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The RMR Group(RMR) - 2022 Q3 - Quarterly Report

markdown [PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents The RMR Group Inc.'s unaudited condensed consolidated financial statements and detailed accounting notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows total assets increased to **$531.0 thousand** from **$497.9 thousand**, driven by cash, with total equity rising to **$357.0 thousand** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | September 30, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $195,936 | $159,835 | | Total current assets | $295,878 | $254,517 | | Total assets | $531,036 | $497,911 | | **Liabilities & Equity** | | | | Total current liabilities | $107,054 | $81,140 | | Total liabilities | $174,028 | $150,196 | | Total equity | $357,008 | $347,715 | [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q3 2022 total revenues rose to **$211.1 thousand**, but net income attributable to RMR Inc. slightly decreased to **$7.6 thousand** due to unrealized losses Q3 Financial Performance (Three Months Ended June 30, in thousands, except per share data) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Revenues | $211,088 | $145,244 | | Operating Income | $25,418 | $20,871 | | Net Income Attributable to RMR Inc. | $7,570 | $8,232 | | Diluted EPS | $0.46 | $0.50 | Year-to-Date Financial Performance (Nine Months Ended June 30, in thousands, except per share data) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Revenues | $590,310 | $433,754 | | Operating Income | $67,045 | $50,970 | | Net Income Attributable to RMR Inc. | $22,004 | $22,070 | | Diluted EPS | $1.33 | $1.31 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to **$89.9 thousand** for the nine months ended June 30, 2022, reflecting improved performance Cash Flow Summary (Nine Months Ended June 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $89,856 | $72,371 | | Net cash used in investing activities | ($10,384) | ($940) | | Net cash used in financing activities | ($43,371) | ($43,293) | | **Increase in cash and cash equivalents** | **$36,101** | **$28,138** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes provide critical details on accounting policies and financial results - The company operates through its majority-owned subsidiary, RMR LLC, and provides management services to Managed Equity REITs (DHC, ILPT, OPI, SVC), Managed Operating Companies (ALR, Sonesta, TA), and advisory services via Tremont Realty Capital to SEVN[22](index=22&type=chunk)[23](index=23&type=chunk)[25](index=25&type=chunk) - For Q3 2022, total revenues from related parties were **$211.0 thousand**, accounting for substantially all of the company's consolidated revenues[73](index=73&type=chunk) - The company holds equity method investments in Seven Hills Realty Trust (SEVN) and TravelCenters of America (TA), which resulted in a **$5.5 thousand** unrealized loss in Q3 2022 due to changes in their market values[55](index=55&type=chunk)[57](index=57&type=chunk) - On May 11, 2022, the company's subsidiary purchased **882,407 shares** of SEVN from Diane Portnoy, the mother of the company's Chair, for **$9.5 thousand**[85](index=85&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the business environment, revenue drivers, liquidity, and capital allocation priorities [Results of Operations](index=34&type=section&id=Results%20of%20Operations) Q3 2022 management services revenue increased **16.8%** to **$51.8 thousand**, but net income attributable to RMR Inc. fell **8.0%** due to equity investment losses Q3 2022 vs. Q3 2021 Key Changes (in thousands) | Metric | Q3 2022 | Q3 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Management services revenue | $51,819 | $44,376 | $7,443 | 16.8% | | Operating income | $25,418 | $20,871 | $4,547 | 21.8% | | Unrealized (loss) gain on equity investments | ($5,489) | $1,312 | ($6,801) | n/m | | Net income Attributable to RMR Inc. | $7,570 | $8,232 | ($662) | (8.0)% | - The increase in management services revenue was primarily due to growth in fees from ILPT following its acquisition of Monmouth Real Estate Investment Corporation (MNR) and a **$1.9 thousand** increase in construction supervision fees from OPI, DHC, and SVC[137](index=137&type=chunk) - General and administrative expenses rose **31.7%** to **$8.3 thousand** in Q3 2022, driven by higher technology infrastructure costs, third-party construction oversight costs, and increased recruiting and professional fees[144](index=144&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with **$195.9 thousand** in cash and no debt, primarily funding operations and shareholder distributions - Cash and cash equivalents increased to **$195.9 thousand** at June 30, 2022, from **$159.8 thousand** at September 30, 2021[163](index=163&type=chunk) - The company declared a quarterly dividend of **$0.40 per share** on July 14, 2022, to be paid in August 2022[166](index=166&type=chunk) - As of June 30, 2022, the company has a liability of **$27.8 thousand** related to its tax receivable agreement with ABP Trust, with an expected payment of **$2.2 thousand** in Q4 2022[171](index=171&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company has no direct market risk but acknowledges indirect exposure through its clients' businesses and market capitalizations - The company's primary market risk is indirect; its revenues would likely decline if market risks (e.g., interest rate changes) negatively impact its clients' businesses or market capitalizations[172](index=172&type=chunk) - A substantial amount of the company's cash is invested in money market funds, which are believed not to be subject to material interest rate or credit risk[173](index=173&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the quarter - Based on an evaluation as of June 30, 2022, the President and CEO and the Executive VP, CFO, and Treasurer concluded that the company's disclosure controls and procedures are effective[177](index=177&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[178](index=178&type=chunk) [PART II. Other Information](index=45&type=section&id=PART%20II.%20Other%20Information) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported, with key risks including client dependence, revenue variability, and impacts of inflation and interest rates - The company reports no material changes to the risk factors from those disclosed in its 2021 Annual Report[186](index=186&type=chunk) - Key operational risks highlighted in the forward-looking statement warning include: - Heavy reliance on revenue from a limited number of clients - High variability of revenues, which are tied to client asset values and market capitalizations - The impact of inflation and rising interest rates on clients' businesses - The potential for termination of management agreements[182](index=182&type=chunk) [Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including CEO/CFO certifications and a Sonesta management agreement amendment - Exhibit 10.1 is the First Amendment to the Amended and Restated Business Management and Shared Services Agreement between The RMR Group LLC and Sonesta International Hotels Corporation, dated May 31, 2022[187](index=187&type=chunk) - Exhibits 31.1, 31.2, and 32.1 contain the required certifications by the principal executive officer and principal financial officer regarding the report's accuracy and the company's disclosure controls[187](index=187&type=chunk)