08/07/2020

The RMR Group Inc. Announces Third Quarter Fiscal 2020 Results

Net Income Attributable to The RMR Group Inc. of $0.41 Per Diluted Share and Adjusted Net Income Attributable to The RMR Group Inc. of $0.38 Per Diluted Share

$393.7 Million of Cash and No Debt at June 30, 2020

NEWTON, Mass.--(BUSINESS WIRE)-- The RMR Group Inc. (Nasdaq: RMR) today announced its financial results for the fiscal quarter ended June 30, 2020.

Adam Portnoy, President and Chief Executive Officer, made the following statement regarding the third quarter fiscal 2020 results:

“In the fiscal third quarter, we generated net income of $15.4 million, Adjusted EBITDA of $19.6 million and Adjusted EBITDA Margin of 47.1%. While our results reflect the adverse impacts of the pandemic on our Managed Equity REITs’ share prices, we were pleased fee paying assets under management increased sequentially and management services revenues increased each successive month in the quarter.

This quarter, we continued assisting our Client Companies to navigate through this uniquely challenging environment. During the quarter, we assisted several of our Client Companies in raising more than $2 billion of capital in total to help increase liquidity and meet near-term debt maturities. While markets remain volatile, we are also encouraged by the overall high rent collection levels and waning tenant rent relief requests across the retail, office and industrial assets we manage on behalf of our Client Companies. Further, during the quarter, our Managed Equity REITs executed over 1.6 million square feet in new and renewal leasing transactions and we managed over $40.0 million in capital projects for our Client Companies.

At the close of the quarter, our dividend remains secure and our balance sheet leaves us well positioned to take advantage of potential strategic opportunities with $393.7 million of cash and no debt.”

Third Quarter Fiscal 2020 Highlights:

  • As of June 30, 2020, The RMR Group LLC had $32.0 billion of gross assets under management compared to gross assets under management of $30.6 billion as of June 30, 2019. Fee paying assets under management was $20.8 billion on June 30, 2020 compared to $23.5 billion on June 30, 2019.
  • Total management and advisory services revenues for the quarter ended June 30, 2020 were $39.3 million, compared to $44.4 million for the quarter ended June 30, 2019.
  • The RMR Group Inc. earned management services revenues from the following sources (dollars in thousands):

 

 

Three Months Ended June 30,

 

 

2020

 

2019

Managed Equity REITs (1)

 

$

32,117

 

 

83.1

%

 

$

35,785

 

 

82.0

%

Managed Operators (2)

 

5,277

 

 

13.7

%

 

6,534

 

 

15.0

%

Other

 

1,231

 

 

3.2

%

 

1,322

 

 

3.0

%

Total

 

$

38,625

 

 

100.0

%

 

$

43,641

 

 

100.0

%

(1)

  Managed Equity REITs for the periods presented includes: Diversified Healthcare Trust (DHC), Industrial Logistics Properties Trust (ILPT), Office Properties Income Trust (OPI) and Service Properties Trust (SVC).

(2)

  Managed Operators collectively refers to: Five Star Senior Living Inc. (FVE), Sonesta International Hotels Corporation (Sonesta) and TravelCenters of America Inc. (TA).
  • For the three months ended June 30, 2020, net income was $15.4 million and net income attributable to The RMR Group Inc. was $6.7 million, or $0.41 per diluted share, compared to net income of $13.4 million and net income attributable to The RMR Group Inc. of $5.8 million, or $0.36 per diluted share, for the three months ended June 30, 2019.
  • For the three months ended June 30, 2020, adjusted net income attributable to The RMR Group Inc. was $6.2 million, or $0.38 per diluted share, compared to $8.6 million, or $0.53 per diluted share, for the three months ended June 30, 2019. The adjustments to net income attributable to The RMR Group Inc. this quarter included $0.2 million, or $0.01 per diluted share, of transaction and acquisition related costs, offset by $0.6 million, or $0.04 per diluted share, of unrealized gains on an equity method investment accounted for under the fair value option.
  • For the three months ended June 30, 2020, Adjusted EBITDA was $19.6 million, Operating Margin was 38.6% and Adjusted EBITDA Margin was 47.1%, compared to Adjusted EBITDA of $26.5 million, Operating Margin of 44.9% and Adjusted EBITDA Margin of 56.6% for the three months ended June 30, 2019.
  • As of June 30, 2020, The RMR Group Inc. had $393.7 million in cash and cash equivalents with no outstanding debt obligations.

Reconciliations to GAAP:

Adjusted net income attributable to The RMR Group Inc., EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. The GAAP financial measure that is most directly comparable to adjusted net income attributable to The RMR Group Inc. is net income attributable to The RMR Group Inc., the GAAP financial measure that is most directly comparable to EBITDA and Adjusted EBITDA is net income, while the GAAP financial measure that is most directly comparable to Adjusted EBITDA Margin is Operating Margin, which represents operating income divided by total management and advisory services revenues. Reconciliations of net income attributable to The RMR Group Inc. determined in accordance with GAAP to adjusted net income attributable to The RMR Group Inc., and of net income to EBITDA and Adjusted EBITDA as well as calculations of Operating Margin and Adjusted EBITDA Margin for each of the three months ended June 30, 2020 and 2019 are presented later in this press release.

Assets Under Management:

The calculation of gross assets under management, or gross AUM, primarily 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 (until its dissolution on February 13, 2020) and the RMR Office Property Fund LP (until its dissolution on July 28, 2020), the managed assets of RMR Mortgage Trust (formerly known as RMR Real Estate Income Fund) and the equity of Tremont Mortgage Trust. This calculation of gross AUM may include amounts that are higher than the calculations of assets under management used for purposes of calculating fees under the terms of the business management agreements.

The calculation of fee paying assets under management, or fee paying AUM, refers to the fact that base business management fees payable to The RMR Group LLC by the Managed Equity REITs are calculated monthly based upon the lower of the average historical cost of each entity's real estate assets and its average market capitalization. Management fees payable to The RMR Group LLC by other client companies are generally calculated as a percentage of revenues earned, average daily managed assets, equity, net asset value or total premiums paid under active insurance policies in accordance with the applicable management agreement.

All references in this press release to assets under management on, or as of, a date are calculated at a point in time.

For additional information on the calculation of assets under management for purposes of the fee provisions of the business management agreements, see The RMR Group Inc.’s Annual Report on Form 10-K for the fiscal year ending September 30, 2019, 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 Executive Vice President, 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, 2020 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 Friday, August 14, 2020. To access the replay, dial (412) 317-0088. The replay pass code is 10145298.

A live audio webcast of the conference call will also be available in a listen only mode on The RMR Group Inc.’s website, at www.rmrgroup.com. Participants wanting to access the webcast should visit The RMR Group Inc.’s website about five minutes before the call. The archived webcast will be available for replay on The RMR Group Inc.’s website following the call for about one week. The transcription, recording and retransmission in any way of The RMR Group Inc.’s fiscal third quarter ended June 30, 2020 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 manager that primarily provides management services to publicly traded REITs and real estate operating companies. As of June 30, 2020, The RMR Group LLC had $32.0 billion of assets under management, including over 2,100 properties, and employed over 600 real estate professionals in more than 30 offices throughout the United States; and the companies managed by The RMR Group LLC collectively had nearly 45,000 employees. The RMR Group Inc. is headquartered in Newton, Massachusetts.

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,

 

 

2020

 

2019

 

2020

 

2019

Revenues:

 

 

 

 

 

 

 

 

Management services (1)

 

$

38,625

 

 

$

43,641

 

 

$

129,221

 

 

$

133,729

 

Incentive business management fees

 

 

 

 

 

 

 

120,094

 

Advisory services

 

625

 

 

802

 

 

2,252

 

 

2,345

 

Total management and advisory services revenues

 

39,250

 

 

44,443

 

 

131,473

 

 

256,168

 

Reimbursable compensation and benefits

 

13,749

 

 

13,583

 

 

40,077

 

 

40,868

 

Other client company reimbursable expenses

 

85,650

 

 

85,689

 

 

267,852

 

 

257,088

 

Total reimbursable costs

 

99,399

 

 

99,272

 

 

307,929

 

 

297,956

 

Total revenues

 

138,649

 

 

143,715

 

 

439,402

 

 

554,124

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Compensation and benefits

 

29,569

 

 

28,530

 

 

89,888

 

 

85,523

 

Equity based compensation (2)

 

1,299

 

 

1,334

 

 

3,183

 

 

4,349

 

Separation costs

 

 

 

239

 

 

645

 

 

7,050

 

Total compensation and benefits expense

 

30,868

 

 

30,103

 

 

93,716

 

 

96,922

 

General and administrative

 

6,335

 

 

7,670

 

 

20,678

 

 

22,112

 

Other client company reimbursable expenses

 

85,650

 

 

85,689

 

 

267,852

 

 

257,088

 

Transaction and acquisition related costs

 

427

 

 

42

 

 

1,596

 

 

273

 

Depreciation and amortization

 

229

 

 

250

 

 

731

 

 

762

 

Total expenses

 

123,509

 

 

123,754

 

 

384,573

 

 

377,157

 

Operating income

 

15,140

 

 

19,961

 

 

54,829

 

 

176,967

 

Interest and other income

 

727

 

 

2,408

 

 

4,102

 

 

6,402

 

Impairment loss on Tremont Mortgage Trust investment

 

 

 

(6,213

)

 

 

 

(6,213

)

Equity in earnings of investees

 

458

 

 

174

 

 

1,037

 

 

318

 

Unrealized gain (loss) on equity method investment accounted for
under the fair value option

 

1,678

 

 

(731

)

 

916

 

 

(2,978

)

Income before income tax expense

 

18,003

 

 

15,599

 

 

60,884

 

 

174,496

 

Income tax expense

 

(2,608

)

 

(2,226

)

 

(8,944

)

 

(24,335

)

Net income

 

15,395

 

 

13,373

 

 

51,940

 

 

150,161

 

Net income attributable to noncontrolling interest

 

(8,678

)

 

(7,524

)

 

(29,306

)

 

(83,935

)

Net income attributable to The RMR Group Inc.

 

$

6,717

 

 

$

5,849

 

 

$

22,634

 

 

$

66,226

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

16,198

 

 

16,137

 

 

16,187

 

 

16,126

 

Weighted average common shares outstanding - diluted (3)

 

31,198

 

 

16,149

 

 

31,187

 

 

16,142

 

 

 

 

 

 

 

 

 

 

Net income attributable to The RMR Group Inc. per common share - basic

 

$

0.41

 

 

$

0.36

 

 

$

1.39

 

 

$

4.08

 

Net income attributable to The RMR Group Inc. per common share - diluted (3)

 

$

0.41

 

 

$

0.36

 

 

$

1.37

 

 

$

4.08

 

See Notes beginning on page 5.

The RMR Group Inc.

Notes to Condensed Consolidated Statements of Income

(dollars in thousands, except per share amounts)

(unaudited)

   

(1)

  Includes business management fees earned from the Managed Equity REITs monthly 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 a summary of each Managed Equity REIT’s primary strategy and the lesser of the historical cost of its assets under management and its market capitalization as of June 30, 2020 and 2019, as applicable:

 

 

 

 

Lesser of Historical Cost of Assets

 

 

 

 

Under Management or

 

 

 

 

Total Market Capitalization (a)

 

 

 

 

As of June 30,

REIT

 

Primary Strategy

 

2020

 

2019

DHC

 

Medical office and life science properties, senior living communities and wellness centers

 

$

4,596,718

 

 

$

5,756,149

 

ILPT

 

Industrial and logistics properties

 

2,612,328

 

 

2,492,044

 

OPI

 

Office properties primarily leased to single tenants, including the government

 

3,474,277

 

 

4,237,239

 

SVC

 

Hotels and net lease service and necessity-based retail properties

 

7,400,127

 

 

8,251,377

 

 

 

 

 

$

18,083,450

 

 

$

20,736,809

 

 

(a)

 

The basis on which base business management fees are calculated for the three months ended June 30, 2020 and 2019 may differ from the basis at the end of the periods presented in the table above. As of June 30, 2020, the market capitalization was lower than the historical costs of assets under management for DHC, OPI and SVC. The historical costs of assets under management for DHC, OPI and SVC as of June 30, 2020, were $8,492,240, $5,735,039 and $12,440,349, respectively. For ILPT, the historical costs of assets under management were lower than their market capitalization of $2,717,046 as of June 30, 2020.

(2)

  Equity based compensation expense for the three months ended June 30, 2020 consists of $563 related to shares granted by The RMR Group Inc. to certain of its officers and employees and $736 related to Client Companies' shares granted to certain of The RMR Group Inc.’s officers and employees.
   
  Equity based compensation related to shares granted by Client Companies is based on the fair value as of the grant date for those shares that have vested, with subsequent changes in the fair value of the unvested grants being recognized over the requisite service periods.
   
  Expense related to shares granted by The RMR Group Inc. is based on the market value on the date of grant, with the aggregate value of the shares granted amortized over the applicable vesting period. Shares issued each September vest in five equal, consecutive annual installments, with the first installment vesting on the date of grant. As of June 30, 2020, The RMR Group Inc. had 109,210 unvested shares outstanding which are scheduled to vest as follows:

 

 

Number of

 

Weighted Average

Year

 

Shares Vesting

 

Grant Date Fair Value

2020

 

39,910

 

$56.76

2021

 

31,940

 

$61.48

2022

 

23,280

 

$65.36

2023

 

14,080

 

$45.99

The RMR Group Inc.

Notes to Condensed Consolidated Statements of Income (Continued)

(amounts in thousands, except per share amounts)

(unaudited)

   

(3)

 

The RMR Group Inc. calculates earnings per share, or EPS, using the two-class method. As such, earnings attributable to unvested participating shares are excluded from earnings before calculating per share amounts. In addition, diluted EPS includes the assumed issuance of Class A Common Shares pursuant to The RMR Group Inc.’s equity compensation plan and the issuance of Class A Common Shares related to the assumed redemption of the noncontrolling interest’s 15,000 Class A Units using the if-converted method. The calculation of basic and diluted EPS is as follows:

 

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

 

2020

 

2019

 

2020

 

2019

Numerators:

 

 

 

 

 

 

 

 

Net income attributable to The RMR Group Inc.

 

$

6,717

 

 

$

5,849

 

 

$

22,634

 

 

$

66,226

 

Income attributable to unvested participating securities

 

(48

)

 

(37

)

 

(166

)

 

(437

)

Net income attributable to The RMR Group Inc. used in
calculating basic EPS

 

6,669

 

 

5,812

 

 

22,468

 

 

65,789

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Add back: net income attributable to noncontrolling interest

 

8,678

 

 

 

 

29,306

 

 

 

Add back: income tax expense

 

2,608

 

 

 

 

8,944

 

 

 

Income tax expense at enacted tax rates assuming
redemption of noncontrolling interest’s Class A
Units for Class A Common Shares

 

(5,313

)

 

 

 

(18,114

)

 

 

Net income attributable to The RMR Group Inc. used in
calculating diluted EPS

 

$

12,642

 

 

$

5,812

 

 

$

42,604

 

 

$

65,789

 

 

 

 

 

 

 

 

 

 

Denominators:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

16,198

 

 

16,137

 

 

16,187

 

 

16,126

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Assumed redemption of noncontrolling interest’s
Class A Units for Class A Common Shares (a)

 

15,000

 

 

 

 

15,000

 

 

 

Incremental unvested shares

 

 

 

12

 

 

 

 

16

 

Weighted average common shares outstanding - diluted

 

31,198

 

 

16,149

 

 

31,187

 

 

16,142

 

 

 

 

 

 

 

 

 

 

Net income attributable to The RMR Group Inc. per
common share - basic

 

$

0.41

 

 

$

0.36

 

 

$

1.39

 

 

$

4.08

 

Net income attributable to The RMR Group Inc. per
common share - diluted

 

$

0.41

 

 

$

0.36

 

 

$

1.37

 

 

$

4.08

 

(a)

  The assumed redemption of the noncontrolling interest’s Class A Units for Class A Common Shares was antidilutive for the three and nine months ended June 30, 2019.

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

 The RMR Group Inc. is providing the reconciliations below and information regarding certain individually significant items occurring or impacting its financial results for the three months ended June 30, 2020 and 2019 for supplemental informational purposes in order to enhance the 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, 2020

 

 

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.

 

$

6,717

 

 

$

0.41

 

Unrealized gain on equity method investment accounted for under the fair
value option (1)

 

(631

)

 

(0.04

)

Transaction and acquisition related costs (2)

 

160

 

 

0.01

 

Adjusted net income attributable to The RMR Group Inc.

 

$

6,246

 

 

$

0.38

 

(1)

 

Includes $1,678 in unrealized gains on The RMR Group Inc.’s investment in TA common shares, adjusted to reflect amounts attributable to the noncontrolling interest and income tax expense at a rate of approximately 14.5%.

(2)

 

Includes $427 of transaction and acquisition related costs, adjusted to reflect amounts attributable to the noncontrolling interest and income tax expense at a rate of approximately 14.5%.

 

Three Months Ended June 30, 2019

 

 

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.

 

$

5,849

 

 

$

0.36

 

Impairment loss on Tremont Mortgage Trust investment (1)

 

2,343

 

 

0.14

 

Unrealized loss on equity method investment accounted for under the fair
value option (2)

 

276

 

 

0.02

 

Separation costs (3)

 

90

 

 

0.01

 

Transaction and acquisition related costs (4)

 

16

 

 

 

Adjusted net income attributable to The RMR Group Inc.

 

$

8,574

 

 

$

0.53

 

(1)

  Includes $6,213 in impairment losses on The RMR Group Inc.’s Tremont Mortgage Trust investment, adjusted to reflect amounts attributable to the noncontrolling interest and income tax expense a rate of approximately 14.3%.

(2)

  Includes $731 in unrealized losses on The RMR Group Inc.’s investment in TA common shares, adjusted to reflect amounts attributable to the noncontrolling interest and income tax expense at a rate of approximately 14.3%.

(3)

  Includes $239 of separation costs, adjusted to reflect amounts attributable to the noncontrolling interest and income tax expense at a rate of approximately 14.3%.

(4)

  Includes $42 of transaction and acquisition related costs, adjusted to reflect amounts attributable to the noncontrolling interest and income tax expense at a rate of approximately 14.3%.

The RMR Group Inc.

Reconciliation of EBITDA and Adjusted EBITDA from Net Income

and Calculation of Operating Margin and Adjusted EBITDA Margin (1)

(dollars in thousands)

(unaudited)

 

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Reconciliation of EBITDA and Adjusted EBITDA from net income:

 

 

 

 

 

 

 

Net income

$

15,395

 

 

$

13,373

 

 

$

51,940

 

 

$

150,161

 

Plus: income tax expense

2,608

 

 

2,226

 

 

8,944

 

 

24,335

 

Plus: depreciation and amortization

229

 

 

250

 

 

731

 

 

762

 

EBITDA

18,232

 

 

15,849

 

 

61,615

 

 

175,258

 

Plus: other asset amortization

2,354

 

 

2,354

 

 

7,062

 

 

7,062

 

Plus: operating expenses paid in the form of The RMR
Group Inc.'s common shares

658

 

 

1,237

 

 

2,353

 

 

2,180

 

Plus: separation costs

 

 

239

 

 

645

 

 

7,050

 

Plus: transaction and acquisition related costs

427

 

 

42

 

 

1,596

 

 

273

 

Plus: straight line office rent

52

 

 

 

 

124

 

 

 

Plus: impairment loss on Tremont Mortgage Trust investment

 

 

6,213

 

 

 

 

6,213

 

Plus: unrealized (gain) loss on equity method investment
accounted for under the fair value option

(1,678

)

 

731

 

 

(916

)

 

2,978

 

Less: equity in earnings of investees

(458

)

 

(174

)

 

(1,037

)

 

(318

)

Less: incentive business management fees earned

 

 

 

 

 

 

(120,094

)

Certain other net adjustments

 

 

(3

)

 

(13

)

 

(7

)

Adjusted EBITDA

$

19,587

 

 

$

26,488

 

 

$

71,429

 

 

$

80,595

 

Calculation of Operating Margin:

 

 

 

 

 

 

 

Total management and advisory services revenues

$

39,250

 

 

$

44,443

 

 

$

131,473

 

 

$

256,168

 

Operating income

$

15,140

 

 

$

19,961

 

 

$

54,829

 

 

$

176,967

 

Operating Margin

38.6

%

 

44.9

%

 

41.7

%

 

69.1

%

Calculation of Adjusted EBITDA Margin:

 

 

 

 

 

 

 

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

$

41,604

 

 

$

46,797

 

 

$

138,535

 

 

$

143,136

 

Adjusted EBITDA

$

19,587

 

 

$

26,488

 

 

$

71,429

 

 

$

80,595

 

Adjusted EBITDA Margin

47.1

%

 

56.6

%

 

51.6

%

 

56.3

%

(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., operating income and operating margin. 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 those outlined in the tables above, 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., operating income or operating margin as an indicator of The RMR Group Inc.’s financial performance or as a measure of The RMR Group Inc.’s liquidity. Other asset management businesses may calculate EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin differently than The RMR Group Inc. does.

(2)

  Contractual management and advisory fees are the base business management fees, property management fees and advisory fees The RMR Group Inc. or its subsidiaries 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, 2020 and 2019, or $7,062 for each of the nine months ended June 30, 2020 and 2019, 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 $120,094 that The RMR Group Inc. recognized under GAAP during the three months ended December 31, 2018, which were earned for the calendar year 2018.

The RMR Group Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

(unaudited)

 

 

 

June 30,

 

September 30,

 

 

2020

 

2019

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

393,655

 

 

$

358,448

 

Due from related parties

 

79,312

 

 

93,521

 

Prepaid and other current assets

 

3,595

 

 

5,848

 

Total current assets

 

476,562

 

 

457,817

 

 

 

 

 

 

Property and equipment, net

 

2,148

 

 

2,383

 

Due from related parties, net of current portion

 

5,837

 

 

9,238

 

Equity method investment

 

6,974

 

 

6,658

 

Equity method investment accounted for under the fair value option

 

4,598

 

 

3,682

 

Goodwill

 

1,859

 

 

1,859

 

Intangible assets, net of amortization

 

288

 

 

323

 

Operating lease right of use assets

 

35,755

 

 

 

Deferred tax asset

 

24,621

 

 

25,729

 

Other assets, net of amortization

 

146,081

 

 

153,143

 

Total assets

 

$

704,723

 

 

$

660,832

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

Current liabilities:

 

 

 

 

Other client company reimbursable expenses

 

$

59,127

 

 

$

65,909

 

Accounts payable and accrued expenses

 

30,858

 

 

20,266

 

Operating lease liabilities

 

4,343

 

 

 

Employer compensation liability

 

998

 

 

4,814

 

Total current liabilities

 

95,326

 

 

90,989

 

 

 

 

 

 

Deferred rent payable, net of current portion

 

 

 

1,620

 

Operating lease liabilities, net of current portion

 

33,156

 

 

 

Amounts due pursuant to tax receivable agreement, net of current portion

 

29,950

 

 

29,950

 

Employer compensation liability, net of current portion

 

5,837

 

 

9,238

 

Total liabilities

 

164,269

 

 

131,797

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

Class A common stock, $0.001 par value; 31,600,000 shares authorized; 15,315,445 and
15,302,710 shares issued and outstanding, respectively

 

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

 

105,863

 

 

103,360

 

Retained earnings

 

280,091

 

 

257,457

 

Cumulative common distributions

 

(90,783

)

 

(72,194

)

Total shareholders’ equity

 

295,202

 

 

288,654

 

Noncontrolling interest

 

245,252

 

 

240,381

 

Total equity

 

540,454

 

 

529,035

 

Total liabilities and equity

 

$

704,723

 

 

$

660,832

 

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. generated net income of $15.4 million, Adjusted EBITDA of $19.6 million and Adjusted EBITDA Margin of 47.1%. He also states that while these results reflect the adverse impact of the pandemic on the Managed Equity REITs share prices, The RMR Group Inc.’s fee paying assets under management increased sequentially and management services revenues increased each successive month in the quarter. These statements may imply that The RMR Group Inc.’s fee paying assets under management and management services revenues will continue to grow in future periods. However, The RMR Group Inc.’s business is subject to various risks, including risks outside of its control. Further, the impact and duration of the COVID-19 pandemic is not known and the current different economic conditions may continue and could deteriorate further and such adverse conditions may continue for a prolonged period. Accordingly, The RMR Group Inc.’s fee paying assets under management and management services revenues may not grow in future periods and could decline;
  • Mr. Portnoy also states that The RMR Group Inc. is encouraged by the overall high rent collection levels and waning tenant rent relief requests across the retail, office and industrial assets it manages on behalf of its Client Companies. These statements may imply that tenant rent collections and tenant relief requests will continue at current levels or improve and that tenant requests for rent relief will further decline. However, tenant rent collections may decline and tenant rent relief requests may increase in the future. In addition, these tenants may be unable to repay those amounts when due. Further, these and other tenants of the Client Companies may be unable to pay other rent amounts and they may default on those payments or the Client Companies may grant them relief, any of which may reduce or delay the fees The RMR Group Inc. earns; and
  • Mr. Portnoy states that The RMR Group Inc.’s dividend remains secure and its balance sheet leaves it well positioned to take advantage of potential strategic opportunities. This statement may imply that The RMR Group Inc. will successfully explore and act upon strategic opportunities for future growth and that The RMR Group Inc.’s business will grow and that its operating performance and financial results will improve as a result. However, The RMR Group Inc. may not identify growth opportunities it wishes to pursue and any growth opportunities it may pursue may not be successful and may not result in The RMR Group Inc. improving its operating performance or its financial results, and The RMR Group Inc. may realize losses as a result. In addition, The RMR Group Inc.’s ability to continue to pay dividends is subject to a number of factors and there are no assurances that The RMR Group Inc. will be able to continue paying dividends in the future or that such dividends will not be reduced or suspended due to unforeseen circumstances, including, but not limited to, economic conditions due to the COVID-19 pandemic and its aftermath.

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 and at www.sec.gov.

You should not place undue reliance on forward-looking statements.

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.

Michael Kodesch, Director, Investor Relations
(617) 796-8230

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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