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What changed in RMR GROUP INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of RMR GROUP INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+270 added−274 removedSource: 10-K (2023-11-15) vs 10-K (2022-11-14)

Top changes in RMR GROUP INC.'s 2023 10-K

270 paragraphs added · 274 removed · 222 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

77 edited+18 added−19 removed53 unchanged
Biggest changeThe program echos our belief that a great first step toward a successful and lasting career in real estate is an analyst role and that we can increase the diversity in our talent pipeline with outreach to students who are members of groups traditionally underrepresented in real estate by gender, race and ethnicity. • Engineering Development Program: Given the increasing challenges within the real estate industry of attracting qualified engineers throughout the country, we made it a strategic focus to develop the next generation of qualified building engineers.
Biggest changeRelationships with programs like the University of Massachusetts Amherst Real Estate Program, involvement with Historically Black Colleges and Universities, and engagement with women’s career forums all amplify our outreach efforts to develop a robust and diverse talent pipeline. • Engineering Development Program: Given the increasing challenges within the real estate industry of attracting qualified engineers throughout the country, we made it a strategic focus to develop the next generation of qualified building engineers.
Subject to the overall management, direction and oversight of the Board of Trustees of each Managed Equity REIT, RMR LLC has the responsibility to: • provide research and economic and statistical data in connection with the Managed Equity REIT’s real estate investments and recommend changes in the Managed Equity REIT’s real estate investment policies when appropriate; • investigate, evaluate and negotiate contracts for the investment in, or the acquisition or disposition of, real estate and related interests, financing and refinancing opportunities and make recommendations concerning specific real estate investments to the Board of Trustees of the Managed Equity REIT; • investigate, evaluate, prosecute and negotiate any of the Managed Equity REIT’s claims in connection with its real estate investments or otherwise in connection with the conduct of the Managed Equity REIT’s business; • administer bookkeeping and accounting functions as required for the Managed Equity REIT’s business and operation, contract for audits and prepare or cause to be prepared reports and filings required by a governmental 3 Table of Contents authority in connection with the conduct of the Managed Equity REIT’s business, and otherwise advise and assist the Managed Equity REIT with its compliance with applicable legal and regulatory requirements; • advise and assist in the preparation of all equity and debt offering documents and all registration statements, prospectuses or other documents filed by the Managed Equity REIT with the SEC or any state; • retain counsel, consultants and other third party professionals on behalf of the Managed Equity REIT; • provide internal audit services; • advise and assist with the Managed Equity REIT’s risk management and business oversight function; • advise and assist the Managed Equity REIT with respect to the Managed Equity REIT’s public relations, preparation of marketing materials, internet website and investor relations services; • provide communication facilities for the Managed Equity REIT and its officers and trustees and provide meeting space as required; • provide office space, equipment and experienced and qualified personnel necessary for the performance of the foregoing services; and • to the extent not covered above, advise and assist the Managed Equity REIT in the review and negotiation of the Managed Equity REIT’s contracts and agreements, coordination and supervision of all third party legal services and oversight for processing of claims by or against the Managed Equity REIT.
Subject to the overall management, direction and oversight of the Board of Trustees of each Managed Equity REIT, RMR LLC has the responsibility to: • provide research and economic and statistical data in connection with the Managed Equity REIT’s real estate investments and recommend changes in the Managed Equity REIT’s real estate investment policies when appropriate; • investigate, evaluate and negotiate contracts for the investment in, or the acquisition or disposition of, real estate and related interests, financing and refinancing opportunities and make recommendations concerning specific real estate investments to the Board of Trustees of the Managed Equity REIT; • investigate, evaluate, prosecute and negotiate any of the Managed Equity REIT’s claims in connection with its real estate investments or otherwise in connection with the conduct of the Managed Equity REIT’s business; • administer bookkeeping and accounting functions as required for the Managed Equity REIT’s business and operation, contract for audits and prepare or cause to be prepared reports and filings required by a governmental authority in connection with the conduct of the Managed Equity REIT’s business, and otherwise advise and assist the Managed Equity REIT with its compliance with applicable legal and regulatory requirements; • advise and assist in the preparation of all equity and debt offering documents and all registration statements, prospectuses or other documents filed by the Managed Equity REIT with the SEC or any state; • retain counsel, consultants and other third party professionals on behalf of the Managed Equity REIT; 3 Table of Contents • provide internal audit services; • advise and assist with the Managed Equity REIT’s risk management and business oversight function; • advise and assist the Managed Equity REIT with respect to the Managed Equity REIT’s public relations, preparation of marketing materials, internet website and investor relations services; • provide communication facilities for the Managed Equity REIT and its officers and trustees and provide meeting space as required; • provide office space, equipment and experienced and qualified personnel necessary for the performance of the foregoing services; and • to the extent not covered above, advise and assist the Managed Equity REIT in the review and negotiation of the Managed Equity REIT’s contracts and agreements, coordination and supervision of all third party legal services and oversight for processing of claims by or against the Managed Equity REIT.
Property Management Agreement Fees and Expense Reimbursement Each property management agreement between RMR LLC and a Managed Equity REIT provides for the following: (i) a management fee equal to 3.0% of the gross rents collected from tenants, which is not applicable to any hotels, senior living communities or travel centers which are leased to, or managed by, a Managed Operating Company or another operating business such as a hotel management company or a senior living or healthcare services provider; and (ii) a construction supervision fee equal to 5.0% of the cost of any construction, renovation or repair activities at the Managed Equity REIT’s properties, other than ordinary maintenance and repairs, and 3% of the cost of any major capital project or repositionings at DHC’s senior living communities and SVC’s hotels.
Property Management Agreement Fees and Expense Reimbursement Each property management agreement between RMR LLC and a Managed Equity REIT provides for the following: (i) a management fee equal to 3.0% of the gross rents collected from tenants, which is not applicable to any hotels, senior living communities or travel centers which are leased to, or managed by, AlerisLife, Sonesta or another operating business such as a hotel management company or a senior living or healthcare services provider; and (ii) a construction supervision fee equal to 5.0% of the cost of any construction, renovation or repair activities at the Managed Equity REIT’s properties, other than ordinary maintenance and repairs, and 3% of the cost of any major capital project or repositionings at DHC’s senior living communities and SVC’s hotels.
As a result of our sustainability initiatives, we and our managed properties have historically received honors from The Building Owners and Managers Association, or BOMA, The Environmental Protection Agency, or EPA, and the U.S. Green Building Council, or USGBC, amongst others.
As a result of our sustainability initiatives, we and our managed properties have received honors from The Building Owners and Managers Association, or BOMA, The Environmental Protection Agency, or EPA, and the U.S. Green Building Council, or USGBC, amongst others.
Generally Accepted Accounting Principles, or GAAP, less any revenues reportable by ALR 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, determined as TA’s fuel sales revenues less its cost of fuel sales, plus TA’s total nonfuel revenues.
Generally Accepted Accounting Principles, or 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, determined as TA’s fuel sales revenues less its cost of fuel sales, plus TA’s total nonfuel revenues.
Property Management Agreement Services Under each property management agreement, subject to the overall management and supervision of the Board of Trustees of each Managed Equity REIT, RMR LLC is required to act as managing agent for each Managed Equity REIT’s properties and devote such time, attention and effort as may be appropriate to operate and manage the Managed Equity REIT’s properties in a diligent, orderly and efficient manner.
Property Management Agreements Under each property management agreement, subject to the overall management and supervision of the Board of Trustees of each Managed Equity REIT, RMR LLC is required to act as managing agent for each Managed Equity REIT’s properties and devote such time, attention and effort as may be appropriate to operate and manage the Managed Equity REIT’s properties in a diligent, orderly and efficient manner.
Under each business management agreement: the Managed Equity REIT pays or reimburses RMR LLC for all of the expenses relating to the Managed Equity REIT’s activities, including the costs and expenses of investigating, acquiring, owning and disposing of its real estate (third party property diligence costs, appraisal, reporting, audit and legal fees), its costs of borrowing money, its costs of securities listing, transfer, registration and compliance with reporting requirements and its costs of third party professional services, including legal and accounting fees, and as otherwise agreed; and RMR LLC bears its general and administrative expenses relating to its performance of its obligations under the agreement, including expenses of its personnel, rent and other office expenses.
Under each business management agreement: the Managed Equity REIT pays or reimburses RMR LLC for all of the expenses relating to the Managed Equity REIT’s activities, including the costs and expenses of investigating, acquiring, owning and disposing of its real estate (third party property diligence costs, appraisal, reporting, audit and legal fees), its costs of borrowing money, its costs of securities listing, transfer, registration and compliance with reporting requirements 5 Table of Contents and its costs of third party professional services, including legal and accounting fees, and as otherwise agreed; and RMR LLC bears its general and administrative expenses relating to its performance of its obligations under the agreement, including expenses of its personnel, rent and other office expenses.
The properties and businesses we managed as of September 30, 2022, are located throughout the United States in 46 states and Washington D.C., and in Puerto Rico and Canada. The diversity of our managed portfolio helps provide balance throughout economic cycles, as the impacts to each respective real estate sector can vary. • Growth .
The properties and businesses we managed as of September 30, 2023, are located throughout the United States in 46 states and Washington D.C., and in Puerto Rico and Canada. The diversity of our managed portfolio helps provide balance throughout economic cycles, as the impacts to each respective real estate sector can vary. • Growth .
We can provide no assurance that we will be able to implement our business strategy or achieve our desired growth. Our business and the businesses of our clients are subject to a number of risks and uncertainties. See “Risk Factors” beginning on page 13 .
We can provide no assurance that we will be able to implement our business strategy or achieve our desired growth. Our business and the businesses of our clients are subject to a number of risks and uncertainties. See “Risk Factors” beginning on page 12 .
Tremont may also earn an incentive fee under this management agreement beginning the second calendar quarter of 2021 equal to the difference between: (a) the product of (i) 20% and (ii) the difference between (A) SEVN’s core earnings, as defined in the 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) SEVN’s equity in the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (2) 7% per year and (b) the sum of any incentive fees paid to Tremont 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).
Tremont may also earn an incentive fee under this management agreement equal to the difference between: (a) the product of (i) 20% and (ii) the difference between (A) core earnings, as defined in the 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).
We provide management services to a wide range of real estate assets and businesses that include healthcare facilities, senior living and other apartments, hotels, office buildings, industrial buildings, leased lands, net-lease service and necessity-based retail, including travel centers, and various specialized properties such as properties leased to government tenants and properties specially designed for medical and biotech research.
We provide management services to a wide range of real estate assets and businesses that include healthcare facilities, senior living and other apartments, hotels, office buildings, industrial buildings, leased lands, net-lease service-focused retail, including travel centers, and various specialized properties such as properties leased to government tenants and properties specially designed for medical and biotech research.
Business Management Agreement Services Each business management agreement requires RMR LLC to use its reasonable best efforts to present the Managed Equity REIT with a continuing and suitable real estate investment program consistent with the REIT’s real estate investment policies and objectives.
Business Management Agreements Each business management agreement requires RMR LLC to use its reasonable best efforts to present the Managed Equity REIT with a continuing and suitable real estate investment program consistent with the REIT’s real estate investment policies and objectives.
Under these agreements, RMR LLC provides services to the Managed Operating Companies relating to, or assists them with, among other things, their compliance with various laws and rules applicable to them, capital markets and financing activities, maintenance of their properties, selection of new business sites and evaluation of other business opportunities, accounting and financial reporting, internal audit, investor relations and general oversight of the company’s daily business activities, including legal and tax matters, human resources, insurance programs and management information systems.
Under these agreements, RMR LLC provides services to these clients relating to, or assists them with, among other things, their compliance with various laws and rules applicable to them, capital markets and financing activities, maintenance of their properties, selection of new business sites and evaluation of other business opportunities, accounting and financial reporting, internal audit, investor relations and general oversight of the company’s daily business activities, including legal and tax matters, human resources, insurance programs and management information systems.
Portnoy beneficially owned (including through ABP Trust), in aggregate, (i) 185,502 shares of Class A common stock of RMR Inc., or Class A Common Shares; (ii) all the outstanding shares of Class B-1 common stock of RMR Inc., or Class B-1 Common Shares; and (iii) all the outstanding shares of Class B-2 common stock of RMR Inc., or Class B-2 Common Shares.
Portnoy beneficially owned (including through ABP Trust), in aggregate, (i) 200,502 shares of Class A common stock of RMR Inc., or Class A Common Shares; (ii) all the outstanding shares of Class B-1 common stock of RMR Inc., or Class B-1 Common Shares; and (iii) all the outstanding shares of Class B-2 common stock of RMR Inc., or Class B-2 Common Shares.
We have a detailed incident response plan in place in the event of a cybersecurity incident for contacting authorities and informing key stakeholders to ensure that any non-routine events are properly 11 Table of Contents escalated. These plans are validated regularly to consider the types of decisions that would need to be made in the event of a cyber incident.
We have a detailed incident response plan in place in the event of a cybersecurity incident for contacting authorities and informing key stakeholders to ensure that any non-routine events are properly escalated. These plans are validated regularly to consider the types of decisions that would need to be made in the event of a cyber incident.
We believe our structure fosters strong alignment of interests between our principal executive officer and our shareholders because our principal executive officer, Adam D. Portnoy, has a 51.2% economic interest in RMR LLC.
We believe our structure fosters strong alignment of interests between our principal executive officer and our shareholders because our principal executive officer, Adam D. Portnoy, has a 51.1% economic interest in RMR LLC.
REIT/Hotel & Resort REIT Index • No incentive business management fee is payable by the Managed Equity REIT unless its total return per share during the measurement period is positive. • If the Managed Equity REIT’s total return per share exceeds 12% per year in the measurement period, the benchmark return per share is adjusted to be the lesser of the total shareholder return of the specified REIT index for such measurement period and 12% per year, or the “adjusted benchmark return per share.” In instances where the adjusted benchmark return per share applies, the incentive fee will be reduced if the Managed Equity REIT’s total return per share is between 200 basis points and 500 basis points below the specified REIT index in any year, by a low return factor, as defined in the applicable business management agreement, and there will be no incentive business management fee paid if, in these instances, the Managed Equity REIT’s total return per share is more than 500 basis points below the specified REIT index in any year, determined on a cumulative basis (i.e., between 200 basis points and 500 basis points per year multiplied by the number of years in the measurement period and below the applicable market index). • The incentive business management fee payable by the Managed Equity REIT is subject to a cap equal to the value of the number of its common shares which would, after issuance, represent (a) 1.5% of the number of its common shares outstanding on December 31 of the year for which such fee is being calculated multiplied by (b) the average closing price of its common shares during the 10 consecutive trading days having the highest average closing prices during the final 30 trading days of the relevant measurement period. • Incentive fees paid by the Managed Equity REIT for any measurement period may be subject to certain “clawback” if the financial statements of the Managed Equity REIT for that measurement period are restated due to material non-compliance with any financial reporting requirements under the securities laws as a result of the bad faith, fraud, willful misconduct or gross negligence of RMR LLC and the amount of the incentive fee paid by the Managed Equity REIT was greater than the amount it would have paid based on the restated financial statements. 5 Table of Contents If the business management agreement is terminated, the base business management fee and incentive business management fee due in respect of any partial period prior to the date of termination will be prorated as provided in the agreement.
REIT/Hotel & Resort REIT Index • No incentive business management fee is payable by the Managed Equity REIT unless its total return per share during the measurement period is positive. • If the Managed Equity REIT’s total return per share exceeds 12% per year in the measurement period, the benchmark return per share is adjusted to be the lesser of the total shareholder return of the specified REIT index for such measurement period and 12% per year, or the “adjusted benchmark return per share.” In instances where the adjusted benchmark return per share applies, the incentive fee will be reduced if the Managed Equity REIT’s total return per share is between 200 basis points and 500 basis points below the specified REIT index in any year, by a low return factor, as defined in the applicable business management agreement, and there will be no incentive business management fee paid if, in these instances, the Managed Equity REIT’s total return per share is more than 500 basis points below the specified REIT index in any year, determined on a cumulative basis (i.e., between 200 basis points and 500 basis points per year multiplied by the number of years in the measurement period and below the applicable market index). • The incentive business management fee payable by the Managed Equity REIT is subject to a cap equal to the value of the number of its common shares which would, after issuance, represent (a) 1.5% of the number of its common shares outstanding on December 31 of the year for which such fee is being calculated multiplied by (b) the average closing price of its common shares during the 10 consecutive trading days having the highest average closing prices during the final 30 trading days of the relevant measurement period. • Incentive fees paid by the Managed Equity REIT for any measurement period may be subject to certain “clawback” if the financial statements of the Managed Equity REIT for that measurement period are restated due to material non-compliance with any financial reporting requirements under the securities laws as a result of the bad faith, fraud, willful misconduct or gross negligence of RMR LLC and the amount of the incentive fee paid by the Managed Equity REIT was greater than the amount it would have paid based on the restated financial statements.
The Managed REITs have qualified and expect to continue to qualify to be taxed as REITs under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Code.
The Managed Equity REITs and SEVN, or the Managed REITs, have qualified and expect to continue to qualify to be taxed as REITs under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Code.
SEVN competes on a national and regional basis with a variety of institutional investors, including other REITs, specialty finance companies, public and private funds (including funds or investors that we or our affiliates may sponsor, advise or manage), banks, credit unions, insurance companies and other financial institutions.
SEVN competes on a national and regional basis with a variety of institutional investors, 8 Table of Contents including other REITs, specialty finance companies, public and private funds (including funds or investors that we or our affiliates may sponsor, advise or manage), banks, credit unions, insurance companies and other financial institutions.
Accordingly, investors should monitor such portions of our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. 12 Table of Contents
Accordingly, investors should monitor such portions of our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. 11 Table of Contents
Our Management Agreements with the Managed Private Real Estate Capital Clients RMR LLC provides management services to our Managed Private Real Estate Capital clients for which we receive, depending upon the services provided, a management fee based on a percentage of average invested capital, as defined in the applicable management agreements, a property management fee in an amount equal to 3.0% of rents collected from managed properties and a construction supervision fee in an amount equal to 5.0% of the cost of any construction, renovation or repair activities at the managed properties, other than ordinary maintenance and repairs.
RMR LLC provides management services to other Private Capital clients for which we receive, depending upon the services provided, a management fee based on a percentage of average invested capital, as defined in the applicable management agreements, a property management fee in an amount equal to 3.0% of rents collected from managed properties and a construction supervision fee in an amount up to 5.0% of the cost of any construction, renovation or repair activities at the managed properties, other than ordinary maintenance and repairs.
The annual incentive business management fee payable by each Managed Equity REIT, if any, is calculated as follows: • The incentive business management fee is calculated as an amount equal to 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 measurement period, and (b) the amount, expressed as a percentage, by which the Managed Equity REIT’s total return per share realized by its common shareholders (i.e. share price appreciation plus dividends) or the “total return per share,” exceeds the total shareholder return of a specified REIT index, the “benchmark return per share,” for the relevant measurement period, with each of (a) and (b) subject to adjustments for net common shares issued by the Managed Equity REIT during the measurement period. • The measurement period for an annual incentive business management fee is defined as the three year period ending on December 31 of the year for which such fee is being calculated. • The specified REIT index utilized to calculate the benchmark return per share for each of our Managed Equity REITs when calculating the incentive business management fees is as follows: For the Periods Through July 31, 2021 On and After August 1, 2021 DHC SNL U.S.
The annual incentive business management fee payable by each Managed Equity REIT, if any, is calculated as follows: • The incentive business management fee is calculated as an amount equal to 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 measurement period, and (b) the amount, expressed as a percentage, by which the Managed Equity REIT’s total return per share realized by its common shareholders (i.e. share price appreciation plus dividends) or the “total return per share,” exceeds the total shareholder return of a specified REIT index, the “benchmark return per share,” for the relevant measurement period, with each of (a) and (b) subject to adjustments for net common shares issued by the Managed Equity REIT during the measurement period. • The measurement period for an annual incentive business management fee is defined as the three year period ending on December 31 of the year for which such fee is being calculated. • The specified REIT index utilized to calculate the benchmark return per share for each of our Managed Equity REITs when calculating the incentive business management fees is as follows: DHC MSCI U.S.
As of September 30, 2022, ILPT owned 413 properties, including 226 buildings, leasable land parcels and easements in Oahu, Hawaii and 187 properties located in 38 other states. • OPI (Nasdaq: OPI) owns office properties primarily leased to single tenants and those with high quality credit characteristics, including the government.
As of September 30, 2023, ILPT owned 413 properties, including 226 buildings, leasable land parcels and easements in Oahu, Hawaii and 187 properties located in 38 other states. • OPI (Nasdaq: OPI) owns office properties primarily leased to single tenants and those with high credit quality characteristics.
In addition, each agreement provides that any disputes, as defined in those agreements, arising out of or relating to the agreement or the provision of services pursuant thereto, upon the demand of a party to the dispute, shall be subject to mandatory arbitration in accordance with procedures provided in the agreement.
In addition, each of ABP Trust’s and Sonesta’s agreement provides that any disputes, as defined in those agreements, arising out of or relating to the agreement or the provision of services pursuant thereto, upon the demand of a party to the dispute, shall be subject to mandatory arbitration in accordance with procedures provided in the agreement.
Board Diversity As of September 30, 2022, our Board of Directors composition included 50% of members from underrepresented communities, including 33% female and 17% African American. 10 Table of Contents Employee Engagement, Education and Training Our employee engagement initiatives align with our goal of being an employer of choice with a thriving workforce that encourages career enrichment and positions us for growth.
Board Diversity As of September 30, 2023, our Board of Directors composition included 50% of members from underrepresented communities, including 33% female and 17% African American. Employee Engagement, Education and Training Our employee engagement initiatives align with our goal of being an employer of choice with a thriving workforce that encourages career enrichment and positions us for growth.
In addition, RMR LLC provides management services to private capital vehicles, including ABP Trust and its subsidiaries, or collectively ABP Trust, and other private entities that own commercial real estate, of which certain of our Managed Equity REITs own minority equity interests.
In addition, RMR LLC provides management services to private capital vehicles, including ABP Trust and its subsidiaries, or collectively ABP Trust, AlerisLife Inc., or AlerisLife, Sonesta International Hotels Corporation, or Sonesta, and other private entities that own commercial real estate, of which certain of our Managed Equity REITs own minority equity interests.
Our business primarily consists of providing management services to four publicly traded equity real estate investment trusts, or REITs, whose securities are listed on The Nasdaq Stock Market LLC, or Nasdaq: Diversified Healthcare Trust, a Maryland REIT, including its subsidiaries, or DHC; Industrial Logistics Properties Trust, a Maryland REIT, including its subsidiaries, or ILPT; Office Properties Income Trust, a Maryland REIT, including its subsidiaries, or OPI; and Service Properties Trust, a Maryland REIT, including its subsidiaries, or SVC.
We provide management services to four publicly traded equity real estate investment trusts, or REITs, whose securities are listed on The Nasdaq Stock Market LLC, or Nasdaq: Diversified Healthcare Trust, a Maryland REIT, including its subsidiaries, or DHC; Industrial Logistics Properties Trust, a Maryland REIT, including its subsidiaries, or ILPT; Office Properties Income Trust, a Maryland REIT, including its subsidiaries, or OPI; and Service Properties Trust, a Maryland REIT, including its subsidiaries, or SVC.
As of September 30, 2022, DHC owned 379 properties located in 36 states and the District of Columbia. • ILPT (Nasdaq: ILPT) owns and leases industrial and logistics properties.
As of September 30, 2023, DHC owned 376 properties located in 36 states and the District of Columbia. • ILPT (Nasdaq: ILPT) owns and leases industrial and logistics properties.
Employees and Equal Opportunity As of September 30, 2022, RMR LLC employed approximately 600 real estate professionals, including 49% in our corporate office and 51% across our more than 30 offices throughout the United States. The average tenure of our employees was 6.5 years. Our employees are the foundation of our success and in many ways our most critical asset.
Employees and Equal Opportunity As of September 30, 2023, RMR LLC employed over 600 real estate professionals, including 46% in our corporate office and 54% across our more than 30 offices throughout the United States. The average tenure of our employees was 6.5 years. Our employees are the foundation of our success and in many ways our most critical asset.
In addition, the management agreement with each Managed Operating Company provides that the compensation of senior executives of the Managed Operating Company, who are also employees or officers of RMR LLC, is the responsibility of the party to or on behalf of which the individual renders services.
In addition, the management agreement with each of these clients provides that the compensation of their senior executives, who are also employees or officers of RMR LLC, is the responsibility of the party to or on behalf of which the individual renders services.
Since its founding in 1986, RMR LLC has substantially grown assets under management and the number of real estate businesses it manages. As of September 30, 2022, we had $37.3 billion of assets under management.
Since its founding in 1986, RMR LLC has substantially grown assets under management and the number of real estate businesses it manages. As of September 30, 2023, we had $35.9 billion of assets under management.
Until September 30, 2021, Tremont also provided advisory services to Tremont Mortgage Trust, or TRMT, a publicly traded mortgage REIT that merged with and into SEVN on September 30, 2021, or the Merger, with SEVN continuing as the surviving company.
Tremont also provided advisory services to Tremont Mortgage Trust, or TRMT, until it merged with and into SEVN on September 30, 2021, or the Tremont Merger, with SEVN continuing as the surviving company.
REIT Healthcare Index MSCI U.S. REIT/Health Care Index ILPT SNL U.S. Industrial REIT Index MSCI U.S. REIT/Industrial REIT Index OPI SNL U.S. Office REIT Index MSCI U.S. REIT/Office REIT Index SVC SNL U.S. REIT Hotel Index MSCI U.S.
REIT/Health Care Index ILPT MSCI U.S. REIT/Industrial REIT Index OPI MSCI U.S. REIT/Office REIT Index SVC MSCI U.S.
In the past, because at least 80.0% of each of these executives’ business time was devoted to services to the Managed Operating 6 Table of Contents Company, 80.0% of these executives’ total cash compensation was paid by the Managed Operating Company and the remainder was paid by RMR LLC.
In the past, because at least 80.0% of each of these executives’ business time was devoted to services to these clients, 80.0% of these executives’ total cash compensation was paid by these clients and the remainder was paid by RMR LLC.
Since the founding of RMR LLC in 1986, we have substantially grown our assets under management and the number and variety of real estate businesses we manage. As of September 30, 2022, we had $37.3 billion of assets under management, including 2,100 properties. The synergies among our clients may also facilitate their and 2 Table of Contents our growth.
Since the founding of RMR LLC in 1986, we have substantially grown our assets under management and the number and variety of real estate businesses we manage. As of September 30, 2023, we had $35.9 billion of assets under management, including over 2,000 properties. The synergies among our clients may also facilitate their and our growth.
No incentive fee shall be payable with respect to any calendar quarter unless core earnings for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters from January 5, 2021) in the aggregate is greater than zero. The incentive fee may not be less than zero.
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.
The terms of the management agreements with each Managed Operating Company end on December 31st of each year, and automatically extend for successive one year terms, unless RMR LLC or the applicable Managed Operating Company gives notice of non-renewal before the expiration of the applicable term.
The terms of the management agreements with ABP Trust regarding AlerisLife and with Sonesta end on December 31st of each year, and automatically extend for successive one year terms, unless RMR LLC, or ABP Trust or Sonesta, as applicable, gives notice of non-renewal before the expiration of the applicable term.
As of September 30, 2022, RMR Inc. owned 15,606,115 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 represent approximately 52.5% of the economic interest of RMR LLC.
As of September 30, 2023, RMR Inc. owned 15,712,007 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 represent approximately 52.7% of the economic interest of RMR LLC.
ALR, Sonesta and TA are collectively referred to as the Managed Operating Companies. As manager of the Managed Equity REITs, we are responsible for implementing investment strategies and managing day to day operations, subject to supervision and oversight by each Managed Equity REIT’s board of trustees.
DHC, ILPT, OPI and SVC are collectively referred to as the Managed Equity REITs. As manager of the Managed Equity REITs, we are responsible for implementing investment strategies and managing day to day operations, subject to supervision and oversight by each Managed Equity REIT’s board of trustees.
In the event the management agreement is terminated by SEVN without a cause event or by Tremont for a material breach, SEVN will be required to pay Tremont a termination fee equal to (a) three times the sum of (i) the average annual 7 Table of Contents base management fee and (ii) the average annual incentive fee, in each case paid or payable to Tremont during the 24 month period immediately preceding the most recently completed calendar quarter prior to the date of termination or, if such termination occurs within 24 months of its initial commencement, the base management fee and the incentive fee will be annualized for such two year period based on such fees earned by Tremont during such period, plus (b) $1.6 million.
In the event the management agreement is terminated by SEVN without a cause event or by Tremont for a material breach, SEVN will be required to pay Tremont a termination fee equal to (a) three times the sum of (i) the average annual base management fee and (ii) the average annual incentive fee, in each case paid or payable to Tremont during the 24 month period immediately preceding the most recently completed calendar quarter prior to the date of termination, plus (b) $1.6 million.
As of September 30, 2022, OPI owned 162 properties located in 31 states and the District of Columbia. • SVC (Nasdaq: SVC) owns a diverse portfolio of hotels and net lease service and necessity-based retail properties.
As of September 30, 2023, OPI owned 154 properties located in 30 states and the District of Columbia. • SVC (Nasdaq: SVC) owns a diverse portfolio of hotels and service-focused retail net lease properties.
Within their first year, managers complete the workshop and learn how to effectively delegate, solve problems and give meaningful performance feedback. • Tuition Reimbursement Program: We offer tuition assistance up to $20,000 annually for work-related education from accredited colleges and universities in order to deepen employees’ skillsets and support personal enrichment. • Analyst Conversion Program: Our Analyst Conversion Program is designed to attract new talent to our industry who otherwise may not have thought of real estate as a career path.
Within their first year, managers complete the workshop and learn how to effectively delegate, solve problems and give meaningful performance feedback. • Tuition Reimbursement Program: We offer tuition assistance up to $20,000 annually for work-related education from accredited colleges and universities in order to deepen employees’ skillsets and support personal enrichment. 10 Table of Contents • Analyst Accelerator Internship Program: We established a new Analyst Accelerator Internship Program which is designed to attract early career talent to our industry from backgrounds underrepresented in real estate.
For the fiscal year ended September 30, 2022, we continued to generate strong operating margins resulting in net cash from operating activities of $101.3 million and net income of $77.5 million. We have no debt outstanding.
For the fiscal year ended September 30, 2023, we continued to generate strong operating margins resulting in net cash from operating activities of $109.2 million and net income of $127.8 million. We have no debt outstanding.
Business Management Agreement Fees and Expense Reimbursement Each business management agreement between RMR LLC and a Managed Equity REIT provides for (i) an annual base management fee, payable monthly in arrears, and (ii) an annual incentive business management fee. 4 Table of Contents The annual base management fee generally is calculated as 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 $250.0 million, plus (c) 0.5% of the average invested capital exceeding $250.0 million; and • the sum of (a) 0.7% of the average market capitalization, as defined in the applicable business management agreement, up to $250.0 million, plus (b) 0.5% of the average market capitalization exceeding $250.0 million.
The annual base management fee generally is calculated as 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 $250.0 million, plus (c) 0.5% of the average invested capital exceeding $250.0 million; and 4 Table of Contents • the sum of (a) 0.7% of the average market capitalization, as defined in the applicable business management agreement, up to $250.0 million, plus (b) 0.5% of the average market capitalization exceeding $250.0 million.
Each Managed Operating Company pays RMR LLC a fee under its management agreement in an amount equal to 0.6% of: (i) in the case of ALR, ALR’s revenues from all sources reportable under U.S.
Each of these clients pay RMR LLC a fee under its management agreement in an amount equal to 0.6% of: (i) in the case of AlerisLife, AlerisLife’s revenues from all sources reportable under U.S.
We believe our efforts toward these goals will add value to our clients’ properties, benefit tenants by lowering their operating costs, drive sustainable economic returns and address investor demands that our clients have viable strategies to mitigate climate risk.
We believe our efforts toward these goals will add value to our clients’ properties, benefit tenants by lowering their operating costs, drive sustainable economic returns and address investor demands that our clients have viable strategies to mitigate climate risk. We have made significant progress to date, achieving an overall reduction in emissions and energy of 35% and 28%, respectively.
For all properties where we directly manage energy, we are committing to a goal of net zero by 2050 and a 50% reduction by 2030 from a 2019 baseline as it relates to scope 1 and 2 emissions.
We remain committed to our “Zero Emissions Promise” announced in 2022, which is our organization’s goal of net zero by 2050 and a 50% reduction by 2030 from a 2019 baseline as it relates to scope 1 and 2 emissions, for all properties where we directly manage energy.
In 2021, the honors achieved by our Managed Equity REITs, included 60 BOMA 360 Certified Properties, 70 ENERGY STAR Certified Properties and 56 LEED Certified Properties.
In 2022, the honors achieved by our Managed Equity REITs, included 55 BOMA 360 Certified Properties, 77 ENERGY STAR Certified Properties and 58 LEED Certified Properties.
We believe that we have several strengths that distinguish our business from other alternative asset managers: • Revenue Base . Our revenues are primarily earned from long term agreements with credit quality companies, many of which are permanent capital vehicles.
We believe we have several strengths that distinguish our business from other alternative asset managers: • Revenue Base . Our revenues are primarily earned from long term agreements with credit quality companies, many of which are permanent capital vehicles. Our agreements with the Managed Equity REITs are 20 year term evergreen contracts with significant termination fees payable in certain circumstances.
No termination fee will be payable if the management agreement is terminated by SEVN for a cause event or by Tremont without SEVN’s material breach.
No termination fee will be payable if the management agreement is terminated by SEVN for a cause event or by Tremont without SEVN’s material breach. Our Organizational Structure Our organizational structure has not materially changed since September 30, 2019.
In recent years, we sought to expand the sources of capital underlying our assets under management, with our Managed Private Real Estate Capital clients representing $3.9 billion of our assets under management as of September 30, 2022, an increase of $2.6 billion from September 30, 2021. • Quality and Depth of Management .
In recent years, we sought to expand the sources of capital underlying our assets under management, with our Private Capital clients representing $7.7 billion of our assets under management as of September 30, 2023, an increase of $6.0 2 Table of Contents billion from September 30, 2021.
Our dedicated asset management and property management teams blend long-term strategic vision with careful execution of day-to-day operations to optimize efficiency and foster the sustainable growth of our Managed Equity REITs. Our property management organization is dedicated solely to the assets of our clients.
Our organization is focused on the assets of our clients and we blend long-term strategic vision with careful execution of day-to-day operations to optimize efficiency and foster the sustainable growth of our clients.
We use industry leading security tools, regularly update our technology roadmaps, conduct simulated attacks, provide custom-built training for high-risk departments and mandate cybersecurity awareness and training a requirement for all employees.
Our program is aligned with the National Institute of Standards and Technology five phase Cybersecurity Framework (Identify-Protect-Detect-Respond-Recover). We use industry leading security tools, regularly update our technology roadmaps, conduct simulated attacks, provide custom-built training for high-risk departments and mandate cybersecurity awareness and training a requirement for all employees.
These activities result in certain aspects of our asset management business being supervised by the SEC and requires our compliance with numerous obligations, including record keeping requirements, operational procedures and disclosure obligations.
Employees of Tremont may also act as transaction originators for its non-investment advisory clients, which we refer to as the Tremont business. These activities result in certain aspects of our asset management business being supervised by the SEC and requires our compliance with numerous obligations, including record keeping requirements, operational procedures and disclosure obligations.
A subsidiary of ABP Trust owns 15,000,000 redeemable Class A Units, representing approximately 47.5% of the economic interest of RMR LLC. Adam D. Portnoy, the Chair of our Board and one of our Managing Directors, is the sole trustee of our controlling shareholder, ABP Trust, and owns all of ABP Trust’s voting securities. As of September 30, 2022, Adam D.
Portnoy, the 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 interest of ABP Trust. As of September 30, 2023, Adam D.
Regulation We and our clients are subject to supervision and regulation by state, federal and non-U.S. governmental authorities and are subject to various laws and judicial and administrative decisions imposing various requirements and restrictions upon the ways in which we and our clients do business including various requirements for public disclosure of our and their activities.
For a discussion of our organizational structure, see Part I, Item 1 “Business – Our Organizational Structure” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 . 7 Table of Contents Regulation We and our clients are subject to supervision and regulation by state, federal and non-U.S. governmental authorities and are subject to various laws and judicial and administrative decisions imposing various requirements and restrictions upon the ways in which we and our clients do business including various requirements for public disclosure of our and their activities.
Our 9 Table of Contents environmental sustainability strategies and best practices help to mitigate our managed properties’ environmental footprint, optimize operational efficiency and enhance our competitiveness in the marketplace. Certifications help to benchmark performance and mitigate risk. In 2022, we announced our “Zero Emissions Promise”.
Our environmental sustainability strategies and best practices help to mitigate our managed properties’ environmental footprint, optimize operational efficiency and enhance our competitiveness in the marketplace.
We are a vertically integrated manager and as of September 30, 2022, we employed over 600 real estate professionals in more than 30 offices throughout the United States. Additionally, the clients we manage collectively had approximately $12.2 billion of annual revenues and over 38,000 employees at September 30, 2022.
We are a vertically integrated manager and as of September 30, 2023, we employed over 600 real estate professionals in more than 30 offices throughout the United States.
Finally, for the second year in a row, we received the 2022 ENERGY STAR Partner of the Year Sustained Excellence Award for outstanding efforts in Energy Management, and for the third year in a row, OPI received the 2022 ENERGY STAR Partner of the Year Sustained Excellence Award for outstanding efforts in Energy Management.
Finally, for the fifth year in a row, we received the 2023 ENERGY STAR Partner of the Year Award, and for the sixth year in a row, OPI received the 2023 ENERGY STAR Partner of the Year Award.
The Managed Equity REITs have no employees, and we provide the personnel and services necessary for each Managed Equity REIT to conduct its business. The Managed Equity REITs invest in diverse income producing properties across multiple real estate asset classes as follows: • DHC (Nasdaq: DHC) owns medical office and life science properties, senior living communities and wellness centers.
The Managed Equity REITs invest in diverse income producing properties across multiple real estate asset classes as follows: • DHC (Nasdaq: DHC) owns medical office and life science properties, senior living communities and other healthcare related properties.
Our agreements with the Managed Equity REITs are 20 year term evergreen contracts with significant termination fees payable in certain circumstances. For the fiscal year ended September 30, 2022, revenues earned from the Managed Equity REITs represented 74.1% of our total management and advisory services revenue. • Strong Operating Margins and Resulting Cash Flows .
For the fiscal year ended September 30, 2023, revenues earned from the Managed Equity REITs represented 73.2% of our total management and advisory services revenue, excluding termination fee revenue. • Strong Operating Margins and Resulting Cash Flows .
As of September 30, 2022, ALR managed or operated 140 senior living communities located in 28 states, including 120 communities that it managed and 20 communities that it owned and operated. • Sonesta is 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.
Sonesta is 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. These clients are collectively referred to as the Private Capital clients.
We ensure employees receive competitive salaries and benefits and we aim to attract professionals who will uphold our values of social and environmental stewardship. We are an equal opportunity employer, with all qualified applicants receiving consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability or protected veteran status.
We are an equal opportunity employer, with all qualified applicants receiving consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability or protected veteran status. Throughout our organization, including our Board, we are committed to racial equality and fostering a culture of diversity and inclusion.
Lower energy use and emissions reduce our managed properties' potential exposure to policies that call for a carbon tax or other emissions-based penalties. Our existing business practices align with the Task Force on Climate-related Financial Disclosures, or TCFD, framework across both physical and transition risks and opportunities.
Our existing business practices align with the Task Force on Climate-related Financial Disclosures, or TCFD, framework across both physical and transition risks and opportunities.
Each Managed Operating Company has agreed to indemnify RMR LLC, its members, officers, employees and affiliates against liabilities relating to acts or omissions of RMR LLC with respect to the provision of services by RMR LLC, except to the extent such provision of services was in bad faith or was grossly negligent.
In connection with BP’s acquisition of TA on May 15, 2023, TA terminated its management agreement with us and paid us a termination fee of $45,282. 6 Table of Contents ABP Trust and Sonesta have each agreed to indemnify RMR LLC, its members, officers, employees and affiliates against liabilities relating to acts or omissions of RMR LLC with respect to the provision of services by RMR LLC, except to the extent such provision of services was in bad faith or was grossly negligent.
We drive value, manage risk and benchmark the performance of our managed properties by effectively capturing and managing data through real-time energy monitoring, or RTM. RTM facilitates advanced data analytics and access to detect faults and inefficiencies in equipment operations faster, meanwhile enhancing building system control in a cost-effective and scalable way.
We drive value, manage risk and benchmark the performance of our managed properties by effectively capturing and managing data through real-time energy monitoring, or RTM. Our cloud-based system connects building automation systems to a central supervisor.
ALR competes with numerous other companies that provide senior living services, including home healthcare companies and other real estate based service providers. Sonesta competes with other hotel operators and franchisors. TA competes on a national and local basis with companies operating travel centers, as well as retailers operating in the convenience store and retail gas station industries.
AlerisLife competes with numerous other companies that provide senior living services, including home healthcare companies and other real estate based service providers. Sonesta competes with other hotel operators and franchisors.
Tremont provides investment advisory and administrative services to mortgage REITs, including SEVN, and may, in the future, provide such services to private funds that invest in commercial real estate debt. Employees of Tremont may also act as transaction originators for its non-investment advisory clients, which we refer to as the Tremont business.
Tremont is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended, or the Investment Advisers Act. Tremont provides investment advisory and administrative services to SEVN, and may, in the future, provide such services to private funds that invest in commercial real estate debt.
We continue to expand our RTM program and expect to cost effectively scale to cover up to 90% of our managed energy spend, resulting in operational savings and reduced equipment wear and tear, while maintaining high tenant comfort. Our energy performance programs drive down energy consumption and reduce carbon emissions of our managed properties.
We continue to expand our RTM program and in 2023, we committed to a goal of monitoring 90% of our managed energy spend through RTM over the next five years, resulting in operational savings and reduced equipment wear and tear, while maintaining high tenant comfort.
We recruit from various trade schools and job fairs to identify candidates for the two-year program with a curriculum that includes specific onboarding plans for training in electrical, HVAC, or plumbing trades and covers a range of essential engineering staff development topics. • Next Generation Executive Program: Our commitment to racial equality and to fostering a culture of diversity and inclusion at all levels of management motivated our decision to sponsor rising leaders in The Partnership, Inc.’s Next Generation Executive program.
We recruit from various trade schools and job fairs to identify candidates for the two-year program with a curriculum that includes specific onboarding plans for training in electrical, HVAC, or plumbing trades and covers a range of essential engineering staff development topics. • Industry Associations & Credentials: In order to further their professional development, many of our employees seek out credentials and association memberships, with any membership costs reimbursed by us.
Cybersecurity Our cybersecurity program is led by our Chief Information Officer, who works closely with our senior management to develop and advance our cybersecurity strategy and regularly reports to our Audit Committee on cybersecurity matters. Our program is aligned with the National Institute of Standards and Technology five phase Cybersecurity Framework (Identify-Protect-Detect-Respond-Recover).
Examples of credentials and association memberships include: BOMA membership, Certified Property Manager, Certified Public Accountant and National Association of Industrial and Office Properties. Cybersecurity Our cybersecurity program is led by our Chief Information Officer, who works closely with our senior management to develop and advance our cybersecurity strategy and regularly reports to our Audit Committee on cybersecurity matters.
LiveWell includes a range of educational presentations, webinar series and wellness competitions. • Managing with Impact: Since 2016, we hosted Managing with Impact workshops for managers throughout the company to expand their perspectives and increase their confidence as a new manager.
We periodically review the effectiveness and competitiveness of our compensation program. Our recruiting programs, on-boarding and retention programs and our development and on-going training programs currently include the following: • Managing with Impact: Since 2016, we hosted Managing with Impact workshops for managers throughout the company to expand their perspectives and increase their confidence as a new manager.
As of September 30, 2022, Sonesta’s business included 1,116 properties in eight countries. • TA (Nasdaq: TA) operates and franchises travel centers primarily along the U.S. interstate highway system, many of which are owned by SVC, and standalone truck service facilities.
TA is a real estate operating company that operates and franchises travel centers primarily along the U.S. interstate highway system, many of which are owned by SVC, and standalone truck service facilities. The Managed Equity REITs, SEVN, TRMT until September 30, 2021, and TA until May 15, 2023, are collectively referred to as the Perpetual Capital clients.
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 whole loans secured by middle market and transitional commercial real estate.
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 1 Table of Contents estate.
Throughout our organization, including our Board, we are committed to racial equality and fostering a culture of diversity and inclusion. We have made diversity and inclusion an important part of our hiring, retention and development programs. As of September 30, 2022, 35% and 28% of our approximately 600 employees were female and non-white, respectively.
We have made diversity and inclusion an important part of our hiring, retention and development programs. As of September 30, 2023, 37% of our employees were women and 30% were members of minority communities underrepresented in commercial real estate.
Our Management Agreements with the Managed Operating Companies RMR LLC provides services and earns fees pursuant to a management agreement with each of the Managed Operating Companies.
Other Management Agreements RMR LLC provides services and earns fees pursuant to management agreements with ABP Trust regarding AlerisLife; with Sonesta; and until May 15, 2023, with TA.
We launched this program in 2017 and it is now deployed in 63 managed properties, totaling approximately 50% of our managed annual electricity spend and through the end of 2021, has generated cumulative savings of $7.6 million.
RTM facilitates advanced data analytics and access to detect faults and inefficiencies in equipment operations faster, meanwhile enhancing building system control in a cost-effective and scalable way. We launched this program in 2017 and it is now deployed in 63 managed properties, totaling approximately 53% of our managed annual electricity spend.
Removed
DHC, ILPT, OPI and SVC are collectively referred to as the Managed Equity REITs. We also provide management services to three real estate operating companies: AlerisLife Inc., a Maryland corporation, or ALR; Sonesta International Hotels Corporation, a Maryland corporation, or Sonesta; and TravelCenters of America Inc., a Maryland corporation, or TA.
Added
A subsidiary of ABP Trust owns 15,000,000 redeemable Class A Units, representing approximately 47.3% of the economic interest of RMR LLC. Adam D.
Removed
As of September 30, 2022, SVC owned 1,011 properties (242 hotels and 769 net lease properties) located in 46 states, Puerto Rico, Canada and the District of Columbia. 1 Table of Contents We also provide management services to the Managed Operating Companies that have diverse businesses as follows: • ALR (Nasdaq: ALR) operates senior living communities, many of which are owned by DHC.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFor more information see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.” Risks to our clients, in addition to the risks noted elsewhere in this Annual Report on Form 10-K, include, but are not limited to, the following: • adverse economic and market conditions; • the inability of our clients’ tenants, managers and borrowers to weather the current adverse economic conditions, including rising interest rates, prolonged high inflation, supply chain disruptions, economic downturn and possible recession and thereby impair their ability to pay rent and returns and make loan payments; • the inability of our clients to access debt and equity capital on attractive terms, or at all which could reduce our clients’ ability to pursue acquisition and development opportunities and refinance existing debt, and reduce our clients’ returns from acquisition and development activities and increase their future interest expense; • the Managed Equity REITs face competition for tenants at substantially all of their properties and competing properties may be more attractive to tenants; • our clients face significant competition for investment opportunities from other investors, some of which have greater financial resources, including publicly traded REITs, non-traded REITs, insurance companies, banking firms, private institutional funds, private equity funds and other investors; • a sustained period of rising interest rates may increase operating costs, reduce the value of properties, increase cost of capital and make raising capital difficult for our clients whereas low interest rates may increase the amount of debt capital available, which may result in declining capitalization rates for property acquisitions and impede the growth of our clients’ businesses; • changing general economic and financial market conditions could significantly reduce the value of the real estate, loans and other investments of our clients and reduce the amounts earned on those investments; • changing market, consumer and workplace practices and trends could result in decreased demand for business travel, hotel stays, conference facilities, office space, diesel fuel and gasoline; • the real estate and real estate related investments of our clients may be less liquid than other investments and the ability of our clients to adjust their portfolios in response to changes in economic or other conditions may be limited; • our Managed Operating Companies’ ability to attract, retain and motivate sufficient qualified personnel in a challenging labor market and to effectively manage their labor costs; • changes in investor preferences or market conditions could limit our clients’ ability to raise capital to competitively maintain their properties and operations or make new investments; • shareholder activism, complaints about management strategies and structures, corporate governance and other matters may divert management attention and be disruptive to the operation of our clients; • ESG initiatives, requirements and market expectations may impose additional costs and expose our clients to new risks; • changes in tax laws, regulation or accounting rules may make certain types of investments in or by our clients less valuable; • our clients are exposed to environmental, building and other laws, natural disasters, adverse impacts from global climate change and other factors beyond their control as a result of their investment in real estate; 19 Table of Contents • our clients have significant investments in certain types of assets, such as hotels, senior living communities, healthcare properties and travel centers, and market changes which impact these specific types of assets (e.g., a reduction in levels of business travel and occupancy at hotels and senior living communities as a result of adverse economic and market conditions, tenant and customer trends, new competition for short term accommodations, changes in Medicare and Medicaid rates, and other regulatory matters, fuel price volatility, fuel efficiency improvements and alternative energy sourcing) may adversely impact certain of the clients’ ability to maintain or grow their business; • the failure of a Managed REIT to continue to qualify as a REIT would subject it to U.S. federal income tax and reduce cash available for distributions to its shareholders, adversely impacting its ability to raise capital and operate its business; • the failure of our clients to comply with applicable laws and regulations could result in legal liability, regulatory fines and the loss of, or an inability to obtain, licenses required to operate their businesses; and • complying with REIT requirements may cause a Managed REIT to forgo otherwise attractive opportunities or liquidate otherwise attractive investments.
Biggest changeFor more information see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.” Risks to our clients, in addition to the risks noted elsewhere in this Annual Report on Form 10-K, include, but are not limited to, the following: • adverse economic and market conditions; • the inability of our clients’ tenants, managers and borrowers to weather the ongoing adverse economic conditions, including rising and sustained high interest rates, prolonged high inflation, economic downturn and possible recession and thereby impair their ability to pay rent and returns and make loan payments; • the inability of our clients to access debt and equity capital on attractive terms, or at all which could reduce our clients’ ability to pursue acquisition and development opportunities and refinance existing debt, and reduce our clients’ returns from acquisition and development activities and increase their future interest expense; • our clients face competition for tenants and customers at substantially all of their properties and competing properties may be more attractive to tenants and customers; • our clients face significant competition for investment opportunities from other investors, some of which have greater financial resources, including publicly traded REITs, non-traded REITs, insurance companies, banking firms, private institutional funds, private equity funds and other investors; • a sustained period of high interest rates and high inflation may increase operating costs, reduce the value of properties, increase cost of capital and make raising capital difficult for our clients whereas low interest rates may increase the amount of debt capital available, which may result in declining capitalization rates for property acquisitions and impede the growth of our clients’ businesses; • changing general economic and financial market conditions could significantly reduce the value of the real estate, loans and other investments of our clients and reduce the amounts earned on those investments; • changing market, consumer and workplace practices and trends could result in decreased demand for business travel, hotel stays, conference facilities and office space; • the real estate and real estate related investments of our clients may be less liquid than other investments and the ability of our clients to adjust their portfolios in response to changes in economic or other conditions may be limited; • our operating company clients’ ability to attract, retain and motivate sufficient qualified personnel in a challenging labor market and to effectively manage their labor costs; 18 Table of Contents • changes in investor preferences or market conditions could limit our clients’ ability to raise capital to competitively maintain their properties and operations or make new investments; • geopolitical instability and tensions (such as the ongoing wars in Ukraine and the Middle East); • shareholder activism, complaints about management strategies and structures, corporate governance and other matters may divert management attention and be disruptive to our clients’ operations; • ESG initiatives, requirements and market expectations may impose additional costs and expose our clients to new risks; • changes in tax laws, regulation or accounting rules may make certain types of investments in or by our clients less valuable; • our clients are exposed to environmental, building and other laws, natural disasters, adverse impacts from global climate change and other factors beyond their control as a result of their investment in real estate; • public health safety events, such as pandemics, may adversely impact our clients’ business, operating results, financial condition and value; • our clients have significant investments in certain types of assets, such as hotels, senior living communities and office, industrial and healthcare properties, and market changes which impact these specific types of assets (e.g., a reduction in levels of business travel and occupancy at hotels and senior living communities as a result of adverse economic and market conditions, tenant and customer trends, new competition for short term accommodations, changes in Medicare and Medicaid rates and other regulatory matters, an insufficient recovery or a further reduction in the demand for office space as a result of remote, hybrid and other flexible working arrangements, and declining economic activity, oversupply of industrial buildings or technological or market practice changes, such as offshoring, reducing the demand for industrial properties) may adversely impact certain of the clients’ ability to maintain or grow their businesses; • the failure of a Managed REIT to continue to qualify as a REIT would subject it to U.S. federal income tax and reduce cash available for distributions to its shareholders, adversely impacting its ability to raise capital and operate its business; • the failure of our clients to comply with applicable laws and regulations could result in legal liability, regulatory fines and the loss of, or an inability to obtain, licenses required to operate their businesses; and • complying with REIT requirements may cause a Managed REIT to forgo otherwise attractive opportunities or liquidate otherwise attractive investments.
Our operating results and our ability to maintain and grow our revenues depend upon the ability of our Managed Equity REITs, and increasingly, our Managed Private Real Estate Capital clients to raise or contribute capital to invest in real estate assets, to maintain and grow their investments and, as applicable, market capitalizations, and to achieve positive shareholder returns in excess of applicable REIT total shareholder return indexes.
Our operating results and our ability to maintain and grow our revenues depend upon the ability of our Managed Equity REITs, and increasingly, our Private Capital clients to raise or contribute capital to invest in real estate assets, to maintain and grow their investments and, as applicable, market capitalizations, and to achieve positive shareholder returns in excess of applicable REIT total shareholder return indexes.
ESG initiatives, requirements and market expectations may impose additional costs and expose us and our clients to new risks . There is an increasing focus from investors, certain of our clients’ tenants, managers, borrowers, customers, employees, and other stakeholders, and regulators concerning corporate sustainability.
ESG initiatives, requirements and market expectations may impose additional costs and expose us and our clients to new risks . There is an increasing focus from regulators, investors, certain of our clients’ tenants, managers, borrowers, customers, employees, and other stakeholders concerning corporate sustainability.
The market price of our Class A Common Shares may fluctuate widely, depending upon many factors, some of which are beyond our control, including, but not limited to, the following: • market and economic volatility due to adverse economic, geopolitical and public health conditions and the resulting market disruption on us and our clients; • declines in the market prices of our clients’ common shares; • a relatively thin trading market for our Class A Common Shares could cause trades of small blocks of shares to have a significant impact on the price of our Class A Common Shares; • our quarterly or annual earnings, or those of other comparable companies; • actual or anticipated fluctuations in our operating results; • changes in accounting standards, policies, guidance, interpretations or principles; • announcements by us, our clients or our competitors of significant investments, acquisitions or dispositions; • the inclusion, exclusion, or deletion of our Class A Common Shares from any trading indices; • the failure of securities analysts to cover our Class A Common Shares; • changes in earnings estimates by securities analysts or in our ability to meet those estimates; • the operating and stock price performance of other comparable companies; • overall market fluctuations; and 20 Table of Contents • general economic conditions.
The market price of our Class A Common Shares may fluctuate widely, depending upon many factors, some of which are beyond our control, including, but not limited to, the following: • market and economic volatility due to adverse economic, geopolitical and public health conditions and the resulting market disruption on us and our clients; 19 Table of Contents • declines in the market prices of our clients’ common shares; • a relatively thin trading market for our Class A Common Shares could cause trades of small blocks of shares to have a significant impact on the price of our Class A Common Shares; • our quarterly or annual earnings, or those of other comparable companies; • actual or anticipated fluctuations in our operating results; • changes in accounting standards, policies, guidance, interpretations or principles; • announcements by us, our clients or our competitors of significant investments, acquisitions or dispositions; • the inclusion, exclusion, or deletion of our Class A Common Shares from any trading indices; • the failure of securities analysts to cover our Class A Common Shares; • changes in earnings estimates by securities analysts or in our ability to meet those estimates; • the operating and stock price performance of other comparable companies; • overall market fluctuations; and • general economic conditions.
We rely on information technology and systems, including the Internet and cloud-based infrastructures, commercially available software and our internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of our business processes, including financial transactions and maintenance of records, which may include personal identifying information of employees, tenants, borrowers and guarantors and lease data.
We rely on information technology and systems, including the Internet and cloud-based infrastructures and services, commercially available software and our internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of our business processes, including financial transactions and maintenance of records, which may include personal identifying information of employees, tenants, borrowers and guarantors and lease data.
The arbitration provisions of our bylaws may discourage our shareholders from bringing, and attorneys from agreeing to represent our shareholders wishing to bring, litigation against us or our directors, officers, employees, manager or other agents. A number of our contracts with Adam D. Portnoy, ABP Trust and our clients have similar arbitration provisions to those in our bylaws.
The arbitration provisions of our bylaws may discourage our shareholders from bringing, and attorneys from agreeing to represent our shareholders wishing to bring, litigation against us or our directors, officers, employees or other agents. A number of our contracts with Adam D. Portnoy, ABP Trust and our clients have similar arbitration provisions to those in our bylaws.
Such events could also adversely impact our other clients and cause significant losses if such clients or their tenants, managers or borrowers are unable to operate their businesses due to damage resulting from such events. Insurance may not sufficiently cover all losses sustained by our clients and their tenants, managers or borrowers.
Such events could also adversely impact our clients and cause significant losses if our clients or their tenants, managers or borrowers are unable to operate their businesses due to damage resulting from such events. Insurance may not sufficiently cover all losses sustained by our clients and their tenants, managers or borrowers.
If we cannot retain and motivate our key and talented personnel and recruit, retain and motivate new talented personnel, our business, results and financial condition could be adversely affected. Our people are the foundation of our success and in many ways our most critical asset.
If we cannot retain and motivate our key and talented personnel and recruit, retain and motivate new talented personnel, our business, operating results and financial condition could be adversely affected. Our people are the foundation of our success and in many ways our most critical asset.
The risks associated with each client’s business could adversely affect its ability to carry out its business plans and objectives, and, as a result, could adversely impact its ability to pay us management or advisory fees or cause the amounts of those fees to decline.
The risks associated with each client’s business could adversely affect its ability to carry out its business plans and objectives, and, as a result, could adversely impact its ability to pay us management fees or cause the amounts of those fees to decline.
Our bylaws currently provide that, unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim for breach of a fiduciary duty owed by any director, officer, agent or employee of ours to us or our shareholders; (3) any action asserting a claim against us or any director, officer, agent or employee of ours arising pursuant to Maryland law or our charter or bylaws brought by or on behalf of a shareholder either on such shareholder’s own behalf, on our behalf or on behalf of any series or class of our shareholders or shareholders against us or any of our directors, officers, agents or employees, including any claims relating to the meaning, interpretation, effect, validity, performance or enforcement of our charter or bylaws; or (4) any action asserting a claim against us or any director, officer, agent or employee of ours that is governed by the internal affairs doctrine of the State of Maryland.
Our bylaws currently provide that, unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim for breach of a fiduciary duty owed by any director, officer, agent or employee of ours to us or our shareholders; (3) any action asserting a claim against us or any director, officer, agent or employee of ours arising pursuant to Maryland law or our charter or bylaws brought by or on behalf of a shareholder either on such shareholder’s own behalf, on our behalf or on behalf of any series or class of our stock or our shareholders against us or any of our directors, officers, agents or employees, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of our charter or bylaws; or (4) any action asserting a claim against us or any director, officer, agent or employee of ours that is governed by the internal affairs doctrine of the State of Maryland.
Copies of these reports are available at the SEC’s website, www.sec.gov. Risks Related to Our Securities A trading market that provides adequate liquidity may not be sustained for our Class A Common Shares and the market price of our Class A Common Shares may fluctuate widely. Our public float represents about 48.8% of the economic interest in RMR LLC.
Copies of these reports are available at the SEC’s website, www.sec.gov. Risks Related to Our Securities A trading market that provides adequate liquidity may not be sustained for our Class A Common Shares and the market price of our Class A Common Shares may fluctuate widely. Our public float represents about 48.9% of the economic interest in RMR LLC.
In addition, certain proxy advisory firms which have significant influence over the voting by shareholders of public companies, have, in the past, recommended that shareholders vote against, or withhold votes for, the election of board members at annual meetings of shareholders of our clients, and they may advocate for similar voting actions for future meetings.
In addition, certain proxy advisory firms which have significant influence over the voting by shareholders of public companies, have, in the past, recommended that shareholders vote against, or withhold votes for, the election of board members at annual meetings of shareholders of our clients and vote against certain proposals at special meetings of shareholders, and they may advocate for similar voting actions for future meetings.
Our bylaws also generally provide that each party to such an arbitration is required to bear its own costs in the arbitration, including attorneys’ fees, and that the arbitrators may not render an award that includes shifting of such costs or, in a derivative or class proceeding, award any portion of our award to any shareholder or such shareholder’s attorneys.
Our bylaws also generally provide that each party to such an arbitration is required to bear its own costs in the arbitration, including attorneys’ fees, and that the arbitrators may not render an award that includes shifting of such costs or, in a derivative or class proceeding, award any portion of our or any other party’s award to any shareholder or such shareholder’s attorneys.
As a result, we and our shareholders would not be able to pursue litigation in state or federal court against us or our directors, officers, employees or other agents, including, for example, claims alleging violations of federal securities laws or breach of fiduciary duties or similar director or officer duties under Maryland Law, if we or any of our directors, officers, employees, agents or other parties against whom the claim is made unilaterally demands the matter be resolved by arbitration.
As a result, we and our shareholders would not be able to pursue litigation in state or federal court against us or our directors, officers, employees or other agents, including, for example, claims alleging violations of federal securities laws or breach of fiduciary duties or similar director or officer duties under Maryland Law, if we or any of our directors, officers, employees, agents or other parties against whom the claim is made unilaterally 23 Table of Contents demands the matter be resolved by arbitration.
These actions may affect the outcome of those elections and impact the governance of those clients, which may increase the risk of shareholder activism and litigation at those clients. These activities could result in substantial costs and diversion of our management’s attention and could have a material adverse effect on our and our clients’ reputations and businesses.
These actions may affect the outcome of those shareholder votes and impact the governance of those clients, which may increase the risk of shareholder activism and litigation at those clients. These activities could result in substantial costs and diversion of our management’s attention and could have a material adverse effect on our and our clients’ reputations and businesses.
Any person or entity purchasing or otherwise acquiring or holding any interest in our shares of beneficial interest shall be deemed to have notice of and to have consented to these provisions of our bylaws, as they may be amended from time to time.
Any person or entity purchasing or otherwise acquiring or holding any interest in our shares of stock shall be deemed to have notice of and to have consented to these provisions of our bylaws, as they may be amended from time to time.
In addition, the United States Supreme Court has repeatedly upheld agreements to arbitrate other federal statutory claims, including those that implicate important federal policies. However, some academics, legal practitioners and 24 Table of Contents others are of the view that charter or bylaw provisions mandating arbitration are not enforceable with respect to federal securities laws claims.
In addition, the United States Supreme Court has repeatedly upheld agreements to arbitrate other federal statutory claims, including those that implicate important federal policies. However, some academics, legal practitioners and others are of the view that charter or bylaw provisions mandating arbitration are not enforceable with respect to federal securities laws claims.
Additionally, to the extent that RMR Inc. requires funds and RMR LLC is restricted from making such distributions under applicable law or regulation or under the terms of financing or other arrangements, or is otherwise unable to provide such funds, our liquidity and financial condition could be materially adversely affected. Item 1B. Unresolved Staff Comments None.
Additionally, to the extent that RMR Inc. requires funds and RMR LLC is restricted from making such distributions under applicable law or regulation or under the terms of financing or other arrangements, or is otherwise unable to provide such funds, our liquidity and financial condition could be materially adversely affected. 25 Table of Contents Item 1B. Unresolved Staff Comments None.
Any change in our dividend policy could have a material adverse effect on the market price of our Class A Common Shares. Risks Related to Our Relationships with Our Controlling Shareholder and Our Clients Our controlling shareholder controls our voting power, and our other shareholders will have less influence over our business than shareholders of most other publicly traded companies.
Any change in our dividend policy could have a material adverse effect on the market price of our Class A Common Shares. 20 Table of Contents Risks Related to Our Relationships with Our Controlling Shareholder and Our Clients Our controlling shareholder controls our voting power, and our other shareholders will have less influence over our business than shareholders of most other publicly traded companies.
In addition, we generally only earn an incentive business management fee under our business management agreement with a Managed Equity REIT if it outperforms an identified REIT total shareholder return index during the measurement period and certain 14 Table of Contents other conditions are satisfied, as measured at the end of the applicable measurement period.
In addition, we generally only earn an incentive business management fee under our business management agreement with a Managed Equity REIT if it outperforms an identified REIT total shareholder return index during the measurement period and certain other conditions are satisfied, as measured at the end of the applicable measurement period.
RMR Inc. is the managing member of RMR LLC. As of September 30, 2022, Adam D. Portnoy beneficially owned in aggregate, directly and indirectly through ABP Trust, a combined direct and indirect 51.2% economic interest in RMR LLC and controlled 91.2% of the aggregate voting power of our outstanding capital stock. As a result of this voting control, Adam D.
RMR Inc. is the managing member of RMR LLC. As of September 30, 2023, Adam D. Portnoy beneficially owned in aggregate, directly and indirectly through ABP Trust, a combined direct and indirect 51.1% economic interest in RMR LLC and controlled 91.2% of the aggregate voting power of our outstanding capital stock. As a result of this voting control, Adam D.
Reduced business activities, market capitalizations, shareholder returns, rents or capital projects of the Managed Equity REITs or Managed Private Real Estate Capital clients may materially reduce our revenues and our profitability. Our revenues may be highly variable.
Reduced business activities, market capitalizations, shareholder returns, rents or capital projects of the Managed Equity REITs or Private Capital clients may materially reduce our revenues and our profitability. Our revenues may be highly variable.
Moreover, any such challenge could result in substantial costs and a diversion of our management’s attention, could have a material adverse effect on our or our clients’ reputation, business and growth and could adversely affect our or our clients’ ability to realize the benefits expected from the transactions, whether or not the allegations have merit or are substantiated.
Moreover, any such challenge could result in substantial costs and a diversion of our management’s attention, could have a material adverse effect on our or our clients’ reputation, business and growth and could 21 Table of Contents adversely affect our or our clients’ ability to realize the benefits expected from the transactions, whether or not the allegations have merit or are substantiated.
In such event, we may not be able to implement our business and growth strategy to the extent intended. 18 Table of Contents Risks Related to the Businesses of Our Clients Risks associated with our clients’ businesses could adversely affect their respective abilities to grow, generate revenue, increase their market capitalizations and pay management fees.
In such event, we may not be able to implement our business and growth strategy to the extent intended. Risks Related to the Businesses of Our Clients Risks associated with our clients’ businesses could adversely affect their respective abilities to grow, generate revenue, increase their market capitalizations and pay management fees.
ABP Trust controls 100.0% of our Class B-1 Common Shares (which are exchangeable for Class A Common Shares) and Class B-2 Common Shares, some of our currently outstanding Class A Common Shares and approximately 49.0% of our Class A Units of RMR LLC (which ABP Trust may cause RMR LLC to redeem for, at our election, Class A Common Shares on a one for one basis or cash).
ABP Trust controls 100.0% of our Class B-1 Common Shares (which are exchangeable for Class A Common Shares) and Class B-2 Common Shares, some of our currently outstanding Class A Common Shares and approximately 48.8% of our Class A Units of RMR LLC (which ABP Trust may cause RMR LLC to redeem for, at our election, Class A Common Shares on a one for one basis or cash).
For example, our strategic initiatives may include joint ventures or partnerships, in which case we will be subject to additional risks and uncertainties because we may be dependent upon, and subject to liability, losses or reputational damage relating to systems, controls and personnel that are not under our control.
In addition, our strategic initiatives may include joint ventures or partnerships, in which case we will be subject to additional risks and uncertainties because we may be dependent upon, and subject to liability, losses or reputational damage relating to systems, controls and personnel that are not under our control.
Although much of our staff returned to our offices during the pandemic, flexible working arrangements have resulted in a higher extent of remote working than we experienced prior to the pandemic.
Although most of our staff returned to our offices during the pandemic, flexible working arrangements have resulted in a higher extent of remote working than we experienced prior to the pandemic.
A discussion of the businesses and the risks associated with the businesses of our clients that are SEC registrants is contained in the reports filed by our clients, including in the section captioned “Risk Factors” in each Managed REIT’s, ALR’s and TA’s Annual Reports on Form 10-K for the year ended December 31, 2021, as those Risk Factors may have been updated or supplemented in those companies’ Quarterly Reports on Form 10-Q filed subsequently.
A discussion of the businesses and the risks associated with the businesses of our clients that are SEC registrants is contained in the reports filed by our clients, including in the section captioned “Risk Factors” in each Managed REIT’s Annual Report on Form 10-K for the year ended December 31, 2022, as those Risk Factors may have been updated or supplemented in those companies’ Quarterly Reports on Form 10-Q filed subsequently.
If any of our management or advisory agreements with a client is terminated, we may be unable to replace the lost revenue.
If any of our management agreements with a client is terminated, we may be unable to replace the lost revenue.
Our ability to achieve benefits from any tax basis increase, and the payments to be made under the tax receivable agreement, will depend upon a number of factors, including the timing and amount of our future income.
Our ability to achieve benefits from any tax basis increase, and the 24 Table of Contents payments to be made under the tax receivable agreement, will depend upon a number of factors, including the timing and amount of our future income.
If we and our clients fail to satisfy the expectations of investors and our clients’ tenants, managers, borrowers, customers, employees and other stakeholders or our or our clients’ announced goals and other initiatives are not executed as planned, our and our clients’ reputation and financial results could be adversely affected, the management fees we may earn from our clients may decline, and our revenues, results of operations and ability to grow our business may be negatively impacted.
If we and our clients fail to comply with ESG related regulations and to satisfy the expectations of investors and our clients’ tenants, managers, borrowers, customers, employees and other stakeholders or our or our clients’ announced goals and other initiatives are not executed as planned, our and our clients’ reputation and financial results could be adversely affected, the management fees we may earn from our clients may decline, and our revenues, results of operations and ability to grow our business may be negatively impacted.
As a result, the management agreements may discourage a change of control of us, including a change of control which might result in payment of a premium for our Class A Common Shares. 21 Table of Contents The registration of Tremont under the Investment Advisers Act may discourage our change of control.
As a result, the management agreements may discourage a change of control of us, including a change of control which might result in payment of a premium for our Class A Common Shares. The registration of Tremont under the Investment Advisers Act may discourage our change of control.
Further, the fees we earn under our property management agreements with the Managed Equity REITs and our Managed Private Real Estate Capital clients are based on a percentage of the rents they receive and a percentage of the costs of construction, in each case, at properties we manage for them and certain of our Managed Operating Companies.
Further, the fees we earn under our property management agreements with the Managed Equity REITs and certain of our Private Capital clients are based on a percentage of the rents they receive and a percentage of the costs of construction, in each case, at properties we manage for them.
However, it is possible that these measures will not prevent the systems’ improper functioning or a compromise in security, such as in the event of a cyberattack or the improper disclosure of personally identifiable information.
However, it is possible that these measures will not prevent the systems’ improper functioning or a 16 Table of Contents compromise in security, such as in the event of a cyberattack or the improper disclosure of personally identifiable information.
We have established internal policies designed to ensure that we manage our business in accordance with applicable law and regulation and in accordance 16 Table of Contents with our contractual obligations. These internal policies may not be effective in all regards; and, if we fail to comply with our internal policies, we could be subjected to additional risk and liability.
We have established internal policies designed to ensure that we manage our business in accordance with applicable law and regulation and in accordance with our contractual obligations. These internal policies may not be effective in all regards; and, if we fail to comply with our internal policies, we could be subjected to additional risk and liability.
For example, if we do not satisfy the applicable measures for calendar year 2022 under our management agreements with DHC or SVC, DHC or SVC, as applicable, will have the right to terminate its management agreement by prior written notice to us within 60 days following December 31, 2022, and in which case, it would be required to pay us the applicable termination fee.
For example, if we do not satisfy the applicable measures for calendar year 2023 under our management agreements with DHC or ILPT, as applicable, such company will have the right to terminate its management agreement by prior written notice to us within 60 days following December 31, 2023, and in which case, it would be required to pay us the applicable termination fee.
Many investment funds are precluded from investing in companies that are not included in such indices, and these funds would be unable to purchase our Class A Common Shares. We cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future.
Many investment funds are precluded from investing in companies that are not included in such indices, and these funds would be unable to purchase our Class A Common Shares. We cannot assure you that other stock indices will not take a similar approach to FTSE Russell in the future.
The shareholder returns realized by a Managed Equity REIT, its market capitalization and its ability to raise capital or make investments may be impacted by trends in the Managed Equity REIT’s portfolio, the U.S. real estate industry generally, the Managed Equity REIT’s industry specifically or other factors that are outside of our or its control, including inflation, rising interest rates, supply chain challenges and economic downturns or recessions.
The shareholder returns realized by a Managed Equity REIT, its market capitalization and its ability to raise capital or make investments may be impacted by trends in the Managed Equity REIT’s portfolio, the U.S. commercial real estate industry generally, the Managed Equity REIT’s industry specifically or other factors that are outside of our or its control, including prolonged high inflation, rising and 13 Table of Contents sustained high interest rates, supply chain challenges and economic downturns or recessions.
The timing, number and amount of any future interest rate increases are uncertain. Increases in market interest rates may materially and negatively affect us.
The timing, number and amount of any future interest rate increases are uncertain. 14 Table of Contents Increases in market interest rates may materially and negatively affect us.
Although we are not currently availing ourselves of these exceptions, the fact that we could in the future may cause our Class A Common Shares to trade at a lower price than if these protections were provided. Our rights and the rights of our shareholders to take action against our directors and officers are limited.
Although we are not currently availing ourselves of these exceptions, the fact that we could in the future may cause our Class A Common Shares to trade at a lower price than if we were required to afford these protections. 22 Table of Contents Our rights and the rights of our shareholders to take action against our directors and officers are limited.
Our business may be adversely affected by market and economic volatility experienced by the U.S. and global economies, the real estate industry as a whole and/or the local economies in the markets in which our clients’ properties are located.
Our business and operations may be adversely affected by market and economic volatility experienced by the U.S. and global economies, the commercial real estate industry and/or the local economies in the markets in which our clients’ properties are located.
The extent and nature of the experience of our executive officers and of the relationships they have with real estate professionals and financial institutions, although not a guarantee of positive results, are critical to the success of our business.
Portnoy, and other key and talented personnel. The extent and nature of the experience of our executive officers and of the relationships they have with real estate professionals and financial institutions, although not a guarantee of positive results, are critical to the success of our business.
For example, the properties owned by our Managed Equity REITs and our Managed Private Real Estate Capital clients could be severely damaged or destroyed by physical climate risks that could materialize as either singular extreme weather events (for example floods, storms and wildfires) or through long-term impacts of climatic conditions (such as precipitation frequency, weather instability and rise of sea levels).
For example, the properties owned or operated by our clients could be severely damaged or destroyed by physical climate risks that could materialize as either singular extreme weather events (for example floods, storms and wildfires) or through long-term impacts of climatic conditions (such as precipitation frequency, weather instability and rise of sea levels).
In July 2022, we announced our zero emissions goal pursuant to which we have pledged to reduce our scope 1 and 2 emissions to net zero by 2050 with a 50% reduction commitment by 2030 from a 2019 baseline.
Pursuant to our zero emissions goal, we have pledged to reduce our scope 1 and 2 emissions to net zero by 2050 with a 50% reduction commitment by 2030 from a 2019 baseline.
In addition, we or our clients may incur significant costs in attempting to comply with ESG policies or third party expectations or demands. We and our clients are subject to risks from adverse weather, natural disasters and climate events.
In addition, we or our clients may incur significant costs in attempting to comply with regulatory requirements, ESG policies or third party expectations or demands. We and our clients are subject to risks from adverse weather, natural disasters and adverse impact from global climate change.
We and our clients are subject to risks and could be exposed to additional costs from adverse weather, natural disasters and climate events.
We and our clients are subject to risks and could be exposed to additional costs from adverse weather, natural disasters and adverse impact from global climate change.
The following is a summary of the principal risk factors described in this section: • unfavorable market and industry conditions may have a material adverse effect on our and our clients’ results of operations, financial condition and ability to pay dividends; • some of our clients’ businesses may not return to levels experienced prior to the COVID-19 pandemic; • most of our revenues are derived from services to a limited number of clients; • our management fees from our clients are based, in general, on cost of assets, market capitalization, shareholder returns, rent receipts, capital projects or certain revenues, as applicable, and, accordingly our future revenues, income and cash flows will decline if the business activities, assets, market capitalizations, shareholder returns, rent receipts, capital projects or certain revenues of our clients decline; • our revenues may be highly variable; • potential terminations of our management agreements with our clients; • increases in market interest rates may significantly reduce our revenues or impede our growth; • our ability to expand our business depends upon the growth and performance of our clients and our ability to obtain or create new clients for our business and is often dependent upon circumstances beyond our control; • our ability to continue to pay a regular quarterly dividend is dependent on many factors, including current and expected earnings and alternative uses for available cash and our Board of Directors may decide to lower our dividends; • our and our Managed Operating Companies’ ability to attract, retain and motivate sufficient qualified personnel in a challenging labor market and to effectively manage our and their labor costs; • our ability to retain the services of our controlling shareholder and other key and talented personnel; • our and our clients’ risks associated with our and their costs of compliance with laws and regulations, including securities regulations, exchange listing standards and other laws and regulations affecting public companies; • ESG initiatives, requirements and market expectations may impose additional costs and expose us and our clients to new risks; • risks related to the security of our information technology; • risks related to supply chain constraints, commodity pricing and other inflation, including inflation impacting wages and employee benefits; • 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; and • risks to holders of our Class A Common Shares as a result of our dual class capital structure.
The following is a summary of the principal risk factors described in this section: • unfavorable market and industry conditions may have a material adverse effect on our and our clients’ results of operations, financial condition and ability to pay dividends; • most of our revenues are derived from services to a limited number of clients; • our management fees from our clients are based, in general, on cost of assets, enterprise values, shareholder returns, rent receipts, capital projects or certain revenues, as applicable, and, accordingly our future revenues, income and cash flows will decline if the business activities, assets, enterprise values, shareholder returns, rent receipts, capital projects or certain revenues of our clients decline; • our revenues may be highly variable; • potential terminations of our management agreements with our clients; • our ability to complete the CARROLL Acquisition, and if completed, our ability to successfully integrate the CARROLL business and realize our expected returns on our investment; • additional increases in interest rates and sustained high interest rates may significantly impact our clients and in turn adversely impact our revenues or impede our growth; • our ability to expand our business depends upon the growth and performance of our clients and our ability to obtain or create new clients for our business, including through our acquisition of new businesses, and is often dependent upon circumstances beyond our control; • our ability to continue to pay a regular quarterly dividend is dependent on many factors, including current and expected earnings and alternative uses for available cash and our Board of Directors may decide to lower our dividends; • our and our operating company clients’ ability to attract, retain and motivate sufficient qualified personnel in a challenging labor market and to effectively manage our and our operating company clients’ labor costs; • our ability to retain the services of our controlling shareholder and other key and talented personnel; • our and our clients’ risks associated with our and their costs of compliance with laws and regulations, including securities regulations, exchange listing standards and other laws and regulations affecting public companies; • our ESG initiatives, federal and state regulations, other requirements and investor expectations may impose additional costs and expose us and our clients to new risks; • risks related to the security of our network and information technology; • risks related to inflation, including inflation impacting wages and employee benefits; • 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; and • risks to holders of our Class A Common Shares as a result of our dual class capital structure.
As a result, our Class A Common Shares will likely not be eligible for these stock indices and may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure.
As a result, our Class A Common Shares may not be included in certain stock indices and may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure.
Our and our clients’ agreements with related parties or in respect of transactions among related parties may not be on terms as favorable to us as they would have been if they had been negotiated among unrelated parties.
Our and our clients’ agreements with related parties or in respect of transactions among related parties may not be on terms as favorable to us as they would have been if they had been negotiated among unrelated parties. Our shareholders or the shareholders of one or more of our clients may challenge such related party transactions.
Additionally, some of our clients may be negatively impacted by an economic downturn and a corresponding reduction in economic activity that reduces trucking volume, business and leisure travel, hotel occupancy and demand for diesel fuel, gasoline, and office, retail and industrial space, and may also limit the ability of residents and potential residents to pay for senior living communities.
In addition, some of our clients may be negatively impacted by an economic downturn and a corresponding reduction in economic activity that reduces business and leisure travel, commerce, hotel occupancy and demand for office, retail and industrial space, and may also limit the ability of residents and potential residents to pay for senior living community services.
Some investors may be precluded from investing in our Class A Common Shares as a result of our dual class capital structure, which may adversely affect the trading price of our Class A Common Shares.
Some investors may not invest in our Class A Common Shares as a result of our dual class capital structure, which may adversely affect the trading price of our Class A Common Shares.
Our Managed Operating Companies have experienced high revenue volatility in the past, and given the nature of the Managed Operating Companies’ businesses (i.e., travel centers, senior living communities and hotels), may continue to experience revenue volatility for the reasonably foreseeable future. Our management agreements with our clients are subject to termination.
AlerisLife and Sonesta experienced high revenue volatility in the past, and given the nature of AlerisLife and Sonesta’s businesses (i.e., senior living communities and hotels), may continue to experience revenue volatility for the reasonably foreseeable future. Our management agreements with our clients are subject to termination.
For example, in the fiscal year ended September 30, 2019, our incentive business management fees earned from the Managed Equity REITs was 39.9% of our total management and advisory services revenues, and we earned no incentive business management fees during the past three fiscal years from the Managed Equity REITs.
For example, in the fiscal year ended September 30, 2019, our incentive business management fees earned from the Managed Equity REITs was 39.9% of our total management and advisory services revenues, and we have not subsequently earned any incentive business management fees from the Managed Equity REITs.
To the extent the Managed Equity REITs or our applicable Managed Operating Companies receive reduced rent or incur lower construction costs, our property management fee revenues would be negatively impacted. Also, the fees under our management agreements with the Managed Operating Companies are based on a percentage of revenues earned by them or generated at the properties they manage.
To the extent the Managed Equity REITs or certain Private Capital clients receive reduced rent or incur lower construction costs, our property management fee revenues would be negatively impacted. Also, the fees under our management agreements with respect to AlerisLife and Sonesta are based on a percentage of revenues earned by them or generated at the properties they operate.
If our clients reduce the amount of, or stop making, similar grants in the future, or if the value of any equity awards they may grant are lower than anticipated, we may need to increase the amount of compensation we pay to offset the reduction in compensation our officers and other applicable employees would otherwise receive.
If our clients reduce the amount of, or stop making, similar grants in the future, or if the value of any equity awards they may grant are lower than anticipated, we may need to increase other compensation or incentives for our employees.
Investors and prospective investors should consider these risks, the information contained under the heading “Warning Concerning Forward-Looking Statements” and the risks described elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.
Investors and prospective investors should consider these risks, the information contained under the heading “Warning Concerning Forward- 12 Table of Contents Looking Statements” and the risks described elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities. We may update these risk factors in our future periodic reports.
Moreover, the increases in interest rates has led to increased borrowing costs for our clients and may negatively impact their access to capital to fund future growth, reduce their earnings and total shareholder returns and cause SEVN’s borrowers to 15 Table of Contents default, which may materially reduce the fees we earn under our business management agreements with our clients.
Moreover, the increases in interest rates has led to increased borrowing costs for our clients and may negatively impact their access to capital to fund future growth, reduce their earnings and total shareholder returns and cause the Managed REITs’ and our real estate business Private Capital vehicles’ tenants and operators and SEVN’s borrowers to default on their rent and debt obligations, which may materially reduce the fees we earn under our management agreements with our clients.
Additionally, some of our clients have material business relationships with, and in some instances have engaged in material transactions with, other of our 22 Table of Contents clients that could give rise to conflicting interests. Our controlling shareholder’s investment in some of our clients also could give rise to conflicting interests.
Additionally, some of our clients have material business relationships with, and in some instances have engaged in material transactions with, other of our clients that could give rise to conflicting interests. Our controlling shareholder’s investment in some of our clients also could give rise to conflicting interests. Our clients rely on information and management services we provide to them.
Misconduct by an employee might rise to the level of a default that would permit a client to terminate its management agreements or advisory agreements with us for cause and without paying a termination fee, which could materially adversely affect our business, results of operations and financial condition.
Misconduct by an employee might rise to the level of a default that would permit a client to terminate its management agreements with us for cause and without paying a termination fee, which could materially adversely affect our business, results of operations and financial condition. 17 Table of Contents RMR LLC’s required quarterly tax distributions may limit our ability to implement our business or pursue growth opportunities.
RMR LLC’s required quarterly tax distributions may limit our ability to implement our business or pursue growth opportunities. Under the RMR LLC operating agreement, RMR LLC is required to make certain pro rata distributions to each member of RMR LLC, including RMR Inc., quarterly on the basis of the assumed tax liabilities of the members.
Under the RMR LLC operating agreement, RMR LLC is required to make certain pro rata distributions to each member of RMR LLC, including RMR Inc., quarterly on the basis of the assumed tax liabilities of the members.
Declines in revenue, business or assets of a client may result in a corresponding decline or reduced market capitalizations for another client due to their business relationships with each other. Some of our clients have significant interests in other clients of ours, including ownership interests and business arrangements.
Declines in revenue, business or assets of a client may result in a corresponding decline or reduced market capitalizations for another client due to their business relationships with each other.
Unfavorable economic and industry conditions may be due to, among other things, rising interest rates, labor market challenges, supply chain disruptions, volatility in the public equity and debt markets, pandemics, geopolitical instability (such as the war in Ukraine), and other conditions beyond our control.
Unfavorable economic and industry conditions may be due to, among other things, rising or sustained high interest rates, prolonged high inflation, labor market challenges, supply chain disruptions, volatility in the public equity and debt markets, pandemics, geopolitical instability and tensions (such as the ongoing wars in Ukraine and the Middle East), possible economic recession, changes in real estate utilization and other conditions beyond our control.
We may update these risk factors in our future periodic reports. 13 Table of Contents Risks Related to Our Business Unfavorable market and industry conditions may have a material adverse effect on our and our clients’ results of operations, financial condition and ability to pay dividends.
Risks Related to Our Business Unfavorable market and industry conditions may have a material adverse effect on our and our clients’ results of operations, financial condition and ability to pay dividends.
Adverse conditions may also give rise to an increase in tenant defaults under our clients’ leases, defaults of SEVN’s loans, and decreased market capitalizations, shareholder returns, rent receipts and capital projects for the Managed Equity REITs. Increases in market interest rates may significantly reduce our revenues or impede our growth.
These conditions may also give rise to an increase in tenant defaults under our clients’ leases, defaults of SEVN’s loans, decreased market capitalizations, shareholder returns, rent receipts and capital projects for the Managed Equity REITs and decreased financial performance of and lower returns for our Private Capital clients.
Portnoy serves as the chair of the board and as a managing trustee or managing director, of each Managed REIT, TA and ALR and as a director of Sonesta (and its parent); certain of our other officers serve as managing trustees, managing directors or directors of our clients; and all of the executive officers of the Managed REITs and many of the executive officers of the Managed Operating Companies are our officers and employees.
Portnoy serves as the chair of the board and as a managing trustee of each Managed REIT, as a director of Sonesta (and its parent) and as the sole director of AlerisLife; certain of our other officers serve as managing trustees or directors of our clients; and all of the executive officers of the Managed REITs, one of the executive officers of AlerisLife and one of the executive officers of Sonesta is an officer and employee of ours.
Our governing documents do not limit our ability to enter into new lines of businesses and doing so may result in additional risks and uncertainties in our businesses. Our governing documents do not limit our business to the management of commercial real estate assets or businesses related thereto. Accordingly, we may pursue other business initiatives.
Our governing documents do not limit our business to the management of commercial real estate assets or businesses related thereto. Accordingly, we may pursue other business initiatives.
The risk of a security breach or disruption, particularly through cyberattack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. 17 Table of Contents The cybersecurity risks to us, our clients and third party vendors are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities against us, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in our or other third parties’ information technology networks and systems or operations.
The cybersecurity risks to us, our clients and third party vendors are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities against us, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in our or other third parties’ information technology networks and systems or operations.
As a result of these limitations on liability and indemnification obligations, we and our shareholders may have more limited rights against our present and former directors and officers than might exist with other companies, which could limit shareholder recourse in the event of actions which some shareholders may believe are not in our best interest. 23 Table of Contents Our bylaws designate the Circuit Court for Baltimore City, Maryland or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, manager, agents or employees.
Our bylaws designate the Circuit Court for Baltimore City, Maryland or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, manager, agents or employees.
Additionally, our governing documents require us to indemnify, to the maximum extent permitted by Maryland law, any of our present or former directors or executive officers who is made or threatened to be made a party to a proceeding by reason of his, her or their service in that capacity.
Additionally, our governing documents require us to indemnify, to the maximum extent permitted by Maryland law, any of our present or former directors or executive officers who is made or threatened to be made a party or otherwise involved in a proceeding by reason of his, her or their service in that capacity and to pay his, her or their expenses in advance of final disposition of a proceeding upon our receipt of an undertaking by or on behalf of such person to repay such amount if it is ultimately determined that such person is not entitled to be indemnified by us.
Historically we have not had employment agreements with our key employees and we have no present intention to enter into any. Our ability to recruit, retain and motivate our personnel is dependent on our ability to offer attractive compensation, opportunities for professional growth and a desirable work environment.
We do not have employment agreements with our key employees. Our ability to recruit, retain and motivate our personnel is dependent on our ability to offer attractive compensation, opportunities for professional growth and a desirable work environment. In addition, the Managed REITs have historically granted equity awards to our officers and certain other employees of ours.
Our lack of compliance with applicable law could result in, among other things, our inability to enforce contracts, our default under contracts (including our management agreements or advisory agreements with our clients) and our ineligibility to contract with, and receive revenue from, governmental authorities and agencies, our clients or other third parties.
Our lack of compliance with applicable law could result in, among other things, our inability to enforce contracts, our default under contracts (including our management agreements with our clients) and our ineligibility to contract with, and receive revenue from, governmental authorities and agencies, our clients or other third parties. 15 Table of Contents We have numerous contractual obligations with which we must comply on a continuous basis to operate our business, the default of which could have a material adverse effect on our business and financial condition.
From time to time, RMR LLC’s cash flows from operations may be insufficient to enable it to make required minimum tax distributions to its members. RMR LLC may have to borrow funds or sell assets to fund its distribution requirements, and thereby materially adversely affect our liquidity and financial condition.
RMR LLC may have to borrow funds or sell assets to fund its distribution requirements, and thereby materially adversely affect our liquidity and financial condition.
Additionally, under our governing documents, our directors, officers, employees and agents are permitted to engage in other business activities that are similar to, or even competitive with, our own. 25 Table of Contents If such persons engage in competitive business activities, we may have no remedy under our governing documents in these circumstances.
These opportunities may be directed to the clients or other persons or entities to which RMR LLC may have a relationship. Additionally, under our governing documents, our directors, officers, employees and agents are permitted to engage in other business activities that are similar to, or even competitive with, our own.
During the past year, we expanded our managed private real estate capital through the execution of new business ventures; our managed private real estate capital assets under management increased during the past year from approximately $1.3 billion as of September 30, 2021 to $3.9 billion as of September 30, 2022.
During the past two years, we expanded our Private Capital through the execution of new business ventures; our Private Capital assets under management increased from approximately $1.7 billion as of September 30, 2021 to approximately $7.7 billion as of September 30, 2023 and if the CARROLL Acquisition is completed, our Private Capital assets under management are expected to increase by approximately $7 billion.
Supply chain constraints and commodity pricing and other inflation, including inflation impacting wages and employee benefits, may continue to negatively impact us and our clients and our and their businesses, results of operations and ability to grow. The global economy has been experiencing supply chain constraints and commodity pricing and other inflation, including inflation impacting wages and employee benefits.
Inflation may continue to negatively impact us and our clients and our and their businesses, results of operations and ability to grow. The global economy continues to experience commodity pricing and other inflation, including inflation impacting wages and employee benefits. Although inflation rates have recently declined, they remain higher than pre-COVID-19 pandemic levels.
Portnoy and RMR LLC and its subsidiaries and their officers and employees, and actual, potential or perceived conflicts of interest may arise. Shareholder litigation, dissident shareholder director nominations and dissident shareholder proposals have often been instituted against companies alleging conflicts of interest in business dealings with affiliated and related persons and entities.
Shareholder litigation, dissident shareholder director nominations and dissident shareholder proposals have often been instituted against companies alleging conflicts of interest in business dealings with affiliated and related persons and entities. The various relationships noted above may precipitate such activities.
Moreover, we are subject to the risk that our shareholders or the shareholders of one or more of our clients may challenge any such related party transactions. If challenges to related party transactions were to be successful, we or our clients might not realize the benefits expected from the transactions being challenged.
Although all past challenges have been unsuccessful, if any future challenges to related party transactions were to be successful, we or our clients might not realize the benefits expected from the transactions being challenged.
These impacts have reduced, and may continue to reduce, our clients’ market capitalizations, revenues and capital projects, which may reduce the fees we earn from them. Higher interest rates may reduce the value of our clients’ properties, increase the cost of their capital, and reduce their ability to make acquisitions.
Higher interest rates may reduce the value of our clients’ properties, increase the cost of their capital and reduce their ability to make acquisitions, and have increased their debt service costs.
Higher interest rates also may reduce dispositions by the Managed Equity REITs that could limit their ability to reduce leverage and recycle capital. Further, current market conditions have negatively impacted the stock price of some of the Managed Equity REITs, which in turn has negatively impacted the fees we earn from them.
Further, unfavorable market conditions have negatively impacted the stock price of some of the Managed Equity REITs, which in turn has negatively impacted the fees we earn from them.
Further, our Managed Private Real Estate Capital clients have comprised an increasing portion of our revenues and our current business plans contemplate that trend continuing.
The fees we earn from providing management services to, and the reimbursable fees we receive from, the Managed Equity REITs comprise most of our revenues. Further, our Private Capital clients have comprised an increasing portion of our assets under management and revenues, and our current business plans contemplate that trend continuing.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeFor more information about our leased facilities, please see Note 10, Leases , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
Biggest changeFor more information about our leased facilities, see Note 10, Leases , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Removed
Mine Safety Disclosures Not applicable. 26 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table provides information about our purchases of our equity securities during the fiscal year ended September 30, 2022: 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 October 2021 225 $ 34.05 N/A N/A March 2022 745 $ 30.65 N/A N/A September 2022 19,941 $ 25.89 N/A N/A Total 20,911 $ 26.15 N/A N/A (1) These Class A Common Share withholdings and purchases were made to satisfy tax withholding and payment obligations of certain of our Directors, officers and employees in connection with the vesting of awards of our Class A Common Shares.
Biggest changeThe following table provides information about our purchases of our equity securities during the fiscal year ended September 30, 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 October 1, 2022 - October 31, 2022 134 $ 24.25 N/A N/A December 1, 2022 - December 31, 2022 761 28.25 N/A N/A January 1, 2023 - January 31, 2023 758 28.38 N/A N/A March 1, 2023 - March 31, 2023 1,238 26.08 N/A N/A May 1, 2023 - May 31, 2023 2,785 21.46 N/A N/A June 1, 2023 - June 30, 2023 1,707 23.76 N/A N/A July 1, 2023 - July 31, 2023 873 23.69 N/A N/A September 1, 2023 - September 30, 2023 21,372 24.99 N/A N/A Total 29,628 $ 24.76 N/A N/A (1) These Class A Common Share withholdings and purchases were made to satisfy tax withholding and payment obligations of certain of our Directors, officers and employees 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. Item 6. [Reserved] 27 Table of Contents
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.
As of November 7, 2022, there were 2,315 shareholders of record of our Class A Common Shares. Issuer purchases of equity securities.
As of November 9, 2023, there were 2,202 shareholders of record of our Class A Common Shares. 26 Table of Contents Issuer purchases of equity securities.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe Tremont business earned fees for such brokerage services of $99 and $467 for the fiscal years ended September 30, 2022 and 2021, respectively, which amounts are included in management services revenue in our consolidated statements of income. 30 Table of Contents RESULTS OF OPERATIONS (dollars in thousands) The following table presents the changes in our operating results for the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021: Fiscal Year Ended September 30, 2022 2021 $ Change % Change Revenues: Management services $ 195,450 $ 171,102 $ 24,348 14.2% Incentive business management fees — 620 (620) n/m Advisory services 4,530 3,956 574 14.5% Total management and advisory services revenues 199,980 175,678 24,302 13.8% Reimbursable compensation and benefits 56,684 52,369 4,315 8.2% Reimbursable equity based compensation 7,072 9,154 (2,082) (22.7)% Other reimbursable expenses 568,767 370,037 198,730 53.7% Total reimbursable costs 632,523 431,560 200,963 46.6% Total revenues 832,503 607,238 225,265 37.1% Expenses: Compensation and benefits 129,872 119,644 10,228 8.5% Equity based compensation 10,136 12,022 (1,886) (15.7)% Separation costs 1,315 4,525 (3,210) (70.9)% Total compensation and benefits expense 141,323 136,191 5,132 3.8% General and administrative 32,919 26,961 5,958 22.1% Other reimbursable expenses 568,767 370,037 198,730 53.7% Transaction and acquisition related costs 132 984 (852) (86.6)% Depreciation and amortization 993 973 20 2.1% Total expenses 744,134 535,146 208,988 39.1% Operating income 88,369 72,092 16,277 22.6% Interest and other income 1,322 760 562 73.9% Gain on Tremont Mortgage Trust investment — 2,059 (2,059) n/m Equity in earnings of investees — 443 (443) n/m Unrealized gain on equity method investments accounted for under the fair value option 1,010 18,811 (17,801) (94.6)% Income before income tax expense 90,701 94,165 (3,464) (3.7)% Income tax expense (13,233) (13,152) (81) (0.6)% Net income 77,468 81,013 (3,545) (4.4)% Net income attributable to noncontrolling interest (43,464) (45,317) 1,853 4.1% Net income attributable to The RMR Group Inc. $ 34,004 $ 35,696 $ (1,692) (4.7)% n/m - not meaningful References to changes in the income and expense categories below relate to the comparison of consolidated results for the fiscal year ended September 30, 2022, compared to the fiscal year ended September 30, 2021.
Biggest changeThe Tremont business earned fees for such brokerage services of $131 and $99 for the fiscal years ended September 30, 2023 and 2022, respectively, which amounts are included in management services revenue in our consolidated statements of income. 31 Table of Contents RESULTS OF OPERATIONS (dollars in thousands) The following table presents the changes in our operating results for the fiscal year ended September 30, 2023 compared to the fiscal year ended September 30, 2022: Fiscal Year Ended September 30, 2023 2022 $ Change % Change Revenues: Management services $ 185,702 $ 195,450 $ (9,748) (5.0)% Termination and incentive business management fees 45,942 — 45,942 n/m Advisory services 4,520 4,530 (10) (0.2)% Total management and advisory services revenues 236,164 199,980 36,184 18.1% Reimbursable compensation and benefits 59,925 56,684 3,241 5.7% Reimbursable equity based compensation 9,826 7,072 2,754 38.9% Other reimbursable expenses 656,401 568,767 87,634 15.4% Total reimbursable costs 726,152 632,523 93,629 14.8% Total revenues 962,316 832,503 129,813 15.6% Expenses: Compensation and benefits 136,355 129,872 6,483 5.0% Equity based compensation 12,488 10,136 2,352 23.2% Separation costs 2,002 1,315 687 52.2% Total compensation and benefits expense 150,845 141,323 9,522 6.7% General and administrative 36,019 32,919 3,100 9.4% Other reimbursable expenses 656,401 568,767 87,634 15.4% Transaction and acquisition related costs 4,221 132 4,089 n/m Depreciation and amortization 1,102 993 109 11.0% Total expenses 848,588 744,134 104,454 14.0% Operating income 113,728 88,369 25,359 28.7% Interest income 10,574 1,322 9,252 n/m Gain on equity method investments accounted for under the fair value option 25,237 1,010 24,227 n/m Income before income tax expense 149,539 90,701 58,838 64.9% Income tax expense (21,768) (13,233) (8,535) (64.5)% Net income 127,771 77,468 50,303 64.9% Net income attributable to noncontrolling interest (70,624) (43,464) (27,160) (62.5)% Net income attributable to The RMR Group Inc. $ 57,147 $ 34,004 $ 23,143 68.1% n/m - not meaningful References to changes in the income and expense categories below relate to the comparison of consolidated results for the fiscal year ended September 30, 2023, compared to the fiscal year ended September 30, 2022.
We consider industry and general economic factors when providing services to our clients and attempt to take advantage of opportunities when they arise.
When providing services to our clients, we consider industry and general economic factors and attempt to take advantage of opportunities when they arise.
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 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.
In addition, for more information about these transactions and relationships and about the risks that may arise as a result of these and other related person transactions and relationships, please see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward Looking Statements” and Part I, Item 1A “Risk Factors.” We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.
In addition, for more information about these transactions and relationships and about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements” and Part I, Item 1A “Risk Factors.” We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.
As a result, we are not now 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.
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. Please see Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K for the risks to us and our clients.
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 this Annual Report on Form 10-K for the risks to us and our clients.
For further information about these and other such relationships and related person transactions, please see Note 2, Summary of Significant Accounting Policies and Note 5, Related Person Transactions , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which is incorporated herein by reference, the section captioned “Business” above in Part I, Item 1 of this Annual Report on Form 10-K, our other filings with the SEC and our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders, or the 2023 Proxy Statement, to be filed within 120 days after the close of the fiscal year ended September 30, 2022.
For further information about these and other such relationships and related person transactions, see Note 2, Summary of Significant Accounting Policies and Note 5, Related Person Transactions , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which is incorporated herein by reference, the section captioned “Business” above in Part I, Item 1 of this Annual Report on Form 10-K, our other filings with the SEC and our definitive Proxy Statement for our 2024 Annual Meeting of Shareholders, or the 2024 Proxy Statement, to be filed within 120 days after the close of the fiscal year ended September 30, 2023.
For a comparison of consolidated results for the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. Management services revenue.
For a comparison of consolidated results for the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022. Management services revenue.
As of September 30, 2022, 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.
As of September 30, 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.
The basis on which our base business management fees are calculated for the fiscal years ended September 30, 2022 and 2021 may differ from the basis at the end of the periods presented in the table above.
The basis on which our base business management fees are calculated for the fiscal years ended September 30, 2023 and 2022 may differ from the basis at the end of the periods presented in the table above.
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.
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.
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.
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.
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.
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. Our liquidity is highly dependent upon our receipt of fees from the businesses we manage.
ALR operates senior living communities throughout the United States, many of which are owned by and managed for DHC. Sonesta manages and franchises hotels, 29 Table of Contents 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.
AlerisLife operates senior living communities throughout the United States, 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.
In addition, we also provide management services to the Managed 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.
In addition, we also provide management services to certain other Private 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 supervision fees based on a percentage of the cost of construction activities.
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 $10,114, of which $5,314 will be distributed to us based on our aggregate ownership of 16,605,741 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.
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 $10,148, of which $5,348 will be distributed to us based on our aggregate ownership of 16,711,047 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.
As of September 30, 2022, RMR LLC managed 2,100 properties in 46 states, Washington, D.C., Puerto Rico and Canada that are principally owned by the Managed Equity REITs.
As of September 30, 2023, RMR LLC managed over 2,000 properties in 46 states, Washington, D.C., Puerto Rico and Canada that are principally owned by the Managed Equity REITs.
During the fiscal year ended September 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 of RMR LLC membership units in the aggregate amount of $44,330.
During the fiscal year ended September 30, 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 $45,776.
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; (iii) on September 30, 2021, SEVN and TRMT merged, resulting in a larger, more diversified mortgage REIT with an expanded capital base; and (iv) 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.
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 $4,000,000.
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 28 Table of Contents 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 our Managed Operating Companies or a third party.
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.
The $15,940 distributed to us was eliminated in our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and the $14,341 distributed to ABP Trust was recorded as a reduction of their noncontrolling interest.
The $34,541 distributed to us was eliminated in our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and the $30,945 distributed to ABP Trust was recorded as a reduction of their noncontrolling interest.
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 September 30, 2022 and 2021, $181,219 and $131,065, respectively, of our cash and cash equivalents were invested in money market funds.
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 September 30, 2023 and 2022, $265,800 and $181,219, respectively, of our cash and cash equivalents were invested in money market bank accounts.
The remainder of this dividend will be funded with cash accumulated at RMR Inc. We expect the total dividend will amount to approximately $11,442 and we expect to pay this dividend on or about November 17, 2022.
The remainder of this dividend will be funded with cash accumulated at RMR Inc. We expect the total dividend will amount to approximately $11,484 and we expect to pay this dividend on or about November 16, 2023.
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 the Managed Operating Companies are based on a percentage of certain revenues.
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.
On October 13, 2022, we declared a quarterly dividend on our Class A Common Shares and Class B-1 Common Shares to our shareholders of record as of October 24, 2022 in the amount of $0.40 per Class A Common Share and Class B-1 Common Share, or $6,642.
On October 12, 2023, we declared a quarterly dividend on our Class A Common Shares and Class B-1 Common Shares to our shareholders of record as of October 23, 2023 in the amount of $0.40 per Class A Common Share and Class B-1 Common Share, or $6,684.
For the fiscal year ended September 30, 2022, pursuant to the RMR LLC operating agreement, RMR LLC made required quarterly tax distributions to its holders of its membership units totaling $30,281, of which $15,940 was distributed to us and $14,341 was distributed to ABP Trust, based on each membership unit holder’s then respective ownership percentage in RMR LLC.
For the fiscal year ended September 30, 2023, pursuant to the RMR LLC operating agreement, RMR LLC made required quarterly tax distributions to its holders of its membership units totaling $65,486, of which $34,541 was distributed to us and $30,945 was distributed to ABP Trust, based on each membership unit holder’s then respective ownership percentage in RMR LLC.
For the fiscal years ended September 30, 2022 and 2021, we earned advisory services revenue of $4,530 and $3,956, respectively, and incentive fees of $0 and $620, respectively. The Tremont business acts as a transaction broker for non-investment advisory clients for negotiated fees.
For the fiscal years ended September 30, 2023 and 2022, Tremont earned advisory services revenue of $4,520 and $4,530, respectively, and incentive fees of $660 and $0, respectively. 30 Table of Contents The Tremont business acts as a transaction broker for non-investment advisory clients for negotiated fees.
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 our Managed Private Real Estate Capital business through the execution of new business ventures and additional investments.
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 the CARROLL Acquisition.
For further information about these incentive fees, see Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Advisory services revenue.
For further information, see Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Income tax expense .
As of September 30, 2022 and 2021, we had cash and cash equivalents of $189,088 and $159,835, respectively, of which $21,492 and $23,338, respectively, was held by RMR Inc., with the remainder being held at RMR LLC.
As of September 30, 2023 and 2022, we had cash and cash equivalents of $267,989 and $189,088, respectively, of which $26,802 and $21,492, respectively, was held by RMR Inc., with the remainder being held at RMR LLC.
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 September 30, 2022 and 2021, as applicable: Lesser of Historical Cost of Assets Under Management or Total Market Capitalization as of September 30, REIT Primary Strategy 2022 2021 DHC Medical office and life science properties, senior living communities and wellness centers $ 3,328,069 $ 5,150,401 ILPT Industrial and logistics properties 4,656,472 2,100,020 OPI Office properties primarily leased to single tenants, including the government 3,102,253 3,837,235 SVC Hotels and net lease service and necessity-based retail properties 6,651,976 9,050,693 $ 17,738,770 $ 20,138,349 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.
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 September 30, 2023 and 2022, as applicable: Lesser of Historical Cost of Assets Under Management or Total Market Capitalization as of September 30, REIT Primary Strategy 2023 2022 DHC Medical office and life science properties, senior living communities and other healthcare related properties $ 3,280,149 $ 3,328,069 ILPT Industrial and logistics properties 4,520,662 4,656,472 OPI Office properties primarily leased to single tenants and those with high credit quality characteristics 2,789,224 3,102,253 SVC Hotels and service-focused retail net lease properties 7,083,845 6,653,706 $ 17,673,880 $ 17,740,500 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.
Compensation and benefits expense increased $10,228 primarily due to annual employee merit and bonus increases in the current fiscal year and increased headcount. 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.
Compensation and benefits expense increased $6,483 primarily due to annual merit and benefit increases. 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.
Reimbursable compensation and benefits increased $4,315 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 clients.
Reimbursable compensation and benefits increased $3,241 primarily due to annual merit increases effective October 1, 2022. 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 increase in net cash used in investing activities for the fiscal year ended September 30, 2022 compared to the prior fiscal year was primarily due to the purchase of 882,407 SEVN common shares in the current fiscal year.
The $60,086 increase in net cash provided by investing activities for the fiscal year ended September 30, 2023 compared to the prior fiscal year was primarily due to the proceeds from the sale of TA’s common shares in the current fiscal year and the purchase of SEVN common shares in the prior fiscal year.
We record an equal offsetting amount as equity based compensation expense for the value of these awards. Reimbursable equity based compensation revenue decreased $2,082 primarily as a result of decreases in our clients’ respective share prices. Other reimbursable expenses.
We record an equal offsetting amount as equity based compensation expense for the value of these awards. Reimbursable equity based compensation revenue increased $2,754 primarily as a result of the acceleration of unvested shares in connection with the sale of TA to BP in May 2023 and increases in certain of our client’s respective share prices. Other reimbursable expenses.
Further, while the Federal Reserve 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 and our clients’ earnings, where possible.
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.
Equity based compensation decreased $1,886 primarily as a result of decreases in our clients’ respective share prices. Separation costs. Separation costs consist of employment termination costs. For further information about these costs, see Note 5, Related Person Transactions, to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. General and administrative.
For further information about these costs, see Note 5, Related Person Transactions, to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 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.
Please see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward Looking Statements”, Part 1, Item 1 “Business” and Part I, Item 1A “Risk Factors” for a discussion of some of the circumstances that may adversely affect us and our business.
For a discussion of some of the circumstances that may adversely affect us and our business, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements”, Part I, Item 1 “Business” and Part I, Item 1A “Risk Factors”. 28 Table of Contents 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.
In a period of increased borrowing costs, real estate transaction volumes often slow along with real estate valuation growth, which the commercial real estate industry has been experiencing. Rising 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.
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.
Tremont also provided advisory services to TRMT until September 30, 2021, when it merged with and into SEVN. Tremont is primarily compensated pursuant to its management agreements with SEVN (beginning January 6, 2021) and TRMT (until September 30, 2021) based on a percentage of equity, as defined in the applicable agreements.
Tremont is primarily compensated pursuant to its management agreement with SEVN based on a percentage of equity, as defined in the applicable agreement.
Advisory services revenue increased $574 primarily due to the expiration of the fee waiver that was previously provided to TRMT in effect until December 31, 2020. For further information about this waiver, see Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For further information about these fees, see Note 2, Summary of Significant Accounting Policies , and Note 5, Related Person Transactions , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Advisory services revenue. Advisory services revenue was relatively unchanged from the prior fiscal year. Reimbursable compensation and benefits.
Our fee revenues from services to the Managed Operating Companies and the Managed Private Real Estate Capital clients for the fiscal years ended September 30, 2022 and 2021, are set forth in the following tables: Fiscal Year Ended September 30, 2022 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 $ 2,046 $ 1,498 $ 556 $ 4,100 $ 2,335 $ 1,776 $ 184 $ 4,295 Other private entities 8,056 5,389 152 13,597 2,423 1,288 60 3,771 ALR 4,908 — — 4,908 7,123 — — 7,123 Sonesta 8,717 — 9 8,726 4,497 — — 4,497 TA 15,926 — — 15,926 13,727 — — 13,727 $ 39,653 $ 6,887 $ 717 $ 47,257 $ 30,105 $ 3,064 $ 244 $ 33,413 Advisory Business Tremont 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.
Our management fee revenues from services to these clients for the fiscal years ended September 30, 2023 and 2022, are set forth in the following table and exclude termination fee revenue earned from TA of $45,282 for the fiscal year ended September 30, 2023: Fiscal Year Ended September 30, 2023 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 $ 5,414 $ — $ — $ 5,414 $ 4,908 $ — $ — $ 4,908 Sonesta 9,456 — 15 9,471 8,717 — 9 8,726 Other private entities 12,013 8,388 1,130 21,531 10,102 6,887 708 17,697 SEVN — 8 — 8 — — — — TA 9,932 — — 9,932 15,926 — — 15,926 $ 36,815 $ 8,396 $ 1,145 $ 46,356 $ 39,653 $ 6,887 $ 717 $ 47,257 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.
More specifically, in the U.S., the Federal Reserve has increased the federal funds rate six times since the beginning of calendar 2022 and has announced an expectation that it will continue to raise rates, in an attempt to slow inflation, which has in turn lead to increased borrowing costs and disruptions in the financial markets.
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.
For further information see Note 3, Income Taxes , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 33 Table of Contents 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.
The increase in income tax expense of $8,535 is primarily attributable to higher taxable income during the current fiscal year compared to the prior fiscal year. 33 Table of Contents 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.
The decrease in net cash used in financing activities for the fiscal year ended September 30, 2022 compared to the prior fiscal year was primarily due to a one-time, special cash dividend of $7.00 per Class A Common Share and Class B-1 Common Share, or $219,851, paid in the prior fiscal year.
The $18,383 increase in net cash used in financing activities for the fiscal year ended September 30, 2023 compared to the prior fiscal year was primarily due to higher tax distributions based on current estimates for taxable income and increased distributions paid to shareholders of our Class A Common Shares and Class B-1 Common Shares in the current fiscal year.
Interest and other income increased $562 primarily due to higher interest earned during the current fiscal year as a result of higher interest rates. Gain on Tremont Mortgage Trust investment.
Depreciation and amortization . Depreciation and amortization was relatively unchanged from the prior fiscal year. Interest income. Interest income increased $9,252 primarily due to higher interest earned during the current fiscal year primarily as a result of higher interest rates and higher average cash balances invested compared to the prior fiscal year.
As of September 30, 2022, our consolidated balance sheet reflects a liability related to the tax receivable agreement of $25,583, of which we expect to pay $2,275 to ABP Trust during the fourth quarter of fiscal year 2023.
As of September 30, 2023, our 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. 34 Table of Contents Cash Flows The $7,945 increase in net cash from operating activities for the fiscal year ended September 30, 2023 compared to the prior fiscal year primarily reflects increases in net income, primarily due to increases in termination fees, offset by unfavorable changes in working capital.
The fee revenues we earned from the Managed Equity REITs for the fiscal years ended September 30, 2022 and 2021 are set forth in the following tables: Fiscal Year Ended September 30, 2022 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 $ 19,408 $ 6,365 $ 4,570 $ 30,343 $ 23,247 $ 9,851 $ 3,274 $ 36,372 ILPT 20,810 9,738 806 31,354 11,110 6,471 164 17,745 OPI 17,369 15,936 8,899 42,204 17,025 16,021 4,205 37,251 SVC 38,444 3,998 1,751 44,193 41,771 3,494 589 45,854 $ 96,031 $ 36,037 $ 16,026 $ 148,094 $ 93,153 $ 35,837 $ 8,232 $ 137,222 Managed Operating Companies and Managed Private Real Estate Capital We provide business management services to the Managed Operating Companies.
As of September 30, 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 September 30, 2023, were $7,569,714, $5,710,946, $6,012,246 and $11,260,528, respectively. 29 Table of Contents The fee revenues we earned from the Managed Equity REITs for the fiscal years ended September 30, 2023 and 2022 are set forth in the following table: Fiscal Year Ended September 30, 2023 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 $ 14,388 $ 5,921 $ 3,366 $ 23,675 $ 19,408 $ 6,365 $ 4,570 $ 30,343 ILPT 23,428 12,690 716 36,834 20,810 9,738 806 31,354 OPI 14,133 13,909 10,121 38,163 17,369 15,936 8,899 42,204 SVC 33,654 3,794 3,095 40,543 38,444 3,998 1,751 44,193 $ 85,603 $ 36,314 $ 17,298 $ 139,215 $ 96,031 $ 36,037 $ 16,026 $ 148,094 Other Clients We provide business management services to AlerisLife, Sonesta and until May 15, 2023, TA.
Unrealized gain on equity method investments accounted for under the fair value option represents the unrealized gain or loss on our investments in SEVN and TA common shares. For further information, see Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
Gain on equity method investments accounted for under the fair value option. Gain on equity method investments accounted for under the fair value option represents the unrealized and realized gains on our investments in SEVN and TA common shares.
Management services revenue increased $24,348 primarily due to (i) growth in base business management fees of $9,700 and property and construction management fees of $3,909 earned from ILPT, primarily due to its acquisition of MNR, (ii) increases in construction supervision fees earned from OPI, SVC and DHC aggregating $7,152 due to increased development activity, and (iii) an increase in management fees earned from Sonesta of $4,229 primarily resulting from an increase in travel as pandemic restrictions have eased and an increase in the number of hotels that it manages and franchises during the current fiscal year.
Management services revenue decreased $9,748 primarily due to (i) a decline in base business management fees earned from DHC, OPI and SVC of $13,046 in aggregate, due to declines in the enterprise values of these clients during the current fiscal year, and (ii) declines in management fees earned from TA of $5,994 as a result of the termination of its business management agreement with us on May 15, 2023, partially offset by (i) growth in base business management fees of $2,618 and property management fees of $2,952 earned from ILPT, primarily due to its acquisition of MNR in February 2022, and (ii) increases in construction supervision fees across all of our clients aggregating $1,700 primarily due to increased development costs. 32 Table of Contents Termination and incentive business management fees revenue.
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 $5,958 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.
General and administrative costs increased $3,100 primarily due to strategic technology investments and 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 current fiscal year relate to costs incurred with our evaluation of various strategic initiatives, primarily for the CARROLL Acquisition.
Removed
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.
Added
Increased borrowing costs and concerns of a possible or pending economic recession have resulted in an overall decline in commercial real estate transactions.
Removed
As of September 30, 2022, 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 September 30, 2022, were $7,354,104, $5,693,562, $5,907,788 and $11,285,303, respectively.
Added
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.
Removed
These increases were partially offset by a decline in base business 31 Table of Contents management fees earned from DHC and SVC of $7,166 driven by declines in the enterprise values of these respective clients during the current fiscal year. Incentive business management fees. Incentive business management fees of $620 in the prior fiscal year represent fees earned from TRMT.
Added
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.
Removed
Transaction and acquisition related costs . The decrease in transaction and acquisition related costs primarily relates to costs incurred in the prior fiscal year in connection with RMR Mortgage Trust’s conversion from a registered investment company to a commercial mortgage REIT and other strategic initiatives. Interest and other income.
Added
More recently, (i) on March 20, 2023, a subsidiary of ABP Trust completed its acquisition of AlerisLife; and (ii) on July 29, 2023, we entered into a definitive agreement to acquire 100% of the equity interest in CARROLL for up to $100,000, which will add multifamily capabilities to RMR LLC.
Removed
The gain on Tremont Mortgage Trust investment in the prior fiscal year represents the difference between the cost basis of our former investment in TRMT and the fair value of our investment in SEVN on the date of the Merger.
Added
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.
Removed
For further information see Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Equity in earnings of investees. Equity in earnings of investees represents our proportionate share of earnings from our former equity interest in TRMT.
Added
Termination and incentive business management fees for the current fiscal year include a termination fee of $45,282 received from TA and incentive fees of $660 earned by Tremont from SEVN.
Removed
For further information, see Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 32 Table of Contents Unrealized gain on equity method investments accounted for under the fair value option.
Added
Equity based compensation increased $2,352 primarily as a result of the acceleration of unvested shares in connection with the sale of TA to BP in May 2023 and increases in certain of our clients’ respective share prices. Separation costs. Separation costs consist of employment termination costs.
Removed
Income tax expense . The increase in income tax expense of $81 is primarily attributable to higher taxable income during the current fiscal year and an increase in the annual effective tax rate compared to the prior fiscal year.
Added
On July 29, 2023, RMR LLC entered into a definitive agreement to acquire 100% of the equity interest in CARROLL for $80,000, subject to customary purchase price adjustments, with the potential for incremental earnout consideration of up to $20,000 based on the deployment of future capital. The transaction is expected to be funded entirely with cash on hand.
Removed
Cash Flows Our changes in cash flows for the fiscal year ended September 30, 2022 compared to the prior fiscal year were as follows: (i) net cash from operating activities increased from $71,794 in the prior fiscal year to $101,270 in the current fiscal year; (ii) 34 Table of Contents net cash used in investing activities increased from $1,142 in the prior fiscal year to $10,590 in the current fiscal year; and (iii) net cash used in financing activities decreased from $280,480 in the prior fiscal year to $61,427 in the current fiscal year.
Added
The closing of the acquisition is subject to customary closing conditions; accordingly, we cannot be sure that this acquisition will close on the contemplated terms or at all or it may be delayed.
Removed
The increase in net cash from operating activities for the fiscal year ended September 30, 2022 compared to the prior fiscal year primarily reflects increases in net income, after the exclusion of non-cash gains and losses, as well as favorable changes in working capital.

Other RMR 10-K year-over-year comparisons