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