08/08/2018

The RMR Group Inc. Announces Third Quarter Fiscal 2018 Results

Total Revenues of $62.1 Million, a 12% Increase from the Third Quarter Last Year

Net Income Attributable to The RMR Group Inc. of $0.52 Per Share and Adjusted Net Income Attributable to The RMR Group Inc. of $0.58 Per Share, Both Increases of 21% from the Third Quarter Last Year

$100 Million Commitment to and Launch of the RMR Office Property Fund LP Expands on Growth Initiatives

NEWTON, Mass.--(BUSINESS WIRE)-- The RMR Group Inc. (Nasdaq: RMR) today announced its financial results for the fiscal quarter ended June 30, 2018.

Adam Portnoy, President and Chief Executive Officer, made the following statement regarding the third quarter fiscal 2018 results:

"The third quarter was marked by strong year over year growth in our business. The year over year growth in AUM, revenues, net income and EBITDA all largely came from our existing businesses. In addition, we recently made good progress in our stated goal of diversifying our revenues and AUM with the announced launch of the RMR Office Property Fund LP, our first real estate investment vehicle that is targeting private investors. Since June 30, 2017, we formed three new client companies in three different real estate businesses, all of which may lead to enhanced growth in revenue and AUM in the future."

Third Quarter Fiscal 2018 Highlights:

  • Total revenues for the quarter ended June 30, 2018 were $62.1 million, compared to total revenues for the quarter ended June 30, 2017 of $55.5 million.
  • For the three months ended June 30, 2018, net income was $19.4 million and net income attributable to The RMR Group Inc. was $8.4 million, or $0.52 per diluted share, compared to net income of $17.6 million and net income attributable to The RMR Group Inc. of $6.9 million, or $0.43 per diluted share, for the three months ended June 30, 2017. Net income this quarter included $1.8 million, or $0.04 per share, of separation costs related to a former officer as well as $0.8 million, or $0.02 per share, of transaction and acquisition related costs. Net income for the fiscal third quarter last year included $1.8 million, or $0.04 per share, of transaction and acquisition related costs as well as $0.7 million, or $0.01 per share, of business email compromise fraud costs.
  • The RMR Group Inc. earned management services revenues for the three months ended June 30, 2018 and 2017 from the following sources (dollars in thousands):
     
Three Months Ended June 30,
2018   2017
Managed Equity REITs (1) $ 39,706     83.9 % $ 37,505     84.0 %
Managed Operators (2) 6,966 14.7 % 6,556 14.7 %
Other 656   1.4 % 583   1.3 %
Total Management Services Revenues 47,328 100.0 % 44,644 100.0 %
 
(1)   Managed Equity REITs collectively refers to: Government Properties Income Trust (GOV), Hospitality Properties Trust (HPT), Industrial Logistics Properties Trust (ILPT), Select Income REIT (SIR) and Senior Housing Properties Trust (SNH).
 
(2) Managed Operators collectively refers to: Five Star Senior Living Inc. (FVE), Sonesta International Hotels Corporation and TravelCenters of America LLC (TA).
 
  • For the three months ended June 30, 2018, Adjusted EBITDA was $28.5 million and Adjusted EBITDA Margin was 56.1%, compared to Adjusted EBITDA of $27.4 million and Adjusted EBITDA Margin of 57.2% for the three months ended June 30, 2017. Adjusted EBITDA Margin equals Adjusted EBITDA divided by the contractual management and advisory fees earned from The RMR Group LLC’s client companies. These contractual management and advisory fees are calculated pursuant to The RMR Group LLC’s contracts with its client companies and do not deduct non-cash asset amortization recognized in accordance with U.S. generally accepted accounting principles, or GAAP, as a reduction to management services revenues. Adjusted EBITDA and Adjusted EBITDA Margin are also calculated on recurring revenues and do not include incentive business management fees earned.
  • As of June 30, 2018, The RMR Group Inc. had $30.0 billion of total assets under management, compared to total assets under management of $27.9 billion as of June 30, 2017.
  • As of June 30, 2018, The RMR Group Inc. had $280.5 million in cash and cash equivalents on a consolidated basis with no outstanding debt obligations.
  • On July 31, 2018, The RMR Group LLC entered into a transaction agreement pursuant to which it is committing to contribute up to $100 million and ABP Trust, or Portnoy Family Office, is contributing $206 million of owned office properties to a newly formed private open end real estate fund, the RMR Office Property Fund LP, or the Fund. The Fund will be a private, open end fund focused on the acquisition, ownership and leasing of a diverse portfolio of office properties throughout the United States. The Fund’s General Partner will be a wholly owned subsidiary of ABP Trust. The RMR Group LLC will manage the Fund and receive annual fund administration fees equal to 1.0% of Net Asset Value. In addition, The RMR Group LLC will receive property management fees equal to 3.0% of all rents collected from commercial real estate investments and 5.0% of costs of construction or any improvement at commercial real estate investments held by the Fund.

Reconciliations to GAAP:

Adjusted net income attributable to The RMR Group Inc., EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. Reconciliations of net income determined in accordance with GAAP to EBITDA and Adjusted EBITDA as well as calculations of Adjusted EBITDA Margin for the three and nine months ended June 30, 2018 to the three and nine months ended June 30, 2017 are presented later in this press release. Also, a reconciliation of net income attributable to The RMR Group Inc. to Adjusted net income attributable to The RMR Group Inc. for the three months ended June 30, 2018 and 2017 is presented later in this press release.

Total Assets Under Management:

The calculation of total assets under management includes: (i) the gross book value of real estate and related assets, excluding depreciation, amortization, impairment charges or other non-cash reserves, of the Managed Equity REITs and ABP Trust, plus (ii) the gross book value of real estate assets, property and equipment of the Managed Operators, excluding depreciation, amortization, impairment charges or other non-cash reserves, plus (iii) the fair value of investments of Affiliates Insurance Company, the managed assets of RMR Real Estate Income Fund and the equity of Tremont Mortgage Trust (TRMT), plus (iv) the contributed capital of and outstanding principal of loans serviced for certain private clients. This calculation of total assets under management may include amounts in respect of the Managed Equity REITs that are higher than the calculations of assets under management used for purposes of calculating fees under the terms of the business management agreements, which are based, in part, upon the lesser of the historical cost of real estate assets or total market capitalization. For information on the calculation of assets under management of the Managed Equity REITs for purposes of the fee provisions of the business management agreements, see The RMR Group Inc.'s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC. The RMR Group Inc.'s SEC filings are available at the SEC website: www.sec.gov.

Conference Call:

At 1:00 p.m. Eastern Time this afternoon, President and Chief Executive Officer, Adam Portnoy, and Chief Financial Officer and Treasurer, Matt Jordan, will host a conference call to discuss The RMR Group Inc.’s fiscal third quarter ended June 30, 2018 financial results.

The conference call telephone number is (877) 329-4297. Participants calling from outside the United States and Canada should dial (412) 317-5435. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. Eastern Time on Wednesday, August 15, 2018. To access the replay, dial (412) 317-0088. The replay pass code is 10121851. The transcription, recording and retransmission in any way of The RMR Group Inc.'s fiscal third quarter ended June 30, 2018 financial results conference call are strictly prohibited without the prior written consent of The RMR Group Inc.

About The RMR Group Inc.

The RMR Group Inc. is a holding company, and substantially all of its business is conducted by its majority-owned subsidiary, The RMR Group LLC. The RMR Group LLC is an alternative asset management company that primarily provides management services to publicly traded REITs and real estate operating companies. As of June 30, 2018, The RMR Group LLC had $30.0 billion of total assets under management, including more than 1,700 properties, and employed almost 600 real estate professionals in more than 35 offices throughout the United States; and the companies managed by The RMR Group LLC collectively had over 52,000 employees. The RMR Group Inc. is headquartered in Newton, Massachusetts.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. FORWARD LOOKING STATEMENTS CAN BE IDENTIFIED BY USE OF WORDS SUCH AS “OUTLOOK”, “BELIEVE”, “EXPECT”, “POTENTIAL”, “WILL”, “MAY”, “ESTIMATE”, “ANTICIPATE”, AND DERIVATIVES OR NEGATIVES OF SUCH WORDS OR SIMILAR WORDS. FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE ARE BASED UPON PRESENT BELIEFS OR EXPECTATIONS. HOWEVER, FORWARD LOOKING STATEMENTS AND THEIR IMPLICATIONS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR FOR VARIOUS REASONS, INCLUDING SOME REASONS BEYOND THE RMR GROUP INC.'S CONTROL. FOR EXAMPLE:

  • MR. PORTNOY STATES THAT THE RMR GROUP INC., OR RMR, MADE GOOD PROGRESS TOWARD ITS STATED GOAL OF DIVERSIFYING REVENUES AND AUM THROUGH FORMING THREE NEW CLIENT COMPANIES WHICH MAY LEAD TO GROWTH IN RMR’S REVENUE AND AUM IN THE FUTURE. HOWEVER, THERE CAN BE NO ASSURANCE THAT RMR’S RESULTS WILL BENEFIT FROM THE LAUNCH OF THESE NEW CLIENT COMPANIES, OR THAT RMR’S EFFORTS TO GROW AND DIVERSIFY ITS BUSINESS IN THE FUTURE WILL BE SUCCESSFUL. IN FACT, RMR'S BUSINESS COULD BECOME SMALLER AND LESS DIVERSIFIED IN THE FUTURE. IN ADDITION, ANY FURTHER REVENUE STREAM DIVERSIFICATION THAT RMR MAY REALIZE MAY NOT IMPROVE ITS PROFITABILITY.

THE INFORMATION CONTAINED IN THE RMR GROUP INC.’S FILINGS WITH THE SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS” IN THE RMR GROUP INC.’S PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM THE FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE. THE RMR GROUP INC.’S FILINGS WITH THE SEC ARE AVAILABLE ON ITS WEBSITE AT WWW.SEC.GOV.

EXCEPT AS REQUIRED BY LAW, THE RMR GROUP INC. UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

 

The RMR Group Inc.
Condensed Consolidated Statements of Income
(amounts in thousands, except per share amounts)
(unaudited)

       
Three Months Ended June 30, Nine Months Ended June 30,
2018   2017 2018   2017
Revenues:
Management services (1) $ 47,328 $ 44,644 $ 142,457 $ 130,629
Incentive business management fees 155,881 52,407
Reimbursable payroll related and other costs 13,711 9,839 38,076 29,023
Advisory services 1,045   1,019   3,492   3,033  
Total revenues 62,084   55,502   339,906   215,092  
 
Expenses:
Compensation and benefits 28,606 23,731 82,876 68,746
Equity based compensation 2,347 1,038 6,285 3,804
Separation costs 1,739     1,875    
Total compensation and benefits expense 32,692 24,769 91,036 72,550
General and administrative 6,551 6,779 20,281 19,073
Transaction and acquisition related costs 775 1,760 917 2,453
Depreciation and amortization 244   467   996   1,550  
Total expenses 40,262   33,775   113,230   95,626  
Operating income 21,822 21,727 226,676 119,466
Interest and other income 1,223 402 3,083 1,059
Tax receivable agreement remeasurement     24,710    
Income before income tax expense and equity in losses of investees 23,045 22,129 254,469 120,525
Income tax expense (3,462 ) (4,528 ) (55,486 ) (24,811 )
Equity in income (losses) of investees (134 ) 4   (568 ) (161 )
Net income 19,449 17,605 198,415 95,553
Net income attributable to noncontrolling interest (11,068 ) (10,748 ) (110,558 ) (58,303 )
Net income attributable to RMR Inc. 8,381   6,857   87,857   37,250  
 
Weighted average common shares outstanding - basic 16,087   16,037   16,072   16,029  
Weighted average common shares outstanding - diluted 16,135   16,058   16,111   16,044  
 
Net income attributable to RMR Inc. per common share - basic $ 0.52   $ 0.43   $ 5.43   $ 2.32  
Net income attributable to RMR Inc. per common share - diluted $ 0.52   $ 0.43   $ 5.42   $ 2.31  
 
(1)   Includes business management fees earned from the Managed Equity REITs based upon the lower of (i) the average historical cost of each REIT’s properties and (ii) each REIT’s average market capitalization. The following table presents for each Managed Equity REIT: a summary of its primary strategy and the lesser of the historical cost of its assets under management and its market capitalization as of June 30, 2018 and 2017, as applicable:
 
       
Lesser of Historical Cost of Assets
Under Management or Market Capitalization (a)
As of June 30,
REIT   Primary Strategy   2018   2017
GOV Office properties leased to government and private sector tenants $ 3,457,505 $ 2,235,767
HPT Hotels and travel centers 8,874,447 8,666,849
ILPT Industrial and logistics properties 1,496,199
SIR Land and properties primarily leased to single tenants 3,446,029 4,611,115
SNH Senior living, medical office and life science properties 8,006,840   8,272,965
$ 25,281,020   $ 23,786,696
 
(a)   The basis on which our base business management fees are calculated for the three and nine months ended June 30, 2018 and 2017 may differ from the basis at the end of the periods presented in the table above. As of June 30, 2018, the market capitalization was lower than the historical costs of assets under management for HPT and SNH; the historical costs of assets under management for HPT and SNH as of June 30, 2018, were $10,118,307 and $8,534,192, respectively. For GOV, ILPT and SIR, the historical costs of assets under management were lower than their market capitalization of $3,715,117, $1,836,947 and $3,728,172, respectively, calculated as of June 30, 2018.
 

The RMR Group Inc.
Calculation of Adjusted Net Income Attributable to The RMR Group Inc.
(dollars in thousands, except per share amounts)
(unaudited)

 
The RMR Group Inc. is providing the below information regarding certain individually significant items occurring or impacting its financial results for the three months ended June 30, 2018 and 2017 for supplemental informational purposes and to enhance understanding of The RMR Group Inc.'s condensed consolidated statements of income and to facilitate a comparison of The RMR Group Inc.'s current operating performance with its historical operating performance. This information should be considered in conjunction with net income, net income attributable to The RMR Group Inc. and operating income as presented in The RMR Group Inc.'s condensed consolidated statements of income.
 

 

Three Months Ended June 30, 2018

   

Impact on Net Income
Attributable to The RMR
Group Inc.

 

Impact on Net Income
Attributable to The RMR
Group Inc. Per Common
Share - Diluted

Net income attributable to The RMR Group Inc. $ 8,381 $ 0.52
Separation costs, net of noncontrolling interest (1) 660 0.04
Transaction and acquisition related costs, net of noncontrolling interest (2) 285   0.02
Adjusted net income attributable to The RMR Group Inc. $ 9,326   $ 0.58
 
(1)   Includes $1,739 of separation costs and $55 from the acceleration of unvested common share awards, adjusted to reflect amounts attributable to the noncontrolling interest and for tax at a rate of approximately 15.0%.
 
(2) Includes $775 of transaction and acquisition related costs, adjusted to reflect amounts attributable to the noncontrolling interest and for tax at a rate of approximately 15.0%.
 
     

 

Three Months Ended June 30, 2017

Impact on Net Income
Attributable to The RMR
Group Inc.

 

Impact on Net Income
Attributable to The RMR
Group Inc. Per Common
Share - Diluted

Net income attributable to The RMR Group Inc. $ 6,857 $ 0.43
Transaction and acquisition related costs, net of noncontrolling interest (1) 548 0.04
Business email compromise fraud costs, net of noncontrolling interest (2) 214   0.01
Adjusted net income attributable to The RMR Group Inc. $ 7,619   $ 0.48
 
(1)   Includes $1,760 of transaction and acquisition related costs, adjusted to reflect amounts attributable to the noncontrolling interest and for tax at a rate of approximately 20.6%.
 
(2) Includes $685 of one-time costs related to the business email compromise fraud, adjusted to reflect amounts attributable to the noncontrolling interest and for tax at a rate of approximately 20.6%.
 
 

The RMR Group Inc.
Reconciliation of EBITDA and Adjusted EBITDA from Net Income
and Calculation of Adjusted EBITDA Margin (1)
(dollars in thousands)
(unaudited)

       
Three Months Ended June 30, Nine Months Ended June 30,
2018   2017 2018   2017
Reconciliation of EBITDA and Adjusted EBITDA from net income:
Net income $ 19,449 $ 17,605 $ 198,415 $ 95,553
Plus: income tax expense 3,462 4,528 55,486 24,811
Plus: depreciation and amortization 244   467   996   1,550  
EBITDA 23,155 22,600 254,897 121,914
Plus: other asset amortization 2,354 2,354 7,062 7,062
Plus: operating expenses paid in The RMR Group Inc.'s common shares 314 146 2,781 1,021
Plus: separation costs 1,739 1,875
Plus: transaction and acquisition related costs 775 1,760 917 2,453
Plus: business email compromise fraud costs 685 225 685
Less: tax receivable agreement remeasurement due to the Tax Cuts and Jobs Act (24,710 )
Less: incentive business management fees earned (155,881 ) (52,407 )
Certain other net adjustments 115   (101 ) 77   (604 )
Adjusted EBITDA $ 28,452   $ 27,444   $ 87,243   $ 80,124  
 
Calculation of Adjusted EBITDA Margin:

Contractual management and advisory fees (excluding any incentive business management fees) (2)

$ 50,727 $ 48,017 $ 153,011 $ 140,724
Adjusted EBITDA $ 28,452 $ 27,444 $ 87,243 $ 80,124
Adjusted EBITDA Margin 56.1 % 57.2 % 57.0 % 56.9 %
 
(1)   EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures calculated as presented in the tables above. The RMR Group Inc. considers EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to be appropriate supplemental measures of its operating performance, along with net income, net income attributable to The RMR Group Inc. and operating income. The RMR Group Inc. believes that EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to investors because by excluding the effects of certain amounts, such as income tax expense, depreciation and amortization, other asset amortization, operating expenses paid in The RMR Group Inc.'s common shares, separation costs, transaction and acquisition related costs, business email compromise fraud costs, tax receivable agreement remeasurement due to the Tax Cuts and Jobs Act, incentive business management fees earned, and certain other net adjustments, EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin may facilitate a comparison of current operating performance with The RMR Group Inc.’s historical operating performance and with the performance of other asset management businesses. In addition, The RMR Group Inc. believes that providing Adjusted EBITDA Margin may help investors assess The RMR Group Inc.’s performance of its business by providing the margin that Adjusted EBITDA represents to its contractual management and advisory fees (excluding any incentive business management fees). EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income, net income attributable to The RMR Group Inc. or operating income as an indicator of The RMR Group Inc.’s financial performance or as a measure of The RMR Group Inc.’s liquidity. These measures should be considered in conjunction with net income, net income attributable to The RMR Group Inc. and operating income as presented in The RMR Group Inc.'s condensed consolidated statements of income. Also, other asset management businesses may calculate EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin differently than The RMR Group Inc. does.
 
(2) These contractual management fees are the base business management fees, property management fees and advisory fees The RMR Group Inc. earns pursuant to its management and investment advisory agreements with its client companies. These amounts are calculated pursuant to the contractual formulas and do not deduct other asset amortization of $2,354 for each of the three months ended June 30, 2018 and 2017 and $7,062 for each of the nine months ended June 30, 2018 and 2017, required to be recognized as a reduction to management services revenues in accordance with GAAP and do not include the incentive business management fees of $155,881 and $52,407 that The RMR Group Inc. recognized under GAAP during the nine months ended June 30, 2018 and 2017, respectively, which were earned for the calendar years 2017 and 2016, respectively.
 
 

The RMR Group Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
(unaudited)

       
June 30, September 30,
2018 2017
Assets
Current assets:
Cash and cash equivalents $ 280,518 $ 108,640
Due from related parties 24,262 25,161
Prepaid and other current assets 10,067   7,092  
Total current assets 314,847 140,893
 
Total property and equipment, net 2,713 3,276
Due from related parties, net of current portion 6,672 7,551
Equity method investments 11,420 12,162
Goodwill 1,859 1,859
Intangible assets, net of amortization 396 462
Deferred tax asset 24,788 45,541
Other assets, net of amortization 164,914   171,975  
Total assets $ 527,609   $ 383,719  
 
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses $ 51,015   $ 26,414  
Total current liabilities 51,015 26,414
Long term portion of deferred rent payable, net of current portion 1,184 1,028
Amounts due pursuant to tax receivable agreement, net of current portion 34,354 59,063
Employer compensation liability, net of current portion 6,672   7,551  
Total liabilities 93,225 94,056
 
Commitments and contingencies
 
Equity:
Class A common stock, $0.001 par value; 31,600,000 shares authorized; 15,174,463 shares issued and outstanding 15 15
Class B-1 common stock, $0.001 par value; 1,000,000 shares authorized, issued and outstanding 1 1
Class B-2 common stock, $0.001 par value; 15,000,000 shares authorized, issued and outstanding 15 15
Additional paid in capital 98,531 95,878
Retained earnings 174,693 86,836
Cumulative other comprehensive income 81 84
Cumulative common distributions (45,423 ) (33,298 )
Total shareholders’ equity 227,913 149,531
Noncontrolling interest 206,471   140,132  
Total equity 434,384   289,663  
Total liabilities and equity $ 527,609   $ 383,719  

The RMR Group Inc.
Timothy A. Bonang, 617-796-8230
Senior Vice President

Source: The RMR Group Inc.

Cautionary Language

The information appearing in RMR's website includes statements which constitute forward looking statements. These forward looking statements are based upon RMR's present intents, beliefs or expectations, but forward looking statements are not guaranteed to occur and may not occur. RMR's actual results may differ materially from those contained in RMR's forward looking statements. The information contained in RMR's filings with the Securities and Exchange Commission (SEC), including under “Risk Factors” and “Warnings Concerning Forward Looking Statements” in RMR's periodic reports and other filings, identifies important factors that could cause RMR's actual results to differ materially from those stated or implied in RMR's forward looking statements. RMR's filings with the SEC are available on the SEC’s website at www.sec.gov and are also accessible on RMR's website at the following link: SEC Filings. You should not place undue reliance upon forward looking statements. Except as required by law, RMR does not intend to update or change any forward looking statements as a result of new information, future events or otherwise.

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