Business context and reporting period
The RMR Group Inc. filed this unaudited Form 10-Q for the quarter ended June 30, 2021, its fiscal third quarter, and the nine months then ended. RMR is a holding company; substantially all operations are conducted through RMR Group LLC, which manages real estate investment trusts, operating companies and private real estate capital. Unless noted, amounts below are in millions of dollars.
Financial performance and position
| Metric | Three months ended June 30, 2021 | Nine months ended June 30, 2021 | Comparable 2020 period |
|---|---|---|---|
| Total revenue | $145.2 | $433.8 | $138.6 quarter; $439.4 nine months |
| Operating income | $20.9 | $51.0 | $15.1 quarter; $54.8 nine months |
| Net income | $19.0 | $50.3 | $15.4 quarter; $51.9 nine months |
| Net income attributable to RMR Inc. | $8.2 | $22.1 | $6.7 quarter; $22.6 nine months |
| Diluted EPS | $0.50 | $1.31 | $0.41 quarter; $1.37 nine months |
| Cash from operations | Not separately reported for quarter | $72.4 | $78.8 nine months |
Quarterly revenue rose 4.8%, operating income rose 37.9% and net income attributable to RMR Inc. rose 22.6% year over year. For the nine months, revenue fell 1.3%, operating income fell 7.0% and RMR-attributable net income fell 2.5%. Reported operating margin was approximately 14.4% for the quarter (10.9% in 2020) and 11.8% for the nine months (12.5% in 2020). These margins include substantial reimbursable costs recorded gross in both revenue and expense.
At June 30, cash and cash equivalents were $397.8 million, versus $369.7 million at September 30, 2020; current assets were $490.9 million and current liabilities $103.8 million. The company reported no debt and no credit facilities. Total liabilities were $173.8 million and total equity $550.8 million. Nine-month investing cash use was $0.9 million and financing cash use was $43.3 million, primarily distributions. Cash increased $28.1 million during the nine months.
Material changes versus prior period
- Quarterly management services revenue increased $5.8 million, reflecting higher fees from DHC and SVC and improved performance at Sonesta and TA. Advisory revenue also increased, in part because a prior fee waiver for TRMT expired.
- Nine-month management services revenue declined $3.9 million, principally due to lower fees from certain REITs and COVID-19-related pressure on Five Star, partly offset by growth in Sonesta and private real estate management fees.
- Nine-month compensation and benefits expense included $4.2 million of separation costs, compared with $0.6 million in 2020, largely associated with a former executive’s retirement arrangements. Equity-based compensation expense also increased, partly reflecting client share-price appreciation.
- Nine-month interest and other income declined $3.5 million, primarily because of lower interest rates. This was partly offset by a $6.0 million unrealized gain on RMR’s TA investment, versus $0.9 million in 2020.
- Cash from operations declined $6.4 million year over year. Management attributed the change principally to lower net income excluding noncash gains and working-capital movements.
Outlook, risks and notable items
- No specific earnings or revenue guidance was provided. Management said current financial resources were sufficient to withstand pandemic-related challenges and noted possible growth opportunities as conditions improve, while emphasizing substantial uncertainty about COVID-19’s duration, variants, vaccination and economic effects.
- Management said the cash position could support capital-allocation options, including a potential special dividend within 12 months; this is not a commitment. The board retains discretion over dividends. A quarterly dividend of $0.38 per Class A and Class B-1 share was declared after quarter-end, payable in August 2021.
- RMR estimated that it would have earned a $22.2 million incentive fee from OPI if June 30, 2021 had ended the measurement period. The fee was not recognized, and there is no assurance it will be earned. RMR also reported $0.6 million of TRMT incentive fees for the nine months.
- RMRM and TRMT agreed to merge, with RMRM surviving; closing was expected in the third calendar quarter of 2021, subject to shareholder approvals and customary conditions. Tremont Advisors waived the associated TRMT termination fee.
- Key risks include dependence on a limited number of clients, fee sensitivity to client asset values, market capitalizations and operating results, potential loss or termination of management contracts, COVID-19 impacts, and related-party and conflict-of-interest risks. Substantially all revenue was from related parties in the reported periods. Management reported effective disclosure controls and no material change in internal control over financial reporting.
- The company had a $30.0 million tax receivable agreement liability, including $2.2 million expected to be paid in fiscal Q4. It reported no off-balance-sheet arrangements and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether recovery in client sectors, especially hospitality, senior housing and service retail, translates into sustained management-fee growth.
- Whether OPI or other managed REITs generate incentive fees; the $22.2 million OPI estimate was conditional and excluded from reported results.
- Completion and terms of the RMRM–TRMT merger, and any resulting changes to advisory revenue or investment exposure.
- Cash allocation decisions, including whether the potential special dividend proceeds and whether the regular $0.38 quarterly dividend is maintained.
- Client concentration, related-party arrangements and governance conflicts, as well as the collection and timing of the $99.5 million due from related parties at June 30, 2021.