RMR Group Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2021, compared with the corresponding 2020 periods. Amounts below are in millions, except per-share data. RMR is primarily a real estate and related-business manager; substantially all operations are conducted through RMR LLC. Its fees depend on a concentrated group of managed REITs, operating companies and private real estate clients.
Financial performance and position
| Metric | Three months 2021 | Three months 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $131.6 | $140.9 | $288.5 | $300.8 |
| Operating income | $16.4 | $17.9 | $30.1 | $39.7 |
| Net income | $11.5 | $14.9 | $31.2 | $36.5 |
| Net income attributable to RMR Inc. | $4.9 | $6.5 | $13.8 | $15.9 |
| Diluted earnings per share | $0.30 | $0.39 | $0.81 | $0.96 |
| Cash from operating activities | Not separately provided | Not separately provided | $36.1 | $48.7 |
- Reported total revenue includes reimbursable costs that are offset by corresponding expenses; these pass-through amounts were $89.6 million for the quarter and $205.2 million for the six-month period.
- Operating income as a share of reported total revenue was 12.4% for the quarter (12.7% prior year) and 10.4% for six months (13.2% prior year).
- At March 31, 2021, cash and cash equivalents were $376.3 million, total current assets $466.0 million, and current liabilities $85.5 million. The company reported no debt and said it had no credit facilities. Total liabilities were $155.9 million, including lease liabilities and amounts due under the tax receivable agreement.
- Six-month investing cash outflow was $0.8 million and financing cash outflow was $28.8 million. Cash increased $6.6 million to $376.3 million.
Changes versus prior period
- Quarterly revenue fell 6.6% and RMR-attributable net income fell 23.6%. For six months, revenue declined 4.1% and RMR-attributable net income declined 13.1%.
- Management-services revenue decreased $3.1 million for the quarter and $9.6 million for six months. Lower average market capitalizations at certain managed REITs reduced base fees; property dispositions reduced some property-management fees; and COVID-19-related weakness reduced fees from managed operating companies.
- Six-month operating income fell $9.6 million. Higher equity-based compensation and $4.2 million of separation costs contributed to the decline; the prior-year period included $0.6 million of separation costs. Six-month interest and other income also fell $2.9 million, primarily due to lower interest rates.
- Results included a $3.4 million unrealized loss on RMR’s TA investment in the quarter, versus a $2.2 million loss a year earlier. For six months, the investment generated a $4.7 million unrealized gain, compared with a $0.8 million loss in the prior-year period.
Outlook, risks and notable items
- Management said its financial resources were sufficient to withstand the pandemic, but could not determine its ultimate impact. COVID-19 continued to affect hospitality, travel, service retail, senior housing and rehabilitation-related client businesses; the filing cited uncertainty about the pandemic’s duration, variants, vaccination and economic recovery.
- As of March 31, RMR estimated it would have earned an approximately $20.8 million incentive fee from OPI if that date had ended the relevant measurement period. This estimate was not recognized; the fee is contingent and may not be earned. RMR recognized a $0.6 million incentive fee from TRMT for the quarter and six months.
- RMR declared a quarterly dividend of $0.38 per Class A and Class B-1 share on April 15, payable in May. The company said dividends remain subject to board discretion and may be reduced or discontinued.
- On April 26, after quarter-end, RMRM and TRMT announced a proposed merger, expected to close in the third calendar quarter of 2021 subject to shareholder approvals and other conditions. Tremont Advisors would manage the combined company and waived a potential TRMT termination fee.
- Key risks include dependence on a limited number of clients, variable fees tied to client revenues and market capitalizations, possible management-agreement termination, COVID-19 effects, and conflicts-of-interest concerns arising from related-party relationships. RMR disclosed no material change to previously reported risk factors.
Important facts for investors to verify
- Whether managed-client market capitalizations, operating performance and property dispositions continue to pressure recurring management and property fees.
- Whether the estimated OPI incentive fee is ultimately earned, and whether TRMT or RMRM generate future incentive fees.
- The effects of COVID-19 and recovery on RMR’s concentrated client base, particularly hospitality, travel, retail and senior housing.
- Progress and approvals for the announced RMRM-TRMT merger, and the sustainability of the $0.38 quarterly dividend.
- Related-party arrangements, including the tax receivable agreement liability of $30.0 million and the company’s disclosed governance relationships.