Rmr Group Inc 10-Q for FY2024 Q1
Rmr Group Inc. (RMR)
10-Q
2024-02-07
For: 2023-12-31
View Original
Added on
April 11, 2026
About this 10-Q
Rmr Group Inc filed this 10-Q on February 7, 2024, covering the quarter ended December 31, 2023 (FY2024 Q1).
Headline figures
Quarter ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $261.67M
- up 4.4% from $250.74M a year earlier
- Net income
- $7M
- up 10.4% from net income of $6.34M a year earlier
- Diluted EPS
- $0.41
- up 10.8% from $0.37 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended December 31, 2023
OR
Commission file number 001-37616
THE RMR GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
| (State of Organization) | (IRS Employer Identification No.) | ||||
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code 617 -796-8230
Securities registered pursuant to Section 12(b) of the Act:
| Title Of Each Class | Trading Symbol | Name Of Each Exchange On Which Registered | ||||||||||||
| (Nasdaq Capital Market) | ||||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided in Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of February 5, 2024, there were 15,708,723 shares of Class A common stock, par value $0.001 per share, 1,000,000 shares of Class B-1 common stock, par value $0.001 per share, and 15,000,000 shares of Class B-2 common stock, par value $0.001 per share outstanding.
THE RMR GROUP INC.
FORM 10-Q
December 31, 2023
Table of Contents
| Page | ||||||||
2
PART I. Financial Information
Item 1. Financial Statements
The RMR Group Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
(unaudited)
| December 31, | September 30, | |||||||||||||
| 2023 | 2023 | |||||||||||||
| Assets | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Due from related parties | ||||||||||||||
| Prepaid and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
Property and equipment, net of accumulated depreciation of $ | ||||||||||||||
| Due from related parties, net of current portion | ||||||||||||||
| Equity method investments | ||||||||||||||
| Goodwill | ||||||||||||||
Intangible assets, net of accumulated amortization of $ | ||||||||||||||
| Operating lease right of use assets | ||||||||||||||
| Deferred tax asset | ||||||||||||||
Other assets, net of accumulated amortization of $ | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
Liabilities and Equity | ||||||||||||||
| Reimbursable accounts payable and accrued expenses | $ | $ | ||||||||||||
| Accounts payable and accrued expenses | ||||||||||||||
| Operating lease liabilities | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Operating lease liabilities, net of current portion | ||||||||||||||
| Amounts due pursuant to tax receivable agreement, net of current portion | ||||||||||||||
| Other liabilities | ||||||||||||||
| Mortgage note payable | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies | ||||||||||||||
| Equity: | ||||||||||||||
Class A common stock, $ | ||||||||||||||
Class B-1 common stock, $ | ||||||||||||||
Class B-2 common stock, $ | ||||||||||||||
| Additional paid in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Cumulative common distributions | ( | ( | ||||||||||||
| Total shareholders’ equity | ||||||||||||||
| Noncontrolling interest in The RMR Group LLC | ||||||||||||||
| Noncontrolling interest in consolidated entity | ||||||||||||||
| Total noncontrolling interests | ||||||||||||||
| Total equity | ||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
See accompanying notes.
3
The RMR Group Inc.
Condensed Consolidated Statements of Income
(amounts in thousands, except per share amounts)
(unaudited)
| Three Months Ended | ||||||||||||||||||||||||||
| December 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Management services | $ | $ | ||||||||||||||||||||||||
| Incentive fees | ||||||||||||||||||||||||||
| Advisory services | ||||||||||||||||||||||||||
| Total management, incentive and advisory services revenues | ||||||||||||||||||||||||||
| Reimbursable compensation and benefits | ||||||||||||||||||||||||||
| Reimbursable equity based compensation | ||||||||||||||||||||||||||
| Other reimbursable expenses | ||||||||||||||||||||||||||
| Total reimbursable costs | ||||||||||||||||||||||||||
| Total revenues | ||||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Compensation and benefits | ||||||||||||||||||||||||||
| Equity based compensation | ||||||||||||||||||||||||||
| Separation costs | ||||||||||||||||||||||||||
| Total compensation and benefits expense | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Other reimbursable expenses | ||||||||||||||||||||||||||
| Transaction and acquisition related costs | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Total expenses | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Gain (loss) on equity method investments | ( | |||||||||||||||||||||||||
| Income before income tax expense | ||||||||||||||||||||||||||
| Income tax expense | ( | ( | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest in The RMR Group LLC | ( | ( | ||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest in consolidated entity | ||||||||||||||||||||||||||
| Net income attributable to The RMR Group Inc. | $ | $ | ||||||||||||||||||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||||||||||||||
| Weighted average common shares outstanding - diluted | ||||||||||||||||||||||||||
Net income attributable to The RMR Group Inc. per common share - basic | $ | $ | ||||||||||||||||||||||||
| Net income attributable to The RMR Group Inc. per common share - diluted | $ | $ | ||||||||||||||||||||||||
Substantially all revenues are earned from related parties. See accompanying notes.
4
The RMR Group Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(dollars in thousands)
(unaudited)
| Noncontrolling Interests in: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B-1 Common Stock | Class B-2 Common Stock | Additional Paid In Capital | Retained Earnings | Cumulative Common Distributions | Total Shareholders' Equity | The RMR Group LLC | Consolidated Entity | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share awards, net | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax distributions to member | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common share distributions | — | — | — | — | — | ( | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of MPC Partnership Holdings LLC | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share awards, net | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax distributions to member | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common share distributions | — | — | — | — | — | ( | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes.
5
The RMR Group Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
| Three Months Ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash from operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Straight line office rent | ( | ( | ||||||||||||
| Amortization expense related to other assets | ||||||||||||||
| Provision (benefit) for deferred income taxes | ( | |||||||||||||
| Operating expenses paid in The RMR Group Inc. common shares | ||||||||||||||
| Distributions from investments | ||||||||||||||
| (Gain) loss on equity method investments | ( | |||||||||||||
| Changes in assets and liabilities: | ||||||||||||||
| Due from related parties | ( | |||||||||||||
| Prepaid and other current assets | ( | ( | ||||||||||||
| Reimbursable accounts payable and accrued expenses | ( | |||||||||||||
| Accounts payable and accrued expenses | ||||||||||||||
| Net cash from operating activities | ||||||||||||||
| Cash Flows from Investing Activities: | ||||||||||||||
| Acquisition of MPC Partnership Holdings LLC, net of cash acquired | ( | |||||||||||||
| Purchase of property and equipment | ( | ( | ||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||
| Distributions to noncontrolling interests | ( | ( | ||||||||||||
| Distributions to common shareholders | ( | ( | ||||||||||||
| Repurchase of common shares | ( | ( | ||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| (Decrease) increase in cash and cash equivalents | ( | |||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||
| Supplemental Disclosures: | ||||||||||||||
| Income taxes paid | $ | $ | ||||||||||||
| Non-cash investing and financing activities: | ||||||||||||||
| Recognition of right of use assets and related lease liabilities | $ | $ | ||||||||||||
| Recognition of earnout liability | $ | $ | ||||||||||||
Write-off of fully depreciated property and equipment | $ | $ | ||||||||||||
| Assumption of mortgage note payable | $ | $ | ||||||||||||
See accompanying notes.
6
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands, except per share amounts)
Note 1. Organization
The RMR Group Inc., or RMR Inc., is a holding company and substantially all of its business is conducted by its majority owned subsidiary, The RMR Group LLC, or RMR LLC. RMR Inc. is a Maryland corporation and RMR LLC is a Maryland limited liability company. RMR Inc. serves as the sole managing member of RMR LLC and, in that capacity, operates and controls the business and affairs of RMR LLC. In these condensed consolidated financial statements, unless otherwise indicated, “we”, “us” and “our” refer to RMR Inc. and its direct and indirect subsidiaries, including RMR LLC.
As of December 31, 2023, RMR Inc. owned 15,710,555 class A membership units of RMR LLC, or Class A Units, and 1,000,000 class B membership units of RMR LLC, or Class B Units. The aggregate RMR LLC membership units RMR Inc. owns represented 52.7 % of the economic interest of RMR LLC as of December 31, 2023. We refer to economic interest as the right of a holder of a Class A Unit or Class B Unit to share in distributions made by RMR LLC and, upon liquidation, dissolution or winding up of RMR LLC, to share in the assets of RMR LLC after payments to creditors. A wholly owned subsidiary of ABP Trust, a Maryland statutory trust, owns 15,000,000 redeemable Class A Units, representing 47.3 % of the economic interest of RMR LLC as of December 31, 2023, which is presented as noncontrolling interest in The RMR Group LLC within the condensed consolidated financial statements. Adam D. Portnoy, the Chair of our Board, one of our Managing Directors and our President and Chief Executive Officer, is the sole trustee of ABP Trust, and owns all of ABP Trust’s voting securities.
RMR LLC provides management services to four publicly traded equity real estate investment trusts, or REITs: Diversified Healthcare Trust, or DHC, which owns medical office and life science properties, senior living communities and other healthcare related properties; Industrial Logistics Properties Trust, or ILPT, which owns and leases industrial and logistics properties; Office Properties Income Trust, or OPI, which owns and leases office properties primarily to single tenants and those with high credit quality characteristics; and Service Properties Trust, or SVC, which owns a diverse portfolio of hotels and service-focused retail net lease properties. DHC, ILPT, OPI and SVC are collectively referred to as the Managed Equity REITs.
RMR LLC’s wholly owned subsidiary, Tremont Realty Capital LLC, or Tremont, an investment adviser registered with the Securities and Exchange Commission, or SEC, provides advisory services for Seven Hills Realty Trust, or SEVN. SEVN is a publicly traded mortgage REIT that focuses on originating and investing in first mortgage loans secured by middle market and transitional commercial real estate. Tremont may also act as a transaction broker for non-investment advisory clients for negotiated fees, which we refer to as the Tremont business.
RMR LLC also provided management services to TravelCenters of America Inc., or TA, until it was acquired by BP Products North America Inc., or BP, on May 15, 2023. TA, a publicly traded operating company until the time BP acquired it, operates and franchises travel centers primarily along the United States, or U.S., interstate highway system, many of which are owned by SVC, and standalone truck service facilities. The Managed Equity REITs, SEVN, and until May 15, 2023, TA, are collectively referred to as the Perpetual Capital clients.
RMR LLC provides management services to AlerisLife Inc., or AlerisLife, an operator of senior living communities, many of which are owned by DHC, and Sonesta International Hotels Corporation, or Sonesta, a privately owned franchisor and operator of hotels, resorts and cruise ships in the United States, Latin America, the Caribbean and the Middle East, and many of the U.S. hotels that Sonesta operates are owned by SVC.
On December 19, 2023, or the Acquisition Date, RMR LLC acquired MPC Partnership Holdings LLC, or MPC, including MPC’s management agreements, or the Acquisition. In connection with the Acquisition, RMR LLC started providing management services through MPC and its subsidiaries to multiple private funds and the underlying residential real estate assets of the funds. The residential real estate we manage through MPC and its subsidiaries are presented as RMR Residential in these condensed consolidated financial statements. For additional information regarding the Acquisition, see Note 3, Acquisition of MPC Partnership Holdings LLC.
In addition, RMR LLC provides management services to other private capital vehicles including ABP Trust and other private entities that own commercial real estate, of which certain of our Managed Equity REITs own minority equity interests. These other private clients, along with AlerisLife, Sonesta and clients of RMR Residential are collectively referred to as the Private Capital clients.
7
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Note 2. Basis of Presentation
We report our results in a single reportable segment, which reflects how our chief operating decision maker, or the CODM, allocates resources and evaluates our financial results. Preparation of these financial statements in conformity with GAAP requires our management to make certain estimates and assumptions that may affect the amounts reported in these condensed consolidated financial statements and related notes. Significant estimates in the accompanying condensed consolidated financial statements include purchase price allocations, useful lives of intangibles and the fair value of certain assets and liabilities. The actual results could differ from these estimates.
Segments. On November 27, 2023, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Codification, or ASU, No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, or ASU No. 2023-07, which requires public entities to: i) provide disclosures of significant segment expenses and other segment items if they are regularly provided to the CODM and included in each reported measure of segment profit or loss; ii) provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by ASC 280, Segment Reporting, or ASC 280, in interim periods; and iii) disclose the CODM’s title and position, as well as an explanation of how the CODM uses the reported measures and other disclosures. Public entities with a single reportable segment must apply all the disclosure requirements of ASU No. 2023-07, as well as all the existing segment disclosures under ASC 280. The amendments in ASU No. 2023-07 are incremental to the requirements in ASC 280 and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. ASU No. 2023-07 should be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact ASU No. 2023-07 will have on our consolidated financial statements and disclosures.
Income Taxes. On December 14, 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, or ASU No. 2023-09, which requires public entities to enhance its annual income tax disclosures by requiring: i) consistent categories and greater disaggregation of information in the rate reconciliation, and ii) income taxes paid disaggregated by jurisdiction. ASU No. 2023-09 should be applied prospectively but entities have the option to apply it retrospectively to all prior periods presented in the financial statements. ASU No. 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact ASU No. 2023-09 will have on our consolidated financial statements and disclosures.
Note 3. Acquisition of MPC Partnership Holdings LLC
On the Acquisition Date, RMR LLC acquired all of the issued and outstanding equity interests of MPC, excluding certain assets (including co-investment interests of legacy investment funds managed by MPC and the rights to future distributions and income allocations in respect of such interests) and liabilities (including liabilities related to such excluded assets), for $80,000 in cash, subject to customary adjustments for cash, debt, transaction expenses and working capital at closing, which are expected to be finalized during this fiscal year, plus up to an additional $20,000 subject to the deployment of remaining capital commitments in investment funds managed by MPC prior to the end of such funds’ investment period, or the Earnout. As part of the purchase price, we agreed to pay certain employees of MPC an aggregate amount of $4,200 for their continued employment through December 31, 2025, or the Retention Payments. The Retention Payments are recognized as transaction and acquisition related costs and are forfeitable upon termination of employment prior to the end of the service period.
8
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
The Earnout represents contingent consideration of the Acquisition. The fair value of the Earnout was determined using a Monte Carlo simulation model based on significant unobservable inputs (Level 3), including management’s estimates of the deployment of capital remaining in investment funds managed by MPC, adjusted for historical volatility of similar transactions, and a discount rate based on credit ratings of companies similar to RMR LLC. For additional information, see Note 7, Fair Value of Financial Instruments.
The following table summarizes the consideration transferred as of the Acquisition Date and excludes transaction costs:
Cash consideration paid by RMR LLC | $ | |||||||
Earnout | ||||||||
Total consideration | $ | |||||||
The Acquisition was accounted for as a business combination under the FASB ASC Topic 805, Business Combinations. The purchase price has been allocated to the assets acquired and liabilities assumed based on estimates of fair values as of the Acquisition Date. We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the Acquisition Date.
Goodwill of $69,762 has been recognized based on the amount that the purchase price exceeds the fair value of the net identifiable assets acquired less the amounts attributable to noncontrolling interests in consolidated entity. Goodwill is expected to be deductible for income tax purposes and is primarily attributable to the workforce of the acquired business and synergies that can be achieved subsequent to the Acquisition.
The following table summarizes the fair value amounts recognized for the assets acquired and liabilities assumed and resulting goodwill as of the Acquisition Date:
Assets acquired: | ||||||||
Cash and cash equivalents | $ | |||||||
Real estate | ||||||||
Due from related parties | ||||||||
Prepaid and other current assets | ||||||||
Intangible assets: | ||||||||
Property management and investment management agreements | ||||||||
Trade name | ||||||||
Investor relationships | ||||||||
Acquired leases | ||||||||
Total intangible assets | ||||||||
| Total assets acquired | ||||||||
Liabilities assumed: | ||||||||
Mortgage note payable | ||||||||
Other liabilities | ||||||||
Total liabilities | ||||||||
Net identifiable assets acquired | ||||||||
Noncontrolling interests in consolidated entity | ( | |||||||
Goodwill | ||||||||
Total consideration | $ | |||||||
9
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Real estate, acquired leases and mortgage note payable
We acquired a 90.0 % economic ownership interest in 260 Woodstock Investor, LLC, a mixed-use apartment complex with 23 residential units and 8,620 square feet of fully occupied retail space located in Woodstock, GA, or the Woodstock Property. The allocation of the fair value of the Woodstock Property and related acquired leases as of the Acquisition Date is as follows:
| Land | $ | |||||||
| Building and improvements | ||||||||
| Acquired leases | ||||||||
Total real estate and acquired leases | $ | |||||||
We determined the fair value of the Woodstock Property and related acquired leases using Level 3 inputs and standard industry valuation methods, including discounted cash flow analyses and sales comparisons. Building and improvements had a remaining useful life of 25 years and the weighted average amortization period for acquired leases was 2.9 years as of the Acquisition Date.
A mortgage note payable with a fair value of $4,726 and an aggregate principal amount outstanding of $5,429 is secured by the Woodstock Property, bears interest at a fixed rate of 3.71 % per annum and matures in August 2029. Interest only payments are due on a monthly basis until September 2025, at which time payments of principal and interest are due monthly until the loan matures in August 2029. We determined the fair value of the mortgage note payable by discounting the expected cash flows at a rate comparable with interest rates for similar debt as of the Acquisition Date (Level 3 inputs). Principal payments due during the next five fiscal years are: $0 in 2024, $8 in 2025, $98 in 2026, $102 in 2027 $5,221 in 2028 and thereafter.
The Woodstock Property is consolidated in these condensed consolidated financial statements. The Woodstock Property is included in property and equipment, net, and the related acquired leases are included in goodwill and intangibles assets, net of amortization, in our condensed consolidated balance sheets. The Acquisition Date fair value of the noncontrolling interest in the Woodstock Property (10% ownership we did not acquire) of $444 is reflected in noncontrolling interests in consolidated entity in our condensed consolidated balance sheets.
Property management and investment management agreements
As of the Acquisition Date, MPC managed 66 properties, including 14 in which MPC did not have an economic ownership interest in, or the Third Party Managed Properties, through its property management agreements and managed four funds through its investment management agreements. The property management agreements may be terminated upon written notice and generally provide for property management fees ranging from 2.5 % to 3.5 % of gross collected rents, construction management fees of 5.0 % of construction costs and reimbursement of costs incurred to manage the properties. The investment management agreements generally provide for fees that are based on the lesser of a percentage of invested capital and a fixed fee ranging from $100 to $200 annually. The weighted average remaining useful life of these agreements was 5.6 years.
Trade name
MPC operates many of its residential properties under the trade name ARIUM. We concluded this asset has an indefinite life.
Investor relationships
MPC has relationships with institutional investors that have invested in, and may continue to invest in, the funds managed by MPC. The weighted average remaining useful life of these relationships was 5.0 years.
Managed funds
As of the Acquisition Date and pursuant to the Equity Purchase Agreement, dated as of July 29, 2023, by and among RMR LLC, MPC, and the sellers and seller owners set forth therein, we manage four funds that invest in residential real estate. Three of the four funds have no unfunded capital commitments remaining. As of the Acquisition Date, CARROLL Multifamily Venture VII, LP, or Fund VII, had $208,026 in unfunded capital commitments remaining from total capital commitments of $342,825 . In the future, we will be eligible to participate in distributions and profits interests on investments from capital commitments we provide to Fund VII, or Investment Interest; however, we had no Investment Interest in Fund VII as of the
10
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Acquisition Date, and as of the Acquisition Date, we had no obligations nor rights to any distributions or profits interests from investments of capital contributed on or prior to the Acquisition Date.
As of December 31, 2023, we have not contributed any capital to Fund VII or any of the other funds we manage. Accordingly, the results of such funds are not reflected in our condensed consolidated financial statements.
Pro Forma Financial Information
Unaudited pro forma financial information for the three months ended December 31, 2023 and 2022 is presented below. Pro forma financial information presented does not include adjustments related to the Earnout or to reflect any potential synergies that may be achievable in connection with the Acquisition. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of future operations or results had the Acquisition been completed as of October 1, 2022.
Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Total revenues | $ | $ | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||
Net income attributable to The RMR Group Inc. | ||||||||||||||||||||||||||
The amounts above reflect certain pro forma adjustments that were directly attributable to the Acquisition as follows:
•adjustments to eliminate the revenues and expenses attributable to certain assets and liabilities of MPC excluded from the Acquisition, including co-investment interests of investment funds owned by MPC and the rights to future distributions and income allocations of those co-investment interests, and the liabilities related to such assets;
•adjustments to amortize the intangible assets recognized as a result of the Acquisition;
•adjustments to the historical depreciation of MPC’s property and equipment to reflect the depreciation resulting from the fair value measurement of such property and equipment;
•adjustments to interest expense resulting from the fair value measurement of the mortgage note payable; and
•adjustments to reflect the related transaction costs of $3,852 as if they had occurred as of October 1, 2022.
Note 4. Revenue Recognition
Revenues from services we provide are recognized as earned over time as the services provided represent performance obligations that are satisfied over time.
Management Agreements with the Managed Equity REITs
We are party to a business management and a property management agreement with each Managed Equity REIT. The following is a summary of the fees we earn pursuant to our business management agreements with the Managed Equity REITs. For a summary of the fees we earn pursuant to our property management agreements with the Managed Equity REITs, see Property Management Agreements, below.
Base Business Management Fees — 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 .
11
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
The foregoing base business management fees are paid in cash monthly in arrears.
We earned aggregate base business management fees from the Managed Equity REITs of $21,550 and $21,373 for the three months ended December 31, 2023 and 2022, respectively.
Incentive Business Management Fees — 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 no
Other Management Agreements
We earn management fees by providing continuous services pursuant to the management agreements with ABP Trust regarding AlerisLife; with Sonesta and until May 15, 2023, with TA; equal to 0.6 % of: (i) in the case of AlerisLife, AlerisLife’s revenues from all sources reportable under GAAP, less any revenues reportable by AlerisLife 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 management fees are estimated and payable in cash monthly in advance.
We also earn management fees from certain other Private Capital clients based on a percentage of average invested capital, as defined in the applicable management agreements. These management fees are payable in cash monthly in arrears.
We earned aggregate base business management fees from TA and the Private Capital clients of $6,682 and $10,578 for the three months ended December 31, 2023 and 2022, respectively.
Property Management Agreements
We earn property management fees by providing continuous services pursuant to property management agreements with the Managed Equity REITs, SEVN, RMR Residential and certain Private Capital clients. We generally earn fees under these agreements between 2.5 % to 3.5 % of gross collected rents. Also, under the terms of the property management agreements, we receive additional fees for construction supervision services up to 5.0 % of the cost of such construction. In addition, we earn fees under our RMR Residential property management agreements for providing certain marketing, information technology and other management services, as defined in the applicable management agreements, which are included in management services revenue in our condensed consolidated financial statements. These management fees are payable in cash monthly in arrears.
For the three months ended December 31, 2023 and 2022, we earned aggregate property management fees of $16,862 and $16,597 , respectively, including construction supervision fees of $5,271 and $5,686 , respectively.
Management Agreements with Advisory Clients
Tremont is primarily compensated pursuant to its management agreement with SEVN at an annual rate of 1.5 % of equity, as defined in the applicable agreement. Tremont may also earn an incentive fee under its management agreement with SEVN equal to the difference between: (a) the product of (i) 20 % and (ii) the difference between (A) core earnings, as defined in the
12
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
agreement, 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) 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 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 in the aggregate is greater than zero. The incentive fee may not be less than zero. Tremont earned incentive fees from SEVN of $299 for the three months ended December 31, 2023. Tremont did not earn incentive fees from SEVN for the three months ended December 31, 2022.
We earned advisory services revenue of $1,125 and $1,091 for the three months ended December 31, 2023 and 2022, respectively.
Reimbursable Costs
We determined we control the services provided by third parties for certain of our clients and therefore account for the cost of these services and the related reimbursement revenue on a gross basis.
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 paid by tenants of our clients. We recognize the revenue for reimbursements when we incur the related reimbursable compensation and benefits expense on behalf of our clients.
Reimbursable Equity Based Compensation — Reimbursable equity based compensation includes awards of common shares by our clients directly to certain of our officers and employees in connection with the provision of management services to those clients. The revenue in respect of each award is based on the fair value as of the award date for those shares that have vested, with subsequent changes in the fair value of the unvested awards 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 these awards.
Note 5. Equity Method Investments
Seven Hills Realty Trust
As of December 31, 2023, Tremont owned 1,708,058 , or approximately 11.5 %, of SEVN’s outstanding common shares. We account for our investment in SEVN using the equity method of accounting because we are deemed to exert significant influence, but not control, over SEVN’s most significant activities. We elected the fair value option to account for our equity method investment in SEVN and determine fair value using the closing price of SEVN’s common shares as of the end of the period, which is a Level 1 fair value input. The aggregate market value of our investment in SEVN as of December 31, 2023 and September 30, 2023, based on quoted market prices, was $22,102 and $18,651 , respectively. The unrealized gain in our condensed consolidated statements of income related to our investment in SEVN was $4,049 and $376 for the three months ended December 31, 2023 and 2022, respectively. We received distributions from SEVN of $598 and $427 for the three months ended December 31, 2023 and 2022, respectively.
TravelCenters of America Inc.
Until BP acquired TA on May 15, 2023, we owned 621,853 , or approximately 4.1 %, of TA’s outstanding common shares, that had a cost of $13,701 . We previously accounted for our investment in TA using the equity method of accounting because we were deemed to exert significant influence, but not control, over TA’s most significant activities. Under the fair value option, we determined fair value using the closing price of TA’s common shares as of the end of the period, which was a Level 1 fair value input, and recorded changes in fair value in earnings in our condensed consolidated statements of income. We
13
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
recorded a loss in our consolidated statements of income related to our investment in TA of $5,690 for the three months ended December 31, 2022.
Note 6. Income Taxes
We are the sole managing member of RMR LLC. We are a corporation subject to U.S. federal and state income tax with respect to our allocable share of any taxable income of RMR LLC and its tax consolidated subsidiaries. RMR LLC is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, RMR LLC is generally not subject to U.S. federal and most state income taxes. Any taxable income or loss generated by RMR LLC is passed through to and included in the taxable income or loss of its members, including RMR Inc. and ABP Trust, based on each member’s respective ownership percentage.
For the three months ended December 31, 2023 and 2022, we recognized estimated income tax expense of $2,638 and $2,484 , respectively, which includes $1,701 and $1,820 , respectively, of U.S. federal income tax and $937 and $664 , respectively, of state income taxes.
A reconciliation of the statutory income tax rate to the effective tax rate is as follows:
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Income taxes computed at the federal statutory rate | % | % | ||||||||||||||||||||||||
| State taxes, net of federal benefit | % | % | ||||||||||||||||||||||||
| Permanent items | % | % | ||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | ( | % | ( | % | ||||||||||||||||||||||
| Total | % | % | ||||||||||||||||||||||||
ASC 740, Income Taxes, provides a model for how a company should recognize, measure and present in its financial statements uncertain tax positions that have been taken or are expected to be taken with respect to all open years and in all significant jurisdictions. Pursuant to this topic, we recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that is greater than 50.0% likely to be realized upon settlement. As of December 31, 2023 and 2022, we had no uncertain tax positions.
Note 7. Fair Value of Financial Instruments
As of December 31, 2023 and September 30, 2023, the fair values of our financial instruments, which include cash and cash equivalents, amounts due from related parties, accounts payable and accrued expenses and reimbursable accounts payable and accrued expenses, were not materially different from their carrying values due to the short term nature of these financial instruments. As of December 31, 2023, the fair value of our mortgage note payable approximated its fair value as of the Acquisition Date.
On a recurring basis, we measure certain financial assets and financial liabilities at fair value based upon quoted market prices. ASC 820, Fair Value Measurements, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to inputs from unadjusted quoted prices in active markets for identical assets and liabilities, or Level 1, the lowest priority to unobservable inputs, or Level 3, and significant other observable inputs, or Level 2. A financial asset’s or financial liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
14
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
The tables below presents our financial assets and liabilities measured at fair value on a recurring basis:
December 31, 2023 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
Due from related parties related to share based payment awards | $ | $ | $ | $ | ||||||||||||||||||||||
| Equity method investment in SEVN | ||||||||||||||||||||||||||
Employer compensation liability related to share based payment awards | ||||||||||||||||||||||||||
Earnout liability | ||||||||||||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
Due from related parties related to share based payment awards | $ | $ | $ | $ | ||||||||||||||||||||||
| Equity method investment in SEVN | ||||||||||||||||||||||||||
| Employer compensation liability related to share based payment awards | ||||||||||||||||||||||||||
The following table presents additional information about the valuation techniques and significant unobservable inputs for financial assets and liabilities that are measured at fair value and categorized within Level 3 as of December 31, 2023:
Fair Value | Valuation Technique | Unobservable Input | Range | ||||||||||||||||||||
Earnout liability | Monte Carlo | Capital deployment volatility | |||||||||||||||||||||
Discount rate | |||||||||||||||||||||||
The table below presents a summary of the changes in fair value for our Earnout liability measured on a recurring basis:
Three Months Ended | ||||||||||||||
| 12/31/2023 | ||||||||||||||
Beginning balance | $ | |||||||||||||
Acquisition of MPC Partnership Holdings LLC | ||||||||||||||
Ending Balance | $ | |||||||||||||
Note 8. Related Person Transactions
Adam D. Portnoy, Chair of our Board, one of our Managing Directors and our President and Chief Executive Officer, is the sole trustee, an officer and the controlling shareholder of our controlling shareholder, ABP Trust, and owns all of ABP Trust’s voting securities and a majority of the economic interests of ABP Trust. RMR Inc.’s executive officers are officers and employees of RMR LLC, and Jennifer B. Clark, our other Managing Director, and Matthew P. Jordan, our Executive Vice President, Chief Financial Officer and Treasurer, are also officers of ABP Trust.
Mr. Portnoy is the chair of the board and a managing trustee of each of the Perpetual Capital clients, the controlling shareholder and a director of Sonesta (and its parent) and was the chair of the board and a managing director of AlerisLife until March 20, 2023 when AlerisLife was acquired by ABP Trust. Since March 20, 2023, Mr. Portnoy is the sole director of AlerisLife. Mr. Portnoy was the chair of the board and a managing director of TA until May 15, 2023 when TA was acquired by BP. Ms. Clark is a managing trustee of OPI and a director of Sonesta (and its parent), and she previously served as a managing director of AlerisLife until March 20, 2023. Ms. Clark also serves as the secretary of all the Perpetual Capital clients, Sonesta and AlerisLife.
As of December 31, 2023, Mr. Portnoy beneficially owned 13.5 % of SEVN’s outstanding common shares (including through Tremont and ABP Trust) and 9.8 % of DHC’s outstanding common shares (including through ABP Trust). In addition, Mr. Portnoy beneficially owns shares of ILPT, OPI, SVC, and prior to May 15, 2023, TA, comprising less than 5.0
The Managed Equity REITs and SEVN have no employees. RMR LLC provides or arranges for all the personnel, overhead and services required for the operation of the Managed Equity REITs pursuant to management agreements with them. The officers of the Managed Equity REITs are officers or employees of RMR LLC. All the officers, overhead and required office
15
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
space of SEVN are provided or arranged by Tremont. All of SEVN’s officers are officers or employees of Tremont or RMR LLC. Some of the executive officers of TA (prior to May 15, 2023), one of the executive officers of AlerisLife and one of the executive officers of Sonesta are (or were with respect to TA) officers or employees of RMR LLC. Our executive officers are also managing trustees of certain of the Perpetual Capital clients.
Additional information about our related person transactions appears in Note 9, Shareholders’ Equity, and in our 2023 Annual Report.
Revenues from Related Parties
For the three months ended December 31, 2023 and 2022, we recognized revenues from related parties as set forth in the following table:
| Three Months Ended December 31, 2023 | Three Months Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Total | Total | |||||||||||||||||||||||||||||||||||||
| Management | Management | |||||||||||||||||||||||||||||||||||||
| and Advisory | Total | and Advisory | Total | |||||||||||||||||||||||||||||||||||
| Services | Reimbursable | Total | Services | Reimbursable | Total | |||||||||||||||||||||||||||||||||
| Revenues | Costs | Revenues | Revenues | Costs | Revenues | |||||||||||||||||||||||||||||||||
| Perpetual Capital: | ||||||||||||||||||||||||||||||||||||||
| DHC | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| ILPT | ||||||||||||||||||||||||||||||||||||||
| OPI | ||||||||||||||||||||||||||||||||||||||
| SVC | ||||||||||||||||||||||||||||||||||||||
| Total Managed Equity REITs | ||||||||||||||||||||||||||||||||||||||
| SEVN | ||||||||||||||||||||||||||||||||||||||
TA (1) | ||||||||||||||||||||||||||||||||||||||
| Private Capital: | ||||||||||||||||||||||||||||||||||||||
AlerisLife (2) | ||||||||||||||||||||||||||||||||||||||
| Sonesta | ||||||||||||||||||||||||||||||||||||||
RMR Residential | ||||||||||||||||||||||||||||||||||||||
| Other private entities | ||||||||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
(1)On May 15, 2023, BP acquired TA and TA terminated its management agreement with us.
(2)On March 20, 2023, AlerisLife merged with and into a subsidiary of ABP Trust and ceased to be a public company. As a result, the revenues earned with respect to AlerisLife are characterized as Private Capital for all periods presented.
16
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Amounts Due From Related Parties
The following table presents amounts due from related parties as of the dates indicated:
| December 31, 2023 | September 30, 2023 | |||||||||||||||||||||||||||||||||||||
| Accounts | Reimbursable | Accounts | Reimbursable | |||||||||||||||||||||||||||||||||||
| Receivable | Costs | Total | Receivable | Costs | Total | |||||||||||||||||||||||||||||||||
| Perpetual Capital: | ||||||||||||||||||||||||||||||||||||||
| DHC | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| ILPT | ||||||||||||||||||||||||||||||||||||||
| OPI | ||||||||||||||||||||||||||||||||||||||
| SVC | ||||||||||||||||||||||||||||||||||||||
| Total Managed Equity REITs | ||||||||||||||||||||||||||||||||||||||
| SEVN | ||||||||||||||||||||||||||||||||||||||
| Private Capital: | ||||||||||||||||||||||||||||||||||||||
AlerisLife (1) | ||||||||||||||||||||||||||||||||||||||
| Sonesta | ||||||||||||||||||||||||||||||||||||||
RMR Residential | ||||||||||||||||||||||||||||||||||||||
| Other private entities | ||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
(1)On March 20, 2023, AlerisLife merged with and into a subsidiary of ABP Trust and ceased to be a public company. As a result, the revenues earned with respect to AlerisLife are characterized as Private Capital for all periods presented.
Leases
As of December 31, 2023, RMR LLC leased from ABP Trust and certain Managed Equity REITs office space for use as our headquarters and local offices. We incurred rental expense under related party leases aggregating $1,307 and $1,433 for the three months ended December 31, 2023 and 2022, respectively.
Tax-Related Payments
Pursuant to our tax receivable agreement with ABP Trust, RMR Inc. pays to ABP Trust 85.0 % of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that RMR Inc. realizes as a result of (a) the increases in tax basis attributable to RMR Inc.’s dealings with ABP Trust and (b) tax benefits related to imputed interest deemed to be paid by RMR Inc. as a result of the tax receivable agreement. As of December 31, 2023, our condensed consolidated balance sheet reflects a liability related to the tax receivable agreement of $23,229 , including $2,343 classified as a current liability in accounts payable and accrued expenses that we expect to pay to ABP Trust during the fourth quarter of fiscal year 2024.
Under the RMR LLC operating agreement, RMR LLC is also required to make certain pro rata distributions to each member of RMR LLC quarterly on the basis of the estimated tax liabilities of its members, estimated quarterly, subject to future adjustment based on actual results. For the three months ended December 31, 2023 and 2022, RMR LLC made required quarterly tax distributions to holders of its membership units totaling $8,662 and $8,094 , respectively, of which $4,560 and $4,255 , respectively, was distributed to us and $4,102 and $3,839 , respectively, was distributed to ABP Trust. The amounts distributed to us were eliminated in our condensed consolidated financial statements, and the amounts distributed to ABP Trust were recorded as a reduction of its noncontrolling interest. We used funds from these distributions to pay certain of our U.S. federal and state income tax liabilities and to pay part of our obligations under the tax receivable agreement.
Separation Arrangements
We enter into retirement agreements with certain of our former executive officers. Pursuant to these agreements, we make various cash payments and accelerate the vesting of unvested shares of RMR Inc. previously awarded to these retiring officers.
17
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
We also enter into separation arrangements from time to time with executive and nonexecutive officers and employees of ours. All costs associated with separation arrangements, for which there remain no substantive performance obligations, are recorded in our condensed consolidated statements of income as separation costs.
RMR LLC entered into a letter agreement, or the Retirement Agreement, dated November 15, 2023, with Jennifer Francis, a former Executive Vice President of RMR LLC. Ms. Francis also served as president and chief executive officer and was a managing trustee of DHC. Ms. Francis resigned as our Executive Vice President, effective December 31, 2023, and will continue to serve as a managing trustee of DHC until the earlier of (i) the DHC 2024 annual meeting of shareholders, (ii) July 1, 2024 or (iii) as requested by RMR LLC or the board of trustees of DHC. In addition, Ms. Francis will continue to serve as an employee of RMR LLC until July 1, 2024, or the Retirement Date. Pursuant to the Retirement Agreement, RMR LLC paid Ms. Francis her current cash salary compensation through December 31, 2023 and is paying her $10 per month from January 1, 2024 until the Retirement Date. In addition, RMR LLC agreed to pay Ms. Francis a combined cash payment in the amount of $2,250 with half of that amount paid on January 31, 2024 and the other half expected to be paid on or about August 1, 2024, subject to her execution of a customary release. Pursuant to the Retirement Agreement, RMR LLC agreed to recommend that the Company’s Compensation Committee approve the acceleration of vesting of Ms. Francis’ unvested shares of the Company, effective as of the Retirement Date. The Retirement Agreement contains other customary terms and conditions, including confidentiality, non-solicitation, and other covenants and a waiver and release.
Note 9. Shareholders’ Equity
We award our Class A common stock, or Class A Common Shares, to our Directors, officers and employees under the Amended and Restated 2016 Omnibus Equity Plan, or the 2016 Plan. Director share awards vest immediately. Officer and employee share awards vest in five equal, consecutive, annual installments, with the first installment vesting on the date of award. We recognize forfeitures as they occur. Compensation expense related to share awards is determined based on the market value of our shares on the date of award, with the aggregate value of the awarded shares amortized to expense over the related vesting period. Expense recognized for Director share awards are included in general and administrative expenses and expense recognized for officer and employee share awards are included in equity based compensation in our condensed consolidated statements of income.
Equity based compensation expense related to shares awarded to certain officers and employees was $502 and $561 for the three months ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had 199,460 unvested shares outstanding which are scheduled to vest as follows: 71,620 shares in 2024, 59,140 shares in 2025, 44,760 shares in 2026 and 23,940 in 2027.
In connection with the vesting and issuance of awards of our Class A Common Shares to our Directors, officers and employees, we provide for the ability to repurchase our Class A Common Shares to satisfy tax withholding and payment obligations for those eligible to do so. The repurchase price is based on the closing price of our Class A Common Shares on the date of repurchase. The aggregate value of 492 Class A Common Shares repurchased during the three months ended December 31, 2023 was $12 , which is recorded as a decrease to additional paid in capital included in shareholders’ equity in our condensed consolidated balance sheets.
In connection with the issuances and repurchases of our Class A Common Shares, and as required by the RMR LLC operating agreement, RMR LLC concurrently issues or acquires an identical number of Class A Units from RMR Inc.
18
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Distributions
During the three months ended December 31, 2023 and 2022, we declared and paid dividends on our Class A Common Shares and Class B-1 common stock, or Class B-1 Common Shares, as follows:
| Declaration | Record | Paid | Distributions | Total | ||||||||||||||||||||||
| Date | Date | Date | Per Common Share | Distributions | ||||||||||||||||||||||
| Three Months Ended December 31, 2023 | ||||||||||||||||||||||||||
| 10/12/2023 | 10/23/2023 | 11/16/2023 | $ | $ | ||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
| Three Months Ended December 31, 2022 | ||||||||||||||||||||||||||
| 10/13/2022 | 10/24/2022 | 11/17/2022 | $ | $ | ||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
These dividends were funded in part by distributions from RMR LLC to holders of its membership units as follows:
| Distributions Per | Total | RMR LLC | RMR LLC | |||||||||||||||||||||||||||||||||||
| Declaration | Record | Paid | RMR LLC | RMR LLC | Distributions | Distributions | ||||||||||||||||||||||||||||||||
| Date | Date | Date | Membership Unit | Distributions | to RMR Inc. | to ABP Trust | ||||||||||||||||||||||||||||||||
| Three Months Ended December 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| 10/12/2023 | 10/23/2023 | 11/16/2023 | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Three Months Ended December 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| 10/13/2022 | 10/24/2022 | 11/17/2022 | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
The remainder of the dividends noted above were funded with cash accumulated at RMR Inc.
On January 11, 2024, we declared a quarterly dividend on our Class A Common Shares and Class B-1 Common Shares to our shareholders of record as of January 22, 2024, in the amount of $0.40 per Class A Common Share and Class B-1 Common Share, or $6,683 . This dividend will be partially funded by a distribution from RMR LLC to holders of its membership units in the amount of $0.32 per unit, or $10,147 , of which $5,347 will be distributed to us based on our aggregate ownership of 16,708,723 membership units of RMR LLC and $4,800 will be distributed to ABP Trust based on its ownership of 15,000,000 membership units of RMR LLC. The remainder of this dividend will be funded with cash accumulated at RMR Inc. We expect to pay this dividend on or about February 15, 2024.
Note 10. Per Common Share Amounts
We calculate basic earnings per share using the two-class method. Unvested Class A Common Shares awarded to our employees are deemed participating securities for purposes of calculating basic earnings per common share because they have dividend rights. Under the two-class method, we allocate earnings proportionately to vested Class A Common Shares and Class B-1 Common Shares outstanding and unvested Class A Common Shares outstanding for the period. Accordingly, earnings attributable to unvested Class A Common Shares are excluded from basic earnings per share under the two-class method. Our Class B-2 common stock of RMR Inc., or Class B-2 Common Shares, which are paired with ABP Trust’s Class A Units, have no independent economic interest in RMR Inc. and thus are not included as common shares outstanding for purposes of calculating basic earnings per common share.
Diluted earnings per share is calculated using the treasury stock method for unvested Class A Common Shares and the if-converted method for Class B-2 Common Shares. The 15,000,000 Class A Units that we do not own may be redeemed for our Class A Common Shares on a one -for-one basis, or upon such redemption, we may elect to pay cash instead of issuing Class A Common Shares. Upon redemption of a Class A Unit, the Class B-2 Common Share “paired” with such unit is canceled for no additional consideration. In computing the dilutive effect, if any, the assumed redemption would have on earnings per share, we considered net income available to holders of our Class A Common Shares would increase due to elimination of the
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
noncontrolling interest offset by any tax effect, which may be dilutive. For the three months ended December 31, 2023 and 2022, the assumed redemption is dilutive to earnings per share as presented in the table below.
The calculation of basic and diluted earnings per share for the three months ended December 31, 2023 and 2022, is as follows (amounts in thousands, except per share amounts):
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Numerators: | ||||||||||||||||||||||||||
| Net income attributable to The RMR Group Inc. | $ | $ | ||||||||||||||||||||||||
| Less: income attributable to unvested participating securities | ( | ( | ||||||||||||||||||||||||
Net income attributable to The RMR Group Inc. used in calculating basic EPS | ||||||||||||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||||||||
| Add back: income attributable to unvested participating securities | ||||||||||||||||||||||||||
Add back: net income attributable to noncontrolling interest in The RMR Group LLC (1) | ||||||||||||||||||||||||||
Add back: income tax expense | ||||||||||||||||||||||||||
Less: income tax expense assuming redemption of noncontrolling interest’s Class A Units for Class A Common Shares (2) | ( | ( | ||||||||||||||||||||||||
| Net income used in calculating diluted EPS | $ | $ | ||||||||||||||||||||||||
| Denominators: | ||||||||||||||||||||||||||
| Common shares outstanding | ||||||||||||||||||||||||||
| Less: unvested participating securities and incremental impact of weighted average | ( | ( | ||||||||||||||||||||||||
Weighted average common shares outstanding - basic | ||||||||||||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||||||||
| Add: assumed redemption of noncontrolling interest’s Class A Units for Class A Common Shares | ||||||||||||||||||||||||||
| Add: incremental unvested shares | ||||||||||||||||||||||||||
Weighted average common shares outstanding - diluted | ||||||||||||||||||||||||||
Net income attributable to The RMR Group Inc. per common share - basic | $ | $ | ||||||||||||||||||||||||
Net income attributable to The RMR Group Inc. per common share - diluted | $ | $ | ||||||||||||||||||||||||
(1)Net loss attributable to noncontrolling interest in consolidated entity is not adjusted when calculating diluted earnings per share.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Note 11. Net Income Attributable to RMR Inc.
Net income attributable to RMR Inc. for the three months ended December 31, 2023 and 2022, is calculated as follows:
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Income before income tax expense | $ | $ | ||||||||||||||||||||||||
| RMR Inc. franchise tax expense and interest income | ( | ( | ||||||||||||||||||||||||
| Net income before noncontrolling interest | ||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest in The RMR Group LLC | ( | ( | ||||||||||||||||||||||||
| Net income attributable to noncontrolling interest in consolidated entity | ||||||||||||||||||||||||||
| Net income attributable to RMR Inc. before income tax expense | ||||||||||||||||||||||||||
| Income tax expense attributable to RMR Inc. | ( | ( | ||||||||||||||||||||||||
| RMR Inc. franchise tax expense and interest income | ||||||||||||||||||||||||||
| Net income attributable to RMR Inc. | $ | $ | ||||||||||||||||||||||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our 2023 Annual Report.
OVERVIEW (dollars in thousands)
RMR Inc. is a holding company and substantially all of its business is conducted by RMR LLC. RMR Inc. has no employees, and the personnel and various services it requires to operate are provided by RMR LLC. RMR LLC manages a diverse portfolio of real estate and real estate related businesses.
Acquisition of MPC Partnership Holdings LLC
On December 19, 2023, we completed our acquisition of MPC (now known as RMR Residential), a vertically integrated residential platform. This acquisition further advances our strategic focus on continuing to grow our private capital business, adding approximately $5.5 billion in assets under management, over 20 new institutional relationships and the potential to make in excess of $3.0 billion of additional residential investments. This acquisition also allows us to further diversify our revenue sources, to enter the only major commercial real estate sector in which we did not have a significant presence, and brings infrastructure and digital marketing capabilities that may be leveraged across our platform.
Business Environment and Outlook
The continuation and growth of our business depends upon our ability to operate the Managed Equity REITs, our private capital clients and SEVN so as to maintain, grow and increase the value of their businesses, to assist AlerisLife and Sonesta to grow their businesses and operate profitably, and to successfully expand our business through the execution of new business ventures and additional investments, such as our recently completed acquisition of MPC. Our business and the businesses of our clients generally follow the business cycle of the U.S. real estate industry, but with certain property type and regional geographic variations. Typically, as the general U.S. economy expands, commercial real estate occupancies increase and new real estate development occurs; new development frequently leads to increased real estate supply and reduced occupancies; and then the cycle repeats. These general trends can be impacted by property type characteristics or regional factors; for example, demographic factors such as the aging U.S. population, the growth of e-commerce retail sales or net population migration across different geographic regions can slow, accelerate, overwhelm or otherwise impact general cyclical trends. Because of such multiple factors, we believe it is often possible to grow real estate based businesses in selected property types or geographic areas despite general national trends.
Beyond general real estate industry trends, we also take into account general economic factors impacting our clients. More specifically, in the U.S., the Federal Reserve has increased the federal funds rate multiple times since the beginning of calendar 2022 in an attempt to slow inflation, contributing to macroeconomic uncertainty and market volatility in the U.S. and in the commercial real estate markets. Increased borrowing costs and concerns of a possible or pending economic recession have resulted in an overall decline in commercial real estate transactions. Additionally, concerns about the capital adequacy and liquidity of the banking sector caused by the bank failures in 2023, as well as stricter lending standards, have resulted in decreased lending activity from traditional sources such as banks and life insurance companies and may negatively impact the businesses of our clients and our clients' tenants. Rising or sustained high interest rates also adversely impact our clients with floating rate debt, which they, in some instances, attempt to address with interest rate caps and other strategic actions to reduce leverage. Further, while the Federal Reserve is looking to slow inflation, its efforts may not be successful or fully achieve targeted results and they may take longer to achieve. The impact of rising costs, both for goods and services, insurance and human capital, are impacting us and our clients and we and our clients are continuing to implement mitigation strategies to minimize the impact of increased costs on our and our clients’ earnings, where possible.
Both we and our clients consider industry and general economic factors and attempt to take advantage of opportunities when they arise. For example: (i) since March 2020, ILPT and DHC have completed several joint venture transactions with institutional investors and subsequently grown some of those ventures by acquiring additional properties; (ii) SVC transitioned over 200 hotels from other hotel operators to Sonesta, which on March 17, 2021, completed its acquisition of RLH Corporation, establishing it as one of the largest hotel companies in the U.S. and expanding its franchising capabilities; and (iii) on February 25, 2022, ILPT completed its acquisition of 126 new, Class A, single tenant, net leased, e-commerce focused industrial properties as a result of its acquisition of Monmouth Real Estate Investment Corporation, or MNR, in an all-cash transaction valued at approximately $4.0 billion. More recently, on December 19, 2023, we completed our previously announced agreement to acquire 100% of the equity interest in MPC for total consideration of $99,021, which added residential capabilities to RMR LLC. In addition, we balance our pursuit of growth of our and our clients’ businesses by executing, on behalf of our clients, prudent capital recycling or business arrangement restructurings in an attempt to help our clients prudently manage
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leverage and increased operating costs. We also look to reposition their portfolios and businesses when circumstances warrant such changes or when other more desirable opportunities are identified.
Managed Equity REITs
The base business management fees we earn from the Managed Equity REITs are calculated monthly in accordance with the applicable business management agreement and are based on a percentage of the lower of (i) the average historical cost of each REIT’s properties and (ii) each REIT’s average market capitalization. The property management fees we earn from the Managed Equity REITs are principally based on a percentage of the gross rents collected at certain managed properties owned by the Managed Equity REITs, excluding rents or other revenues from hotels, travel centers, senior living properties and wellness centers, which are separately managed by AlerisLife, Sonesta or a third party. Also under the terms of the property management agreements, we receive construction supervision fees in connection with certain construction activities undertaken at the properties owned by the Managed Equity REITs based on a percentage of the cost of such construction. For further information regarding the fees we earn, see Note 4, Revenue Recognition, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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 December 31, 2023 and 2022, as applicable:
| Lesser of Historical Cost of Assets | ||||||||||||||||||||
| Under Management or | ||||||||||||||||||||
| Total Market Capitalization as of | ||||||||||||||||||||
| December 31, | ||||||||||||||||||||
| REIT | Primary Strategy | 2023 | 2022 | |||||||||||||||||
| DHC | Medical office and life science properties, senior living communities and other healthcare related properties | $ | 3,952,740 | $ | 3,235,870 | |||||||||||||||
| ILPT | Industrial and logistics properties | 4,635,406 | 4,504,774 | |||||||||||||||||
| OPI | Office properties primarily leased to single tenants and those with high credit quality characteristics | 2,951,207 | 3,105,356 | |||||||||||||||||
| SVC | Hotels and service-focused retail net lease properties | 7,049,245 | 6,906,152 | |||||||||||||||||
| $ | 18,588,598 | $ | 17,752,152 | |||||||||||||||||
A Managed Equity REIT’s historical cost of assets under management includes the real estate it owns and its consolidated assets invested directly or indirectly in equity interests in or loans secured by real estate and personal property owned in connection with such real estate (including acquisition related costs which may be allocated to intangibles or are unallocated), all before reserves for depreciation, amortization, impairment charges or bad debts or other similar non-cash reserves. A Managed Equity REIT’s average market capitalization includes the average value of the Managed Equity REIT’s outstanding common equity value during the period, plus the daily weighted average of each of the aggregate liquidation preference of preferred shares and the principal amount of consolidated indebtedness during the period. The table above presents for each Managed Equity REIT, the lesser of the historical cost of its assets under management and its market capitalization as of the end of each period.
The basis on which our base business management fees are calculated for the three months ended December 31, 2023 and 2022 may differ from the basis at the end of the periods presented in the table above. As of December 31, 2023, the market capitalization was lower than the historical cost of assets under management for each of the Managed Equity REITs; the historical cost of assets under management for DHC, ILPT, OPI and SVC as of December 31, 2023, were $7,592,879, $5,692,675, $6,019,588 and $11,329,283, respectively.
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The fee revenues we earned from the Managed Equity REITs for the three months ended December 31, 2023 and 2022 are set forth in the following tables:
| Three Months Ended December 31, 2023 | Three Months Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Base | Base | Base | Base | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business | Property | Construction | Business | Property | Construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Management | Management | Supervision | Management | Management | Supervision | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| REIT | Revenues | Revenues | Revenues | Total | Revenues | Revenues | Revenues | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DHC | $ | 3,807 | $ | 1,458 | $ | 1,056 | $ | 6,321 | $ | 3,664 | $ | 1,492 | $ | 1,300 | $ | 6,456 | ||||||||||||||||||||||||||||||||||||||||||||||
| ILPT | 5,878 | 3,039 | 124 | 9,041 | 5,902 | 2,948 | 170 | 9,020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPI | 3,320 | 3,447 | 1,712 | 8,479 | 3,639 | 3,404 | 3,165 | 10,208 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SVC | 8,545 | 896 | 2,182 | 11,623 | 8,168 | 990 | 610 | 9,768 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 21,550 | $ | 8,840 | $ | 5,074 | $ | 35,464 | $ | 21,373 | $ | 8,834 | $ | 5,245 | $ | 35,452 | |||||||||||||||||||||||||||||||||||||||||||||||
Other Clients
We provide business management services to AlerisLife, Sonesta and until May 15, 2023, TA. AlerisLife operates senior living communities throughout the U.S., many of which are owned by and managed for DHC. Sonesta manages and franchises hotels, resorts and cruise ships in the United States, Latin America, the Caribbean and the Middle East; many of the U.S. hotels that Sonesta operates are owned by SVC. TA operates, leases and franchises travel centers along the U.S. interstate highway system, many of which are owned by SVC, and standalone truck service facilities. Generally, our fees earned from business management services to AlerisLife, Sonesta and until May 15, 2023, TA, are based on a percentage of certain revenues. In connection with BP’s acquisition of TA on May 15, 2023, TA terminated its business management agreement with us and in accordance with its terms paid us the applicable termination fee of $45,282.
In addition, we also provide management services to certain other Private Capital clients, including high-quality institutional investors relationships we assumed as part of our MPC acquisition, and earn fees based on a percentage of average invested capital, as defined in the applicable agreements, property management fees based on a percentage of rents collected from managed properties and construction supervision fees based on a percentage of the cost of construction activities. The recent MPC acquisition also provides us the potential to generate promote fees on any new co-investments in the future.
Our management fee revenues from services to these clients for the three months ended December 31, 2023 and 2022, are set forth in the following tables:
| Three Months Ended December 31, 2023 | Three Months Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Base | Base | Base | Base | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business | Property | Construction | Business | Property | Construction | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Management | Management | Supervision | Management | Management | Supervision | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | Revenues | Revenues | Total | Revenues | Revenues | Revenues | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| AlerisLife | $ | 1,382 | $ | — | $ | — | $ | 1,382 | $ | 1,264 | $ | — | $ | — | $ | 1,264 | ||||||||||||||||||||||||||||||||||||||||
| Sonesta | 2,223 | — | — | 2,223 | 2,111 | — | 15 | 2,126 | ||||||||||||||||||||||||||||||||||||||||||||||||
| RMR Residential | 21 | 626 | 67 | 714 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other private entities | 3,056 | 2,116 | 130 | 5,302 | 3,012 | 2,077 | 426 | 5,515 | ||||||||||||||||||||||||||||||||||||||||||||||||
| SEVN | — | 9 | — | 9 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| TA | — | — | — | — | 4,191 | — | — | 4,191 | ||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 6,682 | $ | 2,751 | $ | 197 | $ | 9,630 | $ | 10,578 | $ | 2,077 | $ | 441 | $ | 13,096 | |||||||||||||||||||||||||||||||||||||||||
Advisory Business
Tremont provides advisory services to SEVN, a publicly traded mortgage REIT that focuses on originating and investing in first mortgage loans secured by middle market and transitional commercial real estate. Tremont is primarily compensated pursuant to its management agreement with SEVN based on a percentage of equity, as defined in the applicable agreement.
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Tremont earned advisory services revenue of $1,125 and $1,091 for the three months ended December 31, 2023 and 2022, respectively. Tremont also earned incentive fees from SEVN of $299 for the three months ended December 31, 2023. Tremont did not earn incentive fees from SEVN for the three months ended December 31, 2022.
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RESULTS OF OPERATIONS (dollars in thousands)
Three Months Ended December 31, 2023, Compared to the Three Months Ended December 31, 2022
The following table presents the changes in our operating results for the three months ended December 31, 2023 compared to the three months ended December 31, 2022:
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Management services | $ | 45,094 | $ | 48,548 | $ | (3,454) | (7.1)% | |||||||||||||||||||
| Incentive fees | 299 | — | 299 | n/m | ||||||||||||||||||||||
| Advisory services | 1,125 | 1,091 | 34 | 3.1% | ||||||||||||||||||||||
| Total management, incentive and advisory services revenues | 46,518 | 49,639 | (3,121) | (6.3)% | ||||||||||||||||||||||
| Reimbursable compensation and benefits | 16,828 | 14,323 | 2,505 | 17.5% | ||||||||||||||||||||||
| Reimbursable equity based compensation | 2,327 | 2,289 | 38 | 1.7% | ||||||||||||||||||||||
| Other reimbursable expenses | 195,998 | 184,489 | 11,509 | 6.2% | ||||||||||||||||||||||
| Total reimbursable costs | 215,153 | 201,101 | 14,052 | 7.0% | ||||||||||||||||||||||
| Total revenues | 261,671 | 250,740 | 10,931 | 4.4% | ||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Compensation and benefits | 34,772 | 33,264 | 1,508 | 4.5% | ||||||||||||||||||||||
| Equity based compensation | 2,829 | 2,850 | (21) | (0.7)% | ||||||||||||||||||||||
| Separation costs | 3,544 | 438 | 3,106 | n/m | ||||||||||||||||||||||
| Total compensation and benefits expense | 41,145 | 36,552 | 4,593 | 12.6% | ||||||||||||||||||||||
| General and administrative | 9,511 | 9,163 | 348 | 3.8% | ||||||||||||||||||||||
| Other reimbursable expenses | 195,998 | 184,489 | 11,509 | 6.2% | ||||||||||||||||||||||
| Transaction and acquisition related costs | 3,987 | — | 3,987 | n/m | ||||||||||||||||||||||
| Depreciation and amortization | 423 | 268 | 155 | 57.8% | ||||||||||||||||||||||
| Total expenses | 251,064 | 230,472 | 20,592 | 8.9% | ||||||||||||||||||||||
| Operating income | 10,607 | 20,268 | (9,661) | (47.7)% | ||||||||||||||||||||||
| Interest income | 3,508 | 1,770 | 1,738 | 98.2% | ||||||||||||||||||||||
| Gain (loss) on equity method investments | 4,049 | (5,314) | 9,363 | 176.2% | ||||||||||||||||||||||
| Income before income tax expense | 18,164 | 16,724 | 1,440 | 8.6% | ||||||||||||||||||||||
| Income tax expense | (2,638) | (2,484) | (154) | (6.2)% | ||||||||||||||||||||||
| Net income | 15,526 | 14,240 | 1,286 | 9.0% | ||||||||||||||||||||||
| Net income attributable to noncontrolling interest in The RMR Group LLC | (8,531) | (7,903) | (628) | (7.9)% | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interest in consolidated entity | 2 | — | 2 | n/m | ||||||||||||||||||||||
| Net income attributable to The RMR Group Inc. | $ | 6,997 | $ | 6,337 | $ | 660 | 10.4% | |||||||||||||||||||
n/m - not meaningful
Management services revenue. Management services revenue decreased $3,454 primarily due to declines in management fees earned from TA of $4,191 as a result of the termination of its business management agreement with us on May 15, 2023, partially offset by growth in management services revenue of $714 related to our acquisition of MPC in the current period.
Incentive fees revenue. Incentive fees for the 2024 fiscal period include an incentive fee of $299 earned by Tremont from SEVN. For further information about these fees, see Note 4, Revenue Recognition, and Note 8, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Advisory services revenue. Advisory services revenue was relatively unchanged from the prior period.
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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 paid by tenants of our clients. Reimbursable compensation and benefits increased $2,505 primarily due to annual merit increases that were effective October 1, 2023.
Reimbursable equity based compensation. Reimbursable equity based compensation includes awards of common shares by our clients directly to certain of our officers and employees in connection with the provision of management services to those clients. We record an equal, offsetting amount as equity based compensation expense for the value of these awards. Reimbursable equity based compensation revenue increased $38 primarily as a result of increases in certain of our clients’ respective share prices.
Other reimbursable expenses. For further information about these reimbursements, see Note 4, Revenue Recognition, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.
Compensation and benefits. Compensation and benefits consist of employee salaries and other employment related costs, including health insurance expenses and contributions related to our employee retirement plan. Compensation and benefits expense increased $1,508 primarily due to annual merit increases that were effective October 1, 2023.
Equity based compensation. Equity based compensation consists of the value of vested shares awarded to certain of our employees under our and our clients’ equity compensation plans. Equity based compensation was relatively unchanged from the prior period.
Separation costs. Separation costs consist of employment termination costs. For further information about these costs, see Note 8, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.
General and administrative. General and administrative expenses consist of office related expenses, information technology related expenses, employee training, travel, professional services expenses, director compensation and other administrative expenses. General and administrative costs increased $348 primarily due to increases in third party costs related to our expanded role in construction oversight.
Transaction and acquisition related costs. Transaction and acquisition related costs in the 2024 fiscal period primarily represent costs associated with our acquisition of MPC on December 19, 2023.
Depreciation and amortization. Depreciation and amortization increased $155 primarily due to amortization of acquisition related intangible assets of $122 in the current period.
Interest income. Interest income increased $1,738 primarily due to higher interest earned during the 2024 fiscal period primarily as a result of higher interest rates and higher average cash balances invested compared to the prior period.
Gain (loss) on equity method investments. Gain (loss) on equity method investments represents the unrealized and realized gains or losses on our investments in SEVN and TA common shares. For further information, see Note 5, Investments, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Income tax expense. The increase in income tax expense of $154 is primarily attributable to higher taxable income for the 2024 fiscal period compared to the same period in the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands, except per share amounts)
Our current assets have historically been comprised predominantly of cash, cash equivalents and receivables for business management, property management and advisory services fees. As of December 31, 2023 and September 30, 2023, we had cash and cash equivalents of $202,428 and $267,989, respectively, of which $30,260 and $26,802, respectively, was held by RMR Inc., with the remainder being held at RMR LLC. Cash and cash equivalents include all short term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase. As of December 31, 2023 and September 30, 2023, $191,486 and $265,800, respectively, of our cash and cash equivalents were invested in money market bank accounts. We believe that our cash and cash equivalents leave us well positioned to pursue a range of capital allocation strategies, with a focus on the growth of our private capital business, to fund our operations and enhance our technology infrastructure, in the next twelve months.
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On December 19, 2023, we completed our acquisition of MPC for total cash consideration of $84,474. We are also obligated to pay the Earnout, if earned, which we currently estimate at $14,547 and which will be payable over the next three years, based on our current expectations for the deployment of capital remaining in investment funds managed by MPC prior to the end of such fund’s investment period. In addition to the Earnout, we agreed to pay Retention Payments to certain employees of MPC in an aggregate amount of $4,200 for their continued employment through December 31, 2025.
Our liquidity is highly dependent upon our receipt of fees from the businesses that we manage. Historically, we have funded our working capital needs with cash generated from our operating activities and we currently do not maintain any credit facilities. We expect that our future working capital needs will relate largely to our operating expenses, primarily consisting of employee compensation and benefits costs, our obligation to make quarterly tax distributions to the members of RMR LLC, our plan to make quarterly distributions on our Class A Common Shares and Class B-1 Common Shares and our plan to pay quarterly distributions to the members of RMR LLC in connection with the quarterly dividends to RMR Inc. shareholders. Our management fees are typically payable to us within 30 days of the end of each month or, in the case of annual incentive business management fees earned from the Managed Equity REITs, if any, within 30 days following each calendar year end. Quarterly incentive fees earned from SEVN, if any, are payable generally within 30 days following the end of the applicable quarter. Historically, we have not experienced losses on collection of our fees and have not recorded any allowances for bad debts.
During the three months ended December 31, 2023, we paid cash distributions to the holders of our Class A Common Shares, Class B-1 Common Shares and to the other owner of RMR LLC membership units in the aggregate amount of $11,484. On January 11, 2024, we declared a quarterly dividend on our Class A Common Shares and Class B-1 Common Shares to our shareholders of record as of January 22, 2024 in the amount of $0.40 per Class A Common Share and Class B-1 Common Share, or $6,683. This dividend will be partially funded by a distribution from RMR LLC to holders of its membership units in the amount of $0.32 per unit, or $10,147, of which $5,347 will be distributed to us based on our aggregate ownership of 16,708,723 membership units of RMR LLC and $4,800 will be distributed to ABP Trust based on its ownership of 15,000,000 membership units of RMR LLC. The remainder of this dividend will be funded with cash accumulated at RMR Inc. We expect the total dividend will amount to approximately $11,483 and we expect to pay this dividend on or about February 15, 2024. See Note 9, Shareholders’ Equity, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding these distributions.
For the three months ended December 31, 2023, pursuant to the RMR LLC operating agreement, RMR LLC made required quarterly tax distributions to its holders of its membership units totaling $8,662, of which $4,560 was distributed to us and $4,102 was distributed to ABP Trust, based on each membership unit holder’s then respective ownership percentage in RMR LLC. The $4,560 distributed to us was eliminated in our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, and the $4,102 distributed to ABP Trust was recorded as a reduction of its noncontrolling interest. We expect to use a portion of these funds distributed to us to pay our tax liabilities and amounts due under the tax receivable agreement described in Note 8, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. We expect to use the remaining funds distributed to us to fund our long-term tax liabilities and pay dividends.
Cash Flows
The $1,831 increase in net cash from operating activities for the three months ended December 31, 2023 compared to the prior period reflects favorable changes in working capital and increases in net income. The $78,977 increase in net cash used in investing activities for the three months ended December 31, 2023 compared to the prior period was due to our acquisition of MPC in the current fiscal period. Net cash used in financing activities for the three months ended December 31, 2023 was relatively unchanged compared to the prior period.
As of December 31, 2023, we had no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Tax Receivable Agreement
We are party to a tax receivable agreement which provides for the payment by RMR Inc. to ABP Trust of 85.0% of the amount of savings, if any, in U.S. federal, state and local income tax or franchise tax that RMR Inc. realizes as a result of (a) the increases in tax basis attributable to RMR Inc.’s dealings with ABP Trust and (b) tax benefits related to imputed interest deemed to be paid by it as a result of the tax receivable agreement. See Note 8, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and “Business—Our Organizational Structure—tax receivable agreement” in our Annual Report on Form 10-K for the fiscal year ended September
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30, 2019. As of December 31, 2023, our condensed consolidated balance sheet reflects a liability related to the tax receivable agreement of $23,229, of which we expect to pay $2,343 to ABP Trust during the fourth quarter of fiscal year 2024.
Market Risk and Credit Risk
We have not invested in derivative instruments, borrowed through issuing debt securities or transacted in foreign currencies. As a result, we are not subject to significant direct market risk related to interest rate changes, changes to the market standard for determining interest rates, commodity price changes or credit risks; however, if any of these risks were to negatively impact our clients’ businesses or market capitalization, our revenues would likely decline. To the extent we change our approach on the foregoing activities, or engage in other activities, our market and credit risks could change. See Part I, Item 1A “Risk Factors” of our 2023 Annual Report for the risks to us and our clients.
Risks Related to Cash and Short Term Investments
Our cash and cash equivalents include short term, highly liquid investments readily convertible to known amounts of cash that have original maturities of three months or less from the date of purchase. We invest a substantial amount of our cash in money market bank accounts. The majority of our cash is maintained in U.S. bank accounts. Some U.S. bank account balances exceed the Federal Deposit Insurance Corporation insurance limit. We believe our cash and short term investments are not subject to any material interest rate risk, equity price risk, credit risk or other market risk.
Related Person Transactions
We have relationships and historical and continuing transactions with Adam D. Portnoy, the Chair of our Board and one of our Managing Directors, as well as our clients. For further information about these and other such relationships and related person transactions, please see Note 8, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2023 Annual Report, our definitive Proxy Statement for our 2024 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” in our 2023 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.
Critical Accounting Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. A discussion of our critical accounting estimates is included in our 2023 Annual Report. In addition to the critical accounting estimates identified in our 2023 Annual Report, the estimation of fair values represents a critical accounting estimate in these condensed consolidated financial statements. The estimation of fair value involves a significant level of judgment and estimation uncertainty, and actual results could be materially different and have a material impact on our financial condition and results of operations.
We accounted for the Acquisition as a business combination. We used estimates and assumptions to assign fair values to assets acquired and liabilities assumed, including intangible assets. Determining the fair value of intangible assets requires us to use estimates and assumptions including, but not limited to, expected future cash inflows and outflows, useful lives, discount rates and income tax rates. Fair values were determined based on estimates and assumptions we believe to be reasonable, but that are unpredictable and inherently uncertain. Unanticipated events and circumstances may occur that could materially affect the accuracy of such estimates, assumptions or actual results.
The fair value of our Earnout liability was determined using a Monte Carlo simulation model and is inherently uncertain. Inputs into the model require estimates and assumptions regarding the timing and deployment of future capital, the historical volatility of similar market transactions, and discount rates and credit ratings for companies similar to ours. The Earnout liability is remeasured on a quarterly basis and changes to our estimates and assumptions are likely to have a significant impact on the fair value estimate of the Earnout liability. In addition, actual payments required under the Earnout may differ significantly from our estimates and could have a material impact to our results of operations and financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative disclosures about market risk are set forth above in “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operation—Market Risk and Credit Risk.”
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Item 4. Controls and Procedures
As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.
On December 19, 2023, we completed the acquisition of MPC. We are in the process of integrating MPC into our systems and control environment as of September 30, 2024. For further information regarding this acquisition, see Note 3. Acquisition of MPC Partnership Holdings LLC, to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Subject to the foregoing, no changes in our internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
WARNING CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws that are subject to risks and uncertainties. These statements may include words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions. These forward-looking statements include, among others, statements about: our business strategy; economic and industry conditions; the impact and opportunities for our and our clients’ businesses from business cycles in the U.S. real estate industry as well as economic and industry conditions; our belief that it is possible to grow real estate based businesses in selected property types or geographic areas despite general national trends; our cash and cash equivalents, including their sufficiency to pursue a range of capital allocation strategies and fund our operations and enhance our technology infrastructure and risk exposure; and our sustainability practices.
Forward-looking statements reflect our current expectations, are based on judgments and assumptions, are inherently uncertain and are subject to risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from expected future results, performance or achievements expressed or implied in those forward-looking statements. Some of the risks, uncertainties and other factors that may cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following:
•The dependence of our revenues on a limited number of clients,
•The variability of our revenues,
•Risks related to supply chain constraints, commodity pricing and inflation, including inflation impacting wages and employee benefits,
•Changing market conditions, practices and trends, which may adversely impact our clients and the fees we receive from them,
•Potential terminations of the management agreements with our clients,
•Increases in or sustained high market interest rates, which may significantly reduce our revenues or impede our growth,
•Our dependence on the growth and performance of our clients,
•Our ability to obtain or create new clients for our business and other circumstances beyond our control,
•The ability of our clients to operate their businesses profitably, optimize their capital structures and to grow and increase their market capitalizations and total shareholder returns,
•Our ability to successfully provide management services to our clients,
•Our ability to maintain or increase the distributions we pay to our shareholders,
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•Our ability to successfully pursue and execute capital allocation strategies,
•Our ability to prudently invest in our business to enhance our operations, services and competitive positioning,
•Our ability to successfully integrate acquired businesses and realize our expected returns on our investments,
•Risk that cost savings and synergies anticipated to be realized by the MPC acquisition may not be fully realized or may take longer to realize than expected,
•Changes to our operating leverage or client diversity,
•Litigation risks,
•Risks related to acquisitions, dispositions and other activities by or among our clients,
•Allegations, even if untrue, of any conflicts of interest arising from our management activities,
•Our ability to retain the services of our managing directors and other key personnel,
•Our and our clients’ risks associated with our and our clients' costs of compliance with laws and regulations, including securities regulations, exchange listing standards and other laws and regulations affecting public companies, and
•Other matters.
These risks, uncertainties and other factors are not exhaustive and should be read in conjunction with other cautionary statements that are included in our periodic filings. The information contained in our filings with the SEC, including under the caption “Risk Factors” in our periodic reports, or incorporated therein, identifies important factors that could cause differences from the forward-looking statements in this Quarterly Report on Form 10-Q. Our filings with the SEC are available on the SEC’s website at www.sec.gov.
You should not place undue reliance upon our forward-looking statements.
Except as required by law, we do not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.
Part II. Other Information
Item 1A. Risk Factors
There have been no material changes to the risk factors from those we previously provided in our 2023 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer purchases of equity securities.
The following table provides information about our purchases of our equity securities during the quarter ended December 31, 2023:
| Maximum | ||||||||||||||||||||||||||
| Total Number of | Approximate Dollar | |||||||||||||||||||||||||
| Shares Purchased | Value of Shares that | |||||||||||||||||||||||||
| Number of | Average | as Part of Publicly | May Yet Be Purchased | |||||||||||||||||||||||
| Shares | Price Paid | Announced Plans | Under the Plans or | |||||||||||||||||||||||
| Calendar Month | Purchased (1) | per Share | or Programs | Programs | ||||||||||||||||||||||
November 1 - November 30, 2023 | 492 | $ | 23.82 | N/A | N/A | |||||||||||||||||||||
| Total | 492 | $ | 23.82 | N/A | N/A | |||||||||||||||||||||
(1)These Class A Common Share withholdings and purchases were made to satisfy tax withholding and payment obligations in connection with the vesting of awards of our Class A Common Shares. We withheld and purchased these shares at their fair market values based upon the trading prices of our Class A Common Shares at the close of trading on Nasdaq on the purchase dates.
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Item 6. Exhibits
| Exhibit Number | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 3.4 | ||||||||
| 3.5 | ||||||||
| 3.6 | ||||||||
| 4.1 | ||||||||
| 4.2 | Registration Rights Agreement, dated as of June 5, 2015, by and between the Registrant and ABP Trust (formerly known as Reit Management and Research Trust). (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-207423) filed with the SEC on October 14, 2015.). | |||||||
| 10.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. (Filed herewith.) | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.) | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.) | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.) | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.) | |||||||
| 104 | Cover Page Interactive Data File. (formatted as Inline XBRL and contained in Exhibit 101.) | |||||||
(+) Contract with management or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| By: | /s/ Matthew P. Jordan | |||||||
| Matthew P. Jordan | ||||||||
| Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer) | ||||||||
| Dated: February 7, 2024 | ||||||||
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 | Exhibit 10.1 EXECUTION VERSION | ||||
November 15, 2023
Ms. Jennifer Francis
[ADDRESS OMITTED]
Dear Jennifer:
You and The RMR Group LLC (“RMR”) are entering into this letter agreement (this "Agreement") to confirm the terms and conditions of your retirement from RMR on July 1, 2024 (the “Retirement Date”).
I.TRANSITION PERIOD AND RETIREMENT
(A)Resignations. You will continue to serve as an Executive Vice President of RMR and President and Chief Executive Officer of Diversified Healthcare Trust (“DHC”) until December 31, 2023, as of which date you will resign from such offices and from any other officer or related positions you hold within RMR, DHC and any other RMR managed company. You will resign as a Managing Trustee of DHC and any other board positions on the earliest of: (1) the 2024 annual meeting of shareholders; (2) July 1, 2024; or (3) as requested by RMR or the applicable board of trustees. You will continue to serve as an employee of RMR until the Retirement Date in order to transition your duties and responsibilities to your successor(s). After December 31, 2023, you will work remotely from the address shown above, or other locations from time to time.
(B)Payments until the Retirement Date. Until December 31, 2023, you will continue to receive the same cash salary compensation as you currently receive, payable consistent with past practices. From January 1, 2024 until the Retirement Date, RMR will pay your base salary at a rate of $10,000 per month. Subject to any contribution required by you consistent with past practices, RMR will maintain and provide all your current insurance and employee benefits through July 31, 2024. All of your existing share grants will continue to vest through the Retirement Date pursuant to the existing vesting schedule (as set forth in the applicable equity agreements).
(C)Retirement and Transition Responsibilities. From January 1, 2024 until the Retirement Date, you will work towards the orderly transition of your responsibilities and use all reasonable efforts to assist in training your successor(s). It is understood that you will be working remotely from the address above during this transition period, but will be available by telephone or video conference.
Jennifer Francis
November 15, 2023
Page 2
(D)Licensing. As soon as practicable after this Agreement is executed, RMR will take all reasonable steps and work with its managed companies to the best of its ability to remove you from any lender or other applicable licenses. You agree to cooperate with all such efforts.
(E)Payments and Benefits on the Retirement Date. On the Retirement Date, RMR will pay your unpaid wages for the period through the Retirement Date, subject to all usual and applicable taxes and deductions. Your health insurance on our group plan will terminate on July 31, 2024. To continue any health insurance beyond that date, you must complete a continuation of coverage (COBRA) election form and make timely payments for coverage. Information regarding COBRA will be mailed to you. Any group life and disability insurance on our group plan will terminate on July 31, 2024, as will your participation in the RMR 401(k) plan.
(F)Retirement Benefits. Provided you sign and do not revoke this Agreement and the Waivers and Releases of Claims attached as Exhibit A and Exhibit B and you satisfactorily perform your transition responsibilities, you will receive the following additional retirement payments and benefits:
(1)Cash Payments. RMR will pay you a cash payment in the amount of $1,125,000, less applicable deductions, on the later of January 31, 2024 or ten (10) days after your execution of Exhibit A, and a second lump sum payment of $1,125,000, subject to applicable deductions, on the later of August 1, 2024 or ten (10) days after your execution of Exhibit B.
(2)RMR and RMR Public Company Share Grants.
(a)Prior to the Retirement Date, RMR will recommend to the Boards of Directors and Boards of Trustees of The RMR Group Inc. (“RMR Inc.”), DHC, Service Properties Trust, Office Properties Income Trust, Industrial Logistics Properties Trust and Seven Hills Realty Trust (together, the “RMR Public Companies”) that all of your existing share grants vest (which vesting includes the lifting of any restrictions) immediately in full upon the Retirement Date and that you be permitted to settle any resulting tax liability with vesting shares, commonly referred to as “net share settlement,” on a company-by-company basis. RMR will cooperate with you in removing any restrictive legends from your vested shares in the RMR Public Companies.
(b)You agree for the benefit of the applicable RMR Public Company that, as long as you own the shares referenced above in 2(a) in the RMR Public Companies, your shares shall be voted at any meeting of the shareholders of the RMR Public Companies or in connection with any consent solicitation or other action by shareholders in favor of all nominees for director and all proposals recommended by the Board of Directors or Trustees in the proxy statement for such meeting or materials for such written consent or other action. This obligation does not apply to your estate. If your shares are not voted in accordance with this covenant and such failure continues after notice, you agree to pay liquidated damages to the applicable RMR Public Company in an amount equal to the market value of the shares not so voted. For the avoidance of doubt, this provision is for the benefit of each RMR Public Company only with respect to your shares in such company and is not an agreement with RMR.
Jennifer Francis
November 15, 2023
Page 3
(c)You understand and agree that, although the RMR Code of Business Conduct and Ethics will no longer apply to you after the Retirement Date, you are subject to all laws and regulations with respect to all of your shares in the RMR Public Companies, including, but not limited to, those applicable to the purchase or sale of securities while in possession of material, non-public information concerning the RMR Public Companies.
(G)Mobile Phone Number. RMR agrees to consent to and cooperate with you in the transfer to you of your mobile phone number, and to pay for any costs associated with such transfer (except that you will be responsible for the cost of replacement service). You agree to be responsible for all cell phone payments for service after the Retirement Date.
II.RELEASE
You, your heirs, executors, legal representatives, successors and assigns, individually and in their beneficial capacity, hereby unconditionally and irrevocably release and forever discharge RMR, the RMR Public Companies, AlerisLife Inc., Sonesta International Hotels Corporation and any companies managed by RMR from time to time (the “RMR Companies”), and their past, present and future officers, directors, trustees, employees, representatives, shareholders, attorneys, agents, consultants, contractors, successors, and affiliates -hereinafter referred to as the "Releasees" -or any of them of and from any and all suits, claims, demands, interest, costs (including attorneys' fees and costs actually incurred), expenses, actions and causes of action, rights, liabilities, obligations, promises, agreements, controversies, losses and debts of any nature whatsoever related to or arising out of your employment or termination thereof, which you, your heirs, executors, legal representatives, successors and assigns, individually and/or in their beneficial capacity, now have, own or hold, or at any time heretofore ever had, owned or held, or could have owned or held, whether known or unknown, suspected or unsuspected, from the beginning of the world to the date of execution of this Agreement including, without limitation, any claims arising at law or in equity or in a court, administrative, arbitration, or other tribunal of any state or country arising out of or in connection with your employment by RMR; any claims against the Releasees based on statute, regulation, ordinance, contract, or tort; any claims against the Releasees relating to wages, compensation, benefits, retaliation, negligence, or wrongful discharge; any claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Older Workers' Benefit Protection Act, as amended, the Equal Pay Act, as amended, the Fair Labor Standards Act, as amended, the Employment Retirement Income Security Act, as amended, the Americans with Disabilities Act of 1990 ("ADA"), as amended, The ADA Amendments Act, the Lilly Ledbetter Fair Pay Act, the Worker Adjustment and Retraining Notification Act, the Genetic Information NonDiscrimination Act, the Civil Rights Act of 1991, as amended, the Family Medical Leave Act of 1993, as amended, and the Rehabilitation Act, as amended; The Massachusetts Fair Employment Practices Act (Massachusetts General Laws Chapter 151B), The Massachusetts Equal Rights Act, The Massachusetts Equal Pay Act, the Massachusetts Privacy Statute, The Massachusetts Civil Rights Act, the Massachusetts Payment of Wages Act (Massachusetts General Laws Chapter 149 sections 148 and 150), the Massachusetts Overtime regulations (Massachusetts General Laws Chapter 151 sections 1A and 1B), and the Massachusetts Meal Break regulations
Jennifer Francis
November 15, 2023
Page 4
(Massachusetts General Laws Chapter 149 sections 100 and 101); and any other claims under any federal or state law for unpaid or delayed payment of wages, overtime, bonuses, commissions, incentive payments or severance, missed or interrupted meal periods, interest, attorneys' fees, costs, expenses, liquidated damages, treble damages or damages of any kind to the maximum extent permitted by law and any claims against the Releasees arising under any and all applicable state, federal, or local ordinances, statutory, common law, or other claims of any nature whatsoever except for claims that cannot be released by law.
Nothing in this Agreement shall affect the EEOC's rights and responsibilities to enforce the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, as amended, the National Labor Relations Act or any other applicable law, nor shall anything in this Agreement be construed as a basis for interfering with your protected right to file a timely charge with, or participate in an investigation or proceeding conducted by, the EEOC, the National Labor Relations Board (the "NLRB"), or any other state, federal or local government entity; provided, however, if the EEOC, the NLRB, or any other state, federal or local government entity commences an investigation on your behalf, you specifically waive and release your right, if any, to recover any monetary or other benefits of any sort whatsoever arising from any such investigation or otherwise, nor will you seek or accept reinstatement to your former position with RMR. Further, notwithstanding anything to the contrary in this Agreement, you are not releasing any rights or claims to vested benefits.
III.TAX PROVISIONS
You agree that you shall be responsible and will pay your own tax obligations and/or liabilities created under state or federal tax laws by this Agreement.
IV.INTERNAL ANNOUNCEMENT AND LETTER OF REFERENCE
You and Adam Portnoy, RMR’s President and Chief Executive Officer, will agree on the timing and content of internal emails and communications to employees of RMR, and external announcements, regarding your retirement. Mr. Portnoy will provide you with a letter of reference which shall be in form and substance mutually acceptable to you and Mr. Portnoy.
V.CONFIDENTIALITY
You agree that, unless otherwise agreed, on or before the Retirement Date, you will return to RMR all property of RMR or any RMR Company including, but not limited, to all documents, records, materials, software, equipment, building keys or entry cards, and other physical property that have come into your possession or been produced by you in connection with your employment; it being agreed, however, that you may retain any home technology issued to you by RMR, including your cell phone, iPad, desktop and laptop. You agree to cooperate with RMR’s IT group in effectuating the deletion of all information related to RMR or any RMR Company from this technology immediately after the Retirement Date.
In addition, you shall not at any time reveal to any person or entity, except to employees of RMR or any RMR Company who need to know such information for purposes of their
Jennifer Francis
November 15, 2023
Page 5
employment or as otherwise authorized by RMR or the applicable RMR Company in writing, any confidential information of RMR or any RMR Company. Confidential information includes, without limitation, information regarding (i) the marketing, business, operational, and financial activities and/or strategies of RMR or any RMR Company (ii) the costs, sources of supply, financial performance, projects, plans, branding, acquisition or dispositions, proposals and strategic plans of RMR or any RMR Company (iii) any non-public financial information or practices of RMR or any RMR Company and (iv) information and discussions concerning any past or present lawsuits, investigations, arbitrations or other pending or threatened disputes in which RMR or any RMR Company is or was a party.
Nothing in this Agreement prohibits you from reporting possible violations of federal law or regulation, or disclosing any information, to any government agency or entity, including, but not limited, to the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of applicable law. You do not need prior authorization of RMR to make any such reports or disclosures and you are not required to notify RMR that you have made such reports or disclosures. Further, nothing in this Agreement is intended to interfere with your rights to disclose any information which an employer cannot prohibit you from disclosing pursuant to applicable law.
VI.NON-DISPARAGEMENT
You agree not to make harmful or disparaging remarks, written or oral, concerning RMR or any RMR Company or any of its or their respective directors, officers, trustees, employees, agents or service providers. RMR agrees to instruct its executive officers not to make any harmful or disparaging remarks, written or oral, concerning you. Nothing in this provision shall prevent you from testifying truthfully in connection with any litigation, arbitration or administrative proceeding when compelled by subpoena, regulation or court order.
VII.NON-SOLICITATION
You agree that for five (5) years following the Retirement Date, you will not, directly or indirectly, without the prior written consent of RMR, solicit, attempt to solicit, assist others to solicit, hire, or assist others to hire for employment any person who is, or within the preceding six (6) months was, an employee of RMR or any RMR Company.
VIII.BREACH OF SECTIONS V, VI OR VII
The parties agree that any breach of Sections V, VI or VII of this Agreement will cause irreparable damage to the non-breaching party and that, in the event of such a breach or threatened breach, the non-breaching party shall have, in addition to any and all remedies at law, the right to an injunction, specific performance or other equitable relief to prevent the violation of any obligations hereunder. The parties agree that, in the event that any provision of Section V, VI, or VII shall be determined by any court of competent jurisdiction or arbitration panel to be unenforceable, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
Jennifer Francis
November 15, 2023
Page 6
IX.CONSULTING AND COOPERATION
After the Retirement Date and until December 31, 2024, RMR may request additional transitional services from you at a rate of $250 per hour, plus reimbursement of any approved out-of-pocket expenses. Any such services shall be deemed a consultancy and you shall perform such services as an independent contractor, assuming all applicable tax obligations. You acknowledge that as an independent contractor you will not be eligible for any benefits afforded employees of RMR.
Without limitation as to time, you agree to cooperate with RMR and any RMR Company, at reasonable, mutually agreed-upon times and places, with respect to all matters arising during or related to your continuing or past employment, including but not limited to all formal or informal matters in connection with any government investigation, internal investigation, litigation, regulatory or other proceeding which may have arisen or which may arise. RMR or such RMR Company will reimburse you for all reasonable out-of-pocket expenses (not including lost time or opportunity). RMR or such RMR Company will provide appropriate legal representation for you in a manner reasonably determined by RMR or such RMR Company.
X.NON-WAIVER
Any waiver by a party of a material breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision hereof.
XI.NON-ADMISSION
The parties agree and acknowledge that the considerations exchanged herein do not constitute and shall be not construed as constituting an admission of any sort on the part of either party.
XII.NON-USE IN SUBSEQUENT PROCEEDINGS
The parties agree that this Agreement may not be used as evidence in any subsequent proceeding of any kind except one in which one of the parties alleges a breach of the terms of this Agreement or the Waivers and Releases of Claims or one in which one of the parties elects to use this Agreement as a defense to any claim.
XIII.ADEA ACKNOWLEDGMENT
You acknowledge that you have carefully read and fully understand this Agreement. You acknowledge that you have not relied on any statement, written or oral, which is not set forth in this Agreement. You further acknowledge that you are hereby advised in writing to consult with an attorney prior to executing this Agreement; that you are not waiving or releasing any rights or claims that may arise after the date of execution of this Agreement; that you are releasing claims under the Age Discrimination in Employment Act (ADEA); that you execute this Agreement in exchange for monies in addition to those to which you are already entitled; that you were
Jennifer Francis
November 15, 2023
Page 7
provided a period of at least twenty-one (21) days within which to consider this Agreement and a period of seven (7) days following your execution of this Agreement to revoke your ADEA waiver as provided below; that if you voluntarily execute this Agreement prior to the expiration of the 21st day, you will voluntarily waive the remainder of the 21 day consideration period; that any changes to this Agreement by you once it has been presented to you will not restart the 21 day consideration period; and you enter into this Agreement knowingly, willingly and voluntarily in exchange for the retirement payments and benefits. To receive the retirement payments and benefits provided in this Agreement, this Agreement must be signed and returned to Diane Proctor, at, if by physical delivery, RMR, Two Newton Place, Suite 300, 255 Washington Street, Newton, MA 02458, or at, if by email delivery, dproctor@rmrgroup.com.
You may revoke your release of your ADEA claims up to seven (7) days following your signing this Agreement. Notice of revocation must be received in writing by Diane Proctor, at, if by physical delivery, RMR, Two Newton Place, Suite 300, 255 Washington Street, Newton, MA 02458, or at, if by email delivery, dproctor@rmrgroup.com, no later than the seventh day (excluding the date of execution) following the execution of this Agreement. The ADEA release is not effective or enforceable until expiration of the seven day period. However, the ADEA release becomes fully effective, valid and irrevocable if it has not been revoked within the seven day period immediately following your execution of this Agreement. The parties agree that if you exercise your right to revoke this Agreement, then you are not entitled to the retirement payments set forth in Section I.F. of this Agreement. This Agreement shall become effective eight (8) days after your execution if you have not revoked your signature as herein provided.
XIV.INDEMNIFICATION AND DEFENSE
Any and all indemnification agreements you have from RMR and any RMR Companies continue to provide for the respective parties’ rights and obligations with respect to the matters set forth therein. Further, you will maintain any rights you have to indemnification and defense under any bylaws or insurance policies by RMR as well as any rights you have under the common law.
XV.ENTIRE AGREEMENT
This Agreement, together with the Waivers and Releases of Claims, constitutes the entire agreement between the parties concerning the terms and conditions of your separation of employment from RMR and supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, between the parties, except for the Mutual Agreement to Resolve Disputes and Arbitrate Claims, which remains in full force and effect. You agree that RMR has not made any warranties, representations, or promises to you regarding the meaning or implication of any provision of this Agreement other than as stated herein.
Jennifer Francis
November 15, 2023
Page 8
XVI.NO ORAL MODIFICATION
Any amendments to this Agreement shall be in writing and signed by you and an authorized representative of RMR.
XVII.SEVERABILITY
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction or an arbitrator or arbitration panel to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision.
XVIII.GOVERNING LAW, JURISDICTION AND SUCCESSOR AND ASSIGNS
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without reference to any conflict of law principles, and shall be binding upon and inure to the benefit of you and your heirs, successors, and beneficiaries, and RMR and its agents, affiliates, representatives, successors, and assigns. If you die before receiving the payments stated herein, the remaining payments will be made to your spouse. If your spouse is not alive at the time, the remaining payments will be made to your estate. If you die or are incapacitated prior to executing the Waivers and Releases of Claims attached as Exhibit A and Exhibit B, your legal representative may sign on your behalf.
The parties irrevocably agree that any dispute regarding this Agreement shall be settled by binding arbitration in accordance with the Mutual Agreement to Resolve Disputes and Arbitrate Claims.
XIX.VOLUNTARY ACT
By signing this Agreement, you acknowledge and agree that you are doing so knowingly and voluntarily in order to receive the payments and benefits provided for herein. By signing this Agreement, you represent that you fully understand your right to review all aspects of this Agreement, that you have carefully read and fully understand all the provisions of this Agreement, that you had an opportunity to ask questions and consult with an attorney of your choice before signing this Agreement; and that you are freely, knowingly, and voluntarily entering into this Agreement.
If you determine to accept this Agreement, understand it, and consent to it, please sign in the space provided below and return a copy so signed to us.
| Very truly yours, | ||||||||
| /s/ Diane Proctor | ||||||||
| Diane Proctor | ||||||||
| Vice President, Human Resources | ||||||||
Jennifer Francis
November 15, 2023
Page 9
| AGREED TO AND ACCEPTED: | ||||||||
| /s/ Jennifer Francis | ||||||||
| Jennifer Francis | ||||||||
| Dated: November 15, 2023 | ||||||||
EXHIBIT A
WAIVER AND RELEASE OF CLAIMS
WAIVER AND RELEASE OF CLAIMS
You, your heirs, executors, legal representatives, successors and assigns, individually and in their beneficial capacity, hereby unconditionally and irrevocably release and forever discharge The RMR Group Inc. and The RMR Group LLC (together, "RMR"), Service Properties Trust, Diversified Healthcare Trust, Office Properties Income Trust, Industrial Logistics Properties Trust, Seven Hills Realty Trust, AlerisLife Inc., Sonesta International Hotels Corporation and any companies managed by RMR from time to time (the “RMR Companies”), and its and their past, present and future officers, directors, trustees, employees, representatives, shareholders, attorneys, agents, consultants, contractors, successors, and affiliates -hereinafter referred to as the "Releasees" -or any of them of and from any and all suits, claims, demands, interest, costs (including attorneys' fees and costs actually incurred), expenses, actions and causes of action, rights, liabilities, obligations, promises, agreements, controversies, losses and debts of any nature whatsoever related to or arising out of your employment or termination thereof, which you, your heirs, executors, legal representatives, successors and assigns, individually and/or in their beneficial capacity, now have, own or hold, or at any time heretofore ever had, owned or held, or could have owned or held, whether known or unknown, suspected or unsuspected, from the beginning of the world to the date of execution of this Waiver and Release of Claims including, without limitation, any claims arising at law or in equity or in a court, administrative, arbitration, or other tribunal of any state or country arising out of or in connection with your employment by RMR or any RMR Company; any claims against the Releasees based on statute, regulation, ordinance, contract, or tort; any claims against the Releasees relating to wages, compensation, benefits, retaliation, negligence, or wrongful discharge; any claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Older Workers' Benefit Protection Act, as amended, the Equal Pay Act, as amended, the Fair Labor Standards Act, as amended, the Employment Retirement Income Security Act, as amended, the Americans with Disabilities Act of 1990 ("ADA"), as amended, The ADA Amendments Act, the Lilly Ledbetter Fair Pay Act, the Worker Adjustment and Retraining Notification Act, the Genetic Information NonDiscrimination Act, the Civil Rights Act of 1991, as amended, the Family Medical Leave Act of 1993, as amended, and the Rehabilitation Act, as amended; The Massachusetts Fair Employment Practices Act (Massachusetts General Laws Chapter 151B), The Massachusetts Equal Rights Act, The Massachusetts Equal Pay Act, the Massachusetts Privacy Statute, The Massachusetts Civil Rights Act, the Massachusetts Payment of Wages Act (Massachusetts General Laws Chapter 149 sections 148 and 150), the Massachusetts Overtime regulations (Massachusetts General Laws Chapter 151 sections 1A and 1B), and the Massachusetts Meal Break regulations (Massachusetts General Laws Chapter 149 sections 100 and 101); and any other claims under any federal or state law for unpaid or delayed payment of wages, overtime, bonuses, commissions, incentive payments or severance, missed or interrupted meal periods, interest, attorneys' fees, costs, expenses, liquidated damages, treble damages or damages of any kind to the maximum extent permitted by law and any claims against the Releasees arising under any and all applicable state, federal, or local ordinances, statutory, common law, or other claims of any nature whatsoever except for claims that cannot be released by law.
A-1
Nothing in this Waiver and Release of Claims shall affect the EEOC's rights and responsibilities to enforce the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, as amended, the National Labor Relations Act or any other applicable law, nor shall anything in this Waiver and Release of Claims be construed as a basis for interfering with your protected right to file a timely charge with, or participate in an investigation or proceeding conducted by, the EEOC, the National Labor Relations Board (the "NLRB"), or any other state, federal or local government entity; provided, however, if the EEOC, the NLRB, or any other state, federal or local government entity commences an investigation on your behalf, you specifically waive and release your right, if any, to recover any monetary or other benefits of any sort whatsoever arising from any such investigation or otherwise, nor will you seek or accept reinstatement to your former position with RMR.
Nothing in this Waiver and Release of Claims prohibits you from reporting possible violations of federal law or regulation, or disclosing any information, to any government agency or entity, including, but not limited to, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of applicable law. You do not need prior authorization of RMR to make any such reports or disclosures and you are not required to notify RMR that you have made such reports or disclosures.
You acknowledge that you have carefully read and fully understand this Waiver and Release of Claims. You acknowledge that you have not relied on any statement, written or oral, which is not set forth in this Waiver and Release of Claims. You further acknowledge that you are hereby advised in writing to consult with an attorney prior to executing this Waiver and Release of Claims; that you are not waiving or releasing any rights or claims that may arise after the date of execution of this Waiver and Release of Claims; that you are releasing claims under the Age Discrimination in Employment Act (ADEA); that you execute this Waiver and Release of Claims in exchange for monies in addition to those to which you are already entitled; that RMR gave you a period of at least twenty-one (21) days within which to consider this Waiver and Release of Claims and a period of seven (7) days following your execution of this Waiver and Release of Claims to revoke your ADEA waiver as provided below; that if you voluntarily execute this Waiver and Release of Claims prior to the expiration of the 21st day, you will voluntarily waive the remainder of the 21 day consideration period; that any changes to this Waiver and Release of Claims by you once it has been presented to you will not restart the 21 day consideration period; and you enter into this Waiver and Release of Claims knowingly, willingly and voluntarily in exchange for the retirement payments and benefits. To receive the retirement payments and benefits provided in the Agreement, this Waiver and Release of Claims must be signed and returned to Diane Proctor, at, if by physical delivery, RMR, Two Newton Place, Suite 300, 255 Washington Street, Newton, MA 02458, or at, if by email delivery, dproctor@rmrgroup.com, on any date between December 31, 2023 and January 31, 2024.
You may revoke your release of your ADEA claims up to seven (7) days following your signing this Waiver and Release of Claims. Notice of revocation must be received in writing by Diane Proctor, at, if by physical delivery, RMR, Two Newton Place, Suite 300, 255
A-2
Washington Street, Newton, MA 02458, or at, if by email delivery, dproctor@rmrgroup.com, no later than the seventh day (excluding the date of execution) following the execution of this Waiver and Release of Claims. The ADEA release is not effective or enforceable until expiration of the seven day period. However, the ADEA release becomes fully effective, valid and irrevocable if it has not been revoked within the seven day period immediately following your execution of this Waiver and Release of Claims. The parties agree that if you exercise your right to revoke this Waiver and Release of Claims, then you are not entitled to any of the retirement payments set forth in Section I.F. of the Agreement. This Waiver and Release of Claims shall become effective eight (8) days after your execution if you have not revoked your signature as herein provided.
I hereby provide this Waiver and Release of Claims as of the date indicated below and acknowledge that the execution of this Waiver and Release of Claims is in further consideration of the payments set forth in Section I.F. of the Agreement, to which I acknowledge I would not be entitled if I did not sign this Waiver and Release of Claims. I intend that this Waiver and Release of Claims become a binding agreement by and between me and RMR if I do not revoke my acceptance within seven (7) days.
| /s/ Jennifer Francis | ||||||||
| Jennifer Francis | ||||||||
| Dated: November 15, 2023 | ||||||||
A-3
EXHIBIT B
WAIVER AND RELEASE OF CLAIMS
WAIVER AND RELEASE OF CLAIMS
You, your heirs, executors, legal representatives, successors and assigns, individually and in their beneficial capacity, hereby unconditionally and irrevocably release and forever discharge The RMR Group Inc. and The RMR Group LLC (together, "RMR"), Service Properties Trust, Diversified Healthcare Trust, Office Properties Income Trust, Industrial Logistics Properties Trust, Seven Hills Realty Trust, AlerisLife Inc., Sonesta International Hotels Corporation and any companies managed by RMR from time to time (the “RMR Companies”), and its and their past, present and future officers, directors, trustees, employees, representatives, shareholders, attorneys, agents, consultants, contractors, successors, and affiliates -hereinafter referred to as the "Releasees" -or any of them of and from any and all suits, claims, demands, interest, costs (including attorneys' fees and costs actually incurred), expenses, actions and causes of action, rights, liabilities, obligations, promises, agreements, controversies, losses and debts of any nature whatsoever related to or arising out of your employment or termination thereof, which you, your heirs, executors, legal representatives, successors and assigns, individually and/or in their beneficial capacity, now have, own or hold, or at any time heretofore ever had, owned or held, or could have owned or held, whether known or unknown, suspected or unsuspected, from the beginning of the world to the date of execution of this Waiver and Release of Claims including, without limitation, any claims arising at law or in equity or in a court, administrative, arbitration, or other tribunal of any state or country arising out of or in connection with your employment by RMR or any RMR Company; any claims against the Releasees based on statute, regulation, ordinance, contract, or tort; any claims against the Releasees relating to wages, compensation, benefits, retaliation, negligence, or wrongful discharge; any claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Older Workers' Benefit Protection Act, as amended, the Equal Pay Act, as amended, the Fair Labor Standards Act, as amended, the Employment Retirement Income Security Act, as amended, the Americans with Disabilities Act of 1990 ("ADA"), as amended, The ADA Amendments Act, the Lilly Ledbetter Fair Pay Act, the Worker Adjustment and Retraining Notification Act, the Genetic Information NonDiscrimination Act, the Civil Rights Act of 1991, as amended, the Family Medical Leave Act of 1993, as amended, and the Rehabilitation Act, as amended; The Massachusetts Fair Employment Practices Act (Massachusetts General Laws Chapter 151B), The Massachusetts Equal Rights Act, The Massachusetts Equal Pay Act, the Massachusetts Privacy Statute, The Massachusetts Civil Rights Act, the Massachusetts Payment of Wages Act (Massachusetts General Laws Chapter 149 sections 148 and 150), the Massachusetts Overtime regulations (Massachusetts General Laws Chapter 151 sections 1A and 1B), and the Massachusetts Meal Break regulations (Massachusetts General Laws Chapter 149 sections 100 and 101); and any other claims under any federal or state law for unpaid or delayed payment of wages, overtime, bonuses, commissions, incentive payments or severance, missed or interrupted meal periods, interest, attorneys' fees, costs, expenses, liquidated damages, treble damages or damages of any kind to the maximum extent permitted by law and any claims against the Releasees arising under any and all applicable state, federal, or local ordinances, statutory, common law, or other claims of any nature whatsoever except for claims that cannot be released by law.
B-1
Nothing in this Waiver and Release of Claims shall affect the EEOC's rights and responsibilities to enforce the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, as amended, the National Labor Relations Act or any other applicable law, nor shall anything in this Waiver and Release of Claims be construed as a basis for interfering with your protected right to file a timely charge with, or participate in an investigation or proceeding conducted by, the EEOC, the National Labor Relations Board (the "NLRB"), or any other state, federal or local government entity; provided, however, if the EEOC, the NLRB, or any other state, federal or local government entity commences an investigation on your behalf, you specifically waive and release your right, if any, to recover any monetary or other benefits of any sort whatsoever arising from any such investigation or otherwise, nor will you seek or accept reinstatement to your former position with RMR.
Nothing in this Waiver and Release of Claims prohibits you from reporting possible violations of federal law or regulation, or disclosing any information, to any government agency or entity, including, but not limited to, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of applicable law. You do not need prior authorization of RMR to make any such reports or disclosures and you are not required to notify RMR that you have made such reports or disclosures.
You acknowledge that you have carefully read and fully understand this Waiver and Release of Claims. You acknowledge that you have not relied on any statement, written or oral, which is not set forth in this Waiver and Release of Claims. You further acknowledge that you are hereby advised in writing to consult with an attorney prior to executing this Waiver and Release of Claims; that you are not waiving or releasing any rights or claims that may arise after the date of execution of this Waiver and Release of Claims; that you are releasing claims under the Age Discrimination in Employment Act (ADEA); that you execute this Waiver and Release of Claims in exchange for monies in addition to those to which you are already entitled; that RMR gave you a period of at least twenty-one (21) days within which to consider this Waiver and Release of Claims and a period of seven (7) days following your execution of this Waiver and Release of Claims to revoke your ADEA waiver as provided below; that if you voluntarily execute this Waiver and Release of Claims prior to the expiration of the 21st day, you will voluntarily waive the remainder of the 21 day consideration period; that any changes to this Waiver and Release of Claims by you once it has been presented to you will not restart the 21 day consideration period; and you enter into this Waiver and Release of Claims knowingly, willingly and voluntarily in exchange for the release payments and benefits. To receive the release payments and benefits provided in the Agreement, this Waiver and Release of Claims must be signed and returned to Diane Proctor, at, if by physical delivery, RMR, Two Newton Place, Suite 300, 255 Washington Street, Newton, MA 02458, or at, if by email delivery, dproctor@rmrgroup.com, on any date between July 1, 2024 and August 1, 2024.
You may revoke your release of your ADEA claims up to seven (7) days following your signing this Waiver and Release of Claims. Notice of revocation must be received in writing by Diane Proctor, at, if by physical delivery, RMR, Two Newton Place, Suite 300, 255
B-2
Washington Street, Newton, MA 02458, or at, if by email delivery, dproctor@rmrgroup.com, no later than the seventh day (excluding the date of execution) following the execution of this Waiver and Release of Claims. The ADEA release is not effective or enforceable until expiration of the seven day period. However, the ADEA release becomes fully effective, valid and irrevocable if it has not been revoked within the seven day period immediately following your execution of this Waiver and Release of Claims. The parties agree that if you exercise your right to revoke this Waiver and Release of Claims, then you are not entitled to any of the release payment set forth in Section I.F. of the Agreement. This Waiver and Release of Claims shall become effective eight (8) days after your execution if you have not revoked your signature as herein provided.
I hereby provide this Waiver and Release of Claims as of the date indicated below and acknowledge that the execution of this Waiver and Release of Claims is in further consideration of the payment set forth in Section I.F. of the Agreement, to which I acknowledge I would not be entitled if I did not sign this Waiver and Release of Claims. I intend that this Waiver and Release of Claims become a binding agreement by and between me and RMR if I do not revoke my acceptance within seven (7) days.
| /s/ Jennifer Francis | ||||||||
| Jennifer Francis | ||||||||
| Dated: November 15, 2023 | ||||||||
B-3
Exhibit 31.1
CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
I, Adam D. Portnoy, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of The RMR Group Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: February 7, 2024 | /s/ Adam D. Portnoy | ||||
Adam D. Portnoy Managing Director, President and Chief Executive Officer (principal executive officer) | |||||
Exhibit 31.2
CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
I, Matthew P. Jordan, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of The RMR Group Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: February 7, 2024 | /s/ Matthew P. Jordan | ||||
Matthew P. Jordan Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer) | |||||
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Sec. 1350
In connection with the filing by The RMR Group Inc. (the “Company”) of the Quarterly Report on Form 10-Q for the period ended December 31, 2023 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:
1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Adam D. Portnoy | /s/ Matthew P. Jordan | |||||||
Adam D. Portnoy Managing Director, President and Chief Executive Officer (principal executive officer) | Matthew P. Jordan Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer) | |||||||
Date: February 7, 2024