11/14/2022

The RMR Group Inc. Announces Fourth Quarter Fiscal 2022 Results

Net Income of $27.3 Million, or $0.73 Per Diluted Share

Adjusted Net Income of $9.4 Million, or $0.57 Per Diluted Share

Adjusted EBITDA of $29.5 million

NEWTON, Mass.--(BUSINESS WIRE)-- The RMR Group Inc. (Nasdaq: RMR) today announced its financial results for the fiscal quarter ended September 30, 2022.

Adam Portnoy, President and Chief Executive Officer, made the following statement regarding the fourth quarter fiscal 2022 results:

“Despite ongoing macroeconomic headwinds and market volatility, management and advisory services revenues this quarter were $51.7 million, demonstrating our significant fee stability. Revenues this quarter also reflect continued growth in construction management fees and increases in fees from our Managed Operating Companies. These growing revenues have positively impacted our operating results highlighted by Adjusted EBITDA of $29.5 million, Net Income Margin of 52.8% and Adjusted EBITDA Margin of 54.6%.

For the fiscal year, we generated $31.0 million of excess capital after the consideration of dividends and our tax obligations, bringing our cash balance to approximately $189 million at year end. We continue to have no debt, our dividend remains well covered and we remain well positioned to pursue a range of capital allocation strategies, including opportunistically taking advantage of market dislocation to promote long term growth.”

Fourth Quarter Fiscal 2022 Highlights:

  • The RMR Group LLC’s assets under management, or AUM, and management and advisory services revenue by source are as follows (dollars in thousands):

 

 

 

 

Total Management

 

 

 

 

and Advisory

 

 

AUM

 

Services Revenues (4)

As of or for the Three Months Ended September 30, 2022

Managed Public Real Estate Capital (1)

 

$

30,894,912

 

82.8

%

 

$

38,115

 

73.7

%

Managed Private Real Estate Capital (2)

 

 

3,862,102

 

 

10.4

%

 

 

5,247

 

 

10.1

%

Managed Operating Companies (3)

 

 

2,554,325

 

 

6.8

%

 

 

8,359

 

 

16.2

%

Total

 

$

37,311,339

 

 

100.0

%

 

$

51,721

 

 

100.0

%

 

 

 

 

 

 

 

 

 

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

%

(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, and Seven Hills Realty Trust (SEVN).

(2)

Managed Private Real Estate Capital primarily consists of private entities that own commercial real estate. Some of the Managed Equity REITs own minority interests in those entities.

(3)

Managed Operating Companies include: AlerisLife Inc. (ALR), Sonesta International Hotels Corporation (Sonesta) and TravelCenters of America Inc. (TA).

(4)

Includes construction supervision fees of $5,120 and $2,469 for the three months ended September 30, 2022 and 2021, respectively.

  • For the three months ended September 30, 2022, net income was $27.3 million and net income attributable to The RMR Group Inc. was $12.0 million, or $0.73 per diluted share, compared to net income of $30.8 million and net income attributable to The RMR Group Inc. of $13.6 million, or $0.82 per diluted share, for the three months ended September 30, 2021.
  • For the three months ended September 30, 2022, Adjusted Net Income Attributable to The RMR Group Inc. was $9.4 million, or $0.57 per diluted share, compared to $8.3 million, or $0.50 per diluted share, for the three months ended September 30, 2021. The adjustments to net income attributable to The RMR Group Inc. this quarter included $0.8 million, or $0.05 per diluted share, related to certain compensation adjustments, net of reimbursements, and $0.3 million, or $0.02 per diluted share, of separation costs, offset by $3.7 million, or $0.23 per diluted share, of unrealized gains on its equity method investments in SEVN and TA.

    The adjustment for certain compensation adjustments relates to our annual discretionary bonus program paid in September of each year. For this fiscal year, September bonus payments exceeded estimates accrued throughout the year by $2.3 million, net of any client reimbursements, as a result of the current competitive job market conditions for real estate professionals.
  • For the three months ended September 30, 2022, Adjusted EBITDA was $29.5 million, Net Income Margin was 52.8% and Adjusted EBITDA Margin was 54.6%, compared to Adjusted EBITDA of $26.3 million, Net Income Margin of 65.6% and Adjusted EBITDA Margin of 53.5% for the three months ended September 30, 2021.
  • As of September 30, 2022, The RMR Group Inc. had $189.1 million in cash and cash equivalents with no outstanding debt obligations.

Non-GAAP Financial Measures:

The RMR Group Inc. presents certain “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or SEC, including Adjusted Net Income Attributable to The RMR Group Inc., Adjusted Net Income Attributable to The RMR Group Inc. per diluted share, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Distributable Earnings. The U.S. Generally Accepted Accounting Principles, or 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 Adjusted Net Income Attributable to The RMR Group Inc. per diluted share is net income attributable to The RMR Group Inc. per diluted share. The GAAP financial measure that is most directly comparable to EBITDA, Adjusted EBITDA and Distributable Earnings is net income and the GAAP financial measure that is most directly comparable to Adjusted EBITDA Margin is Net Income Margin, which represents net income divided by total management and advisory services revenues.

These non-GAAP financial measures do not represent net income, net income attributable to The RMR Group Inc., net income attributable to The RMR Group Inc. per diluted share or cash generated by operating activities determined in accordance with GAAP, and should not be considered alternatives to net income, net income attributable to The RMR Group Inc., net income attributable to The RMR Group Inc. per diluted share or net income margin determined in accordance with GAAP, as indicators of The RMR Group Inc.’s financial performance or as measures of its liquidity. Other asset management businesses may calculate these non-GAAP measures differently than The RMR Group Inc. does.

The RMR Group Inc. calculates EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin as presented on page 10 and considers them to be appropriate supplemental measures of its operating performance, along with net income, net income attributable to The RMR Group Inc. and net income 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 unrealized gains and losses, 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. The RMR Group Inc. also 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).

The RMR Group Inc. calculates Adjusted Net Income Attributable to The RMR Group Inc. and Adjusted Net Income Attributable to The RMR Group Inc. per diluted share as net income attributable to The RMR Group Inc. and net income attributable to The RMR Group Inc. per diluted share, respectively, excluding the effects of certain individually significant items occurring or impacting its financial results during the quarter. The RMR Group Inc. provides Adjusted Net Income Attributable to The RMR Group Inc. and Adjusted Net Income Attributable to The RMR Group Inc. per diluted share 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.

Distributable Earnings is calculated as Adjusted EBITDA less tax distributions to members and is considered to be an appropriate measure of The RMR Group Inc.’s operating performance, along with net income attributable to The RMR Group Inc. The RMR Group Inc. believes that Distributable Earnings 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. Distributable Earnings is among the factors The RMR Group Inc.’s Board of Directors considers when determining the amount of dividends to its shareholders.

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., net income attributable to The RMR Group Inc. per diluted share determined in accordance with GAAP to Adjusted Net Income Attributable to The RMR Group Inc. per diluted share, and of net income to EBITDA and Adjusted EBITDA, as well as calculations of Net Income Margin, Adjusted EBITDA Margin and Distributable Earnings 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. Upon deconsolidation from a Managed Equity REIT, the respective real estate and related assets are characterized as Managed Private Real Estate Capital and their historical cost represents the fair value of the real estate at the time of deconsolidation.

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 for the fiscal year ended September 30, 2022, filed with the SEC. The RMR Group Inc.’s SEC filings are available at the SEC website: www.sec.gov.

Conference Call:

On Tuesday, November 15, 2022 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, 2022 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 22, 2022. To access the replay, dial (412) 317-0088. The replay pass code is 8297537.

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, 2022 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 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 more than 30 offices nationwide who manage over $37 billion in assets under management and leverage more than 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,

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

Management services (1)

 

$

50,583

 

 

$

45,737

 

 

$

195,450

 

 

$

171,102

 

Incentive business management fees

 

 

 

 

 

 

 

 

 

 

 

620

 

Advisory services

 

 

1,138

 

 

 

1,107

 

 

 

4,530

 

 

 

3,956

 

Total management and advisory services revenues

 

 

51,721

 

 

 

46,844

 

 

 

199,980

 

 

 

175,678

 

Reimbursable compensation and benefits

 

 

14,592

 

 

 

12,916

 

 

 

56,684

 

 

 

52,369

 

Reimbursable equity based compensation

 

 

4,176

 

 

 

3,543

 

 

 

7,072

 

 

 

9,154

 

Other reimbursable expenses

 

 

171,704

 

 

 

110,181

 

 

 

568,767

 

 

 

370,037

 

Total reimbursable costs

 

 

190,472

 

 

 

126,640

 

 

 

632,523

 

 

 

431,560

 

Total revenues

 

 

242,193

 

 

 

173,484

 

 

 

832,503

 

 

 

607,238

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

34,201

 

 

 

29,034

 

 

 

129,872

 

 

 

119,644

 

Equity based compensation

 

 

5,417

 

 

 

4,755

 

 

 

10,136

 

 

 

12,022

 

Separation costs

 

 

698

 

 

 

366

 

 

 

1,315

 

 

 

4,525

 

Total compensation and benefits expense

 

 

40,316

 

 

 

34,155

 

 

 

141,323

 

 

 

136,191

 

General and administrative

 

 

8,455

 

 

 

7,277

 

 

 

32,919

 

 

 

26,961

 

Other reimbursable expenses

 

 

171,704

 

 

 

110,181

 

 

 

568,767

 

 

 

370,037

 

Transaction and acquisition related costs

 

 

132

 

 

 

510

 

 

 

132

 

 

 

984

 

Depreciation and amortization

 

 

262

 

 

 

239

 

 

 

993

 

 

 

973

 

Total expenses

 

 

220,869

 

 

 

152,362

 

 

 

744,134

 

 

 

535,146

 

Operating income

 

 

21,324

 

 

 

21,122

 

 

 

88,369

 

 

 

72,092

 

Interest and other income

 

 

920

 

 

 

146

 

 

 

1,322

 

 

 

760

 

Gain on Tremont Mortgage Trust investment

 

 

 

 

 

2,059

 

 

 

 

 

 

2,059

 

Equity in earnings (losses) of investees

 

 

 

 

 

(312

)

 

 

 

 

 

443

 

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

 

 

9,863

 

 

 

12,779

 

 

 

1,010

 

 

 

18,811

 

Income before income tax expense

 

 

32,107

 

 

 

35,794

 

 

 

90,701

 

 

 

94,165

 

Income tax expense

 

 

(4,785

)

 

 

(5,043

)

 

 

(13,233

)

 

 

(13,152

)

Net income

 

 

27,322

 

 

 

30,751

 

 

 

77,468

 

 

 

81,013

 

Net income attributable to noncontrolling interest

 

 

(15,322

)

 

 

(17,125

)

 

 

(43,464

)

 

 

(45,317

)

Net income attributable to The RMR Group Inc.

 

$

12,000

 

 

$

13,626

 

 

$

34,004

 

 

$

35,696

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic (2)

 

 

16,354

 

 

 

16,286

 

 

 

16,338

 

 

 

16,266

 

Weighted average common shares outstanding - diluted (2)

 

 

16,354

 

 

 

31,316

 

 

 

31,348

 

 

 

31,282

 

 

 

 

 

 

 

 

 

 

Net income attributable to The RMR Group Inc. per common share - basic (2)

 

$

0.73

 

 

$

0.83

 

 

$

2.06

 

 

$

2.18

 

Net income attributable to The RMR Group Inc. per common share - diluted (2)

 

$

0.73

 

 

$

0.82

 

 

$

2.04

 

 

$

2.15

 

Substantially all revenues are earned from related parties. 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, 2022 and 2021, as applicable:

 

 

 

 

 

Lesser of Historical Cost of Assets

 

 

 

 

 

Under Management or

 

 

 

 

 

Total Market Capitalization (a)

 

 

 

 

 

As of September 30,

 

REIT

 

Primary Strategy

 

 

2022

 

 

2021

 

DHC

 

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

 

$

3,328,069

 

 

$

5,150,401

 

 

ILPT

 

Industrial and logistics properties

 

 

4,656,472

 

 

 

2,100,020

 

 

OPI

 

Office properties primarily leased to single tenants, including the government

 

 

3,102,253

 

 

 

3,837,235

 

 

SVC

 

Hotels and net lease service and necessity-based retail properties

 

 

6,651,976

 

 

 

9,050,693

 

 

 

 

 

 

$

17,738,770

 

 

$

20,138,349

 

 

(a)

The basis on which base business management fees are calculated for the three months ended September 30, 2022 and 2021 may differ from the basis at the end of the periods presented in the table above. As of September 30, 2022, the market capitalization was lower than the historical cost of assets under management for each of the Managed Equity REITs. The historical cost of assets under management for DHC, ILPT, OPI and SVC as of September 30, 2022, were $7,354,104, $5,693,562, $5,907,788 and $11,285,303, respectively.

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

(2)

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 using the treasury stock method 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, 2022 and 2021, the assumed redemption of the 15,000 Class A Units is dilutive to earnings per share. For the three months ended September 30, 2022, 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,

 

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

Numerators:

 

 

 

 

 

 

 

 

 

Net income attributable to The RMR Group Inc.

 

$

12,000

 

 

$

13,626

 

 

$

34,004

 

 

$

35,696

 

 

Less: income attributable to unvested participating securities

 

 

(118

)

 

 

(113

)

 

 

(329

)

 

 

(309

)

 

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

 

 

11,882

 

 

 

13,513

 

 

 

33,675

 

 

 

35,387

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Add back: income attributable to unvested participating securities

 

 

 

 

 

113

 

 

 

329

 

 

 

309

 

 

Add back: net income attributable to noncontrolling interest

 

 

 

 

 

17,125

 

 

 

43,464

 

 

 

45,317

 

 

Add back: income tax expense

 

 

 

 

 

5,043

 

 

 

13,233

 

 

 

13,152

 

 

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

 

 

 

 

 

(10,134

)

 

 

(26,732

)

 

 

(27,061

)

 

Net income used in calculating diluted EPS

 

$

11,882

 

 

$

25,660

 

 

$

63,969

 

 

$

67,104

 

 

 

 

 

 

 

 

 

 

 

 

Denominators:

 

 

 

 

 

 

 

 

 

Common shares outstanding

 

 

16,606

 

 

 

16,485

 

 

 

16,606

 

 

 

16,485

 

 

Less: unvested participating securities

 

 

(252

)

 

 

(199

)

 

 

(268

)

 

 

(219

)

 

Weighted average common shares outstanding - basic

 

 

16,354

 

 

 

16,286

 

 

 

16,338

 

 

 

16,266

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Add: assumed redemption of noncontrolling interest’s Class A Units for Class A Common Shares

 

 

 

 

 

15,000

 

 

 

15,000

 

 

 

15,000

 

 

Add: incremental unvested shares

 

 

 

 

 

30

 

 

 

10

 

 

 

16

 

 

Weighted average common shares outstanding - diluted

 

 

16,354

 

 

 

31,316

 

 

 

31,348

 

 

 

31,282

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.73

 

 

$

0.83

 

 

$

2.06

 

 

$

2.18

 

 

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

 

$

0.73

 

 

$

0.82

 

 

$

2.04

 

 

$

2.15

 

 

(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 29.5% and 28.7% for the fiscal years ended September 30, 2022 and 2021, 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 following table presents the impact of certain individually significant items on the financial results for the three months ended September 30, 2022, 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 2 on page 7:

 

 

Net Income

Attributable to The

RMR Group Inc.

 

Less:

Income Attributable

to Unvested

Participating

Securities

 

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

Net income attributable to The RMR Group Inc.

 

$

12,000

 

 

$

(118

)

 

$

11,882

 

 

16,354

 

$

0.73

 

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

 

 

(3,712

)

 

 

37

 

 

 

(3,675

)

 

16,354

 

 

 

(0.23

)

Certain compensation adjustments, net of reimbursements (2)

 

 

847

 

 

 

(8

)

 

 

839

 

 

16,354

 

 

 

0.05

 

Separation costs (3)

 

 

263

 

 

 

(3

)

 

 

260

 

 

16,354

 

 

 

0.02

 

Transaction and acquisition related costs (4)

 

 

49

 

 

 

 

 

 

49

 

 

16,354

 

 

 

 

Adjusted net income attributable to The RMR Group Inc.

 

$

9,447

 

 

$

(92

)

 

$

9,355

 

 

16,354

 

 

$

0.57

 

(1)

Includes $9,863 in unrealized gains on The RMR Group Inc.’s investments in TA and SEVN common shares, adjusted to reflect amounts attributable to the noncontrolling interest of $4,681 and income tax expense of $1,470 at a rate of approximately 14.9%.

(2)

Includes $2,252 of certain compensation adjustments related to annual bonus estimates, adjusted to reflect amounts attributable to the noncontrolling interest of $1,069 and income tax expense of $336 at a rate of approximately 14.9%.

(3)

Includes $698 of separation costs, adjusted to reflect amounts attributable to the noncontrolling interest of $331 and income tax expense of $104 at a rate of approximately 14.9%.

(4)

Includes $132 of transaction and acquisition related costs, adjusted to reflect amounts attributable to the noncontrolling interest of $63 and income tax expense of $20 at a rate of approximately 14.9%.

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, 2021, assuming the redemption of the noncontrolling interest’s 15,000 Class A Units is dilutive to earnings per share as presented in Note 2 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

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 EBITDA and Adjusted EBITDA from Net Income
and Calculation of Net Income Margin, Adjusted EBITDA Margin
and Distributable Earnings
(dollars in thousands)
(unaudited)

 

Three Months Ended

September 30,

 

Fiscal Year Ended

September 30,

 

2022

 

 

 

2021

 

 

 

2022

 

 

2021

Reconciliation of EBITDA and Adjusted EBITDA from net income:

 

 

 

 

 

 

 

Net income

$

27,322

 

 

$

30,751

 

 

$

77,468

 

 

$

81,013

 

Income tax expense

 

4,785

 

 

 

5,043

 

 

 

13,233

 

 

 

13,152

 

Depreciation and amortization

 

262

 

 

 

239

 

 

 

993

 

 

 

973

 

EBITDA

 

32,369

 

 

 

36,033

 

 

 

91,694

 

 

 

95,138

 

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

 

1,241

 

 

 

1,212

 

 

 

3,611

 

 

 

3,639

 

Separation costs

 

698

 

 

 

366

 

 

 

1,315

 

 

 

4,525

 

Transaction and acquisition related costs

 

132

 

 

 

510

 

 

 

132

 

 

 

984

 

Straight line office rent

 

(105

)

 

 

(57

)

 

 

(352

)

 

 

3

 

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

 

(9,863

)

 

 

(12,779

)

 

 

(1,010

)

 

 

(18,811

)

Gain on Tremont Mortgage Trust investment

 

 

 

 

(2,059

)

 

 

 

 

 

(2,059

)

Equity in (earnings) losses of investees

 

 

 

 

312

 

 

 

 

 

 

(443

)

Certain compensation adjustments, net of reimbursements

 

2,252

 

 

 

 

 

 

 

 

 

 

Distributions from equity method investments

 

426

 

 

 

432

 

 

 

841

 

 

 

1,456

 

Incentive business management fees earned

 

 

 

 

 

 

 

 

 

 

(620

)

Adjusted EBITDA

$

29,504

 

 

$

26,324

 

 

$

105,647

 

 

$

93,228

 

Calculation of Net Income Margin:

 

 

 

 

 

 

 

Total management and advisory services revenues

$

51,721

 

 

$

46,844

 

 

$

199,980

 

 

$

175,678

 

Net income

$

27,322

 

 

$

30,751

 

 

$

77,468

 

 

$

81,013

 

Net Income Margin

 

52.8

%

 

 

65.6

%

 

 

38.7

%

 

 

46.1

%

Calculation of Adjusted EBITDA Margin:

 

 

 

 

 

 

 

Contractual management and advisory fees (excluding incentive business management fees, if any) (1)

$

54,075

 

 

$

49,198

 

 

$

209,396

 

 

$

184,474

 

Adjusted EBITDA

$

29,504

 

 

$

26,324

 

 

$

105,647

 

 

$

93,228

 

Adjusted EBITDA Margin

 

54.6

%

 

 

53.5

%

 

 

50.5

%

 

 

50.5

%

Calculation of Distributable Earnings:

 

 

 

 

 

 

 

Adjusted EBITDA

$

29,504

 

 

$

26,324

 

 

$

105,647

 

 

$

93,228

 

Less: Tax distributions to members (2)

 

(8,312

)

 

 

(8,268

)

 

 

(30,281

)

 

 

(31,469

)

Distributable Earnings

$

21,192

 

 

$

18,056

 

 

$

75,366

 

 

$

61,759

 

Common share distributions (3)

$

11,400

 

 

$

10,735

 

 

$

44,330

 

 

$

42,932

 

(1)

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, 2022 and 2021, or $9,416 for each of the fiscal years ended September 30, 2022 and 2021, 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.

(2)

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, 2022 and 2021, RMR LLC made required quarterly tax distributions as follows:

 

 

 

Three Months Ended September 30,

 

Fiscal Year Ended September 30,

 

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

RMR LLC tax distributions to The RMR Group Inc.

 

$

4,381

 

 

$

4,437

 

 

$

15,940

 

 

$

16,764

 

 

RMR LLC tax distributions to non-controlling interest

 

 

3,931

 

 

 

3,831

 

 

 

14,341

 

 

 

14,705

 

 

Total RMR LLC tax distributions to members

 

$

8,312

 

 

$

8,268

 

 

$

30,281

 

 

$

31,469

 

(3)

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,

 

 

 

2022

 

 

 

2021

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

189,088

 

 

$

159,835

 

Due from related parties

 

 

108,821

 

 

 

88,661

 

Prepaid and other current assets

 

 

5,372

 

 

 

6,021

 

Total current assets

 

 

303,281

 

 

 

254,517

 

 

 

 

 

 

Property and equipment, net

 

 

2,495

 

 

 

2,218

 

Due from related parties, net of current portion

 

 

14,557

 

 

 

14,331

 

Equity method investments accounted for under the fair value option

 

 

49,114

 

 

 

39,476

 

Goodwill and intangible assets, net of amortization

 

 

2,057

 

 

 

2,094

 

Operating lease right of use assets

 

 

28,894

 

 

 

32,293

 

Deferred tax asset

 

 

17,112

 

 

 

18,671

 

Other assets, net of amortization

 

 

124,895

 

 

 

134,311

 

Total assets

 

$

542,405

 

 

$

497,911

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

Current liabilities:

 

 

 

 

Reimbursable accounts payable and accrued expenses

 

$

80,221

 

 

$

55,115

 

Accounts payable and accrued expenses

 

 

16,745

 

 

 

15,027

 

Operating lease liabilities

 

 

4,693

 

 

 

4,922

 

Employer compensation liability

 

 

7,516

 

 

 

6,076

 

Total current liabilities

 

 

109,175

 

 

 

81,140

 

 

 

 

 

 

Operating lease liabilities, net of current portion

 

 

25,626

 

 

 

29,148

 

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

 

 

23,308

 

 

 

25,577

 

Employer compensation liability, net of current portion

 

 

14,557

 

 

 

14,331

 

Total liabilities

 

 

172,666

 

 

 

150,196

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

Class A common stock, $0.001 par value; 31,600,000 shares authorized; 15,606,115 and 15,485,236 shares issued and outstanding, respectively

 

 

16

 

 

 

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

 

 

113,136

 

 

 

109,910

 

Retained earnings

 

 

355,949

 

 

 

321,945

 

Cumulative common distributions

 

 

(262,496

)

 

 

(236,766

)

Total shareholders’ equity

 

 

206,621

 

 

 

195,120

 

Noncontrolling interest

 

 

163,118

 

 

 

152,595

 

Total equity

 

 

369,739

 

 

 

347,715

 

Total liabilities and equity

 

$

542,405

 

 

$

497,911

 

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 despite ongoing macroeconomic headwinds and market volatility, management and advisory services revenues this quarter were $51.7 million reflecting continued growth in construction management fees and increases in fees from The RMR Group Inc.’s Managed Operating Companies. Mr. Portnoy also states that these growing revenues have positively impacted The RMR Group Inc.’s operating results highlighted by Adjusted EBITDA of $29.5 million, Net Income Margin of 52.8% and Adjusted EBITDA Margin of 54.6%. These statements may imply that The RMR Group Inc. will continue to earn increased management and advisory services revenues resulting in improved financial results 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, economic conditions could deteriorate, including as a result of increasing interest rates, inflation, supply chain challenges, adverse geopolitical conditions and possible recession, for a prolonged period and negatively impact The RMR Group Inc.’s and its clients’ businesses and operating and financial results;
  • Mr. Portnoy statement that this quarter’s management and advisory services revenues demonstrates The RMR Group Inc.’s significant fee stability may imply that The RMR Group Inc.’s business will realize steady, or avoid significantly decreased or negative management and advisory services revenues, operating results and returns. However, The RMR Group Inc.’s fee stability may not be as stable as it believes if, for instance, its management agreements were terminated; and
  • Mr. Portnoy states that for the fiscal year, The RMR Group Inc. generated $31.0 million of excess capital after the consideration of dividends and its tax obligations, bringing its cash balance to approximately $189 million at year end. Mr. Portnoy also states that The RMR Group Inc. continues to have no debt, its dividend remains well covered and it remains well positioned to pursue a range of capital allocation strategies, including opportunistically taking advantage of market dislocation to promote long term growth. These statements may imply that The RMR Group Inc. will continue to generate excess capital after the consideration of dividends and tax obligations, will continue to pay a regular quarterly dividend at the current rate and successfully identify and execute one or more capital allocation strategies and that any capital allocation strategy it may pursue will be successful and benefit it and its shareholders and advance its long term growth. However, there can be no assurance that The RMR Group Inc. will generate similar or greater excess capital in the future or that it will continue to pay any regular dividends at the current rate or at all. The RMR Group Inc. may decide to lower or even eliminate its dividends. Further, identifying and executing on capital allocation strategies are subject to various uncertainties and risks, it may take an extended period of time to realize any benefits and there can be no assurance that any capital allocation strategy that it does pursue will advance continued long term growth. In addition, The RMR Group Inc. may elect to not continue pursuing 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.

OK