The RMR Group Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022. This is an annual report, not a standalone fourth-quarter results report. Unless stated otherwise, financial figures below are in millions of dollars.
Business context
RMR is an asset and property manager whose business is conducted primarily through The RMR Group LLC. It managed approximately $37.3 billion of assets and 2,100 properties at fiscal year-end, serving four publicly traded equity REITs, three operating companies, private real estate clients and mortgage REIT Seven Hills Realty Trust (SEVN). The business is highly concentrated: the four Managed Equity REITs generated 74.1% of management and advisory services revenue. Substantially all revenue came from related parties.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Management and advisory services revenue | $200.0 | $175.7 | +13.8% |
| Total revenue, including reimbursed costs | $832.5 | $607.2 | +37.1% |
| Operating income | $88.4 | $72.1 | +22.6% |
| Net income | $77.5 | $81.0 | -4.4% |
| Net income attributable to RMR Inc. | $34.0 | $35.7 | -4.7% |
| Basic / diluted EPS | $2.06 / $2.04 | $2.18 / $2.15 | Lower |
| Cash from operating activities | $101.3 | $71.8 | +$29.5 |
| Cash and cash equivalents at year-end | $189.1 | $159.8 | +$29.3 |
Total revenue includes $632.5 million of reimbursable costs, matched by expense; management and advisory revenue better reflects fee-generating activity. Operating income improved, while net income declined largely alongside much smaller non-operating fair-value gains than in FY2021. FY2022 included a $1.0 million unrealized gain on equity-method investments, compared with $18.8 million in FY2021; the prior year also included a $2.1 million gain related to the TRMT/SEVN merger.
Operating cash flow increased to $101.3 million. Investing activities used $10.6 million, principally reflecting a $9.5 million purchase of SEVN shares; financing activities used $61.4 million. RMR reported no debt outstanding and no credit facility. Current assets were $303.3 million versus current liabilities of $109.2 million. Total liabilities were $172.7 million. These figures describe RMR, not the debt or liquidity of its managed clients.
Changes and notable items
- Management and advisory revenue rose $24.3 million. Growth included higher ILPT fees following its $4.0 billion acquisition of Monmouth Real Estate Investment Corporation, increased construction supervision fees, and stronger Sonesta management fees as travel recovered. Lower DHC and SVC enterprise values reduced their base fees.
- Private real estate capital fees increased: fees from other private entities were $13.6 million, compared with $3.8 million in FY2021. Private-capital assets under management rose to $3.9 billion from $1.3 billion.
- Operating expenses rose, including compensation and benefits (+8.5%) and general and administrative costs (+22.1%). Reimbursable costs also increased substantially, but are generally passed through to clients.
- FY2021 financing cash flows included a one-time $7.00-per-share special dividend; FY2022 dividends totaled $1.56 per share. This difference explains much of the year-over-year reduction in cash used in financing.
Outlook, risks and other disclosures
Management described a challenging environment marked by higher interest rates, inflation, supply-chain constraints and possible recession. These conditions may reduce client market capitalizations, rents, construction activity, travel and operating revenues, which could lower RMR’s fees. Some client businesses—including senior living, office and business travel—had not returned to pre-pandemic levels. RMR’s growth strategy emphasizes expanding private capital and diversifying fee sources, but the filing gives no quantified earnings or revenue guidance.
RMR said it intended to continue a regular quarterly dividend of $0.40 per Class A and Class B-1 share, subject to board discretion and cash needs. The board may reduce or discontinue dividends. The company also disclosed a $25.6 million liability under its tax receivable agreement, including $2.3 million expected to be paid in FY2023.
Key risks include dependence on a limited number of clients, variable fees linked to client asset values and revenues, possible contract termination, interest-rate and economic sensitivity, talent retention, cybersecurity, and related-party and conflict-of-interest concerns. Adam D. Portnoy controlled 91.2% of RMR Inc.’s voting power and had a 51.2% economic interest in RMR LLC. RMR disclosed no litigation expected to have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal control; management also reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- How the market values and operating performance of DHC, ILPT, OPI and SVC affect RMR’s fee base; verify client-level financial condition and debt separately.
- Whether private-capital growth can continue and diversify revenue without increasing execution, joint-venture or related-party risks.
- The status of any client termination rights, including performance-related rights, and the associated potential fee impact.
- Dividend coverage and cash needs, including tax distributions, lease commitments and payments under the tax receivable agreement.
- The composition and collectability of related-party receivables, and the terms and governance safeguards for related-party arrangements.
- The valuation sensitivity of RMR’s SEVN and TravelCenters of America investments and the effect of market-price changes on reported earnings.