The RMR Group Inc. — Fiscal 2022 Second-Quarter 10-Q
Reporting period: Three and six months ended March 31, 2022; balance sheet compared with September 30, 2021. RMR is a holding company whose business is conducted primarily through RMR LLC, which manages real estate investment trusts, operating companies and private real estate clients. Substantially all revenue is from related parties.
Financial results
Amounts below are in millions, except per-share data. Revenue includes substantial reimbursed costs that are offset by equal expenses; management and advisory services revenue better reflects fee activity.
| Metric | Three months ended March 31, 2022 | Prior-year quarter | Six months ended March 31, 2022 | Prior-year period |
|---|---|---|---|---|
| Total revenue | $197.7 | $131.6 | $379.2 | $288.5 |
| Management and advisory services revenue | $49.3 | $42.0 | $95.3 | $83.3 |
| Operating income | $21.5 | $16.4 | $41.6 | $30.1 |
| Net income attributable to RMR Inc. | $6.4 | $4.9 | $14.4 | $13.8 |
| Diluted EPS | $0.39 | $0.30 | $0.88 | $0.81 |
| Operating margin on management and advisory revenue | 43.7% | 39.0% | 43.7% | 36.1% |
Quarterly management and advisory revenue rose 17.4%; operating income rose 31.6% and attributable net income rose 29.4%. For the six-month period, those revenues rose 14.4%, operating income rose 38.3% and attributable net income rose 4.3%. Total-revenue growth was amplified by reimbursable costs, which are recorded as both revenue and expense.
- Cash flow and liquidity: Six-month operating cash flow was $50.3 million, versus $36.1 million a year earlier; investing cash outflow was $0.6 million and financing cash outflow was $27.8 million. Cash increased to $181.7 million from $159.8 million at September 30, 2021.
- Debt and liabilities: The filing reports no debt and says RMR has no credit facilities. Total liabilities were $174.0 million, including operating lease liabilities and a $27.8 million tax receivable agreement liability.
- Receivables: Amounts due from related parties totaled $121.5 million, including $93.5 million of reimbursable costs.
- Distributions: RMR paid $0.76 per eligible common share during the six months. After quarter-end it declared a $0.40-per-share quarterly dividend, expected to be paid May 19, 2022.
Changes, outlook and risks
- Management attributed fee growth to ILPT’s acquisition of Monmouth properties, increased construction oversight activity, and more hotels managed or franchised by Sonesta. ALR fees declined, which management linked to pandemic-related effects and senior-living community transitions.
- RMR recorded a $4.6 million quarterly unrealized loss on equity-method investments measured at fair value, compared with a $3.4 million loss in the prior-year quarter. For the six months, the unrealized loss was $3.4 million, versus a $4.7 million gain a year earlier; the filing identifies market-price movements in SEVN and TA as the source.
- ILPT completed an approximately $4.0 billion acquisition of 126 industrial properties on February 25, 2022; DHC completed a $703 million joint venture on January 31, 2022. These client transactions provide business context but are not RMR acquisitions.
- No quantified earnings or revenue guidance is provided. Management says cash supports operations and obligations over the next 12 months and identifies growth of its private-capital business as a capital-allocation focus; execution and benefits are uncertain. The board may change or eliminate dividends.
- Key risks include dependence on a limited number of clients, potential termination of management agreements, fee sensitivity to client market values and operating results, COVID-19 impacts on hospitality, travel and senior housing, inflation and wage pressure, and related-party conflicts. The filing reports no material changes to previously disclosed risk factors. Adam D. Portnoy controls the trust holding the 47.6% noncontrolling economic interest in RMR LLC and has governance roles across RMR and many clients.
Investor facts to verify
- Whether fee growth excluding reimbursed costs is sustainable, and how much depends on construction activity, client market capitalizations and recent acquisitions.
- Collection and aging of the $121.5 million due from related parties, particularly reimbursable costs.
- Changes in fair value of RMR’s SEVN and TA investments and their effect on reported earnings.
- Client concentration, related-party governance arrangements, and the continuing ability to pay declared distributions while meeting tax and tax-receivable-agreement obligations.