The RMR Group(RMR) - 2022 Q1 - Quarterly Report

PART I. Financial Information This section presents the company's unaudited financial statements, management's discussion and analysis, and disclosures on market risk and controls Financial Statements (unaudited) This section presents The RMR Group Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes Condensed Consolidated Balance Sheets Total assets increased as of December 31, 2021, primarily due to higher cash and cash equivalents, with a corresponding rise in total liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Sep 30, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $181,887 | $159,835 | | Total current assets | $270,730 | $254,517 | | Total assets | $522,402 | $497,911 | | Liabilities & Equity | | | | Total current liabilities | $89,665 | $81,140 | | Total liabilities | $168,525 | $150,196 | | Total equity | $353,877 | $347,715 | Condensed Consolidated Statements of Income Total revenues increased for the three months ended December 31, 2021, driving operating income growth, though net income attributable to RMR Inc. decreased due to lower unrealized gains Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Total management and advisory services revenues | $46,015 | $41,333 | | Total revenues | $181,568 | $156,946 | | Operating income | $20,093 | $13,732 | | Net income | $18,292 | $19,753 | | Net income attributable to The RMR Group Inc. | $8,042 | $8,897 | | Diluted EPS | $0.49 | $0.51 | Condensed Consolidated Statements of Shareholders' Equity Total equity increased during the quarter, driven by net income, partially offset by common share and tax distributions - For the three months ended Dec 31, 2021, total equity increased by $6,200 thousand, reflecting $18,300 thousand in net income, less $10,800 thousand in common share distributions and $2,000 thousand in tax distributions to members[13] Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased for the three months ended December 31, 2021, with net cash used in financing activities primarily for distributions, resulting in higher cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $34,968 | $27,660 | | Net cash used in investing activities | ($165) | ($560) | | Net cash used in financing activities | ($12,751) | ($13,550) | | Increase in cash and cash equivalents | $22,052 | $13,550 | | Cash and cash equivalents at end of period | $181,887 | $383,213 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's structure, revenue recognition, related party transactions, and segment reporting, highlighting management services to various clients and equity investments - RMR LLC provides management services to four Managed Equity REITs (DHC, ILPT, OPI, SVC), three Managed Operating Companies (ALR, Sonesta, TA), and other private clients[21][22][23] Management & Advisory Services Revenue by Client Type (Q1 FY22 vs Q1 FY21, in thousands) | Client Type | Q1 FY2022 | Q1 FY2021 | | :--- | :--- | :--- | | Managed Public Real Estate Capital | $36,992 | $33,866 | | Managed Private Real Estate Capital | $2,400 | $1,570 | | Managed Operating Companies | $6,570 | $5,638 | | Total from Related Parties | $45,962 | $41,074 | - The company holds equity method investments in Seven Hills Realty Trust (SEVN) and TravelCenters of America Inc. (TA), accounted for under the fair value option. As of Dec 31, 2021, the market value of these investments was $8,600 thousand in SEVN and $32,100 thousand in TA[54][58] - For the three months ended Dec 31, 2021, the company declared and paid dividends of $0.38 per common share, totaling $6,300 thousand[91] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's business environment, operational results, and financial condition, highlighting revenue drivers, liquidity, and the impact of the COVID-19 pandemic on client industries - The company's business is dependent on its ability to operate and grow its clients' businesses, which include Managed REITs, Managed Operating Companies, and private capital vehicles. The business generally follows the U.S. real estate cycle[109] - Despite challenges from the COVID-19 pandemic on client industries, the company believes its financial resources are sufficient. As of Dec 31, 2021, it had $181,900 thousand in cash and cash equivalents and no debt[112] - A key future event is ILPT's pending acquisition of Monmouth Real Estate Investment Corporation (MNR) for approximately $4.0 billion, expected to close in the first half of 2022 and increase RMR's management fees[110][145] Results of Operations Total revenues increased for the three months ended December 31, 2021, driving a significant rise in operating income, though net income attributable to RMR Inc. declined due to lower unrealized gains Comparison of Operating Results (in thousands) | Line Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Management services revenue | $44,897 | $40,747 | $4,150 | 10.2% | | Advisory services revenue | $1,118 | $586 | $532 | 90.8% | | Total revenues | $181,568 | $156,946 | $24,622 | 15.7% | | Total compensation and benefits expense | $34,010 | $37,214 | ($3,204) | (8.6)% | | Operating income | $20,093 | $13,732 | $6,361 | 46.3% | | Net income attributable to The RMR Group Inc. | $8,042 | $8,897 | ($855) | (9.6)% | - The $4,150 thousand increase in management services revenue was primarily due to higher fees from DHC, OPI, and SVC because of their increased enterprise values, and a $1,460 thousand increase in fees from Sonesta due to its expansion[127] - The $6,900 thousand decrease in unrealized gains on equity method investments was a major factor in the decline of net income[126][140] Liquidity and Capital Resources The company maintains a strong liquidity position with significant cash and no debt, with primary cash uses being operating expenses, tax distributions, and dividends to shareholders - As of Dec 31, 2021, the company had $181,900 thousand in cash and cash equivalents and no outstanding debt[142] - Cash from operating activities increased by $7,300 thousand year-over-year to $35,000 thousand for the quarter, reflecting higher net income (excluding non-cash gains) and changes in working capital[148][149] - On Jan 13, 2022, a quarterly dividend of $0.38 per share was declared, totaling approximately $6,300 thousand, to be paid on or about Feb 17, 2022[146] Quantitative and Qualitative Disclosures About Market Risk The company is not subject to significant direct market risk, as it avoids derivative instruments and debt, with primary risk being indirect impacts on client performance - The company does not use derivative instruments and has not issued debt, limiting its direct exposure to interest rate, commodity, or credit risks[152] - Cash and cash equivalents, including $131,100 thousand in money market funds as of Dec 31, 2021, are believed to have no material market risk[143][153] Controls and Procedures Management concluded that the company's disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of December 31, 2021, the President and CEO and the EVP, CFO and Treasurer concluded that the company's disclosure controls and procedures are effective[155] - There were no material changes to the company's internal control over financial reporting during the quarter[156] Warning Concerning Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to various risks and uncertainties, including the impact of COVID-19 and reliance on a limited number of clients - Forward-looking statements are subject to risks including the impact of COVID-19, reliance on a few clients, and the potential for management agreement terminations[158][160] - The company's base management fees are tied to client asset values or market capitalizations, and incentive fees are not guaranteed, making future revenues potentially volatile[160][161] PART II. Other Information This section covers updates on risk factors, equity security sales, and required exhibits and signatures Risk Factors The company reports no material changes to the risk factors from those previously disclosed in its Annual Report on Form 10-K for the fiscal year ended September 30, 2021 - There have been no material changes to the risk factors from those provided in the 2021 Annual Report[163] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchase of 225 shares of Class A Common Stock in October 2021 to satisfy tax withholding obligations related to employee share awards Issuer Purchases of Equity Securities (Q1 FY2022) | Calendar Month | Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2021 | 225 | $34.05 | | Total | 225 | $34.05 | - The share purchases were made to satisfy tax withholding obligations in connection with the vesting of Class A Common Share awards[164] Exhibits This section provides a list of exhibits filed with the Form 10-Q, including certifications by the CEO and CFO and XBRL data files - The report includes Rule 13a-14(a) and Section 1350 certifications as exhibits, along with XBRL data files[165] Signatures The report is duly signed on behalf of the registrant by Matthew P. Jordan, Executive Vice President, Chief Financial Officer and Treasurer, on January 27, 2022 - The Form 10-Q was signed on January 27, 2022, by Matthew P. Jordan, the company's principal financial and accounting officer[168]