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The RMR Group Inc. Announces Third Quarter Fiscal 2022 Results

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Net Income of $17.3 Million, or $0.46 Per Diluted Share, both an 18% Sequential Quarter Increase

Adjusted Net Income of $0.59 Per Diluted Share, an 18% Sequential Quarter Increase

Adjusted EBITDA of $29.4 Million, a 14% Sequential Quarter Increase

NEWTON, Mass., August 04, 2022--(BUSINESS WIRE)--The RMR Group Inc. (Nasdaq: RMR) today announced its financial results for the fiscal quarter ended June 30, 2022.

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

"For the third fiscal quarter, RMR reported management and advisory services revenues of $53.0 million, a 16% increase from last year and a 7% sequential quarter increase, primarily driven by the increase in assets under management, growth in construction management revenues and increases in management fees from some of our Managed Operating Companies. Despite inflationary and geopolitical headwinds, we generated $17.3 million of Net Income, or a 32.6% Net Income Margin, and $29.4 million of Adjusted EBITDA, or a 53.1% Adjusted EBITDA Margin. We believe these results continue to reflect the benefits of RMR’s operating leverage, our diverse client base and our overall fee durability.

Our dividend remains well covered, and with almost $196 million of cash and no debt, we remain well positioned to continue pursuing a range of capital allocation strategies to advance continued long term growth."

Third 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 June 30, 2022

Managed Public Real Estate Capital (1)

$

30,918,739

83.0%

$

39,509

74.6%

Managed Private Real Estate Capital (2)

3,856,386

10.4%

5,276

10.0%

Managed Operating Companies (3)

2,470,780

6.6%

8,171

15.4%

Total

$

37,245,905

100.0%

$

52,956

100.0%

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

Managed Public Real Estate Capital (1)

$

29,240,087

89.9%

$

36,396

80.0%

Managed Private Real Estate Capital (2)

1,336,872

4.1%

2,138

4.7%

Managed Operating Companies (3)

1,950,830

6.0%

6,976

15.3%

Total

$

32,527,789

100.0%

$

45,510

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) and, until its merger with and into SEVN on September 30, 2021, Tremont Mortgage Trust (TRMT).

(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 $4,596 and $2,178 for the three months ended June 30, 2022 and 2021, respectively.

  • For the three months ended June 30, 2022, net income was $17.3 million and net income attributable to The RMR Group Inc. was $7.6 million, or $0.46 per diluted share, compared to net income of $19.0 million and net income attributable to The RMR Group Inc. of $8.2 million, or $0.50 per diluted share, for the three months ended June 30, 2021.

  • For the three months ended June 30, 2022, adjusted net income attributable to The RMR Group Inc. was $9.8 million, or $0.59 per diluted share, compared to $7.8 million, or $0.47 per diluted share, for the three months ended June 30, 2021. The adjustments to net income attributable to The RMR Group Inc. this quarter included $2.1 million, or $0.12 per diluted share, of unrealized losses on its equity method investments in SEVN and TA and $0.2 million, or $0.01 per diluted share, of separation costs.

  • For the three months ended June 30, 2022, Adjusted EBITDA was $29.4 million, Net Income Margin was 32.6% and Adjusted EBITDA Margin was 53.1%, compared to Adjusted EBITDA of $24.4 million, Net Income Margin of 41.8% and Adjusted EBITDA Margin of 51.1% for the three months ended June 30, 2021.

  • As of June 30, 2022, The RMR Group Inc. had $195.9 million in cash and cash equivalents with no outstanding debt obligations.

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

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 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 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 Adjusted EBITDA less Cash Tax Obligation 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. 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 Adjusted EBITDA less Cash Tax Obligation for each of the three months ended June 30, 2022 and 2021 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, 2021, 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 Friday, August 5, 2022 at 1:00 p.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 third quarter ended June 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 Friday, August 12, 2022. To access the replay, dial (412) 317-0088. The replay pass code is 9494221.

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, 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.

Condensed Consolidated Statements of Income

(amounts in thousands, except per share amounts)

(unaudited)

Three Months Ended June 30,

Nine Months Ended June 30,

2022

2021

2022

2021

Revenues:

Management services (1)

$

51,819

$

44,376

$

144,867

$

125,365

Incentive business management fees

620

Advisory services

1,137

1,134

3,392

2,849

Total management and advisory services revenues

52,956

45,510

148,259

128,834

Reimbursable compensation and benefits

14,189

13,069

42,092

39,453

Reimbursable equity based compensation

(69

)

1,402

2,896

5,611

Other reimbursable expenses

144,012

85,263

397,063

259,856

Total reimbursable costs

158,132

99,734

442,051

304,920

Total revenues

211,088

145,244

590,310

433,754

Expenses:

Compensation and benefits

32,170

30,530

95,671

90,610

Equity based compensation

512

1,954

4,719

7,267

Separation costs

400

617

4,159

Total compensation and benefits expense

33,082

32,484

101,007

102,036

General and administrative

8,323

6,320

24,464

19,684

Other reimbursable expenses

144,012

85,263

397,063

259,856

Transaction and acquisition related costs

61

474

Depreciation and amortization

253

245

731

734

Total expenses

185,670

124,373

523,265

382,784

Operating income

25,418

20,871

67,045

50,970

Interest and other income

279

179

402

614

Equity in earnings of investees

28

755

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

(5,489

)

1,312

(8,853

)

6,032

Income before income tax expense

20,208

22,390

58,594

58,371

Income tax expense

(2,943

)

(3,361

)

(8,448

)

(8,109

)

Net income

17,265

19,029

50,146

50,262

Net income attributable to noncontrolling interest

(9,695

)

(10,797

)

(28,142

)

(28,192

)

Net income attributable to The RMR Group Inc.

$

7,570

$

8,232

$

22,004

$

22,070

Weighted average common shares outstanding - basic (2)

16,343

16,269

16,332

16,259

Weighted average common shares outstanding - diluted (2)

31,353

31,308

31,342

31,271

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

$

0.46

$

0.50

$

1.33

$

1.35

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

$

0.46

$

0.50

$

1.33

$

1.31

Substantially all revenues are earned from related parties. See Notes beginning on page 6.

The RMR Group Inc.

Notes to Condensed Consolidated Statements of Income

(dollars in thousands)

(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 June 30, 2022 and 2021, as applicable:

Lesser of Historical Cost of Assets

Under Management or

Total Market Capitalization (a)

As of June 30,

REIT

Primary Strategy

2022

2021

DHC

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

$

3,541,918

$

5,337,144

ILPT

Industrial and logistics properties

5,372,641

1,997,990

OPI

Office properties primarily leased to single tenants, including the government

3,481,695

3,962,573

SVC

Hotels and net lease service and necessity-based retail properties

7,363,672

9,277,211

$

19,759,926

$

20,574,918

(a)

The basis on which base business management fees are calculated for the three months ended June 30, 2022 and 2021 may differ from the basis at the end of the periods presented in the table above. As of June 30, 2022, the market capitalization was lower than the historical cost of assets under management for the Managed Equity REITs. The historical cost of assets under management for DHC, ILPT, OPI and SVC as of June 30, 2022, were $7,198,520, $5,644,407, $6,076,279 and $11,368,553, respectively.

The RMR Group Inc.

Notes to Condensed 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 and nine months ended June 30, 2022 and 2021, the assumed redemption is dilutive to earnings per share as presented in the table below. The calculation of basic and diluted EPS is as follows:

Three Months Ended June 30,

Nine Months Ended June 30,

2022

2021

2022

2021

Numerators:

Net income attributable to The RMR Group Inc.

$

7,570

$

8,232

$

22,004

$

22,070

Less: income attributable to unvested participating securities

(72

)

(72

)

(213

)

(194

)

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

7,498

8,160

21,791

21,876

Effect of dilutive securities:

Add back: income attributable to unvested participating securities

72

72

213

194

Add back: net income attributable to noncontrolling interest

9,695

10,797

28,142

28,192

Add back: income tax expense

2,943

3,361

8,448

8,109

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

(5,851

)

(6,686

)

(16,833

)

(17,346

)

Net income used in calculating diluted EPS

$

14,357

$

15,704

$

41,761

$

41,025

Denominators:

Common shares outstanding

16,501

16,408

16,501

16,408

Unvested participating securities

(158

)

(139

)

(169

)

(149

)

Weighted average common shares outstanding - basic

16,343

16,269

16,332

16,259

Effect of dilutive securities:

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

15,000

15,000

15,000

15,000

Incremental unvested shares

10

39

10

12

Weighted average common shares outstanding - diluted

31,353

31,308

31,342

31,271

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

$

0.46

$

0.50

$

1.33

$

1.35

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

$

0.46

$

0.50

$

1.33

...