11/15/2021

The RMR Group Inc. Announces Fourth Quarter 2021 Results

Net Income of $30.8 Million, or $0.82 Per Diluted Share

Adjusted Net Income of $0.50 Per Diluted Share, a 6% Sequential Quarter Increase and a 28% Increase from Last Year

Adjusted EBITDA of $26.3 Million, an 8% Sequential Quarter Increase and a 27% Increase from Last Year

NEWTON, Mass.--(BUSINESS WIRE)-- The RMR Group Inc. (Nasdaq: RMR) today announced its financial results for the fiscal quarter ended September 30, 2021.

Adam Portnoy, President and Chief Executive Officer, made the following statement regarding the fourth quarter fiscal 2021 results:

“During the quarter, management and advisory services revenues increased 16.5% from last year, to $46.8 million, and marked RMR’s fifth straight quarter of sequential growth. This growth was driven by steady increases in property management fees due to recent REIT acquisitions, increased construction management fees tied to our expanded oversight of client redevelopment activities and continued revenue growth at our Managed Operating Companies. In addition to growth in Adjusted Net Income and Adjusted EBITDA, Adjusted EBITDA Margin increased 240 basis points sequentially to 53.5% this quarter and is now just below pre-pandemic levels, which is a testament to the high-quality operating leverage inherent in RMR’s structure.

We believe fiscal 2022 will bring RMR significant opportunities to see continued increases in revenues, including potential incentive management fees from the Managed Equity REITs, as our clients execute on their strategic plans during what we expect to be a period of continued economic recovery. After our special dividend distribution of $7.00 per share in September, RMR has nearly $160 million of cash and no debt and remains well positioned to pursue a range of capital allocation strategies, with a concentrated focus on the growth of our private capital business.”

Fourth Quarter Fiscal 2021 Highlights:

  • As of September 30, 2021, The RMR Group LLC had $32.7 billion of assets under management, or AUM, compared to $32.4 billion as of September 30, 2020.
  • Total management and advisory services revenues for the quarter ended September 30, 2021, were $46.8 million, compared to $40.2 million for the quarter ended September 30, 2020.
  • The RMR Group LLC’s AUM and management and advisory services revenues by source are as follows (dollars in thousands):

 

 

 

 

 

 

Total

 

 

 

 

Management

 

 

 

 

and Advisory

 

 

AUM

 

Services Revenues

As of or for the Three Months Ended September 30, 2021

Managed Public Real Estate Capital (1)

 

$

29,363,713

 

 

89.9

%

 

$

37,053

 

 

79.1

%

Managed Private Real Estate Capital (2)

 

1,345,754

 

 

4.1

%

 

2,432

 

 

5.2

%

Managed Operating Companies (3)

 

1,964,276

 

 

6.0

%

 

7,359

 

 

15.7

%

Total

 

$

32,673,743

 

 

100.0

%

 

$

46,844

 

 

100.0

%

 

 

 

 

 

 

 

 

 

As of or for the Three Months Ended September 30, 2020

Managed Public Real Estate Capital (1)

 

$

29,823,318

 

 

92.0

%

 

$

33,364

 

 

83.0

%

Managed Private Real Estate Capital (2)

 

648,890

 

 

2.0

%

 

1,164

 

 

2.9

%

Managed Operating Companies (3)

 

1,939,100

 

 

6.0

%

 

5,676

 

 

14.1

%

Total

 

$

32,411,308

 

 

100.0

%

 

$

40,204

 

 

100.0

%

(1)

Managed Public Real Estate Capital includes: Diversified Healthcare Trust (DHC), Industrial Logistics Properties Trust (ILPT), Office Properties Income Trust (OPI) and Service Properties Trust (SVC), which are collectively referred to as the Managed Equity REITs, as well as Seven Hills Realty Trust (SEVN) (formerly known as RMR Mortgage Trust (RMRM)) and Tremont Mortgage Trust (TRMT). TRMT merged with and into SEVN on September 30, 2021.

(2)

Managed Private Real Estate Capital primarily consists of private entities that own commercial real estate.

(3)

Managed Operating Companies include: Five Star Senior Living Inc. (FVE), Sonesta International Hotels Corporation (Sonesta) and TravelCenters of America Inc. (TA).

  • For the three months ended September 30, 2021, net income was $30.8 million and net income attributable to The RMR Group Inc. was $13.6 million, or $0.82 per diluted share, compared to net income of $14.4 million and net income attributable to The RMR Group Inc. of $6.2 million, or $0.38 per diluted share, for the three months ended September 30, 2020.
  • For the three months ended September 30, 2021, adjusted net income attributable to The RMR Group Inc. was $8.3 million, or $0.50 per diluted share, compared to $6.4 million, or $0.39 per diluted share, for the three months ended September 30, 2020. The most significant adjustments to net income attributable to The RMR Group Inc. this quarter include $4.9 million, or $0.29 per diluted share, of unrealized gains on our equity method investment in TA and $0.8 million, or $0.05 per diluted share, related to a gain realized on our TRMT shares as part of TRMT’s merger with SEVN (then RMRM) on September 30, 2021.
  • For the three months ended September 30, 2021, Adjusted EBITDA was $26.3 million, Operating Margin was 45.1% and Adjusted EBITDA Margin was 53.5%, compared to Adjusted EBITDA of $20.8 million, Operating Margin of 34.6% and Adjusted EBITDA Margin of 48.9% for the three months ended September 30, 2020.
  • Effective August 1, 2021, The RMR Group LLC and each Managed Equity REIT amended their business management agreements to replace the benchmark indexes used in the calculation of incentive business management fees. For periods beginning on and after August 1, 2021, each Managed Equity REIT’s respective subsector index of the MSCI U.S. REIT indexes will replace the discontinued SNL U.S. REIT indexes and be used to calculate benchmark returns per share for purposes of determining any incentive business management fee. For periods prior to August 1, 2021, the previously used and now discontinued SNL U.S. REIT indexes will continue to be used. These changes of index were due to S&P Global ceasing to publish the SNL U.S. REIT indexes.
    As of September 30, 2021, The RMR Group LLC estimates that it would have earned an incentive business management fee from OPI of $6.0 million for calendar 2021, if September 30, 2021 had been the end of the next measurement period.
  • As of September 30, 2021, The RMR Group Inc. had $159.8 million in cash and cash equivalents with no outstanding debt obligations. Cash and cash equivalents as of September 30, 2021 reflects the payment of annual cash bonuses to officers and employees during the fiscal fourth quarter and a one-time special dividend of $7.00 per share, or $219.9 million, paid in September 2021.

Reconciliations to U.S. Generally Accepted Accounting Principles, or GAAP:

Adjusted net income attributable to The RMR Group Inc., EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA less Cash Tax Obligation 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, Adjusted EBITDA and Adjusted EBITDA less Cash Tax Obligation is net income and 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, Adjusted EBITDA Margin and Adjusted EBITDA less Cash Tax Obligation for each of the three months ended September 30, 2021 and 2020 are presented later in this press release.

Assets Under Management:

The calculation of AUM primarily includes: (i) the historical cost of real estate and related assets, excluding depreciation, amortization, impairment charges or other non-cash reserves, of the Managed Equity REITs and the Managed Private Real Estate Capital clients, plus (ii) the gross book value of real estate assets, property and equipment of the Managed Operating Companies, excluding depreciation, amortization, impairment charges or other non-cash reserves, plus (iii) the carrying value of loans held for investment at SEVN.

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

For additional information on the calculation of AUM 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:

On Tuesday, November 16, 2021 at 10:00 a.m. Eastern Time, 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 fourth quarter ended September 30, 2021 financial results.

The conference call telephone number is (877) 270-2148. Participants calling from outside the United States and Canada should dial (412) 902-6510. 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 Tuesday, November 23, 2021. To access the replay, dial (412) 317-0088. The replay pass code is 10160354.

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 fourth quarter ended September 30, 2021 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. (Nasdaq: RMR) is a holding company and substantially all of its business is conducted by its majority owned subsidiary, The RMR Group LLC, or RMR. RMR is a leading U.S. alternative asset management company, unique for its focus on commercial real estate (CRE) and related businesses. RMR’s vertical integration is supported by approximately 600 real estate professionals in over 30 offices nationwide who manage over $32 billion in assets under management and leverage 35 years of institutional experience in buying, selling, financing and operating CRE. RMR benefits from a scalable platform, a deep and experienced management team and a diversity of direct real estate strategies across its clients. RMR is headquartered in Newton, MA and was founded in 1986. For more information, please visit www.rmrgroup.com.

 

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

 

 

 

Three Months Ended
September 30,

 

Fiscal Year Ended
September 30,

 

 

2021

 

2020

 

2021

 

2020

Revenues:

 

 

 

 

 

 

 

 

Management services (1)

 

$

45,737

 

 

$

39,545

 

 

$

171,102

 

 

$

168,766

 

Incentive business management fees

 

 

 

 

 

620

 

 

 

Advisory services

 

1,107

 

 

659

 

 

3,956

 

 

2,911

 

Total management and advisory services revenues

 

46,844

 

 

40,204

 

 

175,678

 

 

171,677

 

Reimbursable compensation and benefits

 

12,916

 

 

13,661

 

 

52,369

 

 

52,344

 

Reimbursable equity based compensation (2)

 

3,543

 

 

3,518

 

 

9,154

 

 

4,912

 

Other reimbursable expenses

 

110,181

 

 

92,720

 

 

370,037

 

 

360,572

 

Total reimbursable costs

 

126,640

 

 

109,899

 

 

431,560

 

 

417,828

 

Total revenues

 

173,484

 

 

150,103

 

 

607,238

 

 

589,505

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Compensation and benefits

 

29,034

 

 

31,498

 

 

119,644

 

 

121,386

 

Equity based compensation (2)

 

4,755

 

 

4,645

 

 

12,022

 

 

7,828

 

Separation costs

 

366

 

 

1,236

 

 

4,525

 

 

1,881

 

Total compensation and benefits expense

 

34,155

 

 

37,379

 

 

136,191

 

 

131,095

 

General and administrative

 

7,277

 

 

5,836

 

 

26,961

 

 

26,514

 

Other reimbursable expenses

 

110,181

 

 

92,720

 

 

370,037

 

 

360,572

 

Transaction and acquisition related costs

 

510

 

 

22

 

 

984

 

 

1,618

 

Depreciation and amortization

 

239

 

 

237

 

 

973

 

 

968

 

Total expenses

 

152,362

 

 

136,194

 

 

535,146

 

 

520,767

 

Operating income

 

21,122

 

 

13,909

 

 

72,092

 

 

68,738

 

Interest and other income

 

146

 

 

349

 

 

760

 

 

4,451

 

Gain on Tremont Mortgage Trust investment

 

2,059

 

 

 

 

2,059

 

 

 

Equity in earnings (loss) of investees

 

(312)

 

 

508

 

 

443

 

 

1,545

 

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

 

12,779

 

 

2,235

 

 

18,811

 

 

3,151

 

Income before income tax expense

 

35,794

 

 

17,001

 

 

94,165

 

 

77,885

 

Income tax expense

 

(5,043)

 

 

(2,608)

 

 

(13,152)

 

 

(11,552)

 

Net income

 

30,751

 

 

14,393

 

 

81,013

 

 

66,333

 

Net income attributable to noncontrolling interest

 

(17,125)

 

 

(8,235)

 

 

(45,317)

 

 

(37,541)

 

Net income attributable to The RMR Group Inc.

 

$

13,626

 

 

$

6,158

 

 

$

35,696

 

 

$

28,792

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic (3)

 

16,286

 

 

16,214

 

 

16,266

 

 

16,194

 

Weighted average common shares outstanding - diluted (3)

 

31,316

 

 

16,214

 

 

31,282

 

 

31,194

 

 

 

 

 

 

 

 

 

 

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

 

$

0.83

 

 

$

0.38

 

 

$

2.18

 

 

$

1.77

 

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

 

$

0.82

 

 

$

0.38

 

 

$

2.15

 

 

$

1.75

 

See Notes beginning on page 6.

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

(1)

Includes base 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 September 30, 2021 and 2020, as applicable:

 

 

 

 

Lesser of Historical Cost of Assets

 

 

 

 

Under Management or

 

 

 

 

Total Market Capitalization (a)

 

 

 

 

As of September 30,

REIT

 

Primary Strategy

 

2021

 

2020

DHC

 

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

 

$

5,150,401

 

 

$

4,381,749

 

ILPT

 

Industrial and logistics properties

 

2,100,020

 

 

2,613,338

 

OPI

 

Office properties primarily leased to single tenants, including the government

 

3,837,235

 

 

3,244,624

 

SVC

 

Hotels and net lease service and necessity-based retail properties

 

9,050,693

 

 

7,590,437

 

 

 

 

 

$

20,138,349

 

 

$

17,830,148

 

(a)

The basis on which base business management fees are calculated for the three months ended September 30, 2021 and 2020 may differ from the basis at the end of the periods presented in the table above. As of September 30, 2021, the market capitalization was lower than the historical cost of assets under management for DHC, OPI and SVC. The historical cost of assets under management for DHC, OPI and SVC as of September 30, 2021, were $8,458,462, $6,082,546 and $12,301,972, respectively. For ILPT, the historical cost of assets under management were lower than its market capitalization of $2,665,941 as of September 30, 2021.

(2)

 

Equity based compensation expense for the three months ended September 30, 2021 consists of $1,212 related to shares granted by The RMR Group Inc. to certain of its officers and employees and $3,543 related to clients' shares granted to certain of The RMR Group Inc.’s officers and employees.

 

Equity based compensation related to shares granted by clients 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. An equal, offsetting amount is recorded as reimbursable equity based compensation revenue.

 

Equity based compensation 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. During the three months ended September 30, 2021, The RMR Group Inc. granted 96,300 shares to certain of its officers and employees. As of September 30, 2021, The RMR Group Inc. had 160,310 unvested shares outstanding which are scheduled to vest as follows:

 

 

 

 

Weighted Average

Fiscal

 

Number of

 

Grant Date Fair Value

Year

 

Shares Vesting

 

Per Share

2022

 

56,290

 

$43.73

2023

 

48,460

 

$35.45

2024

 

36,300

 

$31.92

2025

 

19,260

 

$33.80

 

The RMR Group Inc.
Notes to 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. In computing the dilutive effect, if any, that the aforementioned redemption would have on EPS, The RMR Group Inc. considered that net income available to holders of Class A Common Shares would increase due to elimination of the noncontrolling interest offset by any tax effect, which may be dilutive. For the three months ended September 30, 2021 and the fiscal years ended September 30, 2021 and 2020, the assumed redemption is dilutive to earnings per share as presented in the table below. For the three months ended September 30, 2020, such redemption is not reflected in diluted earnings per share as the assumed redemption would be anti-dilutive. The calculation of basic and diluted EPS is as follows:

 

 

Three Months Ended September 30,

 

Fiscal Year Ended September 30,

 

 

2021

 

2020

 

2021

 

2020

Numerators:

 

 

 

 

 

 

 

 

Net income attributable to The RMR Group Inc.

 

$

13,626

 

 

$

6,158

 

 

$

35,696

 

 

$

28,792

 

Income attributable to unvested participating securities

 

(113)

 

 

(43)

 

 

(309)

 

 

(209)

 

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

 

13,513

 

 

6,115

 

 

35,387

 

 

28,583

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Add back: income attributable to unvested participating securities

 

113

 

 

 

 

309

 

 

 

Add back: net income attributable to noncontrolling interest

 

17,125

 

 

 

 

45,317

 

 

37,541

 

Add back: income tax expense

 

5,043

 

 

 

 

13,152

 

 

11,552

 

Income tax expense assuming redemption of noncontrolling interest’s Class A Units for Class A Common Shares (a)

 

(10,134)

 

 

 

 

(27,061)

 

 

(23,183)

 

Net income used in calculating diluted EPS

 

$

25,660

 

 

$

6,115

 

 

$

67,104

 

 

$

54,493

 

 

 

 

 

 

 

 

 

 

Denominators:

 

 

 

 

 

 

 

 

Common shares outstanding

 

16,485

 

 

16,396

 

 

16,485

 

 

16,396

 

Unvested participating securities

 

(199)

 

 

(182)

 

 

(219)

 

 

(202)

 

Weighted average common shares outstanding - basic

 

16,286

 

 

16,214

 

 

16,266

 

 

16,194

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

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

 

15,000

 

 

 

 

15,000

 

 

15,000

 

Incremental unvested shares

 

30

 

 

 

 

16

 

 

 

Weighted average common shares outstanding - diluted

 

31,316

 

 

16,214

 

 

31,282

 

 

31,194

 

 

 

 

 

 

 

 

 

 

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

 

$

0.83

 

 

$

0.38

 

 

$

2.18

 

 

$

1.77

 

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

 

$

0.82

 

 

$

0.38

 

 

$

2.15

 

 

$

1.75

 

(a)

Income tax expense assumes the hypothetical conversion of the noncontrolling interest, which results in an estimated tax rate of 28.3% for the three months ended September 30, 2021, and 28.7% and 29.8% for the fiscal years ended September 30, 2021 and 2020, respectively.

 

The RMR Group Inc.
Reconciliation of Adjusted Net Income and Adjusted Net Income Per Diluted Share
(amounts in thousands, except per share amounts)
(unaudited)

The RMR Group Inc. is providing the reconciliations below regarding certain individually significant items occurring or impacting its financial results for the three months ended September 30, 2021 and 2020 for supplemental informational purposes in order to enhance the understanding of The RMR Group Inc.’s 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 consolidated statements of income.

The following table presents the impact of certain individually significant items on the financial results for the three months ended September 30, 2021, assuming the redemption of the noncontrolling interest’s 15,000 Class A Units is dilutive to earnings per share as presented in Note 3 on page 7:

 

 

Net Income

Attributable to
The RMR
Group Inc.

 

Add:
Net Income
Attributable to
Noncontrolling
Interest

 

Add:
Income
Tax
Expense

 

Income
Before
Income Tax
Expense

 

Less:
Estimated
Income Tax
Expense (1)

 

Net Income
Used in
Calculating
Diluted EPS

 

Weighted
Average
Common Shares
Outstanding -
Diluted

 

Net Income
Attributable to
The RMR Group Inc.
per Common
Share - Diluted

Three Months Ended September 30, 2021:

Net income attributable to The RMR Group Inc.

 

$

13,626

 

 

$

17,125

 

 

$

5,043

 

 

$

35,794

 

 

$

(10,134)

 

 

$

25,660

 

 

31,316

 

 

$

0.82

 

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

 

(4,889)

 

 

(6,088)

 

 

(1,802)

 

 

(12,779)

 

 

3,618

 

 

(9,161)

 

 

31,316

 

 

(0.29)

 

Gain on Tremont Mortgage Trust investment

 

(788)

 

 

(981)

 

 

(290)

 

 

(2,059)

 

 

583

 

 

(1,476)

 

 

31,316

 

 

(0.05)

 

Separation costs

 

140

 

 

174

 

 

52

 

 

366

 

 

(104)

 

 

262

 

 

31,316

 

 

0.01

 

Transaction and acquisition related costs

 

195

 

 

243

 

 

72

 

 

510

 

 

(144)

 

 

366

 

 

31,316

 

 

0.01

 

Adjusted net income attributable to The RMR Group Inc.

 

$

8,284

 

 

$

10,473

 

 

$

3,075

 

 

$

21,832

 

 

$

(6,181)

 

 

$

15,651

 

 

31,316

 

 

$

0.50

 

(1)

Estimated income tax expense assumes the hypothetical conversion of the noncontrolling interest and the resulting consolidated entities’ estimated tax rate of approximately 28.3% for the three months ended September 30, 2021.

 

The RMR Group Inc.
Reconciliation of Adjusted Net Income and Adjusted Net Income Per Diluted Share (Continued)
(amounts in thousands, except per share amounts)
(unaudited)

The following table presents the impact of certain individually significant items on the financial results for the three months ended September 30, 2020, excluding the assumed redemption of the noncontrolling interest’s 15,000 Class A Units as such redemption is anti-dilutive to earnings per share as presented in Note 3 on page 7:

 

 

Impact on Net Income
Attributable to The RMR Group
Inc.

 

Weighted Average Common
Shares Outstanding - Diluted

 

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

Three Months Ended September 30, 2020:

Net income attributable to The RMR Group Inc.

 

$

6,158

 

 

16,214

 

 

$

0.38

 

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

 

(824)

 

 

16,214

 

 

(0.05)

 

Certain compensation adjustments, net of reimbursements (2)

 

557

 

 

16,214

 

 

0.03

 

Separation costs (3)

 

455

 

 

16,214

 

 

0.03

 

Transaction and acquisition related costs (4)

 

8

 

 

16,214

 

 

 

Adjusted net income attributable to The RMR Group Inc.

 

$

6,354

 

 

16,214

 

 

$

0.39

 

(1)

Includes $2,235 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 15.3%.

(2)

Includes $1,511 of certain compensation adjustments related to annual bonus estimates, adjusted to reflect amounts attributable to the noncontrolling interest and income tax expense at a rate of approximately 15.3%.

(3)

Includes $1,236 of separation costs, adjusted to reflect amounts attributable to the noncontrolling interest and income tax expense at a rate of approximately 15.3%.

(4)

Includes $22 of transaction and acquisition related costs, adjusted to reflect amounts attributable to the noncontrolling interest and income tax expense at a rate of approximately 15.3%.

 

The RMR Group Inc.
Reconciliation of EBITDA and Adjusted EBITDA from Net Income
and Calculation of Operating Margin, Adjusted EBITDA Margin
and Adjusted EBITDA less Cash Tax Obligation (1) (2)
(dollars in thousands)
(unaudited)

 

 

Three Months Ended
September 30,

 

Fiscal Year Ended
September 30,

 

2021

 

2020

 

2021

 

2020

Reconciliation of EBITDA and Adjusted EBITDA from net income:

 

 

 

 

 

 

 

Net income

$

30,751

 

 

$

14,393

 

 

$

81,013

 

 

$

66,333

 

Income tax expense

5,043

 

 

2,608

 

 

13,152

 

 

11,552

 

Depreciation and amortization

239

 

 

237

 

 

973

 

 

968

 

EBITDA

36,033

 

 

17,238

 

 

95,138

 

 

78,853

 

Other asset amortization

2,354

 

 

2,354

 

 

9,416

 

 

9,416

 

Operating expenses paid in the form of The RMR Group Inc.'s common shares

1,212

 

 

1,127

 

 

3,639

 

 

3,480

 

Separation costs

366

 

 

1,236

 

 

4,525

 

 

1,881

 

Transaction and acquisition related costs

510

 

 

22

 

 

984

 

 

1,618

 

Straight line office rent

(57)

 

 

30

 

 

3

 

 

154

 

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

(12,779)

 

 

(2,235)

 

 

(18,811)

 

 

(3,151)

 

Gain on Tremont Mortgage Trust investment

(2,059)

 

 

 

 

(2,059)

 

 

 

Equity in (earnings) losses of investees

312

 

 

(508)

 

 

(443)

 

 

(1,545)

 

Certain compensation adjustments, net of reimbursements

 

 

1,511

 

 

 

 

 

Distributions from equity method investment

432

 

 

15

 

 

1,456

 

 

736

 

Incentive business management fees earned

 

 

 

 

(620)

 

 

 

Certain other net adjustments

 

 

 

 

 

 

(13)

 

Adjusted EBITDA

$

26,324

 

 

$

20,790

 

 

$

93,228

 

 

$

91,429

 

Calculation of Operating Margin:

 

 

 

 

 

 

 

Total management and advisory services revenues

$

46,844

 

 

$

40,204

 

 

$

175,678

 

 

$

171,677

 

Operating income

$

21,122

 

 

$

13,909

 

 

$

72,092

 

 

$

68,738

 

Operating Margin

45.1

%

 

34.6

%

 

41.0

%

 

40.0

%

Calculation of Adjusted EBITDA Margin:

 

 

 

 

 

 

 

Contractual management and advisory fees (excluding incentive business management fees, if any) (3)

$

49,198

 

 

$

42,558

 

 

$

184,474

 

 

$

181,093

 

Adjusted EBITDA

$

26,324

 

 

$

20,790

 

 

$

93,228

 

 

$

91,429

 

Adjusted EBITDA Margin

53.5

%

 

48.9

%

 

50.5

%

 

50.5

%

Calculation of Adjusted EBITDA less Cash Tax Obligation:

 

 

 

 

 

 

 

Adjusted EBITDA

$

26,324

 

 

$

20,790

 

 

$

93,228

 

 

$

91,429

 

Less: Tax distributions to members (4)

(8,268)

 

 

(8,483)

 

 

(31,469)

 

 

(31,545)

 

Adjusted EBITDA less Cash Tax Obligation

$

18,056

 

 

$

12,307

 

 

$

61,759

 

 

$

59,884

 

Common share distributions (5)

$

10,735

 

 

$

10,700

 

 

$

42,932

 

 

$

42,789

 

(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 incentive business management fees, if any). 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)

Adjusted EBITDA less Cash Tax Obligation is a non-GAAP financial measure calculated as presented in the table above. The RMR Group Inc. considers Adjusted EBITDA less Cash Tax Obligation to be an appropriate measure of its operating performance, along with net income attributable to The RMR Group Inc. The RMR Group Inc. believes that Adjusted EBITDA less Cash Tax Obligation provides useful information to investors because by excluding amounts payable for tax obligations, it increases comparability between periods and more accurately reflects earnings that may be available for distribution to shareholders. Adjusted EBITDA less Cash Tax Obligation is among the factors The RMR Group Inc.’s Board of Directors considers when determining the amount of dividends to its shareholders. Other asset management businesses may calculate Adjusted EBITDA less Cash Tax Obligation differently than The RMR Group Inc. does.

 
(3)

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 agreements. 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 September 30, 2021 and 2020, or $9,416 for each of the fiscal years ended September 30, 2021 and 2020, 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 $620 that The RMR Group Inc. recognized under GAAP for the fiscal year ended September 30, 2021.

 
(4)

Under the RMR LLC operating agreement, RMR LLC is required to make quarterly pro rata cash distributions to The RMR Group Inc. and its noncontrolling interest based on each’s estimated tax liabilities and respective ownership percentages. Estimated tax liabilities are determined quarterly on a cumulative basis. As such, there may be fluctuations from quarter to quarter to account for prior periods where pro rata cash distributions were more or less than amounts determined cumulatively through a particular quarter. For the three months and fiscal years ended September 30, 2021 and 2020, RMR LLC made required quarterly tax distributions as follows:

 

Three Months Ended September 30,

 

Fiscal Year Ended September 30,

 

 

2021

 

2020

 

2021

 

2020

RMR LLC tax distributions to The RMR Group Inc.

 

$

4,437

 

 

$

4,479

 

 

$

16,764

 

 

$

16,606

 

RMR LLC tax distributions to non-controlling interest

 

3,831

 

 

4,004

 

 

14,705

 

 

14,939

 

Total RMR LLC tax distributions to members

 

$

8,268

 

 

$

8,483

 

 

$

31,469

 

 

$

31,545

 

(5)

The three months and fiscal year ended September 30, 2021 exclude a one-time special dividend of $7.00 per share, or $219,851, paid in September 2021.

 

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

 

 

 

September 30,

 

 

2021

 

2020

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

159,835

 

 

$

369,663

 

Due from related parties

 

88,661

 

 

82,605

 

Prepaid and other current assets

 

6,021

 

 

3,877

 

Total current assets

 

254,517

 

 

456,145

 

 

 

 

 

 

Property and equipment, net

 

2,218

 

 

2,299

 

Due from related parties, net of current portion

 

14,331

 

 

7,764

 

Equity method investments

 

39,476

 

 

19,619

 

Goodwill and intangible assets, net of amortization

 

2,094

 

 

2,136

 

Operating lease right of use assets

 

32,293

 

 

34,663

 

Deferred tax asset

 

18,671

 

 

23,900

 

Other assets, net of amortization

 

134,311

 

 

143,727

 

Total assets

 

$

497,911

 

 

$

690,253

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

Current liabilities:

 

 

 

 

Other reimbursable expenses

 

$

55,115

 

 

$

56,079

 

Accounts payable and accrued expenses

 

15,027

 

 

16,984

 

Operating lease liabilities

 

4,922

 

 

4,407

 

Employer compensation liability

 

6,076

 

 

4,298

 

Total current liabilities

 

81,140

 

 

81,768

 

 

 

 

 

 

Operating lease liabilities, net of current portion

 

29,148

 

 

32,030

 

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

 

25,577

 

 

27,789

 

Employer compensation liability, net of current portion

 

14,331

 

 

7,764

 

Total liabilities

 

150,196

 

 

149,351

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

Class A common stock, $0.001 par value; 31,600,000 shares authorized; 15,485,236 and 15,395,641 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

 

109,910

 

 

106,622

 

Retained earnings

 

321,945

 

 

286,249

 

Cumulative common distributions

 

(236,766)

 

 

(96,983)

 

Total shareholders’ equity

 

195,120

 

 

295,919

 

Noncontrolling interest

 

152,595

 

 

244,983

 

Total equity

 

347,715

 

 

540,902

 

Total liabilities and equity

 

$

497,911

 

 

$

690,253

 

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 during the quarter, management and advisory services revenues increased 16.5% from last year, to $46.8 million, and marked RMR’s fifth straight quarter of sequential growth. Mr. Portnoy also states that this growth was driven by steady increases in property management fees due to recent REIT acquisitions, increased construction management fees tied to The RMR Group Inc.’s expanded oversight of client redevelopment activities and continued revenue growth at The RMR Group Inc.’s Managed Operating Companies. In addition, Mr. Portnoy states that in addition to growth in Adjusted Net Income and Adjusted EBITDA, Adjusted EBITDA Margin increased 240 basis points sequentially to 53.5% this quarter and is now just below pre-pandemic levels, which Mr. Portnoy states is a testament to high-quality operating leverage inherent in RMR’s structure. These statements may imply that The RMR Group Inc. will continue to earn increased management and advisory services revenues, Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin in the future. However, The RMR Group Inc.’s and its clients’ businesses are subject to various risks, including risks outside its and their control. Further, the impact and duration of the COVID-19 pandemic is not known and economic conditions could deteriorate for a prolonged period and negatively impact The RMR Group Inc.’s and its clients’ businesses operating and financial results;
  • Mr. Portnoy states that he believes fiscal 2022 will bring The RMR Group Inc. significant opportunities to see continued increases in revenues, including potential incentive management fees from the Managed Equity REITs as a result of The RMR Group Inc.’s clients executing on their strategic plans during what The RMR Group Inc. expects to be a period of continued economic recovery. This statement may imply that The RMR Group Inc.’s base management fees may continue to increase in future periods. However, The RMR Group Inc.’s base management fees may not grow in future periods and could decline. Further, this statement may imply that The RMR Group Inc. may earn incentive business management fees for calendar 2021 or in future years. In addition, this press release states that The RMR Group LLC estimates that it would have earned an incentive business management fee from OPI of $6.0 million for calendar 2021, if September 30, 2021 had been the end of the next measurement period. The incentive business management fees that The RMR Group LLC may earn from its Managed Equity REITs are based upon total returns realized by the REITs’ shareholders compared to the total shareholders return of certain identified indices. The RMR Group Inc. has only limited control over the total returns realized by shareholders of the Managed Equity REITs and effectively no control over indexed total returns. There can be no assurance that The RMR Group LLC will earn any incentive business management fees from its Managed Equity REITs in the future and any amounts it may earn may be less than amounts estimated; and
  • Mr. Portnoy states that The RMR Group Inc. has nearly $160 million of cash and no debt after the special dividend distribution of $7.00 per share in September 2021 and that it remains well positioned to pursue a range of capital allocation strategies, with a concentrated focus on the growth of its private capital business. This statement may imply that The RMR Group Inc. will successfully identify and execute one or more capital allocation strategies, including growth of its private capital business or future additional special dividends, and that any capital allocation strategy it may pursue will be successful and benefit it and its shareholders. However, identifying and executing on capital allocation strategies are subject to various uncertainties and risks and may take an extended period to realize any resulting benefit to its business. In addition, The RMR Group Inc. may elect to not pursue a capital allocation strategy or abandon any such strategy it may pursue.

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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