Revenue Recognition

9 Months Ended

Jun. 30, 2021

Revenue Recognition [Abstract]

Revenue Recognition

Revenue Recognition

Base Business Management Fees—Managed Equity REITs

We earn annual base business management fees from the Managed Equity REITs by providing continuous services 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. 

We earned aggregate base business management fees from the Managed Equity REITs of $24,471 and $21,010 for the three months ended June 30, 2021 and 2020, respectively, and $68,599 and $72,928 for the nine months ended June 30, 2021 and 2020, respectively.

Incentive Business Management Fees—Managed Equity REITs

We also may earn annual incentive business management fees from the Managed Equity REITs under the business management agreements. The incentive business management fees, which are payable in cash, are contingent performance based fees recognized only when earned at the end of each respective measurement period. Incentive business management fees are excluded from the transaction price until it becomes probable that there will not be a significant reversal of cumulative revenue recognized.

The incentive business management fees are calculated for each Managed Equity REIT as 12.0% of the product of (a) the equity market capitalization of the Managed Equity REIT, as defined in the applicable business management agreement, on the last trading day of the year immediately prior to the relevant measurement period and (b) the amount, expressed as a percentage, by which the Managed Equity REIT’s total return per share, as defined in the applicable business management agreement, exceeded the applicable 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, as adjusted for net share issuances during the period and subject to caps on the values of the incentive fees. The measurement period for the annual incentive business management fees is defined as the three year period ending on December 31 of the year for which such fee is being calculated.

We did not earn incentive business management fees from the Managed Equity REITs for the calendar years 2019 or 2020 and, as a result, we did not recognize any incentive business management fees from the Managed Equity REITs for the nine months ended June 30, 2021 or 2020.

Other Management Agreements

Managed Operating Companies

We earn management fees by providing continuous services pursuant to the management agreements from the Managed Operating Companies 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; and (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. These fees are estimated and payable monthly in advance.

We earned aggregate fees from the Managed Operating Companies of $6,976 and $5,277 for the three months ended June 30, 2021 and 2020, respectively, and $17,988 and $17,700 for the nine months ended June 30, 2021 and 2020, respectively.

Managed Private Real Estate Capital

We earn management fees from the Managed Private Real Estate Capital clients based on a percentage of average invested capital, as defined in the applicable management agreements. These management fees are paid monthly in arrears.

We earned aggregate fees from the Managed Private Real Estate Capital clients of $1,276 and $686 for the three months ended June 30, 2021 and 2020, respectively, and $3,463 and $1,926 for the nine months ended June 30, 2021 and 2020, respectively.

Property Management Fees

We earn property management fees by providing continuous services pursuant to property management agreements with our clients. We generally earn fees under these agreements equal to 3.0% of gross collected rents. Also, under the terms of the property management agreements, we receive additional fees for construction supervision services in connection with certain construction activities undertaken at the managed properties up to 5.0% of the cost of such construction.

In June 2021, we and DHC and SVC amended our respective property management agreements to, among other things, provide for our oversight of any major capital projects and repositionings at DHC’s senior living communities, including DHC’s senior living communities managed by Five Star, and SVC’s hotels, including SVC’s hotels managed by Sonesta, as DHC or SVC, as applicable, may request from time to time. We will receive the same fee previously paid to Five Star and Sonesta, respectively, for these services, which is equal to 3.0% of the cost of any such major capital project or repositioning.

We earned aggregate property management fees of $11,653 and $11,618 for the three months ended June 30, 2021 and 2020, respectively, and $35,056 and $35,851 for the nine months ended June 30, 2021 and 2020, respectively.

Advisory Services and Other

Tremont Advisors is primarily compensated pursuant to its management agreements with RMRM (beginning January 6, 2021) and TRMT at an annual rate of 1.5% of RMRM’s and TRMT’s equity, as defined in the applicable agreements. Tremont Advisors waived any business management fees otherwise due and payable by TRMT pursuant to the management agreement for the period beginning July 1, 2018 until December 31, 2020. Tremont Advisors earned aggregate advisory services revenue from TRMT of $377 and $40 for the three months ended June 30, 2021 and 2020, respectively, and $792 and $113 for the nine months ended June 30, 2021 and 2020, respectively.

Tremont Advisors may also earn an incentive fee under its management agreements with RMRM (beginning the second calendar quarter of 2021) and TRMT equal to the difference between: (a) the product of (i) 20% and (ii) the difference between (A) RMRM’s and TRMT’s core earnings, as defined in the applicable agreements, for the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (B) the product of (1) RMRM’s and TRMT’s equity in the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (2) 7% per year and (b) the sum of any incentive fees paid to Tremont Advisors with respect to the first three calendar quarters of the most recent 12 month period (or such lesser number of completed calendar quarters preceding the applicable period, if applicable). No incentive fee shall be payable with respect to any calendar quarter unless core earnings for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters from January 5, 2021 for RMRM and September 18, 2017 for TRMT) in the aggregate is greater than zero. The incentive fee may not be less than zero. Tremont Advisors waived any incentive fees otherwise due and payable by TRMT pursuant to the management agreement prior to December 31, 2020. Tremont Advisors earned incentive fees of zero and $620 from TRMT for the three and nine months ended June 30, 2021, respectively.

RMR Advisors LLC, or RMR Advisors, which previously provided advisory services for RMRM until it merged into Tremont Advisors on January 6, 2021, was compensated through January 5, 2021 pursuant to its agreement with RMRM at an annual rate of 0.85% of RMRM’s average daily managed assets. Average daily managed assets included the net asset value attributable to RMRM’s outstanding common shares and cash on hand, plus the liquidation preference of RMRM’s outstanding preferred shares and the principal amount of any borrowings, including from banks or evidenced by notes, commercial paper or other similar instruments issued by RMRM. RMR Advisors or Tremont Advisors, as applicable, earned advisory services revenue of $757 and $585 for the three months ended June 30, 2021 and 2020, respectively, and $2,057 and $2,139 for the nine months ended June 30, 2021 and 2020, respectively.

The Tremont business earns between 0.5% and 1.0% of the aggregate principal amounts of any loans it brokers. The Tremont business earned fees for such brokerage services of zero and $34 for the three months ended June 30, 2021 and 2020, respectively, and $259 and $816 for the nine months ended June 30, 2021 and 2020, respectively, which amounts are included in management services revenue in our condensed consolidated statements of income.

Reimbursable Compensation and Benefits

Reimbursable compensation and benefits include reimbursements, at cost, that arise primarily from services our employees provide pursuant to our property management agreements at the properties of our clients. A significant portion of these compensation and benefits are charged or passed through to and were paid by tenants of our clients. We recognize the revenue for reimbursements when we incur the related reimbursable compensation and benefits on behalf of our clients. We realized reimbursable compensation and benefits of $13,069 and $13,013 for the three months ended June 30, 2021 and 2020, respectively, and $39,453 and $38,683 for the nine months ended June 30, 2021 and 2020, respectively.

Reimbursable Equity Based Compensation

Reimbursable equity based compensation includes grants of common shares from our clients 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 our condensed consolidated statements of income over the requisite service periods. We record an equal offsetting amount as equity based compensation expense for the value of the grants of common shares from our clients to certain of our officers and employees. We realized equity based compensation expense and related reimbursements from our clients of $1,402 and $736 for the three months ended June 30, 2021 and 2020, respectively, and $5,611 and $1,394 for the nine months ended June 30, 2021 and 2020, respectively.

Other Reimbursable Expenses

Other reimbursable expenses include reimbursements that arise from services we provide pursuant to our property management agreements, which include third party costs related to matters such as maintenance and repairs, security and cleaning services, a significant portion of which are charged or passed through to and were paid by tenants of our clients. We have determined that we control the services provided by third parties for certain of our clients and therefore we account for the cost of these services and the related reimbursement revenue on a gross basis.

We realized other reimbursable expenses reflecting corresponding amounts in revenue and expense of $85,263 and $85,650 for the three months ended June 30, 2021 and 2020, respectively, and $259,856 and $267,852 for the nine months ended June 30, 2021 and 2020, respectively.