EX-99.1 2 exhibit991_33118.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1


a8kimage1a01.gif
 
 
FOR IMMEDIATE RELEASE
Contact:
 
Timothy A. Bonang, Senior Vice President
 
(617) 796-8230
 
The RMR Group Inc. Announces Second Quarter Fiscal 2018 Results

Total Revenues of $59.3 Million, a 9% Increase from the Second Quarter Last Year

Net Income Attributable to The RMR Group Inc. of $0.52 Per Share and Adjusted Net Income Attributable to The RMR Group Inc. of $0.54 Per Share, Both Increases of over 20% from the Second Quarter Last Year
______________________________________________________________________________

Newton, MA (May 10, 2018). The RMR Group Inc. (Nasdaq: RMR) today announced its financial results for the fiscal quarter ended March 31, 2018.

Adam Portnoy, President and Chief Executive Officer, made the following statement regarding the second quarter fiscal 2018 results:

"During the second quarter we increased revenues by 9%, net income attributable to The RMR Group Inc. by 21% and Adjusted EBITDA by 6% as compared to a year ago. These operating results are even more noteworthy considering the headwinds facing REIT share prices and the $0.02 per share impact this quarter from one-time items associated with separation costs and share award accelerations.

This quarter, we continued positioning ourselves for further growth by helping Select Income REIT complete the IPO of our fifth Managed Equity REIT, Industrial Logistics Properties Trust, which is an industrial REIT. With more than $250 million of cash on hand and no debt, we are well positioned to consider a number of new opportunities for growth in the future."

Second Quarter Fiscal 2018 Highlights:

•
Total revenues for the quarter ended March 31, 2018 were $59.3 million, compared to total revenues for the quarter ended March 31, 2017 of $54.3 million.

•
For the three months ended March 31, 2018, net income was $19.6 million and net income attributable to The RMR Group Inc. was $8.4 million, or $0.52 per diluted share, compared to net income of $17.7 million and net income attributable to The RMR Group Inc. of $6.9 million, or $0.43 per diluted share, for the three months ended March 31, 2017. Net income this quarter included $0.9 million, or $0.02 per share, for the accelerated vesting of The RMR Group Inc. share awards and separation expenses related to former employees and officers. Net income in the second quarter last year included $0.7 million, or $0.01 per share, of transaction and acquisition related costs.

1



•
The RMR Group Inc. earned management services revenues for the three months ended March 31, 2018 and 2017 from the following sources (dollars in thousands):

 
 
Three Months Ended March 31,
 
 
2018
 
2017
Managed Equity REITs (1)
 
$
39,460

 
84.8
%
 
$
36,715

 
84.9
%
Managed Operators (2)
 
6,339

 
13.6
%
 
6,091

 
14.1
%
Other
 
760

 
1.6
%
 
452

 
1.0
%
Total Management Services Revenues
 
46,559

 
100.0
%
 
43,258

 
100.0
%

(1)
Managed Equity REITs collectively refers to: Government Properties Income Trust (GOV), Hospitality Properties Trust (HPT), Industrial Logistics Properties Trust (ILPT), Select Income REIT (SIR) and Senior Housing Properties Trust (SNH). ILPT was a wholly-owned subsidiary of SIR until the completion of ILPT's initial public offering on January 17, 2018.
(2)
Managed Operators collectively refers to: Five Star Senior Living Inc. (FVE), Sonesta International Hotels Corporation and TravelCenters of America LLC (TA).


•
For the three months ended March 31, 2018, Adjusted EBITDA was $28.3 million and Adjusted EBITDA Margin was 56.5%, compared to Adjusted EBITDA of $26.6 million and Adjusted EBITDA Margin of 57.0% for the three months ended March 31, 2017. Adjusted EBITDA Margin equals Adjusted EBITDA divided by the contractual management and advisory fees earned from The RMR Group LLC’s client companies. These contractual management and advisory fees are calculated pursuant to The RMR Group LLC’s contracts with its client companies and do not deduct non-cash asset amortization recognized in accordance with U.S. generally accepted accounting principles, or GAAP, as a reduction to management services revenues. Adjusted EBITDA and Adjusted EBITDA Margin are calculated on recurring revenues and do not include incentive business management fees earned.

•
As of March 31, 2018, The RMR Group Inc. had approximately $30.0 billion of total assets under management, compared to total assets under management of $27.6 billion as of March 31, 2017.

•
As of March 31, 2018, The RMR Group Inc. had approximately $276 million in cash and cash equivalents on a consolidated basis with no outstanding debt obligations.

2


Reconciliations to GAAP:

Adjusted net income attributable to The RMR Group Inc., EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. Reconciliations of net income determined in accordance with GAAP to Adjusted net income attributable to The RMR Group Inc., EBITDA and Adjusted EBITDA as well as calculations of Adjusted EBITDA Margin appear later in this press release. Also, comparisons of The RMR Group Inc.'s revenues, Adjusted net income attributable to The RMR Group Inc., EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, net income and net income attributable to The RMR Group Inc. for the three and six months ended March 31, 2018 to the three and six months ended March 31, 2017 are presented later in this press release.

Total Assets Under Management:

The calculation of total assets under management includes: (i) the gross book value of real estate and related assets, excluding depreciation, amortization, impairment charges or other non-cash reserves, of the Managed Equity REITs and ABP Trust, plus (ii) the gross book value of real estate assets, property and equipment of the Managed Operators, excluding depreciation, amortization, impairment charges or other non-cash reserves, plus (iii) the fair value of investments of Affiliates Insurance Company, the managed assets of RMR Real Estate Income Fund and the equity of Tremont Mortgage Trust (TRMT), plus (iv) the contributed capital of and outstanding principal of loans serviced for certain private clients. This calculation of total assets under management may include amounts in respect of the Managed Equity REITs that are higher than the calculations of assets under management used for purposes of calculating fees under the terms of the business management agreements, which are based, in part, upon the lesser of the historical cost of real estate assets or total market capitalization. For information on the calculation of assets under management of the Managed Equity REITs for purposes of the fee provisions of the business management agreements, see The RMR Group Inc.'s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC. The RMR Group Inc.'s SEC filings are available at the SEC website: www.sec.gov.

Conference Call:

At 10:00 a.m. Eastern Time this morning, President and Chief Executive Officer, Adam Portnoy, and Chief Financial Officer and Treasurer, Matt Jordan, will host a conference call to discuss The RMR Group Inc.’s fiscal second quarter ended March 31, 2018 financial results.

The conference call telephone number is (877) 329-4297. Participants calling from outside the United States and Canada should dial (412) 317-5435. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. Eastern Time on Thursday, May 17, 2018. To access the replay, dial (412) 317-0088. The replay pass code is 10118600. The transcription, recording and retransmission in any way of The RMR Group Inc.'s fiscal second quarter ended March 31, 2018 financial results conference call are strictly prohibited without the prior written consent of The RMR Group Inc.

3


About The RMR Group Inc.

The RMR Group Inc. is a holding company, and substantially all of its business is conducted by its majority-owned subsidiary, The RMR Group LLC. The RMR Group LLC is an alternative asset management company that primarily provides management services to publicly traded REITs and real estate operating companies. As of March 31, 2018, The RMR Group LLC had approximately $30.0 billion of total assets under management, including more than 1,700 properties, and employed over 550 real estate professionals in more than 35 offices throughout the United States; and the companies managed by The RMR Group LLC collectively had approximately 52,000 employees. The RMR Group Inc. is headquartered in Newton, Massachusetts.

4


WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. FORWARD LOOKING STATEMENTS CAN BE IDENTIFIED BY USE OF WORDS SUCH AS “OUTLOOK”, “BELIEVE”, “EXPECT”, “POTENTIAL”, “WILL”, “MAY”, “ESTIMATE”, “ANTICIPATE”, AND DERIVATIVES OR NEGATIVES OF SUCH WORDS OR SIMILAR WORDS. FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE ARE BASED UPON PRESENT BELIEFS OR EXPECTATIONS. HOWEVER, FORWARD LOOKING STATEMENTS AND THEIR IMPLICATIONS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR FOR VARIOUS REASONS, INCLUDING SOME REASONS BEYOND THE RMR GROUP INC.'S CONTROL. FOR EXAMPLE:

•
MR. PORTNOY STATES THAT THE RMR GROUP INC., OR RMR, CONTINUED POSITIONING ITSELF FOR FURTHER GROWTH BY HELPING SELECT INCOME REIT, OR SIR, COMPLETE THE IPO OF ITS FIFTH MANAGED EQUITY REIT, INDUSTRIAL LOGISTICS PROPERTIES TRUST, OR ILPT. THIS MAY IMPLY THAT RMR WILL BE ABLE TO CONTINUE GROWING AND DIVERSIFYING ITS BUSINESS IN THE FUTURE. HOWEVER, THERE CAN BE NO ASSURANCE THAT RMR WILL BE ABLE TO GROW AND DIVERSIFY ITS BUSINESS IN THE FUTURE. IN FACT, RMR'S BUSINESS COULD BECOME SMALLER AND LESS DIVERSIFIED IN THE FUTURE. IN ADDITION, ANY FURTHER REVENUE STREAM DIVERSIFICATION THAT RMR MAY REALIZE MAY NOT IMPROVE ITS PROFITABILITY OR GROWTH.

•
MR. PORTNOY STATES THAT RMR HAS MORE THAN $250 MILLION OF CASH ON HAND AND NO DEBT, AND THAT RMR IS WELL POSITIONED TO CONSIDER A NUMBER OF NEW OPPORTUNITIES FOR GROWTH IN THE FUTURE. THIS MAY IMPLY THAT RMR WILL IDENTIFY AND SUCCESSFULLY IMPLEMENT AND EXECUTE ANY NEW OPPORTUNITIES THAT IT MAY DECIDE TO PURSUE. HOWEVER, RMR MAY NOT SUCCEED IN THIS REGARD.

THE INFORMATION CONTAINED IN THE RMR GROUP INC.’S FILINGS WITH THE SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS” IN THE RMR GROUP INC.’S PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM THE FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE. THE RMR GROUP INC.’S FILINGS WITH THE SEC ARE AVAILABLE ON ITS WEBSITE AT WWW.SEC.GOV.
EXCEPT AS REQUIRED BY LAW, THE RMR GROUP INC. UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

5


The RMR Group Inc.
Condensed Consolidated Statements of Income
(amounts in thousands, except per share amounts)
(unaudited)
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
Management services (1)
$
46,559

 
$
43,258

 
$
95,129

 
$
85,985

Incentive business management fees
—

 
—

 
155,881

 
52,407

Reimbursable payroll related and other costs
11,657

 
10,034

 
24,365

 
19,184

Advisory services
1,065

 
1,004

 
2,447

 
2,014

Total revenues
59,281

 
54,296

 
277,822

 
159,590

Expenses
 
 
 
 
 
 
 
Compensation and benefits
28,073

 
22,983

 
54,270

 
45,287

Equity based compensation
1,217

 
1,566

 
3,938

 
2,494

Separation costs
136

 
—

 
136

 
—

     Total compensation and benefits expense
29,426

 
24,549

 
58,344

 
47,781

General and administrative
7,024

 
6,453

 
13,730

 
12,294

Transaction and acquisition related costs
—

 
693

 
142

 
693

Depreciation and amortization
372

 
528

 
752

 
1,083

Total expenses
36,822

 
32,223

 
72,968

 
61,851

Operating income
22,459

 
22,073

 
204,854

 
97,739

Interest and other income
1,076

 
450

 
1,860

 
657

Tax receivable agreement remeasurement
—

 
—

 
24,710

 
—

Income before income tax expense and equity in losses of investees
23,535

 
22,523

 
231,424

 
98,396

Income tax expense
(3,681
)
 
(4,610
)
 
(52,024
)
 
(20,283
)
Equity in losses of investees
(212
)
 
(165
)
 
(434
)
 
(165
)
Net income
19,642

 
17,748

 
178,966

 
77,948

Net income attributable to noncontrolling interest
(11,286
)
 
(10,865
)
 
(99,490
)
 
(47,555
)
Net income attributable to The RMR Group Inc.
8,356

 
6,883

 
79,476

 
30,393

 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
16,069

 
16,025

 
16,064

 
16,025

Weighted average common shares outstanding - diluted
16,105

 
16,042

 
16,095

 
16,036

 
 
 
 
 
 
 
 
Net income attributable to The RMR Group Inc. per common share - basic
$
0.52


$
0.43


$
4.92


$
1.89

Net income attributable to The RMR Group Inc. per common share - diluted
$
0.52

 
$
0.43

 
$
4.91

 
$
1.89


(1)    Includes business management fees earned from the Managed Equity REITs based upon the lower of (i) the average historical cost of each REIT’s properties and (ii) each REIT’s average market capitalization. The following table presents for each Managed Equity REIT: a summary of its primary strategy and the lesser of the historical cost of its assets under management and its market capitalization as of March 31, 2018 and 2017, as applicable:
 
 
 
 
Lesser of Historical Cost of Assets
 
 
 
 
Under Management or Market Capitalization (a)
 
 
 
 
As of March 31,
REIT
 
Primary Strategy
 
2018
 
2017
GOV
 
Office properties leased to government and private sector tenants
 
$
3,584,960

 
$
2,223,261

HPT
 
Hotels and travel centers
 
8,300,521

 
8,909,423

ILPT
 
Industrial and logistics properties
 
1,452,901

 
—

SIR
 
Land and properties primarily leased to single tenants
 
3,437,363

 
4,693,229

SNH
 
Senior living, medical office and life science properties
 
7,405,208

 
8,241,673

 
 
 
 
$
24,180,953

 
$
24,067,586


6


(a)
The basis on which our base business management fees are calculated for the three and six months ended March 31, 2018 and 2017 may differ from the basis at the end of the periods presented in the table above. As of March 31, 2018, the market capitalization was lower than the historical costs of assets under management for HPT and SNH; the historical costs of assets under management for HPT and SNH as of March 31, 2018, were $9,991,688 and $8,543,018, respectively. For GOV, ILPT and SIR, the historical costs of assets under management were lower than their market capitalization of $3,616,572, $1,672,952 and $3,462,202, respectively, calculated as of March 31, 2018.

7


The RMR Group Inc.
Calculation of Adjusted Net Income Attributable to The RMR Group Inc.
(dollars in thousands, except per share amounts)
(unaudited)


The RMR Group Inc. is providing the below information regarding certain individually significant items occurring or impacting its financial results for the three months ended March 31, 2018 and 2017 for supplemental informational purposes and to enhance understanding of The RMR Group Inc.'s condensed consolidated statements of income and to facilitate a comparison of The RMR Group Inc.'s current operating performance with its historical operating performance. This information should be considered in conjunction with net income, net income attributable to The RMR Group Inc. and operating income as presented in The RMR Group Inc.'s condensed consolidated statements of income.

 
Three Months Ended March 31, 2018
 
Impact on Net Income Attributable to The RMR Group Inc.
 
Impact on Net Income Attributable to The RMR Group Inc. Per Common Share - Diluted
Net income attributable to The RMR Group Inc.
$
8,356

 
$
0.52

Share accelerations, net of noncontrolling interest (1)
284

 
0.02

Separation costs, net of noncontrolling interest (2)
50

 
—

Adjusted net income attributable to The RMR Group Inc.
$
8,690

 
$
0.54


(1)
Includes $466 from the acceleration of Barry Portnoy's unvested common share awards and $316 from the acceleration of David Hegarty's unvested common share awards, adjusted to reflect amounts attributable to the noncontrolling interest and for tax at a rate of approximately 15.6%.

(2)
Includes $136 of separation costs, adjusted to reflect amounts attributable to the noncontrolling interest and for tax at a rate of approximately 15.6%.


 
Three Months Ended March 31, 2017
 
Impact on Net Income Attributable to The RMR Group Inc.
 
Impact on Net Income Attributable to The RMR Group Inc. Per Common Share - Diluted
Net income attributable to The RMR Group Inc.
$
6,883

 
$
0.43

Transaction and acquisition related costs, net of noncontrolling interest (1)
216

 
0.01

Adjusted net income attributable to The RMR Group Inc.
$
7,099

 
$
0.44


(1)
Includes $693 of transaction and acquisition related costs, adjusted to reflect amounts attributable to the noncontrolling interest and for tax at a rate of approximately 20.6%.

8


The RMR Group Inc.
Reconciliation of EBITDA and Adjusted EBITDA from Net Income
and Calculation of Adjusted EBITDA Margin (1) 
(dollars in thousands)
(unaudited)
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Reconciliation of EBITDA and Adjusted EBITDA from net income:
 
 
 
 
 
 
 
Net income
$
19,642

 
$
17,748

 
$
178,966

 
$
77,948

Plus: income tax expense
3,681

 
4,610

 
52,024

 
20,283

Plus: depreciation and amortization
372

 
528

 
752

 
1,083

EBITDA
23,695

 
22,886

 
231,742

 
99,314

Plus: other asset amortization
2,354

 
2,354

 
4,708

 
4,708

Plus: operating expenses paid in The RMR Group Inc.'s common shares
1,901

 
737

 
2,467

 
875

Plus: separation costs
136

 
—

 
136

 
—

Plus: transaction and acquisition related costs
—

 
693

 
142

 
693

Plus: business email compromise fraud costs
—

 
—

 
225

 
—

Less: tax receivable agreement remeasurement due to the Tax Cuts and Jobs Act
—

 
—

 
(24,710
)
 
—

Less: incentive business management fees earned
—

 
—

 
(155,881
)
 
(52,407
)
Certain other net adjustments
165

 
(95
)
 
(38
)
 
(503
)
Adjusted EBITDA
$
28,251

 
$
26,575

 
$
58,791

 
$
52,680

 
 
 
 
 
 
 
 
Calculation of Adjusted EBITDA Margin:
 
 
 
 
 
 
 
Contractual management and advisory fees (excluding
 
 
 
 
 
 
 
 any incentive business management fees)(2)
$
49,978

 
$
46,616

 
$
102,284

 
$
92,707

Adjusted EBITDA
$
28,251

 
$
26,575

 
$
58,791

 
$
52,680

Adjusted EBITDA Margin
56.5
%
 
57.0
%
 
57.5
%
 
56.8
%

(1)
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures calculated as presented in the tables above. The RMR Group Inc. considers EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to be appropriate supplemental measures of its operating performance, along with net income, net income attributable to The RMR Group Inc. and operating income. The RMR Group Inc. believes that EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to investors because by excluding the effects of certain amounts, such as income tax expense, depreciation and amortization, other asset amortization, operating expenses paid in The RMR Group Inc.'s common shares, separation costs, transaction and acquisition related costs, business email compromise fraud costs, tax receivable agreement remeasurement due to the Tax Cuts and Jobs Act, incentive business management fees earned, and certain other net adjustments, EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin may facilitate a comparison of current operating performance with The RMR Group Inc.’s historical operating performance and with the performance of other asset management businesses. In addition, The RMR Group Inc. believes that providing Adjusted EBITDA Margin may help investors assess The RMR Group Inc.’s performance of its business by providing the margin that Adjusted EBITDA represents to its contractual management and advisory fees (excluding any incentive business management fees). EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income, net income attributable to The RMR Group Inc. or operating income as an indicator of The RMR Group Inc.’s financial performance or as a measure of The RMR Group Inc.’s liquidity. These measures should be considered in conjunction with net income, net income attributable to The RMR Group Inc. and operating income as presented in The RMR Group Inc.'s condensed consolidated statements of income. Also, other asset management businesses may calculate EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin differently than The RMR Group Inc. does.

(2)
These contractual management fees are the base business management fees, property management fees and advisory fees The RMR Group Inc. earns pursuant to its management and investment advisory agreements with its client companies. These amounts are calculated pursuant to the contractual formulas and do not deduct other asset amortization of $2,354 for each of the three months ended March 31, 2018 and 2017 and $4,708 for each of the six months ended March 31, 2018 and 2017, required to be recognized as a reduction to management services revenues in accordance with GAAP and do not include the incentive business management fees of $155,881 and $52,407 that The RMR Group Inc. recognized under GAAP during the six months ended March 31, 2018 and 2017, respectively, which were earned for the calendar years 2018 and 2017, respectively.

9


The RMR Group Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
(unaudited)



 
 
March 31,
 
September 30,
 
 
2018
 
2017
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
276,360

 
$
108,640

Due from related parties
 
24,721

 
25,161

Prepaid and other current assets
 
8,428

 
7,092

Total current assets
 
309,509

 
140,893

 
 
 
 
 
Total property and equipment, net
 
2,728

 
3,276

Due from related parties, net of current portion
 
6,502

 
7,551

Equity method investments
 
11,585

 
12,162

Goodwill
 
1,859

 
1,859

Intangible assets, net of amortization
 
418

 
462

Deferred tax asset
 
25,092

 
45,541

Other assets, net of amortization
 
167,268

 
171,975

Total assets
 
$
524,961

 
$
383,719

 
 
 
 
 
Liabilities and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued expenses
 
$
50,212

 
$
26,414

Total current liabilities
 
50,212

 
26,414

Long term portion of deferred rent payable, net of current portion
 
1,117

 
1,028

Amounts due pursuant to tax receivable agreement, net of current portion
 
34,354

 
59,063

Employer compensation liability, net of current portion
 
6,502

 
7,551

Total liabilities
 
92,185

 
94,056

 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
Class A common stock, $0.001 par value; 31,600,000 shares authorized; 15,174,463 shares issued and outstanding
 
15

 
15

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
 
98,217

 
95,878

Retained earnings
 
166,312

 
86,836

Cumulative other comprehensive income
 
83

 
84

Cumulative common distributions
 
(41,379
)
 
(33,298
)
Total shareholders’ equity
 
223,264

 
149,531

Noncontrolling interest
 
209,512

 
140,132

Total equity
 
432,776

 
289,663

Total liabilities and equity
 
$
524,961

 
$
383,719


[END]

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