The RMR Group Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021; comparisons are primarily with the fiscal year ended September 30, 2020. Amounts below are in millions of dollars unless otherwise stated. RMR is an asset and property manager whose business is conducted principally through RMR LLC. It reported $32.7 billion of assets under management and serves a small group of public REITs and operating companies, plus private capital clients.
Financial performance and position
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $607.2 | $589.5 | +3.0% |
| Management and advisory services revenue | $175.7 | $171.7 | +2.3% |
| Operating income | $72.1 | $68.7 | +4.9% |
| Net income | $81.0 | $66.3 | +22.1% |
| Net income attributable to RMR Inc. | $35.7 | $28.8 | +24.0% |
| Diluted earnings per share | $2.15 | $1.75 | +$0.40 |
| Cash from operating activities | $71.8 | $77.5 | -$5.7 |
- Total revenue includes $431.6 million of reimbursable costs, recognized equally as revenue and expense; management and advisory revenue better reflects fee-generating activity. Operating income was $72.1 million, or 41.0% of management and advisory revenue; total-revenue margin is less informative because of reimbursable pass-through costs.
- Cash and cash equivalents were $159.8 million at year-end, down from $369.7 million, mainly after the special dividend. The company reported no debt outstanding and no credit facilities.
- Net cash used in financing was $280.5 million, primarily reflecting $219.9 million paid for the special dividend. No material off-balance-sheet arrangements were reported.
- Year-end total assets were $497.9 million and total liabilities were $150.2 million. The balance sheet included a $27.8 million tax receivable agreement liability and $34.1 million of operating lease liabilities.
Material changes and notable items
- Management services revenue rose $2.3 million. Higher Sonesta fees, SVC base fees, construction supervision fees, and private-capital fees more than offset lower Managed Equity REIT fees and a decline in Five Star fees.
- Managed Equity REIT management and property fees fell to $137.2 million from $139.9 million. Managed Operating Company and private-capital management fees increased overall.
- Interest and other income declined to $0.8 million from $4.5 million, primarily due to lower interest rates. Higher share prices at TA contributed an $18.8 million unrealized gain on the TA equity investment, versus $3.2 million in FY2020. The TRMT merger generated a $2.1 million gain; these investment gains contributed to net income growth.
- RMR paid a one-time special dividend of $7.00 per Class A and Class B-1 share in September 2021, in addition to quarterly dividends of $0.38 per share. Total distributions to shareholders and the other RMR LLC owner were $262.8 million during the year.
- TRMT merged into Seven Hills Realty Trust (SEVN) on September 30, 2021. RMR also amended DHC’s and SVC’s property management agreements to provide oversight of certain major projects and repositionings.
Outlook, risks and contingencies
- Management said available financial resources were sufficient to withstand continuing pandemic disruption and saw potential growth opportunities in selected property types and locations. It gave no quantified earnings or revenue guidance.
- RMR estimated it would have earned an approximately $6.0 million incentive fee from OPI for calendar 2021 if September 30, 2021 had been the measurement-period end. This was not recognized and is contingent on final performance conditions; the filing provides no assurance it will be earned. RMR also reported $0.6 million of incentive fees from TRMT in FY2021.
- RMR said it currently intends to maintain a regular quarterly dividend of $0.38 per share, but the board may reduce or suspend dividends. Future capital allocation plans, including growth in private capital, are not assured.
- Key risks include reliance on a limited number of clients and related-party relationships; variable fees tied to client market capitalization, assets, returns, rents, construction and operating revenues; possible contract termination; and ongoing COVID-19 effects on hospitality, travel, senior living, office and service retail. The filing also highlights interest rates, inflation and labor costs, regulation, cybersecurity, ESG expectations, and client leverage and liquidity.
- The filing reports no litigation expected to have a material adverse effect. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective.
Important facts for investors to verify
- Track fee revenue and exposure to the Managed Equity REITs: they generated 78.1% of management and advisory services revenue in FY2021.
- Assess the quality and repeatability of reported earnings, particularly the $18.8 million unrealized TA investment gain and $2.1 million merger-related gain.
- Monitor OPI’s calendar 2021 incentive-fee determination and the conditions governing any other incentive fees.
- Evaluate whether cash generation supports the regular dividend after the large special distribution and whether the board changes its dividend policy.
- Review client performance, management-agreement termination rights, related-party arrangements and RMR’s controlled, dual-class voting structure.