Revenue Recognition

Revenues from services that we provide are recognized as earned in accordance with contractual agreements. In the periods presented, management and advisory services revenue consists principally of business management fees, property management fees and advisory fees earned from our Client Companies and EQC.

Business Management and Incentive Fees—Managed REITs

We earn annual base business management fees from the Managed REITs pursuant to business management agreements equal to the lesser of:


•	the sum of (a) 0.5% of the historical cost of transferred real estate assets, if any, as defined in the applicable business management agreement, plus (b) 0.7% of the average invested capital (exclusive of the transferred real estate assets), as defined in the applicable business management agreement, up to $250,000, plus (c) 0.5% of the average invested capital exceeding $250,000; and


•	the sum of (a) 0.7% of the average market capitalization, as defined in the applicable business management agreement, up to $250,000, plus (b) 0.5% of the average market capitalization exceeding $250,000.

The foregoing base business management fees are paid monthly in arrears, based on the lower of the Managed REIT’s monthly average historical costs of assets under management and average market capitalization during the month. For purposes of these fees, a Managed REIT’s assets under management do not include shares it owns of another Client Company.

We also may earn annual incentive business management fees from the Managed REITs under the business management agreements. The incentive business management fees are contingent performance based fees which are only recognized when earned at the end of each respective measurement period. The incentive fees are calculated for each Managed REIT as 12.0% of the product of (a) the equity market capitalization of the Managed REIT, as defined in the applicable business management agreement, and (b) the amount, expressed as a percentage, by which the Managed REIT’s total return per share, as defined in the applicable business management agreement, exceeded the benchmark total return per share, as defined in the applicable business management agreement, of a specified REIT index identified in the applicable business management agreement for the measurement period, subject to caps on the values of the incentive fees. The measurement period for the annual incentive fee in respect of calendar year 2016 was the three year period that ended on December 31, 2016 and in respect of calendar year 2015 was the two year period that ended on December 31, 2015. The measurement period for the annual incentive fee in respect of the current calendar year and calendar years thereafter is the three year period ending on December 31 of the applicable calendar year.

We earned aggregate base business management fees from the Managed REITs of $28,413 and $24,829 for the three months ended March 31, 2017 and 2016, respectively, and $56,173 and $50,005 for the six months ended March 31, 2017 and 2016, respectively. We earned aggregate incentive business management fees from the Managed REITs of $52,407 and $62,263 for the six months ended March 31, 2017 and 2016, respectively, all of which was earned during the three months ended December 31, 2016 and 2015, respectively. Incentive business management fees recognized as earned in the six months ended March 31, 2017 and 2016 were earned in respect of the 2016 and 2015 calendar years, respectively.

Business Management Fees—Managed Operators, ABP Trust and AIC

We earn business management fees from the Managed Operators and ABP Trust pursuant to business management agreements equal to 0.6% of: (i) in the case of Five Star, Five Star’s revenues from all sources reportable under GAAP, less any revenues reportable by Five Star with respect to properties for which it provides management services, plus the gross revenues at those properties determined in accordance with GAAP, (ii) in the case of Sonesta, Sonesta’s revenues from all sources reportable under GAAP, less any revenues reportable by Sonesta with respect to hotels for which it provides management services, plus the gross revenues at those hotels determined in accordance with GAAP, (iii) in the case of TA, the sum of TA’s gross fuel margin, as defined in the applicable agreement, plus TA’s total nonfuel revenues and (iv) in the case of ABP Trust, revenues from all sources reportable under GAAP. These fees are estimated and payable monthly in advance. We earn business management fees from AIC pursuant to a management agreement equal to 3.0% of its total premiums paid under active insurance underwritten or arranged by AIC. We earned aggregate business management fees from the Managed Operators, ABP Trust and AIC of $6,183 and $6,091 for the three months ended March 31, 2017 and 2016, respectively, and $12,722 and $12,317 for the six months ended March 31, 2017 and 2016, respectively.

Property Management Fees

We earned property management fees pursuant to property management agreements with certain Client Companies. We generally earn fees under these agreements for property management services equal to 3.0% of gross collected rents. Also, under the terms of the property management agreements, we receive additional property management fees for construction supervision in connection with certain construction activities undertaken at the managed properties equal to 5.0% of the cost of such construction. We earned aggregate property management fees of $8,629 and $8,094 for the three months ended March 31, 2017 and 2016, respectively, and $16,851 and $16,430 for the six months ended March 31, 2017 and 2016, respectively.

Reimbursable Payroll and Related Costs

Pursuant to certain of our management agreements, the companies to which we provide management services pay or reimburse us for expenses incurred on their behalf. In accordance with FASB Accounting Standards Codification, or ASC, 605, Revenue Recognition, we present certain payroll and related cost reimbursements we receive as revenue. A significant portion of these reimbursable payroll and related costs arise from services we provide pursuant to our property management agreements that are charged or passed through to and are paid by tenants of our Client Companies. We realized reimbursable payroll and related costs of $10,034 and $8,759 for the three months ended March 31, 2017 and 2016, respectively, and $19,184 and $16,249 for the six months ended March 31, 2017 and 2016, respectively.

Our reimbursable payroll and related costs include grants of common shares from Client Companies directly to certain of our officers and employees in connection with the provision of management services to those companies. The revenue in respect of each grant is based on the fair value as of the grant date for those shares that have vested, with subsequent changes in the fair value of the unvested grants being recognized in the condensed consolidated statements of comprehensive income over the requisite service period. We record an equal offsetting amount as compensation and benefits expense for all of our reimbursable payroll and related cost revenues. We realized equity based compensation expense and related reimbursements of $1,432 and $1,358 for the three months ended March 31, 2017 and 2016, respectively, and $2,494 and $2,843 for the six months ended March 31, 2017 and 2016, respectively.

We report all other expenses we incur on behalf of our Client Companies on a net basis, as the management agreements provide that reimbursable expenses are to be billed directly to the client. This net basis accounting method is supported by some or all of the following factors, which we have determined define us as an agent rather than a principal with respect to these matters:


•	reimbursement to us is generally completed prior to payment of the related expenses;


•	the property owner is contractually obligated to fund such operating costs of the property from existing cash flow or direct funding from its building operating account and we bear little or no credit risk;


•	our clients are the primary obligor in relationships with the affected suppliers and service providers; and


•	we earn no margin on the reimbursement aspect of the arrangement, obtaining reimbursement only for actual costs incurred.

Advisory Agreements and Other Services to Advisory Clients

RMR Advisors is compensated pursuant to its agreement with RIF at an annual rate of 0.85% of RIF’s average daily managed assets, as defined in the agreement. Average daily managed assets includes the net asset value attributable to RIF’s outstanding common shares, plus the liquidation preference of RIF’s outstanding preferred shares plus the principal amount of any borrowings, including from banks or evidenced by notes, commercial paper or other similar instruments issued by RIF. RMR Advisors earned advisory fees of $607 and $560 for the three months ended March 31, 2017 and 2016, respectively, and $1,213 and $1,141 for the six months ended March 31, 2017 and 2016, respectively.

Tremont Advisors is compensated pursuant to its agreement with a private fund created for an institutional investor at an annual rate of 1.35% of the weighted average outstanding balance of all strategic investments, as defined in the agreement, of the private fund. Strategic investments include any direct or indirect participating or non-participating debt investment in certain real estate. Tremont Advisors is also party to loan servicing agreements with its other separately managed account clients. Under such agreements, Tremont Advisors is compensated at an annual rate of 0.50% of the outstanding principal balance of the outstanding loans. In certain circumstances, Tremont Advisors is also entitled to performance fees based on exceeding certain performance targets. Performance fees are realized when a separately managed account client’s cumulative returns are in excess of the contractual preferred return. Tremont Advisors did not earn any performance fees for the three and six months ended March 31, 2017. The Tremont business also acts as transaction originators for non-investment advisory clients for negotiated fees. For the three and six months ended March 31, 2017, the Tremont business earned between 0.50% and 1.0% of the aggregate principal amounts of any loans so originated. For the three months ended March 31, 2017, we earned management services revenue of $33 and advisory services revenue of $397, and for the six months ended March 31, 2017, we earned management services revenue of $239 and advisory services revenue of $801.

EQC Termination and Cooperation Agreement

We provided certain transition services for EQC in Australia and earned zero and $58 for the three and six months ended March 31, 2016, respectively, for these services.