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 2021 Annual Report.
OVERVIEW (dollars in thousands)
RMR Inc. is a holding company and substantially all of its business is conducted byRMR LLC .RMR Inc. has no employees, and the personnel and various services it requires to operate are provided byRMR LLC .RMR LLC manages a diverse portfolio of real estate and real estate related businesses. As ofJune 30, 2022 ,RMR LLC managed more than 2,100 properties in 47 states,Washington, D.C. ,Puerto Rico andCanada that are principally owned by the Managed Equity REITs.
Business Environment and Outlook
The continuation and growth of our business depends upon our ability to operate the Managed REITs so as to maintain, grow and increase the value of their businesses, to assist our Managed Operating Companies to grow their businesses and operate profitably and to successfully expand ourManaged Private Real Estate Capital business through the execution of new business ventures. Our business and the businesses of our clients generally follow the business cycle of theU.S. real estate industry, but with certain property type and regional geographic variations. Typically, as the generalU.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 agingU.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 are also taking into account general economic factors impacting our clients. More specifically, in theU.S. , theFederal Open Market Committee , orFOMC , has recently begun increasing the federal funds rate in an attempt to slow inflation, which has in turn lead to increased borrowing costs. In a period of increased borrowing costs, real estate transaction volumes often slow along with real estate valuation growth. Rising interest rates will 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 theFOMC is looking to slow inflation, its efforts may not be successful. The impact of rising costs, both for goods and human capital, are impacting us and our clients and we and our clients are implementing mitigation strategies to minimize the impact of increased costs on our clients' earnings, where possible. We consider industry and general economic factors when providing services to our clients and attempt to take advantage of opportunities when they arise. For example: (i) sinceMarch 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 onMarch 17, 2021 , completed its acquisition ofRLH Corporation , establishing it as one of the largest hotel companies in theU.S. and expanding its franchising capabilities; (iii) onSeptember 30, 2021 , SEVN and TRMT merged, resulting in a larger, more diversified mortgage REIT with an expanded capital base; and (iv) onFebruary 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 ofMonmouth Real Estate Investment Corporation , or MNR, in an all-cash transaction valued at approximately$4.0 billion . 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 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 REITs, excluding rents or other revenues from hotels, travel centers, senior living properties and wellness centers, which are separately managed by our Managed Operating Companies 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 and certain of the Managed Operating Companies based on a percentage of the cost of such construction. For further information regarding the fees we earn, see Note 2, Revenue Recognition, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 26
--------------------------------------------------------------------------------
Table of Contents
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
Lesser of Historical Cost of Assets Under Management or Total Market Capitalization as of June 30, REIT Primary Strategy 2022 2021 Medical office and life science properties, senior DHC living communities and wellness centers$ 3,541,918 $ 5,337,144 ILPT Industrial and logistics properties 5,372,641 1,997,990 Office properties primarily leased to single tenants, OPI including the government 3,481,695 3,962,573 Hotels and net lease service and necessity-based retail SVC properties 7,363,672 9,277,211$ 19,759,926 $ 20,574,918 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 and nine months endedJune 30, 2022 and 2021 may differ from the basis at the end of the periods presented in the table above. As ofJune 30, 2022 , the market capitalization was lower than the historical cost of assets under management for the Managed Equity REITs; the historical cost of assets under management for DHC, ILPT, OPI and SVC as ofJune 30, 2022 , were$7,198,520 ,$5,644,407 ,$6,076,279 and$11,368,553 , respectively. 27
--------------------------------------------------------------------------------
Table of Contents
The fee revenues we earned from the Managed Equity REITs for the three and nine
months ended
Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 Base Base Base Base Business Property Construction Business Property Construction Management Management Supervision Management Management Supervision REIT Revenues Revenues Revenues Total Revenues Revenues Revenues Total DHC$ 4,659 $ 1,282 $ 1,267 $ 7,208 $ 6,478 $ 2,440 $ 781$ 9,699 ILPT 7,031 2,404 368 9,803 2,652 1,570 21 4,243 OPI 4,270 3,894 2,476 10,640 4,417 3,786 1,1179,320 SVC 9,486 1,013 222 10,721 10,924 875 201 12,000$ 25,446 $ 8,593 $ 4,333 $ 38,372 $ 24,471 $ 8,671 $ 2,120 $ 35,262 Nine Months Ended June 30, 2022 Nine Months Ended June 30, 2021 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$ 15,491 $ 5,016 $ 3,230 $ 23,737 $ 17,110 $ 7,468 $ 2,695 $ 27,273 ILPT 14,272 6,761 512 21,545 8,330 4,872 88 13,290 OPI 13,331 12,100 6,291 31,722 12,361 11,941 2,91327,215 SVC 29,991 3,024 1,098 34,113 30,798 2,492 208 33,498$ 73,085 $ 26,901 $ 11,131 $ 111,117 $ 68,599 $ 26,773 $ 5,904 $ 101,276
We provide business management services to the Managed Operating Companies. ALR operates senior living communities throughoutthe United States , many of which are owned by and managed for DHC. Sonesta manages and franchises hotels, resorts and cruise ships inthe United States ,Latin America , theCaribbean and theMiddle East ; many of theU.S. hotels that Sonesta operates are owned by SVC. TA operates, leases and franchises travel centers along theU.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 the Managed Operating Companies are based on a percentage of certain revenues. In addition, we also provide management services to theManaged Private Real Estate Capital clients 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 management fees based on a percentage of the cost of construction activities. 28
--------------------------------------------------------------------------------
Table of Contents
Our fee revenues from services to the Managed Operating Companies and the
Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 Base Base Base Base Business Property Construction Business Property Construction Management Management Supervision Management Management Supervision Revenues Revenues Revenues Total Revenues Revenues Revenues Total ABP Trust$ 480 $ 360 $ 208$ 1,048 $ 580 $ 446 $ 47$ 1,073 Other private entities 2,456 1,671 55 4,182 696 358 11 1,065 ALR 1,239 - - 1,239 1,794 - - 1,794 Sonesta 2,491 - - 2,491 1,522 - - 1,522 TA 4,441 - - 4,441 3,660 - - 3,660$ 11,107 $ 2,031 $ 263$ 13,401 $ 8,252 $ 804 $ 58$ 9,114 Nine Months Ended June 30, 2022 Nine Months Ended June 30, 2021 Base Base Base Base Business Property Construction Business Property Construction Management Management Supervision Management Management Supervision Revenues Revenues Revenues Total Revenues Revenues Revenues Total ABP Trust$ 1,577 $ 1,162 $ 400$ 3,139 $ 1,737 $ 1,342 $ 92$ 3,171 Other private entities 5,518 3,701 92 9,311 1,726 934 11 2,671 ALR 3,610 - - 3,610 5,573 - - 5,573 Sonesta 6,092 - - 6,092 2,511 - - 2,511 TA 11,499 - - 11,499 9,904 - - 9,904$ 28,296 $ 4,863 $ 492$ 33,651 $ 21,451 $ 2,276 $ 103$ 23,830 Advisory BusinessTremont Realty Capital provides advisory services to SEVN, a publicly traded mortgage REIT that focuses on originating and investing in first mortgage whole loans secured by middle market and transitional commercial real estate.Tremont Realty Capital also provided advisory services to TRMT untilSeptember 30, 2021 , when it merged with and into SEVN.Tremont Realty Capital is primarily compensated pursuant to its management agreements with SEVN (beginningJanuary 6, 2021 ) and TRMT (untilSeptember 30, 2021 ) based on a percentage of equity, as defined in the applicable agreements. We earned advisory services revenue of$1,137 and$1,134 for the three months endedJune 30, 2022 and 2021, respectively, and$3,392 and$2,849 for the nine months endedJune 30, 2022 and 2021, respectively.Tremont Realty Capital did not earn incentive fees from SEVN for the three and nine months endedJune 30, 2022 . Incentive fees earned from TRMT were zero and$620 for the three and nine months endedJune 30, 2021 , respectively. The Tremont business acts as a transaction broker for non-investment advisory clients for negotiated fees. The Tremont business earned fees for such brokerage services of$46 and zero for the three months endedJune 30, 2022 and 2021, respectively, and$99 and$259 for the nine months endedJune 30, 2022 and 2021, respectively, which amounts are included in management services revenue in our condensed consolidated statements of income. 29
--------------------------------------------------------------------------------
Table of Contents
RESULTS OF OPERATIONS (dollars in thousands)
Three Months Ended
The following table presents the changes in our operating results for the three
months ended
Three Months Ended
2022 2021 $ Change % Change
Revenues:
Management services$ 51,819 $ 44,376 $ 7,443 16.8% Advisory services 1,137 1,134 3 0.3% Total management and advisory services revenues 52,956 45,510 7,446 16.4% Reimbursable compensation and benefits 14,189 13,069 1,120 8.6% Reimbursable equity based compensation (69) 1,402 (1,471) (104.9)% Other reimbursable expenses 144,012 85,263 58,749 68.9% Total reimbursable costs 158,132 99,734 58,398 58.6% Total revenues 211,088 145,244 65,844 45.3% Expenses: Compensation and benefits 32,170 30,530 1,640 5.4% Equity based compensation 512 1,954 (1,442) (73.8)% Separation costs 400 - 400 n/m Total compensation and benefits expense 33,082 32,484 598 1.8% General and administrative 8,323 6,320 2,003 31.7% Other reimbursable expenses 144,012 85,263 58,749 68.9% Transaction and acquisition related costs - 61 (61) n/m Depreciation and amortization 253 245 8 3.3% Total expenses 185,670 124,373 61,297 49.3% Operating income 25,418 20,871 4,547 21.8% Interest and other income 279 179 100 55.9% Equity in earnings of investees - 28 (28) n/m Unrealized (loss) gain on equity method investments accounted for under the fair value option (5,489) 1,312 (6,801) n/m Income before income tax expense 20,208 22,390 (2,182) (9.7)% Income tax expense (2,943) (3,361) 418 12.4% Net income 17,265 19,029 (1,764) (9.3)% Net income attributable to noncontrolling interest (9,695) (10,797) 1,102 10.2% Net income attributable to The RMR Group Inc.$ 7,570 $ 8,232 $ (662) (8.0)% n/m - not meaningful Management services revenue. Management services revenue increased$7,443 primarily due to (i) growth in base business management fees of$4,379 and property management fees of$1,181 earned from ILPT, primarily due to its recent acquisition of MNR, and (ii) increases in construction supervision fees earned from OPI, DHC and SVC aggregating$1,866 due to increased development activity. Reimbursable compensation and benefits. Reimbursable compensation and benefits include reimbursements, at cost, that arise primarily from services our employees provide pursuant to our property management agreements at the properties of our clients. A significant portion of these compensation and benefits are charged or passed through to and were paid by tenants of our clients. Reimbursable compensation and benefits increased$1,120 primarily due to increases in employee compensation and benefits for which we receive reimbursement. 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 30
--------------------------------------------------------------------------------
Table of Contents
clients. We record an equal, offsetting amount as equity based compensation
expense for the value of these awards. Reimbursable equity based compensation
revenue decreased
Other reimbursable expenses. For further information about these reimbursements, see Note 2, Revenue Recognition, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10Q.
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$1,640 primarily due to increased headcount and wage inflation in the current fiscal year. Equity based compensation. Equity based compensation consists of the value of vested shares awarded to certain of our employees under our equity compensation plan and by our clients. Equity based compensation decreased$1,442 primarily as a result of decreases in our clients' respective share prices. Separation costs. For further information about these costs, see Note 6, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10Q. 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$2,003 primarily due to increases in technology infrastructure costs, third-party costs related to our expanded role in construction oversight and increases in recruiting and other professional fees. Transaction and acquisition related costs. Transaction and acquisition related costs in the prior period relate to costs incurred in connection withRMR Mortgage Trust's conversion from a registered investment company to a commercial mortgage REIT and other strategic initiatives. Interest and other income. Interest and other income increased$100 primarily due to higher interest earned during the current period as a result of higher interest rates compared to the prior period. Equity in earnings of investees. Equity in earnings of investees represents our proportionate share of earnings from our former equity interest in TRMT. For further information, see Note 3, Equity Method Investments, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Unrealized (loss) gain on equity method investments accounted for under the fair value option. Unrealized (loss) gain on equity method investments accounted for under the fair value option represents the gain or loss on our investments in SEVN and TA common shares. For further information, see Note 3, Equity Method 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 decrease in income tax expense of
31
--------------------------------------------------------------------------------
Table of Contents
Nine Months Ended
The following table presents the changes in our operating results for the nine
months ended
Nine Months Ended June 30, 2022 2021 $ Change % Change Revenues: Management services$ 144,867 $ 125,365 $ 19,502 15.6% Incentive business management fees - 620 (620) n/m Advisory services 3,392 2,849 543 19.1% Total management and advisory services revenues 148,259 128,834 19,425 15.1% Reimbursable compensation and benefits 42,092 39,453 2,639 6.7% Reimbursable equity based compensation 2,896 5,611 (2,715) (48.4)% Other reimbursable expenses 397,063 259,856 137,207 52.8% Total reimbursable costs 442,051 304,920 137,131 45.0% Total revenues 590,310 433,754 156,556 36.1% Expenses: Compensation and benefits 95,671 90,610 5,061 5.6% Equity based compensation 4,719 7,267 (2,548) (35.1)% Separation costs 617 4,159 (3,542) (85.2)% Total compensation and benefits expense 101,007 102,036 (1,029) (1.0)% General and administrative 24,464 19,684 4,780 24.3% Other reimbursable expenses 397,063 259,856 137,207 52.8% Transaction and acquisition related costs - 474 (474) n/m Depreciation and amortization 731 734 (3) (0.4)% Total expenses 523,265 382,784 140,481 36.7% Operating income 67,045 50,970 16,075 31.5% Interest and other income 402 614 (212) (34.5)% Equity in earnings of investees - 755 (755) n/m Unrealized (loss) gain on equity method investments accounted for under the fair value option (8,853) 6,032 (14,885) n/m Income before income tax expense 58,594 58,371 223 0.4% Income tax expense (8,448) (8,109) (339) (4.2)% Net income 50,146 50,262 (116) (0.2)% Net income attributable to noncontrolling interest (28,142) (28,192) 50 0.2% Net income attributable to The RMR Group Inc.$ 22,004 $ 22,070 $ (66) (0.3)% n/m - not meaningful Management services revenue. Management services revenue increased$19,502 primarily due to (i) growth in base business management fees of$5,942 and property management fees of$2,313 earned from ILPT, primarily due to its recent acquisition of MNR, (ii) increases in construction supervision fees earned from OPI, SVC and DHC aggregating$4,803 due to increased development activity, and (iii) an increase in management fees earned from Sonesta and TA of$3,581 and$1,595 , respectively, primarily resulting from an increase in travel as pandemic restrictions have eased, and additionally for Sonesta, an increase in the number of hotels that it manages and franchises during the current period. Incentive business management fees. Incentive business management fees represent fees earned byTremont Realty Capital from TRMT. For further information about incentive fees, see Note 2, Revenue Recognition, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10Q. Advisory services revenue. Advisory services revenue increased$543 primarily due to the expiration of the fee waiver that was previously provided to TRMT in effect untilDecember 31, 2020 . 32
--------------------------------------------------------------------------------
Table of Contents
Reimbursable compensation and benefits. Reimbursable compensation and benefits
increased
Reimbursable equity based compensation. Reimbursable equity based compensation decreased$2,715 primarily as a result of decreases in our clients' respective share prices.
Other reimbursable expenses. For further information about these reimbursements, see Note 2, Revenue Recognition, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10Q.
Compensation and benefits. Compensation and benefits expense increased$5,061 primarily due to estimated bonus cost increases for the current fiscal year and annual merit increases effectiveOctober 1, 2021 .
Equity based compensation. Equity based compensation decreased
Separation costs. For further information about these costs, see Note 6, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10Q. General and administrative. General and administrative costs increased$4,780 primarily due to increases in technology infrastructure costs, third-party costs related to our expanded role in construction oversight and increases in recruiting and other professional fees. Transaction and acquisition related costs. Transaction and acquisition related costs in the prior period relate to costs incurred in connection withRMR Mortgage Trust's conversion from a registered investment company to a commercial mortgage REIT and other strategic initiatives. Interest and other income. Interest and other income decreased$212 primarily due to lower interest earned during the current period as a result of lower average cash balances invested at higher interest rates, compared to the prior period. Equity in earnings of investees. Equity in earnings of investees represents our proportionate share of earnings from our former equity interest in TRMT. For further information, see Note 3, Equity Method Investments, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Unrealized (loss) gain on equity method investments accounted for under the fair value option. Unrealized (loss) gain on equity method investments accounted for under the fair value option represents the gain or loss on our investments in SEVN and TA common shares. For further information, see Note 3, Equity Method 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$339 is primarily attributable to a one-time reduction in our income tax provision recorded during the prior period of$520 related to final tax regulations released inDecember 2020 . For further information, see Note 4, Income Taxes, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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 ofJune 30, 2022 andSeptember 30, 2021 , we had cash and cash equivalents of$195,936 and$159,835 , respectively, of which$22,789 and$23,338 , respectively, was held byRMR Inc. , with the remainder being held atRMR 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 ofJune 30, 2022 andSeptember 30, 2021 ,$175,459 and$131,065 , respectively, of our cash and cash equivalents were invested in money market funds. 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, and to fund our operations and obligations, in the next twelve months. 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 ofRMR 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 ofRMR LLC in connection with the quarterly dividends toRMR Inc. shareholders. Our 33
--------------------------------------------------------------------------------
Table of Contents
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 nine months endedJune 30, 2022 , we paid cash distributions to the holders of our Class A Common Shares, Class B-1 Common Shares and to the other owner ofRMR LLC membership units in the aggregate amount of$32,930 . OnJuly 14, 2022 , we declared a quarterly dividend on our Class A Common Shares and Class B-1 Common Shares to our shareholders of record as ofJuly 25, 2022 in the amount of$0.40 per Class A Common Share and Class B-1 Common Share, or$6,600 . This dividend will be partially funded by a distribution fromRMR LLC to holders of its membership units in the amount of$0.32 per unit, or$10,080 , of which$5,280 will be distributed to us based on our aggregate ownership of 16,500,716 membership units ofRMR LLC and$4,800 will be distributed toABP Trust based on its ownership of 15,000,000 membership units ofRMR LLC . The remainder of this dividend will be funded with cash accumulated atRMR Inc. We expect the total dividend will amount to approximately$11,400 and we expect to pay this dividend on or aboutAugust 18, 2022 . See Note 7, 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 nine months endedJune 30, 2022 , pursuant to theRMR LLC operating agreement,RMR LLC made required quarterly tax distributions to its holders of its membership units totaling$21,969 , of which$11,559 was distributed to us and$10,410 was distributed toABP Trust , based on each membership unit holder's then respective ownership percentage inRMR LLC . The$11,559 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$10,410 distributed toABP Trust was recorded as a reduction of their 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 6, 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
Our changes in cash flows for the nine months endedJune 30, 2022 compared to the nine months endedJune 30, 2021 were as follows: (i) net cash from operating activities increased$17,485 from$72,371 in the prior period to$89,856 in the current period; (ii) net cash used in investing activities increased$9,444 from$940 in the prior period to$10,384 in the current period; and (iii) net cash used in financing activities increased$78 from$43,293 in the prior period to$43,371 in the current period. The increase in cash from operating activities for the nine months endedJune 30, 2022 compared to the prior period primarily reflects increases in net income, excluding the impacts of non-cash gains and losses, and favorable changes in working capital. The increase in cash used in investing activities for the nine months endedJune 30, 2022 compared to the prior period was primarily due to the purchase of 882,407 SEVN common shares in the current period. Cash used in financing activities for the nine months endedJune 30, 2022 increased nominally from the prior period.
As of
Tax Receivable Agreement
We are party to a tax receivable agreement which provides for the payment byRMR Inc. toABP Trust of 85.0% of the amount of savings, if any, inU.S. federal, state and local income tax or franchise tax thatRMR Inc. realizes as a result of (a) the increases in tax basis attributable toRMR Inc.'s dealings withABP 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 6, 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 endedSeptember 30, 2019 . As ofJune 30, 2022 , our condensed consolidated balance sheet reflects a liability related to the tax receivable agreement of$27,792 , of which we expect to pay$2,215 toABP Trust during the fourth quarter of fiscal year 2022. 34
--------------------------------------------------------------------------------
Table of Contents
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 2021 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 funds. The majority of our cash is maintained inU.S. bank accounts. SomeU.S. bank account balances exceed theFederal 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 withAdam 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 6, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2021 Annual Report, our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders and our other filings with theSEC . In addition, see the section captioned "Risk Factors" in our 2021 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 whichRMR 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. Significant estimates that impact the condensed consolidated financial statements include the revenue recognized during the reporting periods and our principles of consolidation.
A discussion of our critical accounting estimates is included in our 2021 Annual
Report. There have been no significant changes in our critical accounting
estimates since the fiscal year ended
© Edgar Online, source