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What changed in RMR GROUP INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of RMR GROUP INC.'s 2023 and 2024 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 2024 report.

+289 added−247 removedSource: 10-K (2024-11-12) vs 10-K (2023-11-15)

Top changes in RMR GROUP INC.'s 2024 10-K

289 paragraphs added · 247 removed · 191 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

55 edited+8 added−14 removed79 unchanged
Biggest changeThe 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.
Biggest changeThe 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. 4 Table of Contents 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.
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.
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, 5 Table of Contents including expenses of its personnel, rent and other office expenses.
In addition, the Managed REITs generally distribute 100.0% of their taxable income to avoid paying corporate federal income taxes; and as REITs, such companies must currently distribute, at a minimum, an amount equal to 90.0% of their taxable income.
In addition, the Managed REITs generally distribute 100.0% of their taxable income to avoid paying corporate federal income taxes; and as REITs, such companies generally must currently distribute, at a minimum, an amount equal to 90.0% of their taxable income.
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.
SEVN competes on a national and regional 8 Table of Contents 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.
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.
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 estimated revenues from all sources reportable under GAAP, less any estimated revenues reportable by Sonesta with respect to hotels for which it provides management services, plus the estimated 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.
In addition, the initial organizational costs related to TRMT’s formation and the costs of its initial public offering and the concurrent private placement that Tremont had paid pursuant to its management agreement with TRMT will be included in the “Termination Fee” under and as defined in SEVN’s management agreement with Tremont.
The initial organizational costs related to TRMT’s formation and the costs of its initial public offering and the concurrent private placement that Tremont had paid pursuant to its management agreement with TRMT will be included in the “Termination Fee” under, and as defined in, SEVN’s management agreement with Tremont.
Also, under each property management agreement, the Managed Equity REIT pays certain allocable expenses of RMR LLC in the performance of its duties, including wages for onsite property management personnel and allocated costs of centralized property management services.
Also, under each property management agreement, the Managed Equity REIT pays certain allocable expenses of RMR LLC in the performance of its duties, including wages for onsite property management personnel and allocated costs of centralized property and construction management services.
Relationships 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.
Relationships 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 Apprenticeship 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.
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.
Board Diversity As of September 30, 2024, 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.
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.
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 2029 from a 2019 baseline as it relates to scope 1 and 2 emissions, for all properties where we directly manage energy.
Our Engineering Development Program standardizes the recruitment and development of engineering candidates to prepare them for open positions and to plan for future engineering needs.
Our Engineering Apprenticeship Program standardizes the recruitment and development of engineering candidates to prepare them for open positions and to plan for future engineering needs.
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.
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, 2024, Adam D.
In addition, we expect to use cash on hand, future operating cash flows and may issue equity or incur debt to fund our growth and diversify our operations through possible acquisition opportunities or seeding new clients.
In addition, we expect to use cash on hand, future operating cash flows and may issue equity or incur debt to fund our growth and diversify our operations through additional acquisition opportunities or seeding new clients.
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.
Within their first year, managers complete the workshop and learn how to effectively delegate, solve problems and give meaningful performance feedback. 10 Table of Contents • 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’ skill sets and support personal enrichment. • Analyst Accelerator Internship Program: We established an Analyst Accelerator Internship Program which is designed to attract early career talent to our industry from backgrounds underrepresented in real estate.
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.
A subsidiary of ABP Trust owns 15,000,000 redeemable Class A Units, representing approximately 47.1% of the economic interest of RMR LLC. Adam D.
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.
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, 2024, we had $40.9 billion of assets under management, including over 2,000 properties. The synergies among our clients may also facilitate their and our 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 .
The properties and businesses we managed as of September 30, 2024, are located throughout the United States in 48 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 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.
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 of 33%.
The initial term of the management agreement with SEVN ends on December 31, 2023, and the agreement will automatically renew for successive one year terms beginning January 1, 2024 and each January 1 thereafter, unless it is sooner terminated upon written notice delivered no later than 180 days prior to a renewal date by the affirmative vote of at least two-thirds (2/3) of the independent trustees of SEVN based upon a determination that (a) Tremont’s performance is unsatisfactory and materially detrimental to SEVN or (b) the base management fee and incentive fee, taken as a whole, payable to Tremont under the management agreement is not fair to SEVN (provided that in the instance of (b), Tremont will be afforded the opportunity to renegotiate the base management fee and incentive fee prior to termination).
The management agreement with SEVN automatically renews for successive one year terms beginning on each January 1, unless it is sooner terminated upon written notice delivered no later than 180 days prior to a renewal date by the affirmative vote of at least two-thirds (2/3) of the independent trustees of SEVN based upon a determination that (a) Tremont’s performance is unsatisfactory and materially detrimental to SEVN or (b) the base management fee and incentive fee, taken as a whole, payable to Tremont under the management agreement is not fair to SEVN (provided that in the instance of (b), Tremont will be afforded the opportunity to renegotiate the base management fee and incentive fee prior to termination).
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.
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, multifamily residential communities, and various specialized properties such as properties leased to government tenants and properties specially designed for medical and biotech research.
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.
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, internal audit and general oversight of the company’s daily business activities, including legal and tax matters, insurance programs and management information systems.
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.
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, 2024, we had $40.9 billion of assets under management.
We have also assisted our clients to grow by successfully accessing the capital markets; since our founding in 1986, our clients have successfully completed over $42.0 billion of financing in approximately 185 capital raising transactions. • Alignment of Interests .
We have also assisted our clients to grow by successfully accessing the capital markets; since our founding in 1986, our clients have successfully completed over $46.0 billion of financing in approximately 190 capital raising transactions. • Alignment of Interests .
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.
Portnoy beneficially owned (including through ABP Trust), in aggregate, (i) 211,561 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.
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.
TA is a real estate operating company that operates and franchises travel centers primarily along the United States, or U.S., interstate highway system, many of which are owned by SVC, and standalone truck service facilities. The Managed Equity REITs, SEVN and until May 15, 2023, TA, are collectively referred to as the Perpetual Capital clients.
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.
As of September 30, 2024, OPI owned 145 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.
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.
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 50.9% economic interest in RMR LLC.
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.
As of September 30, 2024, ILPT owned 411 properties, including 226 buildings, leasable land parcels and easements in Oahu, Hawaii and 185 properties located in 38 other states. • OPI (Nasdaq: OPI) owns office properties primarily leased to single tenants and those with high credit quality characteristics.
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.
We have made diversity and inclusion an important part of our hiring, retention and development programs. As of September 30, 2024, 39% of our employees were women and 44% were members of minority communities underrepresented in commercial real estate.
As of September 30, 2023, SVC owned 982 properties (221 hotels and 761 net lease properties) located in 46 states, the District of Columbia, Canada and Puerto Rico. RMR LLC’s wholly owned subsidiary, Tremont Realty Capital LLC, or Tremont, an investment adviser registered with the SEC, provides advisory services for Seven Hills Realty Trust, or SEVN.
As of September 30, 2024, SVC owned 959 properties (214 hotels and 745 net lease properties) located in 46 states, the District of Columbia, Puerto Rico and Canada. RMR LLC’s wholly owned subsidiary, Tremont Realty Capital LLC, or Tremont, an investment adviser registered with the SEC, provides advisory services for Seven Hills Realty Trust, or SEVN.
In 2023, with an active pipeline of commercial real estate development projects, we introduced a new green and energy-efficient equipment purchasing guideline which mandates the use of high energy efficiency equipment and environmentally friendly materials for new developments and major asset refurbishments.
We have an active pipeline of commercial real estate development projects and maintain a green and energy-efficient equipment purchasing guideline which mandates the use of high energy efficiency equipment and environmentally friendly materials for new developments and major asset refurbishments.
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.
As of September 30, 2024, DHC owned 368 properties located in 36 states and the District of Columbia. • ILPT (Nasdaq: ILPT) owns and leases industrial and logistics properties.
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.
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.
In 2023, we strengthened our alignment with the TCFD by advancing the depth of our alignment with all four pillars of the TCFD framework and we developed a tool to help 9 Table of Contents assess building energy and emissions performance standards across the U.S.
We have strengthened our alignment with the TCFD by advancing the depth of our alignment with all four pillars of the TCFD framework and we developed a tool to help assess building energy and emissions performance standards across the U.S.
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.
Finally, for the sixth year in a row, we received the 2024 ENERGY STAR Partner of the Year Award, and for the seventh year in a row, OPI received the 2024 ENERGY STAR Partner of the Year Award.
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.
In 2 Table of Contents recent years, we sought to expand the sources of capital underlying our assets under management, with our Private Capital clients representing $12.8 billion of our assets under management as of September 30, 2024, an increase of $11.1 billion from September 30, 2021.
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.
Employees and Equal Opportunity As of September 30, 2024, RMR LLC employed over 1,000 real estate professionals, including 31% in our corporate offices and 69% across more than 35 offices throughout the United States. The average tenure of our employees was 5 years. Our employees are the foundation of our success and in many ways our most critical asset.
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.
As of September 30, 2024, RMR Inc. owned 15,846,025 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 52.9% of the economic interest of RMR LLC.
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.
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. 6 Table of Contents RMR Residential provides management services to properties owned by third parties and to four funds through its property management and investment management agreements.
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.
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. RMR Residential competes with numerous other companies that provide management services to multifamily residential communities in the Sunbelt region of the United States.
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.
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 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 continue to expand our RTM program and remain committed to a goal of monitoring 90% of our managed energy spend through RTM by the end of 2025, 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.
Our programs are carefully designed for hiring, developing and retaining the best talent in the real estate industry. Our compensation is designed to motivate and retain employees and align their interests with those of our clients. We believe our compensation and benefits are best in class and are consistent with companies in the alternative asset management industry.
Our programs are carefully designed for hiring, developing and retaining the best talent in the real estate industry. In connection with the acquisition of MPC, we added approximately 500 employees and integrated these employees into our organization. Our compensation is designed to motivate and retain employees and align their interests with those of our clients.
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.
The residential real estate we manage through MPC and its subsidiaries are presented as RMR Residential in these consolidated financial statements. In addition, RMR LLC provides management services to private capital vehicles including ABP Trust and other private entities that own commercial real estate, of which certain of our Managed Equity REITs own minority equity interests.
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.
We believe we have several strengths that distinguish our business from other alternative asset managers: • Strong Revenue Base, Operating Margins and Resulting Cash Flows . Our revenues are primarily earned from long term agreements with credit quality companies, many of which are permanent capital vehicles.
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.
SEVN is a publicly traded mortgage REIT that focuses on originating and investing in first mortgage loans secured by middle market and transitional commercial real estate. 1 Table of Contents RMR LLC also provided management services to TravelCenters of America Inc., or TA, until it was acquired by BP Products North America Inc., or BP, on May 15, 2023.
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.
RMR LLC provides management services to AlerisLife Inc., or AlerisLife, an operator of senior living communities, many of which are owned by DHC, and Sonesta International Hotels Corporation, or Sonesta, a privately owned franchisor and operator of hotels, resorts and cruise ships in the United States, Latin America, the Caribbean and the Middle East, and many of the U.S. hotels that Sonesta operates are owned by SVC.
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 .
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, 2024, revenues earned from the Managed Equity REITs represented 69.6% of our total management and advisory services revenue, excluding termination fee revenue.
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.
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. In 2024, we expanded this program to include fault detection and diagnostics, with the aim of accelerating our identification of energy and emissions reduction 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.
Lower energy use and emissions reduce our managed properties' potential exposure to policies that call for a carbon tax or other emissions-based penalties. 9 Table of Contents 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.
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.
Our senior management has worked together through several business cycles in which they acquired, financed, managed and disposed of real estate assets and started real estate businesses. We are a vertically integrated manager and as of September 30, 2024, we employed over 1,000 real estate professionals in more than 35 offices throughout the United States.
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.
In 2023, the honors achieved by our clients included 70 BOMA 360 Certified Properties, 88 ENERGY STAR Certified Properties, 87 LEED Certified Properties and 22 National Wildlife Sanctuary Sites Certified Properties.
Our regular dividend of $0.40 per share per quarter ($1.60 per share per year) has been well covered by our cash flows. • Diverse Portfolio of Managed Real Estate .
We continued to generate strong operating margins resulting in net cash from operating activities of $61.4 million and net income of $53.1 million and our regular dividend of $0.45 per share per quarter ($1.80 per share per year) remains well covered by our cash flows. • Diverse Portfolio of Managed Real Estate .
Any party may terminate the applicable management agreement at any time on 30 days notice.
Any party may terminate the applicable management agreement at any time on 30 days notice. 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.
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.
Examples of credentials and association memberships include: BOMA membership, Certified Property Manager, Certified Public Accountant, Certified Apartment Manager, Certified Apartment Portfolio Supervisor and National Association of Industrial and Office Properties. Internet Website Our internet website address is www.rmrgroup.com.
Removed
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.
Added
On December 19, 2023, or the Acquisition Date, RMR LLC acquired MPC Partnership Holdings LLC, or MPC, or the Acquisition. In connection with the Acquisition, RMR LLC started providing management services through MPC and its subsidiaries to multiple private funds and the underlying residential real estate assets of the funds, as well as property management services to third party owners.
Removed
RMR LLC also provided management services to TravelCenters of America Inc., or TA, until it was acquired by BP Products North America Inc., or BP, on May 15, 2023.
Added
The clients of the other private capital vehicles, along with AlerisLife, Sonesta and clients of RMR Residential are collectively referred to as the Private Capital clients.
Removed
AlerisLife is an operator of senior living communities, many of which are owned by DHC, and was a publicly traded company until March 20, 2023 when it was acquired by a subsidiary of ABP Trust.
Added
During the fiscal year ended September 30, 2024, we executed on this growth strategy through the acquisition of MPC, which added approximately $5.5 billion in assets under management as of the Acquisition Date. • Quality and Depth of Management . Our highly qualified and experienced management team provides a broad base of deep expertise to our clients.
Removed
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.
Added
The property management agreements may be terminated upon written notice and generally provide for property management fees ranging from 2.5% to 3.5% of gross collected rents, construction management fees of 5.0% of construction costs and reimbursement costs incurred to manage the properties.
Removed
If the CARROLL Acquisition is completed, our Private Capital assets under management are expected to increase by approximately $7 billion. For more information about the CARROLL Acquisition, see Note 1, Organization , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. • Quality and Depth of Management .
Added
The investment management agreements generally provide for fees that are based on the lesser of a percentage of invested capital and a fixed fee ranging from $100 to $200 annually.
Removed
Our highly qualified and experienced management team provides a broad base of deep expertise to our clients. Our senior management has worked together through several business cycles in which they acquired, financed, managed and disposed of real estate assets and started real estate businesses.
Added
In addition, SEVN merged with Tremont Mortgage Trust, or TRMT, in 2021.
Removed
The management agreements provide for certain adjustments to the termination fees if a Managed Equity REIT merges with another REIT to which RMR LLC is providing management services or if the Managed Equity REIT spins off a subsidiary to which it contributed properties and to which RMR LLC is providing management services both at the time of the spin off and on the date of the expiration or termination of either of the management agreements.
Added
We launched this program in 2017 and it is now deployed in 82 managed properties, totaling approximately 63% of our managed annual electricity spend as of the end of 2023.
Removed
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.
Added
We believe our compensation and benefits are best in class and are consistent with companies in the alternative asset management industry. We periodically review the effectiveness and competitiveness of our compensation program.
Removed
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.
Removed
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.
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Our energy performance programs drive down energy consumption and reduce carbon emissions of our managed properties. Lower energy use and emissions reduce our managed properties' potential exposure to policies that call for a carbon tax or other emissions-based penalties.
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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.
Removed
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.
Removed
Internet Website Our internet website address is www.rmrgroup.com.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

86 edited+40 added−21 removed109 unchanged
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.
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 uncertainty surrounding interest rates and sustained high interest rates, prolonged inflation, economic downturn and possible recession and thereby impair their ability to pay rent and returns and make loan payments; 19 Table of Contents • 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; • some of our clients have a substantial amount of debt and are subject to additional risks, including the inability to refinance maturing debt and the cost of any such refinanced debt, the inability to reduce debt leverage which may remain at or above current levels for an indefinite period, covenants and conditions contained in debt agreements which may restrict such clients’ operations by increasing interest expense and limiting such clients’ ability to make investments in their properties, sell properties securing the debt and pay distributions to their shareholders, potential downgrades to credit ratings and other limitations on their ability to access capital at reasonable costs or at all, including the limited availability of debt capital to office and healthcare REITs in general ; • 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; • changing market, consumer and workplace practices and trends that have and could continue to result in decreased demand for office space, business travel, hotel stays and conference facilities; • 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 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; • RMR Residential’s inability to grow its business and realize expected returns within the anticipated timeframe; • Tremont Realty Capital’s ability to identify and close suitable investments for our Real Estate Lending Venture and SEVN and to monitor, service and administer existing investments; • our Real Estate Lending Venture’s ability to obtain third party investors in order to attain its target leverage levels, to make additional investments and to increase potential returns; • 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; • 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; • 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; 20 Table of Contents • 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; • our clients with significant investments in office space have and may continue to experience declines in demand for office space consistent with declines in the office space industry generally, as a result of remote, hybrid and other flexible working arrangements which have adversely impacted such clients operating results and financial condition; • 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.
If these inflationary pressures continue, our clients may reduce or delay construction projects that we oversee and may realize decreased earnings, negative impacts on their ability to increase or maintain dividends that they pay to their shareholders and reduced market capitalizations.
If these inflationary pressures continue, we and our clients may reduce or delay construction projects that we oversee, and may realize decreased earnings, negative impacts on their ability to increase or maintain dividends that they pay to their shareholders and reduced market capitalizations.
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.
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; 21 Table of Contents • 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.
RMR LLC’s business management agreement with each Managed Equity REIT provides for a base business management fee that is based on the lower of the average historical costs of the Managed Equity REIT’s assets under management or its average market capitalization, as calculated in accordance with the applicable business management agreement, and an incentive business management fee that is based on the Managed Equity REIT’s relative outperformance of a specified REIT total shareholder return index.
RMR LLC’s business management agreement with each Managed Equity REIT provides for a base business management fee that is based on the lower of the average historical costs of the Managed Equity REIT’s assets under management and its average market capitalization, as calculated in accordance with the applicable business management agreement, and an incentive business management fee that is based on the Managed Equity REIT’s relative outperformance of a specified REIT total shareholder return index.
Although S&P Dow Jones, a provider of widely followed stock indices, recently reversed its prior decision to exclude companies with multiple share classes, such as ours, in certain of their indices, there is no guarantee that our Class A Common Shares will be included in an S&P index, despite their eligibility.
Although S&P Dow Jones, a provider of widely followed stock indices, reversed its prior decision to exclude companies with multiple share classes, such as ours, in certain of their indices, there is no guarantee that our Class A Common Shares will be included in an S&P index, despite their eligibility.
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).
For example, the properties owned or operated by us or 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 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.
In addition, our strategic initiatives include joint ventures or partnerships, in which case we may 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.
The arbitration and exclusive forum provisions of our bylaws may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our directors, officers, employees or agents, which may discourage lawsuits against us and our directors, officers, employees or agents.
The exclusive forum provisions of our bylaws may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our directors, officers, employees or agents, which may discourage lawsuits against us and our directors, officers, employees or agents.
Most of our revenues are derived from our provision of management services to a limited number of companies. The loss or failure, or decline in business or assets, of any of the Managed Equity REITs or clients comprising a significant part of our Private Capital business could substantially reduce our revenues.
Most of our revenues are derived from our provision of management services to a limited number of companies. The loss or decline in business or assets of any of the Managed Equity REITs or clients comprising a significant part of our Private Capital business could substantially reduce our revenues.
For example, various construction supplies and materials have experienced significant price increases as have other commodities, such as food and fuel. These pricing increases as well as increases in labor costs have increased the operating costs for certain of our clients and tenants, operators and borrowers of our clients.
For example, various construction supplies and materials have experienced significant price increases as have other commodities, such as food and fuel. These pricing increases as well as increases in labor costs have increased the operating costs for us and certain of our clients and tenants, operators and borrowers of our clients.
One of the factors that investors typically consider important in deciding whether to buy or sell the common shares of our Managed REITs is the distribution rate with respect to such shares relative to prevailing market interest rates.
One of the factors that investors typically consider important in deciding whether to buy or sell the common shares of our Managed REITs is the distribution rate with respect to such shares relative to prevailing interest rates.
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.
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 or refinance debt, reduce their earnings and total shareholder returns and cause the Managed REITs’ and our real estate business Private Capital vehicles’ tenants, operators and borrowers 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.
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.
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, 2023, as those Risk Factors may have been updated or supplemented in those companies’ Quarterly Reports on Form 10-Q filed subsequently.
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.
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 48.3% of the economic interest in RMR LLC.
We have entered into a tax receivable agreement, dated June 5, 2015, by and among RMR Inc., RMR LLC and ABP Trust that provides for the payment by RMR Inc. to ABP Trust of 85.0% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that RMR Inc. actually realizes as a result of (a) the increases in tax basis attributable to its dealings with ABP Trust and (b) tax benefits related to imputed interest deemed to be paid by us as a result of the tax receivable agreement.
We have entered into a tax receivable agreement, dated June 5, 2015, by and among RMR Inc., RMR LLC and ABP Trust that provides for the payment by RMR Inc. to ABP Trust of 85.0% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that RMR Inc. actually realizes as a result of (a) the increases in tax basis attributable to its dealings with ABP Trust and (b) tax benefits related to imputed interest deemed to be paid by us as a result of the tax receivable 25 Table of Contents agreement.
Our subsidiary, Tremont, is registered as an investment adviser under the Investment Advisers Act. Any change in control of Tremont, as defined in and interpreted pursuant to the Investment Advisers Act, would trigger a shareholder approval right by SEVN shareholders or other advisory clients of Tremont as applicable, under that Act.
Our subsidiary, Tremont Realty Capital, is registered as an investment adviser under the Investment Advisers Act. Any change in control of Tremont Realty Capital, as defined in and interpreted pursuant to the Investment Advisers Act, would trigger a shareholder approval right by SEVN shareholders or other advisory clients of Tremont Realty Capital as applicable, under that Act.
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).
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 48.6% 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).
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.
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. However, 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.
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 17 Table of Contents 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.
Under RMR Inc.’s governing documents and RMR LLC’s operating agreement, no director or officer of ours who is also serving as an officer, employee or agent of a client or ABP Trust or any of its affiliates is required to present, communicate or offer any business opportunity to us, and such person shall have the right to hold any business opportunity for themselves or transfer it to any other person to the maximum extent permitted by Maryland law.
Under RMR Inc.’s charter and RMR LLC’s operating agreement, no director or officer of ours who is also serving as an officer, employee or agent of a client or ABP Trust or any of its affiliates is required to present, communicate or offer any business opportunity to us, and such person shall have the right to hold any business opportunity for themselves or transfer it to any other person to the maximum extent permitted by Maryland law.
Under current Maryland law, our directors and officers will not have any liability to us and our shareholders for money damages other than liability resulting from: • actual receipt of an improper benefit or profit in money, property or services; or • active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.
Under current Maryland law, our directors and officers will not have any liability to us and our shareholders for money damages other than liability resulting from: 24 Table of Contents • actual receipt of an improper benefit or profit in money, property or services; or • active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.
We are subject to regulation by the SEC, Nasdaq, and other federal, state and local or international governmental bodies and agencies or self-regulatory organizations. Our subsidiary, Tremont, is registered with the SEC as an investment adviser under the Investment Advisers Act.
We are subject to regulation by the SEC, Nasdaq, and other federal, state and local or international governmental bodies and agencies or self-regulatory organizations. Our subsidiary, Tremont Realty Capital, is registered with the SEC as an investment adviser under the Investment Advisers Act.
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.
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.
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.
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 Realty Capital under the Investment Advisers Act may discourage our change of control.
Moreover, the market price of our Class A Common Shares may be adversely impacted by the fact that a significant amount of our outstanding shares are not included in the public float of our Class A Common Shares and by our dual-stock structure.
Moreover, the market price of our Class A Common Shares may be adversely impacted by the fact that a significant amount of our outstanding shares is not included in the public float of our Class A Common Shares and by our dual-stock structure.
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.
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. Our rights and the rights of our shareholders to take action against our directors and officers are limited.
Higher interest rates also may reduce dispositions by the Managed Equity REITs due to their forgoing property sales because of depressed asset valuations and reduced buyer demand or more costly acquisition financing for buyers, which could limit our clients’ ability to reduce leverage and recycle capital.
Sustained high interest rates also may reduce dispositions by the Managed Equity REITs due to their forgoing property sales because of depressed asset valuations and reduced buyer demand or more costly acquisition financing for buyers, which could limit our clients’ ability to reduce leverage and recycle capital.
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 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 inflation, sustained high interest rates, supply chain challenges and economic downturns or recessions.
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.
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.
While we and our clients have policies and procedures in place that are intended to mitigate the risks of conflicts of interest, our allocation of investment opportunities and cost reimbursements, advice, recommendations and commitments of our management team across our clients might be perceived to favor one client at the expense of another.
While we believe we and our clients have appropriate policies and procedures in place that are intended to manage and mitigate the risks of conflicts of interest, our allocation of investment opportunities and cost reimbursements, advice, recommendations and commitments of our management team across our clients might be perceived to favor one client at the expense of another.
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.
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 2029 from a 2019 baseline.
Portnoy could deprive our shareholders of an opportunity to receive a premium for their Class A Common Shares as part of a sale of us and may affect the market price of our Class A Common Shares. Our management agreements with the Managed Equity REITs may discourage our change of control.
Portnoy could deprive our shareholders of an opportunity to receive a premium for their Class A Common Shares as part of a sale of us and may affect the market price of our Class A Common Shares. 22 Table of Contents Our management agreements with the Managed Equity REITs may discourage our change of control.
The level of regulation and supervision to which we and our clients are subject varies from jurisdiction to jurisdiction and is based on the type of business activity involved. For example, we and SEVN may also be subject to state licensing requirements to conduct lending activities.
The level of regulation and supervision to which we and our clients are subject varies from jurisdiction to jurisdiction and is based on the type of business activity involved. For example, our Real Estate Lending Venture and SEVN may also be subject to state licensing requirements to conduct lending activities.
It is uncertain whether inflation will decline further, remain relatively steady or increase; however, some market forecasts indicate that inflation rates may remain elevated for a prolonged period. These conditions have increased the costs for materials, other goods and labor, and these rising costs are impacting us and our clients.
It is uncertain whether inflation will decline further, remain relatively steady or increase; however, some market forecasts indicate that inflation rates may remain elevated for a prolonged period. These conditions have increased the costs for materials, other goods and labor, and these rising costs are 18 Table of Contents impacting us and our clients.
RMR Inc. currently plans to pay a regular quarterly cash dividend equal to $0.40 per share ($1.60 per share per year) to holders of its Class A Common Shares. However, the amount of distributions RMR LLC may make in the future is not certain, and there is no assurance that future distributions will be made.
RMR Inc. currently plans to pay a regular quarterly cash dividend equal to $0.45 per share ($1.80 per share per year) to holders of its Class A Common Shares. However, the amount of distributions RMR LLC may make in the future is not certain, and there is no assurance that future distributions will be made.
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.
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. We may update these risk factors in our future periodic reports.
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.
In addition, some of our clients may be negatively impacted by an economic downturn 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.
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.
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.
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.
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.
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.
To the extent the Managed Equity REITs or certain Private Capital clients receive less rent or incur less construction costs, our property management fee revenues are 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.
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.
Unfavorable economic and industry conditions may be due to, among other things, uncertainty surrounding interest rates, prolonged 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.
Any failure to maintain the security, proper function and availability of our information technology and systems, or certain third party vendors’ failure to similarly protect their information technology and systems that are relevant to our or our clients’ operations, or to safeguard our or our clients’ business processes, assets and information could result in financial losses, interrupt our operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties, any of which could materially and adversely affect us.
Any failure to maintain the security, proper function and availability of our information technology and systems, or certain third party vendors’ failure to similarly protect their information technology and systems that are relevant to our or our clients’ operations, or to safeguard our or our clients’ business processes, assets and information, or any failure to provide the appropriate regulatory and other notifications in a timely manner could result in financial losses, interrupt our operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties, any of which could materially and adversely affect us.
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.
RMR Inc. is the managing member of RMR LLC. As of September 30, 2024, Adam D. Portnoy beneficially owned in aggregate, directly and indirectly through ABP Trust, a combined direct and indirect 50.9% economic interest in RMR LLC and controlled 91.1% of the aggregate voting power of our outstanding capital stock. As a result of this voting control, Adam D.
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.
ESG initiatives, requirements and market expectations may impose additional costs and expose us and our clients to new risks . There remains a continued focus from regulators, investors, certain of our clients’ tenants, managers, borrowers, customers, employees, and other stakeholders concerning corporate sustainability.
We do not have significant experience in this commercial real estate sector, and there can be no assurance that we will be successful in this business, that we will achieve our expected objectives, operate successfully or that we will earn fees from the CARROLL business that provide returns on our investment that meet our underwriting expectations.
We do not have significant experience in this commercial real estate sector, and there can be no assurance that we will be successful in this business, that we will achieve our expected objectives, execute acquisition opportunities, operate successfully or that we will earn fees from RMR Residential that provide returns on our investment that meet our underwriting expectations.
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.
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 income, construction 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 income, construction 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 successfully grow the RMR Residential business and realize our expected returns on our investment within the anticipated timeframe; • the ability of Tremont Realty Capital to identify and close suitable investments for our Real Estate Lending Venture and to monitor, service and administer existing investments; • our ability to obtain capital from third party investors in our Real Estate Lending Venture to make additional investments and to increase potential returns; • uncertainty surrounding 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; 12 Table of Contents • 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.
Further, in order to grow the CARROLL business, we may need to raise additional capital from third party investors and our ability to raise additional capital depends on many factors, some of which are outside of our control.
Further, in order to grow 14 Table of Contents the RMR Residential business we may need to raise additional capital from third party investors and our ability to raise additional capital depends on many factors, some of which are outside of our control.
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.
Our bylaws currently provide that other than any action arising under the Securities Act of 1933, as amended, (the “ Securities Act ”) 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 Internal Corporate Claim, as such term is defined under the Maryland General Corporation Law; (2) any derivative action or proceeding brought on our behalf; (3) 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; (4) 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, including any disputes, claims or controversies 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 (5) 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 governing documents limit the liability of our directors and officers to us and our shareholders for money damages to the maximum extent permitted under Maryland law.
Our charter limits the liability of our directors and officers to us and our shareholders for money damages to the maximum extent permitted under Maryland law.
If the CARROLL Acquisition is completed, the failure to raise capital in sufficient amounts and on satisfactory terms could result in a decrease in our assets under management and our management fees or could result in our being unable to grow the CARROLL business.
The failure to raise capital in sufficient amounts and on satisfactory terms could result in a decrease in our assets under management and our management fees or could result in our being unable to grow the RMR Residential business.
For example, California recently enacted a climate focused disclosure law and the SEC is considering climate change related regulations, both of which will require us to focus significant time and resources on behalf of ourselves and our clients to comply with these new requirements, and we and these clients may incur significant costs in compliance with such rules.
For example, California has enacted a climate focused disclosure law and the SEC has adopted climate change related regulations, both of which will require us to focus significant time and resources on behalf of ourselves and our clients to comply with these new requirements if and when such regulations 16 Table of Contents become effective, and we and these clients may incur significant costs in compliance with such rules.
Unfavorable market conditions and the impact on the commercial real estate industry have reduced, and may continue to reduce, our clients’ market capitalizations, revenues and capital projects, which may reduce the fees we earn from them.
Unfavorable market conditions and the impact on the commercial real estate industry have negatively impacted, and may continue to negatively impact, our clients’ market capitalizations, revenues, construction projects and acquisition and disposition activity, which may reduce the fees we earn from them.
The termination of our management agreement with any of our clients could have a material adverse impact on our business, results of operations and financial condition. We may be unable to complete the CARROLL Acquisition and if completed we may not be able to successfully integrate the CARROLL business and achieve the anticipated benefits of the transaction.
The termination of our management agreement with any of our clients could have a material adverse impact on our business, results of operations and financial condition. We may be unable to successfully grow the RMR Residential business and achieve the anticipated benefits of the transaction .
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.
These conditions may also give rise to an increase in defaults under our clients’ leases and loans, negatively impact market capitalizations, shareholder returns, rent income and construction projects for the Managed Equity REITs and acquisition and disposition activity of, financial performance of and returns for our Private Capital clients.
In addition, because the CARROLL business involves certain joint venture arrangements, investment funds and limited partnerships, if the CARROLL Acquisition is completed, we may have limited flexibility and discretionary authority with respect to certain assets acquired, or management of assets assumed.
In addition, because RMR Residential involves certain joint venture arrangements, investment funds and limited partnerships, we have limited flexibility and discretionary authority with respect to certain assets acquired, or management of assets assumed.
If the CARROLL Acquisition is completed, we may not be able to successfully integrate the business or the integration may be more costly or more time-consuming and complex than anticipated, and cost savings, synergies and anticipated future financial performance may not be realized or may take longer to realize than expected.
We may not be able to successfully grow the RMR Residential business or the growth may be more costly or more time-consuming and complex than anticipated, and cost savings, synergies and anticipated future financial performance may not be realized or may take longer to realize than expected.
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.
Our operating results and our ability to maintain and grow our revenues depend upon the ability of our Managed Equity REITs to maintain and grow their investments and market capitalizations and to achieve positive shareholder returns in excess of applicable REIT total shareholder return indexes.
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.
Sustained high interest rates may increase the cost of our clients’ capital, reduce their ability to make acquisitions and to make dispositions at favorable prices, and have increased their debt service costs.
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.
Reduced business activities of the Managed Equity REITs or our Private Capital clients may materially reduce our revenues and our profitability. 13 Table of Contents Our revenues may be highly variable.
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.
For example, if we do not satisfy the applicable performance measures for three consecutive calendar years under our management agreements with the Managed Equity REITs, such Managed Equity REIT will have the right to terminate its management agreement by prior written notice to us within 60 days following the end of the third consecutive calendar year, and in which case, it would be required to pay us the applicable termination fee.
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.
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.
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.
Inflation may continue to negatively impact us and our clients and our and their businesses, results of operations and ability to grow. Inflation remains above historic levels, and the global economy continues to experience commodity pricing and other inflation, including inflation impacting wages and employee benefits.
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.
Severe weather events and climatic conditions could also adversely impact us and our clients and cause significant losses if we or our clients, or our or their tenants, managers or borrowers are unable to operate their businesses due to damage resulting from such events.
It is not always possible to detect or deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in all cases. If any of our employees were to engage in or be accused of misconduct, our business and our reputation could be adversely affected.
It is not always possible to detect or deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in all cases.
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.
During the past three 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 $12.8 billion as of September 30, 2024.
If market interest rates go up, investors may expect a higher distribution rate before investing in a Managed REIT or they may sell the Managed REITs’ common shares and seek alternate investments with a higher distribution rate.
If interest rates go up, investors may expect a higher distribution rate before investing in a Managed REIT or they may sell the Managed REITs’ common shares and seek alternate investments with a higher distribution rate. Several of the Managed Equity REITs have reduced their quarterly dividend to $0.01 per share in recent years.
For example: Sonesta manages most of SVC’s hotels and SVC owns approximately 34% of Sonesta’s outstanding common stock; and AlerisLife manages many of the senior living communities owned by DHC. Accordingly, a decline in the performance or prospects of AlerisLife would be expected to adversely impact DHC, and any similar decline of Sonesta would be expected to adversely impact SVC.
For example: Sonesta manages most of SVC’s hotels, and SVC owns approximately 34% of Sonesta’s outstanding common stock; and AlerisLife manages many of the senior living communities owned by DHC, and DHC owns approximately 34% of AlerisLife’s outstanding common stock.
Further, during periods of increased borrowing costs, real estate transaction volumes often slow along with real estate valuation growth which may impact the results of operation of our clients and the fees we earn from those clients.
Further, during periods of increased borrowing costs, real estate transaction volumes often slow along with real estate valuation growth which may impact the results of operation of our clients and the fees we earn from those clients. 15 Table of Contents 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 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.
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.
Exclusion from indices could make our Class A Common Shares less attractive to investors and, as a result, the market price of our Class A Common Shares could be adversely affected.
Many investment funds are precluded from investing in companies that are not included in stock indices, and these funds would be unable to purchase our Class A Common Shares. Exclusion from indices could make our Class A Common Shares less attractive to investors and, as a result, the market price of our Class A Common Shares could be adversely affected.
There can be no assurance that our increased focus on private real estate capital or any other business initiative we decide to pursue will be successful in the future or that we will achieve our performance objectives.
There can be no assurance that our increased focus on private real estate capital or any other business initiative we decide to pursue will be successful in the future or that we will achieve our performance objectives. 26 Table of Contents Our only material asset is our interest in RMR LLC, and we are accordingly dependent upon distributions from RMR LLC to pay our taxes and expenses.
If we or our clients fail to adequately prepare for such events, our and our clients’ revenues, results of operations and financial condition may be impacted. We rely on information technology and systems in our operations, and any material failure, inadequacy, interruption or security breach of that technology or those systems could materially harm our business.
We rely on information technology and systems in our operations, and any material failure, inadequacy, interruption or security breach of that technology or those systems could materially harm our business.
Our continued success depends to a great extent on our ability to retain and motivate our key and talented personnel and strategically recruit, retain and motivate new talented personnel. However, we may not be successful in these efforts as the market for qualified employees in the asset management industry is highly competitive.
However, we may not be successful in these efforts as the market for qualified employees in the asset management industry is highly competitive. 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, some of the independent trustees of the Managed REITs also serve as independent trustees of other Managed REITs. These multiple responsibilities and varying interests could create competition for the time and efforts of Adam D. Portnoy and RMR LLC and its subsidiaries and their officers and employees, and actual, potential or perceived conflicts of interest may arise.
In addition, some of the independent trustees of the Managed REITs also serve as independent trustees of other Managed REITs. Mr. Portnoy is also the controlling shareholder of AlerisLife and Sonesta. These multiple responsibilities and varying interests could create competition for the time and efforts of Adam D.
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.
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.
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.
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. The fees we earn and expect to earn from RMR Residential include promote fees on new co-investments and such fees may be highly variable.
Our management responsibilities to each of our clients and any future companies we may manage may give rise to actual, potential or perceived conflicts of interest. Some of our clients have overlapping investment objectives, and if and as we expand our management services to include additional private real estate capital clients, additional overlapping investment objectives may result.
Some of our clients have overlapping investment objectives, and if and as we expand our management services to include additional private real estate capital clients, additional overlapping investment objectives may result. Allocating investment and loan opportunities appropriately frequently involves significant and subjective judgments.
Any of the foregoing risks could have a material adverse effect on our ability to complete the CARROLL Acquisition and to successfully integrate the CARROLL business and achieve the anticipated benefits of the transaction. Additional increases in market interest rates and sustained high interest rates may significantly reduce our revenues or impede our growth.
Any of the foregoing risks could have a material adverse effect on our ability to successfully grow the RMR Residential business and to achieve the anticipated benefits of the transaction.
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.
Our people are the foundation of our success and in many ways our most critical asset. Our continued success depends to a great extent on our ability to retain and motivate our key and talented personnel and strategically recruit, retain and motivate new talented personnel.
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.
The Federal Reserve cut interest rates in September 2024, and it may seek to further reduce interest rates, increase interest rates or maintain current interest rates. The timing, number and amount of any future interest rate changes are uncertain. Increases in interest rates and sustained high interest rates may materially and negatively affect us.

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Item 2. Properties

Properties — owned and leased real estate

1 edited+4 added−0 removed2 unchanged
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.
Biggest changeFor more information about our leased facilities, see Note 13 , Leases , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
Added
In December 2023, as part of the MPC Acquisition, we acquired a 90.0% economic ownership interest in 260 Woodstock Investor, LLC, a mixed-use apartment complex located in Woodstock, GA, or the Woodstock Property.
Added
A mortgage loan with an acquisition date fair value of $4,726 and an aggregate principal amount outstanding of $5,429 is secured by the Woodstock Property and bears interest at a fixed rate of 3.71%.
Added
The mortgage loan requires monthly payments of interest only until September 2025, at which time payments of principal and interest are due monthly until the loan matures in August 2029. In July 2024, we acquired a 240 unit, garden style apartment community located in Denver, CO, or the Denver Property, for a purchase price of $70,000, excluding acquisition costs.
Added
We financed this purchase with cash on hand and proceeds from a $46,500 mortgage loan with a 5.34% fixed interest rate. This mortgage loan requires monthly payments of interest only until maturity in July 2029.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Added
Mine Safety Disclosures Not applicable. 28 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed1 unchanged
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.
Biggest changeThe following table provides information about our purchases of our equity securities during the fiscal year ended September 30, 2024: Maximum Total Number of Approximate Dollar Shares Purchased Value of Shares that Number of Average as Part of Publicly May Yet Be Purchased Shares Price Paid Announced Plans Under the Plans or Calendar Month Purchased (1) per Share or Programs Programs November 1, 2023 - November 30, 2023 492 $ 23.82 N/A N/A January 1, 2024 - January 31, 2024 1,832 27.53 N/A N/A March 1, 2024 - March 31, 2024 2,568 24.21 N/A N/A May 1, 2024 - May 31, 2024 1,156 23.99 N/A N/A July 1, 2024 - July 31, 2024 4,250 22.48 N/A N/A August 1, 2024 - August 31, 2024 1,720 25.30 N/A N/A September 1, 2024 - September 30, 2024 33,471 25.25 N/A N/A Total 45,489 $ 24.98 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.
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] 29 Table of Contents
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.
As of November 5, 2024, there were 2,087 shareholders of record of our Class A Common Shares. Issuer purchases of equity securities.

Item 7. Management's Discussion & Analysis

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

46 edited+45 added−21 removed28 unchanged
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.
Biggest changeWe plan either to syndicate this acquisition or use it to seed a small portfolio of multifamily assets we would subsequently syndicate to third party investors. 33 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, 2024 compared to the fiscal year ended September 30, 2023: Fiscal Year Ended September 30, 2024 2023 $ Change % Change Revenues: Management services $ 188,201 $ 185,702 $ 2,499 1.3% Termination and incentive fees 1,213 45,942 (44,729) (97.4)% Advisory services 4,506 4,520 (14) (0.3)% Total management, termination, incentive and advisory services revenues 193,920 236,164 (42,244) (17.9)% Loan investment interest income 1,400 — 1,400 n/m Loan investment interest expense (87) — (87) n/m Income from loan investments, net 1,313 — 1,313 n/m Rental property revenues 1,604 — 1,604 n/m Reimbursable compensation and benefits 84,169 59,925 24,244 40.5% Reimbursable equity based compensation 7,919 9,826 (1,907) (19.4)% Other reimbursable expenses 608,688 656,401 (47,713) (7.3)% Total reimbursable costs 700,776 726,152 (25,376) (3.5)% Total revenues 897,613 962,316 (64,703) (6.7)% Expenses: Compensation and benefits 170,357 136,355 34,002 24.9% Equity based compensation 10,624 12,488 (1,864) (14.9)% Separation costs 6,297 2,002 4,295 n/m Total compensation and benefits expense 187,278 150,845 36,433 24.2% General and administrative 43,743 36,019 7,724 21.4% Other reimbursable expenses 608,688 656,401 (47,713) (7.3)% Rental property expenses 462 — 462 n/m Transaction and acquisition related costs 7,750 4,221 3,529 83.6% Depreciation and amortization 4,713 1,102 3,611 n/m Total expenses 852,634 848,588 4,046 0.5% Operating income 44,979 113,728 (68,749) (60.5)% Change in fair value of Earnout liability 2,589 — 2,589 n/m Interest income 10,403 10,574 (171) (1.6)% Interest expense (783) — (783) n/m Gain on equity method investments 7,260 25,237 (17,977) (71.2)% Income before income tax expense 64,448 149,539 (85,091) (56.9)% Income tax expense (11,319) (21,768) 10,449 48.0% Net income 53,129 127,771 (74,642) (58.4)% Net income attributable to noncontrolling interest in The RMR Group LLC (30,039) (70,624) 40,585 57.5% Net loss attributable to noncontrolling interest in consolidated entity 40 — 40 n/m Net income attributable to The RMR Group Inc. $ 23,130 $ 57,147 $ (34,017) (59.5)% 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, 2024, compared to the fiscal year ended September 30, 2023.
Our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K include only the accounts of the entities we control. We continually assess whether our existing contractual rights give us the ability to direct the activities of the entities we manage that most significantly affect the results of that entity.
Consolidation . Our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K include only the accounts of the entities we control. We continually assess whether our existing contractual rights give us the ability to direct the activities of the entities we manage that most significantly affect the results of that entity.
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.
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, or commodity price changes; however, if any of these risks were to negatively impact our clients’ businesses or market capitalization, our revenues would likely decline.
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.
As of September 30, 2024, 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.
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 further information about these and other such relationships and related person transactions, see Note 2 , Summary of Significant Accounting Policies and Note 8 , 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 2025 Annual Meeting of Shareholders, or the 2025 Proxy Statement, to be filed within 120 days after the close of the fiscal year ended September 30, 2024.
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.
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 30 Table of Contents valued at approximately $4.0 billion.
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.
The basis on which our base business management fees are calculated for the fiscal years ended September 30, 2024 and 2023 may differ from the basis at the end of the periods presented in the table above.
See Note 6, Shareholders’ Equity , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K for more information regarding these distributions.
See Note 9 , Shareholders’ Equity , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K for more information regarding these distributions.
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.
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.
See the “Revenue Recognition” section of 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 a detailed discussion of our revenue recognition policies and our contractual arrangements. Consolidation .
See the “Revenue Recognition” section of 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 a detailed discussion of our revenue recognition policies and our contractual arrangements. Fair Value.
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.
See Note 8 , Related Person Transactions , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
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.
For a comparison of consolidated results for the fiscal year ended September 30, 2023 compared to the fiscal year ended September 30, 2022, 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, 2023. 34 Table of Contents Management services revenue.
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.
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, 2024 and 2023, $92,326 and $265,800, respectively, of our cash and cash equivalents were invested in money market bank accounts.
When providing services to our clients, we consider industry and general economic factors and attempt to take advantage of opportunities when they arise.
Both we and our clients consider industry and general economic factors and attempt to take advantage of opportunities when they arise.
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.
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, 2024 and 2023, as applicable: Lesser of Historical Cost of Assets Under Management or Total Market Capitalization as of September 30, REIT Primary Strategy 2024 2023 DHC Medical office and life science properties, senior living communities and other healthcare related properties $ 4,122,133 $ 3,280,149 ILPT Industrial and logistics properties 4,627,266 4,520,662 OPI Office properties primarily leased to single tenants and those with high credit quality characteristics 2,450,756 2,789,224 SVC Hotels and service-focused retail net lease properties 6,442,016 7,083,845 $ 17,642,171 $ 17,673,880 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.
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.
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 $10,191, of which $5,391 will be distributed to us based on our aggregate ownership of 16,846,025 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.
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.
During the fiscal year ended September 30, 2024, 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 $47,623.
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.
The $14,799 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 $12,997 distributed to ABP Trust was recorded as a reduction of their noncontrolling interest.
We consider the incentive business management fees earned from the REITs that we manage to be contingent performance based fees, which we recognize as revenue when earned at the end of each measurement period.
We recognize revenue from business management and property management fees as earned in accordance with our management agreements. We consider the incentive business management fees earned from the REITs that we manage to be contingent performance based fees, which we recognize as revenue when earned at the end of each measurement period.
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.
In addition, we also provide management services to certain other Private Capital clients, including high-quality institutional investors relationships we assumed as part of our MPC acquisition, and earn fees based on a percentage of average invested capital, as defined in the applicable agreements, property management fees based on a percentage of rents collected from managed properties and construction supervision fees based on a percentage of the cost of construction activities.
These accounting estimates are based on our management’s judgment. We consider them to be critical because of their significance to our consolidated financial statements and the possibility that future events may cause differences from current judgments or because the use of different assumptions could result in materially different estimates.
We consider them to be critical because of their significance to our consolidated financial statements and the possibility that future events may cause differences from current judgments or because the use of different assumptions could result in materially different estimates. We review these estimates on a periodic basis to test their reasonableness.
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.
The remainder of this dividend will be funded with cash accumulated at RMR Inc. We expect the total dividend will amount to approximately $12,381 and we expect to pay this dividend on or about November 14, 2024.
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.
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 cash distributions and enhance our technology infrastructure, in the next twelve months.
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 year ended September 30, 2024, pursuant to the RMR LLC operating agreement, RMR LLC made required quarterly tax distributions to its holders of its membership units totaling $27,796, of which $14,799 was distributed to us and $12,997 was distributed to ABP Trust, based on each membership unit holder’s then respective ownership percentage in 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.
As of September 30, 2024 and 2023, we had cash and cash equivalents of $141,599 and $267,989, respectively, of which $23,189 and $26,802, respectively, was held by RMR Inc., with the remainder being held at RMR LLC and its subsidiaries.
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 income tax expense of $10,449 is primarily attributable to lower taxable income during the 2024 period as compared to the 2023 period. 36 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.
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.
Our management fee revenues from services to these clients for the fiscal years ended September 30, 2024 and 2023, 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, 2024 2023 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 $ 5,632 $ — $ — $ 5,632 $ 5,414 $ — $ — $ 5,414 Sonesta 9,362 — — 9,362 9,456 — 15 9,471 RMR Residential 482 15,014 1,440 16,936 — — — — Other private entities 12,099 8,664 579 21,342 12,013 8,388 1,130 21,531 SEVN — 47 — 47 — 8 — 8 TA — — — — 9,932 — — 9,932 $ 27,575 $ 23,725 $ 2,019 $ 53,319 $ 36,815 $ 8,396 $ 1,145 $ 46,356 32 Table of Contents 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.
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.
On October 16, 2024, we declared a quarterly dividend on our Class A Common Shares and Class B-1 Common Shares to our shareholders of record as of October 28, 2024 in the amount of $0.45 per Class A Common Share and Class B-1 Common Share, or $7,581.
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.
For further information about these fees, see Note 2 , Summary of Significant Accounting Policies , and Note 8 , Related Person Transactions , to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Income from loan investments, net .
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.
As of September 30, 2024, the market capitalization was lower than the historical cost of assets under management for each of the Managed Equity REITs; the historical cost of assets under management for DHC, ILPT, OPI and SVC as of September 30, 2024, were $7,651,487, $5,699,132, $5,806,052 and $11,425,389, respectively. 31 Table of Contents The fee revenues we earned from the Managed Equity REITs for the fiscal years ended September 30, 2024 and 2023 are set forth in the following table: Fiscal Year Ended September 30, 2024 2023 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 $ 16,498 $ 5,659 $ 2,359 $ 24,516 $ 14,388 $ 5,921 $ 3,366 $ 23,675 ILPT 23,590 12,683 431 36,704 23,428 12,690 716 36,834 OPI 12,484 13,339 4,080 29,903 14,133 13,909 10,121 38,163 SVC 31,610 5,397 6,752 43,759 33,654 3,794 3,095 40,543 $ 84,182 $ 37,078 $ 13,622 $ 134,882 $ 85,603 $ 36,314 $ 17,298 $ 139,215 Other Clients We provide business management services to AlerisLife, Sonesta and until May 15, 2023, TA.
Quantitative and Qualitative Disclosures About Market Risk Quantitative and Qualitative disclosures about market risk are set forth above in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operation—Market Risk and Credit Risk.” Item 8. Financial Statements and Supplementary Data The information required by this item is included in Item 15 of this Annual Report on Form 10-K.
Quantitative and Qualitative Disclosures About Market Risk Quantitative and Qualitative disclosures about market risk are set forth above in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operation—Market Risk and Credit Risk.”
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.
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”.
For further information about these reimbursements, 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. Compensation and benefits. Compensation and benefits consist of employee salaries and other employment related costs, including health insurance expenses and contributions related to our employee retirement plan.
Reimbursable equity based compensation revenue decreased $1,907 primarily as a result of decreases in certain of our clients’ respective share prices. Other reimbursable expenses. For further information about these reimbursements, 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.
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.
Reimbursable equity based compensation includes awards of common shares by our clients directly to certain of our officers and employees in connection with the provision of management services to those clients. We record an equal offsetting amount as equity based compensation expense for the value of these awards.
Critical Accounting Estimates An understanding of our accounting policies is necessary for a complete analysis of our results, financial position, liquidity and trends. The preparation of our consolidated financial statements requires our management to make certain critical accounting estimates and judgments that impact (i) the revenue recognized during the reporting periods and (ii) our principles of consolidation.
The preparation of our consolidated financial statements requires our management to make certain critical accounting estimates and judgments that impact (i) the revenue recognized during the reporting periods (ii) the estimation of 38 Table of Contents fair values and (iii) our principles of consolidation. These accounting estimates are based on our management’s judgment.
Our principal sources of revenue are: • business management fees, including base and incentive business management fees; and 35 Table of Contents • property management fees, including construction supervision fees and reimbursement for certain compensation and benefits related expenses. We recognize revenue from business management and property management fees as earned in accordance with our management agreements.
Although actual amounts likely differ from such estimated amounts, we believe such differences are not likely to be material. Revenue Recognition. Our principal sources of revenue are: • business management fees, including base and incentive business management fees; and • property management fees, including construction supervision fees and reimbursement for certain compensation and benefits related expenses.
Tremont is primarily compensated pursuant to its management agreement with SEVN based on a percentage of equity, as defined in the applicable agreement.
Tremont is primarily compensated pursuant to its management agreement with SEVN based on a percentage of equity, as defined in the applicable agreement. For the fiscal years ended September 30, 2024 and 2023, Tremont earned advisory services revenue of $4,506 and $4,520, respectively, and incentive fees of $1,213 and $660, respectively.
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.
Equity based compensation decreased $1,864 primarily as a result of decreases in certain of our clients’ respective share prices. Separation costs. Separation costs consist of employment termination costs. For further information about these costs, see Note 8 , Related Person Transactions, to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
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.
The $259,334 decrease in net cash flows from investing activities for the fiscal year ended September 30, 2024 compared to the prior fiscal year was due to our acquisition of MPC and the Denver Property, as well as the origination of loans held for investment in the current fiscal year compared to the proceeds received from the sale of TA’s common shares in the prior period.
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.
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. We record an equal offsetting amount as reimbursable equity based compensation revenue for the value of awards under our clients’ equity compensation plans to certain of our employees.
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.
Rental property revenues includes base rental income and non-cash straight line rent adjustments for our two owned properties, each of which was acquired in the current fiscal year. 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.
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.
Management services revenue increased $2,499 primarily due to growth in management services revenue of $16,936 related to our acquisition of MPC, partially offset by decreases in management fees earned from TA of $9,932 as a result of the termination of its business management agreement with us on May 15, 2023 and decreases in construction supervision fees earned, primarily from the Managed Equity REITs, of $4,242.
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.
The $101,883 increase in net cash flows from financing activities for the fiscal year ended September 30, 2024 compared to the prior fiscal 37 Table of Contents year was primarily due to proceeds from our UBS Master Repurchase Facility and mortgage note payable in the current fiscal year, as well as higher tax distributions in the prior period.
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.
General and administrative. General and administrative expenses consist of office related expenses, information technology related expenses, employee training, travel, professional services expenses, director compensation and other administrative expenses. General and administrative costs increased $7,724 primarily due to the impact of our acquisition of MPC and increases in third party costs related to our expanded role in construction oversight.
Market Risk and Credit Risk We have not invested in derivative instruments, borrowed through issuing debt securities or transacted in foreign currencies.
As of September 30, 2024, our consolidated balance sheet reflects a liability related to the tax receivable agreement of $20,863, of which we expect to pay $2,421 to ABP Trust during the fourth quarter of fiscal year 2025. Market Risk and Credit Risk We have not invested in derivative instruments, borrowed through issuing debt securities or transacted in foreign currencies.
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.
More recently, on December 19, 2023, we completed our previously announced agreement to acquire 100% of the equity interest in MPC for total consideration of $99,021, which added residential capabilities to RMR LLC.
Removed
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.
Added
Acquisition of MPC Partnership Holdings LLC On December 19, 2023, we completed our acquisition, or the Acquisition, of MPC (now doing business as RMR Residential), a vertically integrated residential platform.
Removed
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.
Added
This acquisition further advances our strategic focus on continuing to grow our private capital business, comprising approximately $5.1 billion in assets under management as of September 30, 2024 and a number of new institutional relationships.
Removed
Increased borrowing costs and concerns of a possible or pending economic recession have resulted in an overall decline in commercial real estate transactions.
Added
This acquisition also allows us to further diversify our revenue sources, to enter the only major commercial real estate, or CRE, sector in which we did not have a significant presence, and brings infrastructure and digital marketing capabilities that may be leveraged across our platform.
Removed
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.
Added
Heading in to 2024, certain CRE investors seemed cautiously optimistic that inflation had peaked, that the U.S. economy was likely headed for a “soft-landing” and that the Federal Open Market Committee of the U.S.
Removed
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.
Added
Federal Reserve, or the FOMC, would be poised to reduce the federal funds rate by 125 to 150 basis points as a result of five or six rate cuts in 2024.
Removed
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.
Added
With the anticipation of lower interest rates in the future, investors chose to delay sale or refinancing decisions and overall CRE investment and transaction volume remained tepid well into the third quarter of calendar 2024.
Removed
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.
Added
In September 2024, citing progress toward its 2% inflation target, the FOMC lowered the targeted federal funds rate by 50 basis points, to a range of 4.75% to 5.00%, the first reduction since March 2020. This rate cut provided CRE owners relief from the recent high borrowing costs and uncertainty regarding the timing and magnitude of future rate cuts.
Removed
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.
Added
With this additional clarity on the intentions of the FOMC and the direction of future interest rates, CRE owners are now better positioned to make sale or refinance decisions and opt between floating or fixed rate financing options. Although certain CRE investors feel that the risk of a prolonged period of elevated interest rates is largely over, other challenges remain.
Removed
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.
Added
Special servicing rates for commercial mortgage-backed securities, or CMBS, and CRE collateralized loan obligations continue to increase and lenders have become more willing to foreclose on borrowers unable to support underperforming properties.
Removed
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.
Added
Furthermore, certain segments of the CRE industry continue to experience headwinds in trying to improve operating fundamentals, whether it be the pandemic shift in work habits and weak demand for office space impacting the office sector or oversupply in certain markets adversely impacting the industrial and residential sectors.
Removed
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.
Added
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.
Removed
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.
Added
RMR Residential also provides us the potential to generate promote fees on any new co-investments in the future.
Removed
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.
Added
Real Estate Lending Venture As part of our strategic initiative to expand our private capital business, our plan is to amass a small portfolio of loans, financed, in part, through a bank repurchase facility, in a Tremont managed vehicle and bring in third parties to invest in the vehicle. The vehicle would then continue growing by making additional loans.
Removed
Historically, we have funded our working capital needs with cash generated from our operating activities and we currently do not maintain any credit facilities.
Added
In July 2024, we originated a floating rate first mortgage loan that is secured by a hotel property in Revere, MA for a total commitment of $40,000, which has been fully funded as of September 30, 2024.
Removed
Our management fees are typically payable to us within 30 days of the end of each month or, in the case of annual incentive business management fees earned from the Managed Equity REITs, if any, within 30 days following each calendar year end.
Added
This loan requires the borrower to pay interest at a rate of the Secured Overnight Financing Rate, or SOFR, plus a premium of 395 basis points per annum and has an initial term of two years with three one year extensions.
Removed
Quarterly incentive fees earned from SEVN, if any, are payable generally within 30 days following the end of the applicable quarter. Historically, we have not experienced losses on collection of our fees and have not recorded any allowances for bad debts.
Added
Also in July 2024, we originated a floating rate first mortgage loan that is secured by an industrial property in Wayne, PA for a total commitment of $27,000, of which $17,180 has been funded as of September 30, 2024.
Removed
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.
Added
This loan requires the borrower to pay interest at a rate of SOFR plus a premium of 425 basis points per annum and has an initial term of three years with two one year extensions.

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Other RMR 10-K year-over-year comparisons