, leasing volumes exceeded 13.5 million sq ft, a 28% increase compared to fiscal year 2021, and a 78% increase compared to pre-pandemic levels in fiscal year 2019. Historically, real estate has performed well through inflationary environments. Most real estate leases typically have mechanisms to reprice rents to offset cost increases. This is especially true for shorter lease term asset types such as hospitality and senior living.
Additionally, a majority of the leases within our managed office, industrial, and service retail portfolios currently have expense recovery provisions that largely offset the effects from the current inflationary environment on property operating expenses. Before turning it over to Matt, I want to briefly touch upon some highlights across our platform. First, at ILPT, we continue to experience strong operating fundamentals. ILPT's portfolio is over 99% leased, and this quarter we facilitated new and renewal leases for approximately 1.7 million sq ft at weighted average rental rates that were 77.5% higher than prior rental rates for the same space. This quarter, we also organized a $1.2 billion debt financing that enabled ILPT to fully repay the bridge loan facility used for the Monmouth acquisition earlier this year.
We are pleased with the outcome of this debt refinancing, and we believe ILPT has both the time and flexibility to execute on deleveraging strategies because it has no debt maturities for almost five years. At OPI, despite the challenges seen across the office sector, we were pleased with same-property cash basis NOI growth and continued leasing momentum as we facilitated 606,000 sq ft of new and renewal leasing, including a new lease for 84,000 sq ft to anchor its life science development project in Seattle, Washington. Overall, OPI's 90.7% portfolio occupancy continues to lead the industry, and its balance sheet remains well positioned with $629 million of total liquidity and no senior notes maturing until mid-year 2024.
At SVC, FFO doubled from prior year levels, while EBITDA increased 26% year-over-year, both a reflection of the continued benefits of SVC's portfolio diversification and further improvements in lodging fundamentals. SVC's lodging operating improvements were most pronounced within the full service portfolio, which benefited from strength across major coastal and destination markets, as well as the continued recovery of urban full service and suburban select service hotels. Additionally, SVC service retail assets led by its leases with TA, continued to perform solidly with occupancy at 98% and rent coverage increasing sequentially to 2.9x as of September 30th. This positive operating momentum helped support SVC's decision to reinstate its normal quarterly dividend at $0.20 per share, which represents an FFO payout ratio of only 37%.
This decision was driven by SVC's continued improvements in portfolio operating metrics, coupled with available liquidity of over $800 million, including over $100 million of cash and over $700 million of undrawn amounts on its revolving credit facility. At DHC, this quarter saw same property cash basis NOI in their office portfolio segment increase 4.7% year-over-year and 1.2% sequentially. As it relates to DHC's senior living portfolio, while inflationary pressures continue to impact operating costs, occupancy improved 110 basis points sequentially, which was DHC's sixth consecutive quarter of occupancy growth. We are confident in DHC's ability to both refinance any upcoming debt maturities and continue investing in its senior living communities because DHC is well capitalized with over $800 million of cash as of September 30th.
To conclude, I'd like to reaffirm our confidence in the ultimate recovery of our managed equity REITs as we help them navigate these turbulent markets. I also believe it's important to reinforce our alignment with our REIT shareholders as RMR's revenues and cash flows are directly impacted by changes in our managed equity REIT share prices. To put this in perspective, if we close the gap between enterprise value and the historical cost of our managed equity REIT's underlying assets, we would generate approximately $60 million of incremental revenues annually. Additionally, our incentive fee structure with the managed equity REITs further aligns us with shareholders because the only way we can earn incentive fees is if we exceed each REIT's respective peer group shareholder return.
While we do not expect to earn incentive fees in calendar year 2022, we remain optimistic that the strategic steps we are taking across our clients will improve total shareholder returns and in turn, increase the likelihood of receiving incentive fees in the future. While we appreciate the stability our managed equity REITs provide us, we also continue to pursue external opportunities to grow and diversify our platform. This past fiscal year represented another transformative year for the organization, with AUM increasing $4.6 billion, and most importantly, private capital AUM growing to $3.9 billion. Access to private capital gives RMR an additional path for continued growth, especially during times like these with pronounced market volatility.
As I've said on prior calls, given the current economic environment, I expect there may be unique opportunities to take advantage of in the market that will benefit our platform for years to come. With $190 million of cash and no debt, we remain well-positioned to do just that. I'll now turn the call over to Matt Jordan, our Chief Financial Officer.
Thanks, Adam, good morning, everyone. For the fourth quarter, we reported adjusted net income of $9.4 million or $0.57 per share, and adjusted EBITDA of $29.5 million, with both of these measures being in line with our quarterly guidance. Total management and advisory service revenues were $52 million this quarter, which was almost $5 million higher on a year-over-year basis, though down approximately $1 million sequentially. The sequential quarter decrease was primarily attributable to enterprise value declines at the managed equity REITs due to deleveraging and share price declines, partially offset by increases in construction management fees.
As it relates to our construction and development efforts across the platform, this past quarter, we oversaw approximately $116 million in directly managed projects, which brought the cumulative fiscal year capital oversight to over $350 million. Looking ahead to next fiscal year, we expect this direct oversight to expand and in aggregate, approach almost $500 million. For the first fiscal quarter of 2023, we expect to generate between $49.5 million and $51.5 million of management and advisory service revenues based on the current enterprise value at our managed equity REITs and normal seasonal declines at some of our managed operating companies, both of which are expected to be partially offset by continued growth in construction management fees. Turning to expenses.
Recurring cash compensation this quarter was approximately $31.6 million after excluding $2.6 million from our annual true-up to RMR's discretionary bonus program paid each September. This quarter's recurring cash compensation represented a decline of approximately $500,000 on a sequential basis due to favorable headcount mix and vacation utilization. As it relates to our discretionary bonus program and the resulting annual true-up that was recorded this quarter, throughout the fiscal year, we accrued a rate that reflected our best estimate of where the discretionary program would land. In response to continued wage inflation and labor scarcity, actual bonus payments for the fiscal year came in higher than our estimated range.
Looking ahead to next quarter, we expect recurring cash compensation to be approximately $34 million, with the increase from fourth quarter levels primarily due to annual merit increases that were effective October 1st. The success of this organization and the ability to focus on strategic growth opportunities requires continued investments in our people. While wage inflation will continue to be a headwind, we continue to seek out ways to mitigate further cost increases via technology, secondary hiring locations, and select outsourcing solutions. G&A costs of $8.5 million this quarter were flat sequentially. We are projecting G&A costs to be approximately $9 million per quarter in fiscal 2023, which reflects some incremental third-party costs to support the growth in our construction oversight, as well as in investments we are making in strategic technologies.
We closed the quarter with almost $190 million in cash, and given the rising interest rate environment over the last few months, we generated interest income this quarter of approximately $900,000 and expect this to continue into future quarters. Aggregating all of the prospective assumptions I previously outlined, next quarter we expect adjusted earnings per share to range from $0.51-$0.53 and adjusted EBITDA should range from $25 million-$27 million. That concludes our formal remarks. Operator, would you please open the line to questions?
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Bryan Maher with B. Riley Securities. You may now go ahead.
Good morning, Adam and Matt. Two questions from me this morning. First of all, thanks for that outlook, particularly on the construction oversight for next year. I think you said $500 million in projects. With 29th Avenue and Seattle winding down in the second quarter, how should we expect that $500 million to kind of flow through the year? Or do you have some pretty big projects behind that in the back half of next year?
Hey, Bryan. The $500 million is fairly ratable. You're right, it will transition from OPI spend. I think you'll see more of that spend start occurring at DHC and SVC due to senior living and hotel renovations and the projects they've embarked on, and I think they've each publicly spoken to. I think you'll see the $500 million occur at $130 million-$120 million a quarter, and generate about $5 million in construction management fees each quarter.
Okay. And then maybe for Adam, when you're talking to your private capital partners or prospects, are you getting a sense of what their appetite is for 2023 when it comes to acquisitions and investments and kind of how are you and they thinking about, you know, commercial real estate in general, you know, over the next 12-18 months? I'm not really talking about, you know, RMR specifically, but as it relates to growth within the managed REITs or within the private capital or with, you know, beefing up the JVs. Thanks.
Sure. Thanks for the question, Bryan. You're right, we are in pretty regular dialogue with a host of different capital providers. We obviously have a handful of existing relationships which are weighted towards sovereign wealth funds. I would say in general, they are still very much open to put capital out, especially groups we are dealing with in the sovereign wealth world. In some ways, they see some of the market dislocation occurring in other parts of the market to be an opportunity for them to come in because they have significant amounts of capital that they've earmarked to invest in commercial real estate in the United States. I would say if there's any questions around that, it's around level setting on price expectations.
While they're still putting capital out today, I think they are most focused as we get into 2023, that we might have a more stable, albeit maybe higher interest rate environment, which might lead to a more stable, you know, cap rate environment. I think they're positioning themselves to put significant capital to work. We've been talking to them about these types of things. I would say the types of assets that they're most interested in are not too different than what they were interested in in the past. You know, broadly speaking, industrial, warehouse, multifamily. There's different segments within that, of course, you know, within warehouse, you know, cold storage. Some of the people think of data centers as an outgrowth of that.
Within other sectors, you know, specialty sectors like student housing, or life science buildings, perhaps medical office buildings or subsectors within office they're interested in. That's generally what we're seeing. I will tell you, away from the sovereign wealth funds, there's very much a feeling of, you know, I don't wanna say freezing, but sort of waiting to get through this year and waiting for the interest rates to rise to whatever terminal rate the Fed's gonna get to. If you're talking to endowments or pension plans or let's say gatekeepers or consultants that deal with them or family offices, they're much more in the camp of let's wait and see, you know, how the market shakes out as we get into 2023.
Whereas the sovereign wealth funds, and luckily they are groups that we do most of our business with, they're very much looking to put money to work. I think there'll be significant opportunities for us to put money to work in either joint venture, growing existing joint ventures, forming new ventures as we get into 2023 and beyond. As we've stated on many prior calls, that is a growth avenue for us. At the REITs, and you did mention the REITs, you know, I think our primary focus there, and I said in my prepared remarks, you know, we got a $60 million gap in revenues between where our current share prices are at the managed REITs versus what we could be earning in regular management fees, not even talking about incentive fees.
There's a tremendous amount of focus internally on doing everything operationally we can do to improve those companies' operating performance and balance sheets so they can be in a position to hopefully outperform in 2023 and 2024, and again, highlighting the alignment between RMR and those REITs. That's what our focus is.
Great. Thank you.
Again, if you have a question, please press star then one. Our next question will come from Kenneth Lee with RBC Capital Markets. You may now go ahead.
Hi, good morning, and thanks for taking my question. Wondering if you could just share your thoughts on how you view share repurchases within the context of, capital allocation plans for RMR. Thanks.
Sure. In terms of returning share capital to shareholders, we have biased ourselves a little bit towards dividends over share repurchases. That's not to say that we couldn't do a share repurchase in the future. I would also say that, you know, we talked about this in meetings with prior investors and on calls, we're still very focused on maintaining significant liquidity to take advantage of opportunities that may present themselves. You know, we are clearly in a dislocated market environment. We're probably gonna be there for some period of time.
Whenever there's this type of dislocation, there's typically opportunities for companies, and we hope that there could be an opportunity for us to maybe expand our platform through some sort of strategic M&A that may present itself in this type of environment that may normally not present itself. We're just trying to, especially, you know, over the next coming quarters, stay pretty liquid, and so we can be in a position to, you know, pounce on those sort of opportunities if they present themselves. You know, that's really how we're thinking about capital allocation. We currently have a regular dividend. It's well covered at around 50% of our, you know, call it, distributable earnings. There could be opportunities to do something there.
In terms of specifically your question, stock buyback, it's not top of mind. It's not something I take off the table ever, but it's not top of mind of what we're thinking about today.
Gotcha. That's very helpful there. Then one follow-up, and this is just a follow-up on the question for the managed equity REITs, and you touched upon this. It sounds like some of the key factors that could drive potential improvements in the share prices in the near term for the managed equity REITs is gonna depend on operational improvements in the REITs. Is this something that you view sort of like a multi-quarter kind of timeframe? Just wondering if you could just talk a little bit more about, you know, couple of like either milestones we can look forward to or, you know, what are you looking forward to help drive improvement in the managed equity REITs share prices in the near term? Thanks.
Sure. It's a combination of two things. Improving operating performance as well as addressing some of the balance sheet issues at the REITs. You know, let's. I can go each REIT, and I'll be very quickly. SVC, our biggest REIT, probably the furthest along in the recovery. We've reinstated the dividend. We're hopeful that we can increase that dividend going forward. I highlighted that, you know, the FFO payout ratio is very low. You know, it's less than 40%. It's about 37% based on Q3 numbers, I believe. There's a lot of room to grow that dividend. That's based on just seeing continued improvement in the operating performance of the hotels in that portfolio, which we are seeing and have been seeing for several quarters now.
That's sort of the furthest along, and as that continues to progress, I think that will lead to, you know, continued, hopefully, improvement in the stock price. You know, as a management team, the most effective thing we can do to change the stock price performance is, you know, operate the companies really well. If we can operate them well and they can outperform on operating metrics, eventually our belief is the share price will respond to that. That's what we're focused on. You know, touching on DHC, it's also an operating issue there. It's taking longer.
With DHC, we have a senior living recovery that is taking longer than expected as an industry, but we also have some unique issues to our portfolio that we are addressing. In terms of, you know, the operating performance of AlerisLife and how it's been performing on its portfolio it manages for DHC. There's been a lot of management changes at AlerisLife. In the last couple of quarters, there's been a lot of focus on righting the operations in that company, and I believe over the coming quarters, we'll start to see the fruits of that labor, in better performance at the senior living portfolio at DHC. At ILPT, it's not really an operating performance issue. The portfolio is performing really well. As I said in my opening remarks, it's 99% leased.
We rolled up rent 77% or thereabout last quarter. There's not much more we can do in terms of operating the portfolio well. There, it's a balance sheet issue, and we have to de-lever that balance sheet. There's no question we have to do that. Unfortunately, we're in a market environment that's gonna make it very difficult to do that until till interest rates stabilize. When we get to basically the Fed's terminal rate, wherever and whenever that's gonna be, I think that's sort of a catalyst for when we can basically probably fully address the balance sheet at ILPT. OPI. OPI's balance sheet's in very good shape. It's performing very well. It's well-leased. You look at almost every metric compared to its peers, it's performing in line, if not better.
The issue is it's got the overhang of it's an office REIT, and office is going through, you know, a tremendous amount of change, and there's a lot of uncertainty about, you know, what office, how much office space is gonna be needed by companies going forward, and is there an issue with obsolete office buildings given their age going forward. There's other issues affecting OPI. We're doing the best we can. Then we've done some redevelopments. We've upgraded the portfolio through capital recycling as much as we could over the last few years. I mean, we have sold well over $1 billion in the last few years at OPI, used those proceeds to repay debt and/or buy newer Class A office buildings that are well positioned to stay well-leased.
We talked about also at Seattle, Washington, in that company, we recently signed a lease there for a building that we have converted into a life science complex, which I think is well on its way to be a very, you know, home run in terms of case study and being able to retrofit an existing office building, turn it into life science and getting much better rents and getting a better return on that. There's various things we're doing there to try to improve the operating performance. That sort of gives you a lay of the land. I just went through all four of the REITs.
You know, they all got sort of unique challenges, but we have a plan in place for all of them to improve their operating performance and/or fix their balance sheets, both of which we think, we believe is the best we can do that will then lead to outsized shareholder performance. Then we will benefit as RMR because, you know, we get paid based on those share prices. Our base management fee and not even to mention the incentive fees, we have to outperform our peers to get an incentive fee. We're highly aligned to do everything we can to make those businesses perform well.
Gotcha. That was very, very helpful. Thanks again.
Yeah. Mm-hmm.
It appears there are no further questions. This concludes our question and answer session. I'd like to turn the conference back over to Adam Portnoy for any closing remarks.
Thank you all for joining us today. Operator, that concludes our call.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.