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The RMR Group Inc. Announces Second Quarter Fiscal 2019 ResultsThe RMR Group Inc. (Nasdaq: RMR) today announced its financial results for the fiscal quarter ended March 31, 2019. Adam Portnoy, President and Chief Executive Officer, made the following statement regarding the second quarter fiscal 2019 results: "During the quarter, we generated net income of $18.7 million, Adjusted EBITDA of $24.7 million and an Adjusted EBITDA Margin of 54.1%. Our operating results this quarter reflect the repositioning efforts we've helped facilitate at certain of our Client Companies over the last six months to strengthen their balance sheets and improve their operating results and future prospects. We believe these efforts will have positive long-term benefits for both our Client Companies and RMR, but in the near term have created headwinds for our operating results. At the close of the second fiscal quarter, our balance sheet continues to leave us well positioned to assess strategic opportunities for future growth, with $384.1 million of cash on hand and no debt. We continue to invest time and resources in identifying and assessing a wide spectrum of potential growth opportunities for RMR." Second Quarter Fiscal 2019 Highlights:
(1) Managed Equity REITs for the periods presented includes: Hospitality Properties Trust (HPT), Industrial Logistics Properties Trust (ILPT), Office Properties Income Trust (OPI), Select Income REIT (SIR), until its merger with OPI on December 31, 2018, and Senior Housing Properties Trust (SNH). (2) Managed Operators collectively refers to: Five Star Senior Living Inc. (FVE), Sonesta International Hotels Corporation (Sonesta) and TravelCenters of America LLC (TA).
Reconciliations to GAAP: Adjusted net income attributable to The RMR Group Inc., EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. Reconciliations of net income attributable to The RMR Group Inc. determined in accordance with GAAP to adjusted net income attributable to The RMR Group Inc., and of net income to EBITDA and Adjusted EBITDA as well as calculations of Adjusted EBITDA Margin for each of the three months ended March 31, 2019 and March 31, 2018 are presented later in this press release. Total Assets Under Management: The calculation of total assets under management primarily includes: (i) the gross book value of real estate and related assets, excluding depreciation, amortization, impairment charges or other non-cash reserves, of the Managed Equity REITs and ABP Trust, plus (ii) the gross book value of real estate assets, property and equipment of the Managed Operators, excluding depreciation, amortization, impairment charges or other non-cash reserves, plus (iii) the fair value of investments of Affiliates Insurance Company and the RMR Office Property Fund LP, or Open End Fund, the managed assets of RMR Real Estate Income Fund and the equity of TRMT. This calculation of total assets under management may include amounts in respect of the Managed Equity REITs that are higher than the calculations of assets under management used for purposes of calculating fees under the terms of the business management agreements, which are based, in part, upon the lesser of the historical cost of real estate assets or total market capitalization. For information on the calculation of assets under management of the Managed Equity REITs for purposes of the fee provisions of the business management agreements, see The RMR Group Inc.'s Annual Report on Form 10-K for the fiscal year ending September 30, 2018, filed with the Securities and Exchange Commission, or SEC. The RMR Group Inc.'s SEC filings are available at the SEC website: www.sec.gov. Conference Call: At 1:00 p.m. Eastern Time this afternoon, President and Chief Executive Officer, Adam Portnoy, and Executive Vice President, Chief Financial Officer and Treasurer, Matt Jordan, will host a conference call to discuss The RMR Group Inc.'s fiscal second quarter ended March 31, 2019 financial results. The conference call telephone number is (877) 329-4297. Participants calling from outside the United States and Canada should dial (412) 317-5435. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. Eastern Time on Friday May 17, 2019. To access the replay, dial (412) 317-0088. The replay pass code is 05102019. A live audio webcast of the conference call will also be available in a listen only mode on RMR's website, at www.rmrgroup.com. Participants wanting to access the webcast should visit RMR's website about five minutes before the call. The archived webcast will be available for replay on RMR's website following the call for about one week. The transcription, recording and retransmission in any way of The RMR Group Inc.'s fiscal second quarter ended March 31, 2019 financial results conference call are strictly prohibited without the prior written consent of The RMR Group Inc. About The RMR Group Inc. The RMR Group Inc. is a holding company, and substantially all of its business is conducted by its majority-owned subsidiary, The RMR Group LLC. The RMR Group LLC is an alternative asset management company that primarily provides management services to publicly traded REITs and real estate operating companies. As of March 31, 2019, The RMR Group LLC had approximately $30.0 billion of total assets under management, including more than 1,500 properties, and employed over 600 real estate professionals in more than 30 offices throughout the United States; and the companies managed by The RMR Group LLC collectively had approximately 50,000 employees. The RMR Group Inc. is headquartered in Newton, Massachusetts.
(1)Includes business management fees earned from the Managed Equity REITs based upon the lower of (i) the average historical cost of each REIT's properties and (ii) each REIT's average market capitalization. The following table presents a summary of each Managed Equity REIT's primary strategy and the lesser of the historical cost of its assets under management and its market capitalization as of March 31, 2019 and 2018, as applicable:
(a) The basis on which our base business management fees are calculated for the three and six months ended March 31, 2019 and 2018 may differ from the basis at the end of the periods presented in the table above. As of March 31, 2019, the market capitalization was lower than the historical costs of assets under management for HPT, OPI, and SNH; the historical costs of assets under management for HPT, OPI and SNH as of March 31, 2019, were $10,205,827, $6,490,978 and $8,645,049, respectively. For ILPT, the historical costs of assets under management were lower than their market capitalization of $2,061,309, calculated as of March 31, 2019. (b) SIR merged with and into OPI (formerly named Government Properties Income Trust) on December 31, 2018 with OPI continuing as the surviving entity. (2) Reflects the prospective adoption of Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers, which has been codified as Accounting Standard Codification, or ASC, 606, effective October 1, 2018. Under ASC 606, beginning October 1, 2018, we account for the costs of services provided by third parties to our client companies, and the related reimbursement, on a gross basis. (3) We calculate earnings per share using the two-class method as calculated below:
The RMR Group Inc. Reconciliation of Adjusted Net Income Attributable to The RMR Group Inc. from Net Income Attributable to The RMR Group Inc. (dollars in thousands, except per share amounts) (unaudited) The RMR Group Inc. is providing the below reconciliation and information regarding certain individually significant items occurring or impacting its financial results for the three months ended March 31, 2019 and 2018 for supplemental informational purposes and to enhance understanding of The RMR Group Inc.'s condensed consolidated statements of income and to facilitate a comparison of The RMR Group Inc.'s current operating performance with its historical operating performance. This information should be considered in conjunction with net income, net income attributable to The RMR Group Inc. and operating income as presented in The RMR Group Inc.'s condensed consolidated statements of income.
(1) Includes $414 of separation costs related to former officers, adjusted to reflect amounts attributable to the noncontrolling interest and net of tax at a rate of approximately 14.4%. (2) Includes $522 in unrealized gains on our investment in TA common shares, adjusted to reflect amounts attributable to the noncontrolling interest and net of tax at a rate of approximately 14.4%. (3) Includes $47 of transaction costs, adjusted to reflect amounts attributable to the noncontrolling interest net of tax at a rate of approximately 14.4%.
(1) Includes $466 from the acceleration of unvested common share awards of our former Managing Director, Barry Portnoy, adjusted to reflect amounts attributable to the noncontrolling interest net of tax at a rate of approximately 15.6%. (2) Includes $452 of separation costs related to former officers, adjusted to reflect amounts attributable to the noncontrolling interest and net of tax at a rate of approximately 15.6%.
(1) EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures calculated as presented in the tables above. The RMR Group Inc. considers EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to be appropriate supplemental measures of its operating performance, along with net income, net income attributable to The RMR Group Inc. and operating income. The RMR Group Inc. believes that EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to investors because by excluding the effects of certain amounts, such as those outlined in the tables above, EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin may facilitate a comparison of current operating performance with The RMR Group Inc.'s historical operating performance and with the performance of other asset management businesses. In addition, The RMR Group Inc. believes that providing Adjusted EBITDA Margin may help investors assess The RMR Group Inc.'s performance of its business by providing the margin that Adjusted EBITDA represents to its contractual management and advisory fees (excluding any incentive business management fees). EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income, net income attributable to The RMR Group Inc. or operating income as an indicator of The RMR Group Inc.'s financial performance or as a measure of The RMR Group Inc.'s liquidity. These measures should be considered in conjunction with net income, net income attributable to The RMR Group Inc. and operating income as presented in The RMR Group Inc.'s condensed consolidated statements of income. Also, other asset management businesses may calculate EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin differently than The RMR Group Inc. does. (2) Contractual management and advisory fees are the base business management fees, property management fees and advisory fees The RMR Group Inc. or its subsidiaries earns pursuant to its management and investment advisory agreements with its client companies. These amounts are calculated pursuant to the contractual formulas and do not deduct other asset amortization of $2,354 for each of the three months ended March 31, 2019 and 2018 or $4,708 for each of the six months ended March 31, 2019 and 2018, required to be recognized as a reduction to management services revenues in accordance with GAAP and do not include the incentive business management fees of $120,094 and $155,881 that The RMR Group Inc. recognized under GAAP during the six months ended March 31, 2019 and 2018, respectively, which were earned for the calendar years 2018 and 2017, respectively.
WARNING CONCERNING FORWARD-LOOKING STATEMENTS This press release contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forward looking statements can be identified by use of words such as "outlook," "believe," "expect," "potential," "will," "may," "estimate," "anticipate" and derivatives or negatives of such words or similar words. Forward looking statements in this press release are based upon present beliefs or expectations. However, forward looking statements and their implications are not guaranteed to occur and may not occur for various reasons, including some reasons beyond The RMR Group Inc.'s control. For example:
The information contained in The RMR Group Inc.'s filings with the SEC, including under the caption "Risk Factors" in The RMR Group Inc.'s periodic reports, or incorporated therein, identifies important factors that could cause differences from the forward looking statements in this press release. The RMR Group Inc.'s filings with the SEC are available on its website and at www.sec.gov. Except as required by law, The RMR Group Inc. undertakes no obligation to update any forward looking statement, whether as a result of new information, future events or otherwise.
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