The RMR Group Inc. — Q1 FY2022 10-Q Summary
Reporting period: Three months ended December 31, 2021; comparable period is the three months ended December 31, 2020. Amounts are in thousands unless otherwise noted. RMR is a real estate management and advisory company whose business is conducted primarily through RMR LLC.
Financial performance and position
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Total revenue | $181,568 | $156,946 | +15.7% |
| Management and advisory services revenue | $46,015 | $41,333 | +11.3% |
| Operating income | $20,093 | $13,732 | +46.3% |
| Net income | $18,292 | $19,753 | -7.4% |
| Net income attributable to RMR Inc. | $8,042 | $8,897 | -9.6% |
| Basic / diluted EPS | $0.49 / $0.49 | $0.54 / $0.51 | Lower |
| Cash from operating activities | $34,968 | $27,660 | +26.4% |
- Total revenue includes $135.6 million of reimbursable costs recorded gross, with matching expenses. These pass-through amounts materially inflate reported revenue; management and advisory fees are a clearer measure of fee activity.
- Operating income was 11.1% of total revenue, compared with 8.7% a year earlier. On management and advisory services revenue, operating income was 43.7%, compared with 33.2%.
- Cash and cash equivalents were $181.9 million at December 31, 2021, up from $159.8 million at September 30, 2021. The company reported no debt and no credit facilities. Total assets were $522.4 million and total liabilities were $168.5 million.
- Operating cash flow exceeded net income; cash increased $22.1 million during the quarter. Investing outflow was $0.2 million and financing outflow was $12.8 million, including $10.8 million of distributions.
- The quarterly dividend was $0.38 per Class A and Class B-1 share. A further $0.38 dividend was declared in January 2022.
Changes versus the prior period
- Management and advisory revenue growth reflected higher base management fees from DHC, OPI and SVC, increased construction supervision fees, and higher Sonesta fees as its managed and franchised hotel count grew. These increases were partly offset by lower AlerisLife (ALR) fees, which management attributed to pandemic-related effects and community transitions.
- Operating income improved in part because the prior-year quarter included $4.2 million of separation costs; none were recorded this quarter. Compensation and benefits and general and administrative expenses increased.
- Net income declined despite higher operating income, mainly because fair-value gains on equity-method investments fell to $1.2 million from $8.1 million. The prior period also included $0.4 million of equity earnings from TRMT before its merger into SEVN.
- Operating cash flow increased by $7.3 million, reflecting net income excluding noncash gains and changes in working capital.
Outlook, risks and notable items
- No numerical earnings or revenue guidance was provided. Management said its cash position supported consideration of capital-allocation strategies, with a focus on growing its private-capital business over the next 12 months; execution and benefits are uncertain.
- ILPT agreed to acquire Monmouth Real Estate Investment Corporation for approximately $4.0 billion in cash. The acquisition, expected to close in the first half of calendar 2022 subject to customary conditions including shareholder approval, was to be funded with debt and joint-venture equity. RMR expected possible incremental fees, dependent on ILPT’s funding and completion; there is no assurance the transaction will close as planned or at all.
- Management cited continuing uncertainty from COVID-19, especially for hospitality, travel, service retail, senior housing and rehabilitation-related businesses. Other key risks include dependence on a limited number of clients, possible termination of management agreements, fluctuations in client market capitalization and revenues, inflation and wage costs, litigation, and related-party conflicts.
- Nearly all reported revenue was from related parties. The filing describes significant relationships between RMR leadership, its controlling shareholder ABP Trust and managed clients. RMR also reported a $27.8 million tax receivable agreement liability, including $2.2 million expected to be paid in fiscal 2022 Q4.
- The board’s regular quarterly dividend is discretionary and may be reduced or eliminated. The filing reported no material changes to previously disclosed risk factors and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether fee growth continues after separating management and advisory fees from reimbursable pass-through revenue, and whether operating-cost growth limits margin improvement.
- How COVID-19, hotel and senior-living operations, and client market values affect management fees and client capacity to pay.
- The status, financing, closing terms and resulting fee impact of ILPT’s proposed Monmouth acquisition.
- The sustainability of the $0.38 quarterly dividend relative to cash generation, tax distributions and the company’s capital-allocation plans.
- Related-party governance and the terms and payment obligations of the tax receivable agreement.