MARYLAND | 8742 | 47-4122583 | ||
(State or other jurisdiction of incorporation) | (Primary Standard Industrial Classification Code Number) | (IRS Employer Identification Number) |
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) |
THE RMR GROUP INC. | |||
By: | /s/ Matthew P. Jordan | ||
Name: | Matthew P. Jordan | ||
Title: | Executive Vice President, Chief Financial Officer and Treasurer | ||
Date: May 10, 2019 |
FOR IMMEDIATE RELEASE | Contact: |
Timothy A. Bonang, Senior Vice President | |
(617) 796-8230 |
• | Total management and advisory services revenues for the quarter ended March 31, 2019 were $43.4 million, compared to $47.6 million for the quarter ended March 31, 2018. |
• | We earned management services revenues for the three months ended March 31, 2019 and 2018 from the following sources (dollars in thousands): |
Three Months Ended March 31, | ||||||||||||||
2019 | 2018 | |||||||||||||
Managed Equity REITs (1) | $ | 35,194 | 82.6 | % | $ | 39,460 | 84.8 | % | ||||||
Managed Operators (2) | 6,144 | 14.4 | % | 6,339 | 13.6 | % | ||||||||
Other | 1,262 | 3.0 | % | 760 | 1.6 | % | ||||||||
Total | $ | 42,600 | 100.0 | % | $ | 46,559 | 100.0 | % |
(1) | Managed Equity REITs for the periods presented includes: Hospitality Properties Trust (HPT), Industrial Logistics Properties Trust (ILPT), Office Properties Income Trust (OPI), Select Income REIT (SIR), until its merger with OPI on December 31, 2018, and Senior Housing Properties Trust (SNH). |
(2) | Managed Operators collectively refers to: Five Star Senior Living Inc. (FVE), Sonesta International Hotels Corporation (Sonesta) and TravelCenters of America LLC (TA). |
• | For the three months ended March 31, 2019, net income was $18.7 million and net income attributable to The RMR Group Inc. was $8.2 million, or $0.50 per diluted share, compared to net income of $19.6 million and net income attributable to The RMR Group Inc. of $8.4 million, or $0.52 per diluted share, for the three months ended March 31, 2018. |
• | For the three months ended March 31, 2019, adjusted net income attributable to The RMR Group Inc. was $8.1 million, or $0.50 per diluted share, compared to $8.7 million, or $0.54 per diluted share, for the three months ended March 31, 2018. |
• | For the three months ended March 31, 2019, Adjusted EBITDA was $24.7 million and Adjusted EBITDA Margin was 54.1%, compared to Adjusted EBITDA of $28.3 million and Adjusted EBITDA Margin of 56.5% for the three months ended March 31, 2018. |
• | As of March 31, 2019, The RMR Group Inc. had $384.1 million in cash and cash equivalents with no outstanding debt obligations. |
• | On December 22, 2017, the U.S government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act. The Tax Act significantly revised the U.S. corporate income tax system by, among other things, lowering corporate income tax rates. Since we have a September 30 fiscal year end, our corporate income tax rates were phased in for our 2018 fiscal year, resulting in a federal statutory tax rate of approximately 24.5% for the fiscal year 2018. Our federal statutory tax rate for fiscal year 2019 is now 21.0%. |
• | As of each of March 31, 2019 and March 31, 2018, The RMR Group Inc. had approximately $30.0 billion total assets under management. |
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenues: | ||||||||||||||||
Management services (1) | $ | 42,600 | $ | 46,559 | $ | 90,088 | $ | 95,129 | ||||||||
Incentive business management fees | — | — | 120,094 | 155,881 | ||||||||||||
Advisory services | 761 | 1,065 | 1,543 | 2,447 | ||||||||||||
Total management and advisory services revenues | 43,361 | 47,624 | 211,725 | 253,457 | ||||||||||||
Reimbursable compensation and benefits | 13,412 | 11,657 | 27,285 | 24,365 | ||||||||||||
Other client company reimbursable expenses(2) | 73,323 | — | 171,399 | — | ||||||||||||
Total reimbursable costs | 86,735 | 11,657 | 198,684 | 24,365 | ||||||||||||
Total revenues | 130,096 | 59,281 | 410,409 | 277,822 | ||||||||||||
Expenses: | ||||||||||||||||
Compensation and benefits | 28,981 | 28,073 | 56,993 | 54,270 | ||||||||||||
Equity based compensation | 1,204 | 901 | 3,015 | 3,455 | ||||||||||||
Separation costs | 414 | 452 | 6,811 | 619 | ||||||||||||
Total compensation and benefits expense | 30,599 | 29,426 | 66,819 | 58,344 | ||||||||||||
General and administrative | 7,122 | 7,024 | 14,442 | 13,730 | ||||||||||||
Other client company reimbursable expenses(2) | 73,323 | — | 171,399 | — | ||||||||||||
Transaction costs | 47 | — | 231 | 142 | ||||||||||||
Depreciation and amortization | 257 | 372 | 512 | 752 | ||||||||||||
Total expenses | 111,348 | 36,822 | 253,403 | 72,968 | ||||||||||||
Operating income | 18,748 | 22,459 | 157,006 | 204,854 | ||||||||||||
Interest and other income | 2,468 | 1,076 | 3,994 | 1,860 | ||||||||||||
Tax receivable agreement remeasurement | — | — | — | 24,710 | ||||||||||||
Unrealized gain (loss) on equity method investment accounted for under the fair value option | 522 | — | (2,247 | ) | — | |||||||||||
Equity in earnings (losses) of investees | 109 | (212 | ) | 144 | (434 | ) | ||||||||||
Income before income tax expense | 21,847 | 23,323 | 158,897 | 230,990 | ||||||||||||
Income tax expense | (3,139 | ) | (3,681 | ) | (22,109 | ) | (52,024 | ) | ||||||||
Net income | 18,708 | 19,642 | 136,788 | 178,966 | ||||||||||||
Net income attributable to noncontrolling interest | (10,540 | ) | (11,286 | ) | (76,411 | ) | (99,490 | ) | ||||||||
Net income attributable to The RMR Group Inc. | $ | 8,168 | $ | 8,356 | $ | 60,377 | $ | 79,476 | ||||||||
Weighted average common shares outstanding - basic | 16,120 | 16,069 | 16,120 | 16,064 | ||||||||||||
Weighted average common shares outstanding - diluted | 16,147 | 16,105 | 16,140 | 16,095 | ||||||||||||
Net income attributable to The RMR Group Inc. per common share - basic(3) | $ | 0.50 | $ | 0.52 | $ | 3.72 | $ | 4.92 | ||||||||
Net income attributable to The RMR Group Inc. per common share - diluted(3) | $ | 0.50 | $ | 0.52 | $ | 3.72 | $ | 4.91 |
(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 a summary of each Managed Equity REIT’s primary strategy and the lesser of the historical cost of its assets under management and its market capitalization as of March 31, 2019 and 2018, as applicable: |
Lesser of Historical Cost of Assets | ||||||||||
Under Management or Market Capitalization (a) | ||||||||||
March 31, | ||||||||||
REIT | Primary Strategy | 2019 | 2018 | |||||||
HPT | Hotels and travel centers | $ | 8,517,461 | $ | 8,300,521 | |||||
ILPT | Industrial and logistics properties | 1,828,674 | 1,452,901 | |||||||
OPI | Office properties leased to single tenants, including the government (b) | 4,383,569 | 3,584,960 | |||||||
SIR | Office properties primarily leased to single tenants (b) | — | 3,437,363 | |||||||
SNH | Senior living, medical office and life science properties | 6,568,729 | 7,405,208 | |||||||
$ | 21,298,433 | $ | 24,180,953 |
(a) | The basis on which our base business management fees are calculated for the three and six months ended March 31, 2019 and 2018 may differ from the basis at the end of the periods presented in the table above. As of March 31, 2019, the market capitalization was lower than the historical costs of assets under management for HPT, OPI, and SNH; the historical costs of assets under management for HPT, OPI and SNH as of March 31, 2019, were $10,205,827, $6,490,978 and $8,645,049, respectively. For ILPT, the historical costs of assets under management were lower than their market capitalization of $2,061,309, calculated as of March 31, 2019. |
(b) | SIR merged with and into OPI (formerly named Government Properties Income Trust) on December 31, 2018 with OPI continuing as the surviving entity. |
(2) | Reflects the prospective adoption of Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers, which has been codified as Accounting Standard Codification, or ASC, 606, effective October 1, 2018. Under ASC 606, beginning October 1, 2018, we account for the costs of services provided by third parties to our client companies, and the related reimbursement, on a gross basis. |
(3) | We calculate earnings per share using the two-class method as calculated below: |
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Basic EPS | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to RMR Inc. | $ | 8,168 | $ | 8,356 | $ | 60,377 | $ | 79,476 | ||||||||
Income attributable to unvested participating securities | (55 | ) | (49 | ) | (409 | ) | (487 | ) | ||||||||
Net income attributable to RMR Inc. used in calculating basic EPS | $ | 8,113 | $ | 8,307 | $ | 59,968 | $ | 78,989 | ||||||||
Denominator: | ||||||||||||||||
Weighted average common shares outstanding - basic | 16,120 | 16,069 | 16,120 | 16,064 | ||||||||||||
Net income attributable to RMR Inc. per common share - basic | $ | 0.50 | $ | 0.52 | $ | 3.72 | $ | 4.92 | ||||||||
Diluted EPS | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to RMR Inc. | $ | 8,168 | $ | 8,356 | $ | 60,377 | $ | 79,476 | ||||||||
Income attributable to unvested participating securities | (55 | ) | (49 | ) | (409 | ) | (487 | ) | ||||||||
Net income attributable to RMR Inc. used in calculating diluted EPS | $ | 8,113 | $ | 8,307 | $ | 59,968 | $ | 78,989 | ||||||||
Denominator: | ||||||||||||||||
Weighted average common shares outstanding - basic | 16,120 | 16,069 | 16,120 | 16,064 | ||||||||||||
Dilutive effect of incremental unvested shares | 27 | 36 | 20 | 31 | ||||||||||||
Weighted average common shares outstanding - diluted | 16,147 | 16,105 | 16,140 | 16,095 | ||||||||||||
Net income attributable to RMR Inc. per common share - diluted | $ | 0.50 | $ | 0.52 | $ | 3.72 | $ | 4.91 |
Three Months Ended March 31, 2019 | ||||||||
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. | $ | 8,168 | $ | 0.50 | ||||
Separation costs (1) | 156 | 0.01 | ||||||
Unrealized gain on equity method investment accounted for under the fair value option (2) | (196 | ) | (0.01 | ) | ||||
Transaction costs (3) | 17 | — | ||||||
Adjusted net income attributable to The RMR Group Inc. | $ | 8,145 | $ | 0.50 |
(1) | Includes $414 of separation costs related to former officers, adjusted to reflect amounts attributable to the noncontrolling interest and net of tax at a rate of approximately 14.4%. |
(2) | Includes $522 in unrealized gains on our investment in TA common shares, adjusted to reflect amounts attributable to the noncontrolling interest and net of tax at a rate of approximately 14.4%. |
(3) | Includes $47 of transaction costs, adjusted to reflect amounts attributable to the noncontrolling interest net of tax at a rate of approximately 14.4%. |
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(1) | 169 | 0.01 | ||||||
Separation costs(2) | 165 | 0.01 | ||||||
Adjusted net income attributable to The RMR Group Inc. | $ | 8,690 | $ | 0.54 |
(1) | Includes $466 from the acceleration of unvested common share awards of our former Managing Director, Barry Portnoy, adjusted to reflect amounts attributable to the noncontrolling interest net of tax at a rate of approximately 15.6%. |
(2) | Includes $452 of separation costs related to former officers, adjusted to reflect amounts attributable to the noncontrolling interest and net of tax at a rate of approximately 15.6%. |
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Reconciliation of EBITDA and Adjusted EBITDA from net income: | |||||||||||||||
Net income | $ | 18,708 | $ | 19,642 | $ | 136,788 | $ | 178,966 | |||||||
Plus: income tax expense | 3,139 | 3,681 | 22,109 | 52,024 | |||||||||||
Plus: depreciation and amortization | 257 | 372 | 512 | 752 | |||||||||||
EBITDA | 22,104 | 23,695 | 159,409 | 231,742 | |||||||||||
Plus: other asset amortization | 2,354 | 2,354 | 4,708 | 4,708 | |||||||||||
Plus: operating expenses paid in The RMR Group Inc.'s common shares | 448 | 1,585 | 943 | 1,984 | |||||||||||
Plus: separation costs | 414 | 452 | 6,811 | 619 | |||||||||||
Plus: transaction costs | 47 | — | 231 | 142 | |||||||||||
Plus: business email compromise fraud costs | — | — | — | 225 | |||||||||||
Plus: unrealized (gain) loss on equity method investment accounted for under the fair value option | (522 | ) | — | 2,247 | — | ||||||||||
Less: tax receivable agreement remeasurement due to the Tax Cuts and Jobs Act | — | — | — | (24,710 | ) | ||||||||||
Less: incentive business management fees earned | — | — | (120,094 | ) | (155,881 | ) | |||||||||
Certain other net adjustments | (113 | ) | 165 | (148 | ) | (38 | ) | ||||||||
Adjusted EBITDA | $ | 24,732 | $ | 28,251 | $ | 54,107 | $ | 58,791 | |||||||
Calculation of Adjusted EBITDA Margin: | |||||||||||||||
Contractual management and advisory fees (excluding any incentive business management fees) (2) | $ | 45,715 | $ | 49,978 | $ | 96,339 | $ | 102,284 | |||||||
Adjusted EBITDA | $ | 24,732 | $ | 28,251 | $ | 54,107 | $ | 58,791 | |||||||
Adjusted EBITDA Margin | 54.1 | % | 56.5 | % | 56.2 | % | 57.5 | % |
(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 those outlined in the tables above, 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) | Contractual management and advisory fees are the base business management fees, property management fees and advisory fees The RMR Group Inc. or its subsidiaries 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, 2019 and 2018 or $4,708 for each of the six months ended March 31, 2019 and 2018, 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 $120,094 and $155,881 that The RMR Group Inc. recognized under GAAP during the six months ended March 31, 2019 and 2018, respectively, which were earned for the calendar years 2018 and 2017, respectively. |
March 31, | September 30, | |||||||
2019 | 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 384,113 | $ | 256,848 | ||||
Due from related parties | 62,512 | 28,846 | ||||||
Prepaid and other current assets | 6,813 | 10,392 | ||||||
Total current assets | 453,438 | 296,086 | ||||||
Property and equipment, net | 2,336 | 2,589 | ||||||
Due from related parties, net of current portion | 5,100 | 8,183 | ||||||
Equity method investment | 7,129 | 7,051 | ||||||
Equity method investment accounted for under the fair value option | 6,135 | — | ||||||
Goodwill | 1,859 | 1,859 | ||||||
Intangible assets, net of amortization | 349 | 375 | ||||||
Deferred tax asset | 25,363 | 25,726 | ||||||
Other assets, net of amortization | 157,852 | 162,559 | ||||||
Total assets | $ | 659,561 | $ | 504,428 | ||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 87,283 | $ | 28,307 | ||||
Total current liabilities | 87,283 | 28,307 | ||||||
Long term portion of deferred rent payable, net of current portion | 1,352 | 1,229 | ||||||
Amounts due pursuant to tax receivable agreement, net of current portion | 32,048 | 32,048 | ||||||
Employer compensation liability, net of current portion | 5,100 | 8,183 | ||||||
Total liabilities | 125,783 | 69,767 | ||||||
Commitments and contingencies | ||||||||
Equity: | ||||||||
Class A common stock, $0.001 par value; 31,600,000 shares authorized; 15,229,687 and 15,229,957 shares issued and outstanding, respectively | 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 | 101,670 | 99,239 | ||||||
Retained earnings | 243,254 | 182,877 | ||||||
Cumulative other comprehensive income | — | 82 | ||||||
Cumulative common distributions | (60,827 | ) | (49,467 | ) | ||||
Total shareholders’ equity | 284,128 | 232,762 | ||||||
Noncontrolling interest | 249,650 | 201,899 | ||||||
Total equity | 533,778 | 434,661 | ||||||
Total liabilities and equity | $ | 659,561 | $ | 504,428 |
• | Mr. Portnoy states that RMR has helped facilitate repositioning efforts at certain of its Client Companies to strengthen their balance sheets and improve their operating results and future prospects and that RMR believes these efforts will have positive long-term benefits for RMR and its Client Companies. These statements may imply that these efforts will be successful and the financial position, operating results and future prospects of RMR’s Client Companies will improve. However, there can be no assurance that the financial positions, operating results and future prospects of RMR’s Client Companies will improve and, in fact, the financial positions, operating results and future prospects of RMR’s Client Companies may decline despite RMR’s efforts. |
• | Mr. Portnoy also states that RMR’s balance sheet continues to leave RMR well positioned to assess strategic opportunities for future growth and that RMR continues to invest time and resources in identifying and assessing potential growth opportunities. These statements may imply that RMR will successfully assess and act upon strategic opportunities for future growth and that RMR’s business will grow and that its operating performance and financial results will improve as a result. However, RMR’s assessments and efforts may not be successful, it may not grow its operating performance and financial results may not improve, and it may realize losses as a result. |
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