RMR GROUP INC

Previous wording

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.

Current wording

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 and over 20 new institutional relationships. 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.

Previous wording

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.

Current wording

The basis on which our base business management fees are calculated for the three and six months ended March 31, 2024 and 2023 may differ from the basis at the end of the periods presented in the table above. As of March 31, 2024, 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 March 31, 2024, were $7,719,866, $5,693,869, $5,905,126 and $11,424,841, respectively.

Previous wording

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:

Current wording

The fee revenues we earned from the Managed Equity REITs for the three and six months ended March 31, 2024 and 2023 are set forth in the following tables:

Previous wording

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:

Current wording

Our management fee revenues from services to these clients for the three and six months ended March 31, 2024 and 2023, are set forth in the following tables:

Previous wording

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.

Current wording

Tremont earned advisory services revenue of $1,126 and $1,139 for the three months ended March 31, 2024 and 2023, respectively, and $2,251 and $2,230 for the six months ended March 31, 2024 and 2023, respectively. Tremont also earned incentive fees from SEVN of $60 and $359 for the three and six months ended March 31, 2024, respectively. Tremont did not earn incentive fees from SEVN for the three or six months ended March 31, 2023.

Previous wording

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.

Current wording

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 $7,746 primarily due to the impact of our acquisition of MPC and annual merit increases that were effective October 1, 2023.

Previous wording

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.

Current wording

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 decreased $2,990 primarily as a result of decreases in certain of our clients’ respective share prices.

Previous wording

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.

Current wording

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 $9,632 primarily due to the impact of our acquisition of MPC, which was partially offset by cost containment measures that reduced headcount.

Previous wording

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.

Current wording

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 decreased $3,069 primarily as a result of decreases in certain of our clients’ respective share prices.

Previous wording

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.

Current wording

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 $2,181 primarily due to the impact of our acquisition of MPC and increases in third party costs related to our expanded role in construction oversight at hotel and senior living properties.

Previous wording

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.

Current wording

Transaction and acquisition related costs. Transaction and acquisition related costs in the 2024 fiscal period primarily represent costs associated with integration expenses related to our acquisition of MPC.

Previous wording

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.

Current wording

Gain on equity method investments. Gain 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.

Previous wording

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.

Current wording

Income tax expense. The decrease in income tax expense of $4,763 is primarily attributable to lower taxable income for the 2024 fiscal period compared to the same period in the prior fiscal year.

Previous wording

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.

Current wording

Management services revenue. Management services revenue decreased $2,064 primarily due to declines in management fees earned from TA of $7,976 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 $6,176 related to our acquisition of MPC in the current period.

Previous wording

Depreciation and amortization. Depreciation and amortization increased $155 primarily due to amortization of acquisition related intangible assets of $122 in the current period.

Current wording

Depreciation and amortization. Depreciation and amortization increased $1,106 primarily due to amortization of MPC acquisition related intangible assets in the current period.

Previous wording

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.

Current wording

Interest income. Interest income increased $2,027 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.

Previous wording

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.

Current wording

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 March 31, 2024 and September 30, 2023, we had cash and cash equivalents of $192,108 and $267,989, respectively, of which $25,918 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 March 31, 2024 and September 30, 2023, $180,444 and $265,800, respectively, of our cash and cash equivalents were invested in money market bank accounts.

Previous wording

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.

Current wording

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 $14,847 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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

The $7,099 decrease in net cash from operating activities for the six months ended March 31, 2024 compared to the prior period reflects a decrease in net income partially offset by favorable changes in working capital. The $78,766 increase in net cash used in investing activities for the six months ended March 31, 2024 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 six months ended March 31, 2024 was relatively unchanged compared to the prior period.

Previous wording

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

Current wording

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 30, 2019. As of March 31, 2024, 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.