SEC Form 10-Q filed by The RMR Group Inc.

2/7/24 5:10:59 PM ET

Professional Services

Consumer Discretionary

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rmr-20231231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-37616

THE RMR GROUP INC.

(Exact Name of Registrant as Specified in Its Charter)


Maryland			47-4122583
(State of Organization)			(IRS Employer Identification No.)

Two Newton Place, 255 Washington Street, Suite 300, Newton, MA 02458-1634

(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code 617-796-8230

Securities registered pursuant to Section 12(b) of the Act:

Title Of Each Class

Trading Symbol

Name Of Each Exchange On Which Registered

Class A common stock, $0.001 par value per share

RMR

The Nasdaq Stock Market LLC

(Nasdaq Capital Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided in Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of February 5, 2024, there were 15,708,723 shares of Class A common stock, par value $0.001 per share, 1,000,000 shares of Class B-1 common stock, par value $0.001 per share, and 15,000,000 shares of Class B-2 common stock, par value $0.001 per share outstanding.


		Page
PART I.	Financial Information

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets — December 31, 2023 and September 30, 2023	3

	Condensed Consolidated Statements of Income — Three Months Ended December 31, 2023 and 2022	4

	Condensed Consolidated Statements of Shareholders’ Equity — Three Months Ended December 31, 2023 and 2022	5

	Condensed Consolidated Statements of Cash Flows — Three Months Ended December 31, 2023 and 2022	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

	Warning Concerning Forward-Looking Statements	30

PART II.	Other Information

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 6.	Exhibits	32

	Signatures	33


	December 31,		September 30,
	2023		2023
Assets

Cash and cash equivalents	$	202,428	$	267,989
Due from related parties	114,006		111,323
Prepaid and other current assets	9,271		6,997
Total current assets	325,705		386,309



Property and equipment, net of accumulated depreciation of $3,112 and $3,212, respectively	14,728		5,446
Due from related parties, net of current portion	8,987		7,261


Equity method investments	22,102		18,651

Goodwill	71,620		1,859
Intangible assets, net of accumulated amortization of $1,113 and $983, respectively	21,356		167

Operating lease right of use assets	30,464		29,032
Deferred tax asset	17,356		18,220
Other assets, net of accumulated amortization of $80,678 and $78,324, respectively	113,125		115,479
Total assets	$	625,443	$	582,424

Liabilities and Equity

Reimbursable accounts payable and accrued expenses	$	77,709	$	77,924



Accounts payable and accrued expenses	42,494		22,578
Operating lease liabilities	5,875		5,068
Total current liabilities	126,078		105,570


Operating lease liabilities, net of current portion	25,580		25,044
Amounts due pursuant to tax receivable agreement, net of current portion	20,886		20,886


Other liabilities	23,534		7,261
Mortgage note payable	4,730		—
Total liabilities	200,808		158,761

Commitments and contingencies

Equity:
Class A common stock, $0.001 par value; 31,950,000 shares authorized; 15,710,555 and 15,712,007 shares issued and outstanding, respectively	16		16
Class B-1 common stock, $0.001 par value; 1,000,000 shares authorized, issued and outstanding	1		1
Class B-2 common stock, $0.001 par value; 15,000,000 shares authorized, issued and outstanding	15		15
Additional paid in capital	116,598		116,010
Retained earnings	420,093		413,096

Cumulative common distributions	(295,756)		(289,072)
Total shareholders’ equity	240,967		240,066
Noncontrolling interest in The RMR Group LLC	183,226		183,597
Noncontrolling interest in consolidated entity	442		—
Total noncontrolling interests	183,668		183,597
Total equity	424,635		423,663
Total liabilities and equity	$	625,443	$	582,424


	Three Months Ended
	December 31,
	2023		2022
Revenues:
Management services	$	45,094	$	48,548

Incentive fees	299		—
Advisory services	1,125		1,091
Total management, incentive and advisory services revenues	46,518		49,639
Reimbursable compensation and benefits	16,828		14,323
Reimbursable equity based compensation	2,327		2,289
Other reimbursable expenses	195,998		184,489
Total reimbursable costs	215,153		201,101

Total revenues	261,671		250,740
Expenses:
Compensation and benefits	34,772		33,264
Equity based compensation	2,829		2,850
Separation costs	3,544		438
Total compensation and benefits expense	41,145		36,552
General and administrative	9,511		9,163
Other reimbursable expenses	195,998		184,489
Transaction and acquisition related costs	3,987		—
Depreciation and amortization	423		268
Total expenses	251,064		230,472
Operating income	10,607		20,268

Interest income	3,508		1,770



Gain (loss) on equity method investments	4,049		(5,314)
Income before income tax expense	18,164		16,724
Income tax expense	(2,638)		(2,484)
Net income	15,526		14,240

Net income attributable to noncontrolling interest in The RMR Group LLC	(8,531)		(7,903)
Net loss attributable to noncontrolling interest in consolidated entity	2		—
Net income attributable to The RMR Group Inc.	$	6,997	$	6,337

Weighted average common shares outstanding - basic	16,508		16,404
Weighted average common shares outstanding - diluted	31,512		31,413

Net income attributable to The RMR Group Inc. per common share - basic	$	0.42	$	0.38
Net income attributable to The RMR Group Inc. per common share - diluted	$	0.41	$	0.37


															Noncontrolling Interests in:
	Class A Common Stock		Class B-1 Common Stock		Class B-2 Common Stock		Additional Paid In Capital		Retained Earnings		Cumulative Common Distributions		Total Shareholders' Equity		The RMR Group LLC		Consolidated Entity		Total Equity
Balance at September 30, 2023	$	16	$	1	$	15	$	116,010	$	413,096	$	(289,072)	$	240,066	$	183,597	$	—	$	423,663

Share awards, net	—		—		—		588		—		—		588		—		—		588
Net income	—		—		—		—		6,997		—		6,997		8,531		(2)		15,526

Tax distributions to member	—		—		—		—		—		—		—		(4,102)		—		(4,102)
Common share distributions	—		—		—		—		—		(6,684)		(6,684)		(4,800)		—		(11,484)
Acquisition of MPC Partnership Holdings LLC	—		—		—		—		—		—		—		—		444		444
Balance at December 31, 2023	$	16	$	1	$	15	$	116,598	$	420,093	$	(295,756)	$	240,967	$	183,226	$	442	$	424,635



Balance at September 30, 2022	$	16	$	1	$	15	$	113,136	$	355,949	$	(262,496)	$	206,621	$	163,118	$	—	$	369,739
Share awards, net	—		—		—		594		—		—		594		—		—		594
Net income	—		—		—		—		6,337		—		6,337		7,903		—		14,240

Tax distributions to member	—		—		—		—		—		—		—		(3,839)		—		(3,839)
Common share distributions	—		—		—		—		—		(6,642)		(6,642)		(4,800)		—		(11,442)

Balance at December 31, 2022	$	16	$	1	$	15	$	113,730	$	362,286	$	(269,138)	$	206,910	$	162,382	$	—	$	369,292


	Three Months Ended December 31,
	2023		2022
Cash Flows from Operating Activities:
Net income	$	15,526	$	14,240
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	423		268
Straight line office rent	(89)		(100)
Amortization expense related to other assets	2,354		2,354
Provision (benefit) for deferred income taxes	864		(440)
Operating expenses paid in The RMR Group Inc. common shares	600		619


Distributions from investments	598		427
(Gain) loss on equity method investments	(4,049)		5,314

Changes in assets and liabilities:
Due from related parties	4,491		(11,856)

Prepaid and other current assets	(901)		(378)
Reimbursable accounts payable and accrued expenses	(215)		6,992
Accounts payable and accrued expenses	10,329		10,660
Net cash from operating activities	29,931		28,100

Cash Flows from Investing Activities:
Acquisition of MPC Partnership Holdings LLC, net of cash acquired	(78,771)		—
Purchase of property and equipment	(1,123)		(917)



Net cash used in investing activities	(79,894)		(917)

Cash Flows from Financing Activities:
Distributions to noncontrolling interests	(8,902)		(8,639)
Distributions to common shareholders	(6,684)		(6,642)
Repurchase of common shares	(12)		(25)



Net cash used in financing activities	(15,598)		(15,306)


(Decrease) increase in cash and cash equivalents	(65,561)		11,877
Cash and cash equivalents at beginning of period	267,989		189,088
Cash and cash equivalents at end of period	$	202,428	$	200,965

Supplemental Disclosures:
Income taxes paid	$	220	$	—




Non-cash investing and financing activities:
Recognition of right of use assets and related lease liabilities	$	2,652	$	2,769

Recognition of earnout liability	$	14,547	$	—
Write-off of fully depreciated property and equipment	$	393	$	227
Assumption of mortgage note payable	$	5,429	$	—


Cash consideration paid by RMR LLC	$	84,474
Earnout	14,547
Total consideration	$	99,021


Assets acquired:
Cash and cash equivalents	$	5,703

Real estate	8,460
Due from related parties	6,788
Prepaid and other current assets	1,373
Intangible assets:
Property management and investment management agreements	13,694
Trade name	5,047
Investor relationships	1,874
Acquired leases	703
Total intangible assets	21,318

Total assets acquired	43,642
Liabilities assumed:
Mortgage note payable	4,726


Other liabilities	9,213
Total liabilities	13,939
Net identifiable assets acquired	29,703
Noncontrolling interests in consolidated entity	(444)
Goodwill	69,762
Total consideration	$	99,021


Land	$	1,400
Building and improvements	7,060
Acquired leases	703
Total real estate and acquired leases	$	9,163




	December 31, 2023
	Total		Level 1		Level 2		Level 3



Due from related parties related to share based payment awards	$	12,807	$	12,807	$	—	$	—
Equity method investment in SEVN	22,102		22,102		—		—


Employer compensation liability related to share based payment awards	12,807		12,807		—		—

Earnout liability	14,547		—		—		14,547


	Three Months Ended December 31,
	2023		2022
Income taxes computed at the federal statutory rate	21.0	%	21.0	%
State taxes, net of federal benefit	2.8	%	3.1	%

Permanent items	0.6	%	0.7	%
Net income attributable to noncontrolling interest	(9.9)	%	(9.9)	%

Total	14.5	%	14.9	%


	Three Months Ended December 31, 2023						Three Months Ended December 31, 2022
	Total						Total
	Management						Management
	and Advisory		Total				and Advisory		Total
	Services		Reimbursable		Total		Services		Reimbursable		Total
	Revenues		Costs		Revenues		Revenues		Costs		Revenues
Perpetual Capital:
DHC	$	6,321	$	45,216	$	51,537	$	6,456	$	51,872	$	58,328
ILPT	9,041		10,676		19,717		9,020		10,736		19,756
OPI	8,479		68,377		76,856		10,208		95,535		105,743
SVC	11,623		73,799		85,422		9,768		20,595		30,363
Total Managed Equity REITs	35,464		198,068		233,532		35,452		178,738		214,190
SEVN	1,433		1,534		2,967		1,091		1,137		2,228
TA (1)	—		—		—		4,191		1,728		5,919
	36,897		199,602		236,499		40,734		181,603		222,337

Private Capital:
AlerisLife (2)	1,382		—		1,382		1,264		97		1,361
Sonesta	2,223		—		2,223		2,126		515		2,641
RMR Residential	714		912		1,626		—		—		—


Other private entities	5,302		14,639		19,941		5,515		18,886		24,401
	9,621		15,551		25,172		8,905		19,498		28,403



Total revenues	$	46,518	$	215,153	$	261,671	$	49,639	$	201,101	$	250,740


	December 31, 2023						September 30, 2023
	Accounts		Reimbursable				Accounts		Reimbursable
	Receivable		Costs		Total		Receivable		Costs		Total
Perpetual Capital:
DHC	$	4,764	$	17,824	$	22,588	$	5,953	$	13,434	$	19,387
ILPT	3,658		6,024		9,682		4,597		5,869		10,466
OPI	6,565		50,114		56,679		7,427		51,912		59,339
SVC	5,402		8,728		14,130		5,528		8,423		13,951
Total Managed Equity REITs	20,389		82,690		103,079		23,505		79,638		103,143
SEVN	2,051		1,935		3,986		1,663		1,921		3,584

	22,440		84,625		107,065		25,168		81,559		106,727

Private Capital:
AlerisLife (1)	91		—		91		74		—		74
Sonesta	87		—		87		89		—		89

RMR Residential	6,999		—		6,999		—		—		—
Other private entities	2,860		5,891		8,751		4,634		7,060		11,694
	10,037		5,891		15,928		4,797		7,060		11,857

	$	32,477	$	90,516	$	122,993	$	29,965	$	88,619	$	118,584


Declaration	Record	Paid	Distributions		Total
Date	Date	Date	Per Common Share		Distributions
Three Months Ended December 31, 2023
10/12/2023	10/23/2023	11/16/2023	$	0.40	$	6,684


			$	0.40	$	6,684
Three Months Ended December 31, 2022
10/13/2022	10/24/2022	11/17/2022	$	0.40	$	6,642


			$	0.40	$	6,642


	Three Months Ended
	12/31/2023
Beginning balance	$	—
Acquisition of MPC Partnership Holdings LLC	14,547
Ending Balance	$	14,547


			Distributions Per		Total		RMR LLC		RMR LLC
Declaration	Record	Paid	RMR LLC		RMR LLC		Distributions		Distributions
Date	Date	Date	Membership Unit		Distributions		to RMR Inc.		to ABP Trust
Three Months Ended December 31, 2023
10/12/2023	10/23/2023	11/16/2023	$	0.32	$	10,148	$	5,348	$	4,800


			$	0.32	$	10,148	$	5,348	$	4,800
Three Months Ended December 31, 2022
10/13/2022	10/24/2022	11/17/2022	$	0.32	$	10,114	$	5,314	$	4,800


			$	0.32	$	10,114	$	5,314	$	4,800


		Lesser of Historical Cost of Assets
		Under Management or
		Total Market Capitalization as of
		December 31,
REIT	Primary Strategy	2023		2022
DHC	Medical office and life science properties, senior living communities and other healthcare related properties	$	3,952,740	$	3,235,870
ILPT	Industrial and logistics properties	4,635,406		4,504,774
OPI	Office properties primarily leased to single tenants and those with high credit quality characteristics	2,951,207		3,105,356
SVC	Hotels and service-focused retail net lease properties	7,049,245		6,906,152
		$	18,588,598	$	17,752,152


	Three Months Ended December 31, 2023						Three Months Ended December 31, 2022
	Base		Base						Base		Base
	Business		Property		Construction				Business		Property		Construction
	Management		Management		Supervision				Management		Management		Supervision
REIT	Revenues		Revenues		Revenues		Total		Revenues		Revenues		Revenues		Total
DHC	$	3,807	$	1,458	$	1,056	$	6,321	$	3,664	$	1,492	$	1,300	$	6,456
ILPT	5,878		3,039		124		9,041		5,902		2,948		170		9,020
OPI	3,320		3,447		1,712		8,479		3,639		3,404		3,165		10,208
SVC	8,545		896		2,182		11,623		8,168		990		610		9,768
	$	21,550	$	8,840	$	5,074	$	35,464	$	21,373	$	8,834	$	5,245	$	35,452


Exhibit Number						Description


3.1						Articles of Amendment and Restatement of the Registrant . (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-207423) filed with the SEC on October 14, 2015.).
3.2						Articles of Amendment, filed July 30, 2015 . (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-207423) filed with the SEC on October 14, 2015.).
3.3						Articles of Amendment, filed September 11, 2015 . (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-207423) filed with the SEC on October 14, 2015.).
3.4						Articles of Amendment, filed March 9, 2016 . (Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-37616) filed with the SEC on March 11, 2016.).
3.5						Articles of Amendment, filed November 14, 2022. (Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 001-37616) filed with the SEC on November 14, 2022.).
3.6						Fourth Amended and Restated Bylaws of the Registrant adopted September 13, 2017. (Incorporated by reference to the Registrant's Current report on Form 8-K (File No. 001-37616) filed with the SEC on September 15, 2017.).
4.1						Form of The RMR Group Inc. Share Certificate for Class A Common Stock . (Incorporated by reference to the Registrant’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-207423) filed with the SEC on November 2, 2015.).
4.2						Registration Rights Agreement, dated as of June 5, 2015, by and between the Registrant and ABP Trust (formerly known as Reit Management and Research Trust). (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-207423) filed with the SEC on October 14, 2015.).
10.1						Letter Agreement, dated as of November 15, 2023, by and among The RMR Group LLC and Jennifer Francis (+) (Filed herewith.)
31.1						Rule 13a-14(a) Certification. (Filed herewith.)
31.2						Rule 13a-14(a) Certification. (Filed herewith.)
32.1						Section 1350 Certification. (Furnished herewith.)
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
101.LAB						XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
104						Cover Page Interactive Data File. (formatted as Inline XBRL and contained in Exhibit 101.)


			By:			/s/ Matthew P. Jordan
						Matthew P. Jordan
						Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)
						Dated: February 7, 2024

Date	Price Target	Rating	Analyst
1/7/2026	$17.00	Buy	Ladenburg Thalmann
4/22/2025	$24.00	Buy	B. Riley Securities
4/19/2024		Mkt Perform	JMP Securities
8/9/2022		Perform	Oppenheimer
1/5/2022	$43.00 → $39.00	Equal-Weight	Morgan Stanley
10/22/2021	$38.00	Neutral	Citigroup
8/31/2021	$41.00 → $43.00	Equal-Weight	Morgan Stanley

SEC Form 10-Q filed by The RMR Group Inc.

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