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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-37616
 
THE RMR GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland 47-4122583
(State of Organization) (IRS Employer Identification No.)
 
Two Newton Place, 255 Washington Street, Suite 300, Newton, MA 02458-1634
(Address of Principal Executive Offices)                            (Zip Code)
Registrant’s Telephone Number, Including Area Code 617-796-8230
Securities registered pursuant to Section 12(b) of the Act:
Title Of Each Class Trading Symbol Name Of Each Exchange On Which Registered
Class A common stock, $0.001 par value per share RMR The Nasdaq Stock Market LLC
  (Nasdaq Capital Market)
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒   No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐   Accelerated filer ☒
Non-accelerated filer ☐   Smaller reporting company ☐
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided in Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒
As of August 4, 2021, there were 15,407,933 shares of Class A common stock, par value $0.001 per share, 1,000,000 shares of Class B-1 common stock, par value $0.001 per share, and 15,000,000 shares of Class B-2 common stock, par value $0.001 per share outstanding.


Table of Contents
THE RMR GROUP INC.

FORM 10-Q

June 30, 2021
 
Table of Contents

Page
3
 
4
5
 
7
8
26
35
35
36
38
38
39
40

2
Table of Contents
PART I. Financial Information
Item 1. Financial Statements
The RMR Group Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
(unaudited)
June 30, September 30,
2021 2020
Assets
Current assets:
Cash and cash equivalents $ 397,801  $ 369,663 
Due from related parties 87,619  82,605 
Prepaid and other current assets 5,467  3,877 
Total current assets 490,887  456,145 
Property and equipment, net 2,303  2,299 
Due from related parties, net of current portion 11,902  7,764 
Equity method investment 7,198  7,467 
Equity method investment accounted for under the fair value option 18,184  12,152 
Goodwill and intangible assets, net of amortization 2,104  2,136 
Operating lease right of use assets 33,429  34,663 
Deferred tax asset 21,917  23,900 
Other assets, net of amortization 136,665  143,727 
Total assets $ 724,589  $ 690,253 
Liabilities and Equity
Current liabilities:
Other reimbursable expenses $ 61,730  $ 56,079 
Accounts payable and accrued expenses 35,713  16,984 
Operating lease liabilities 4,868  4,407 
Employer compensation liability 1,440  4,298 
Total current liabilities 103,751  81,768 
Operating lease liabilities, net of current portion 30,395  32,030 
Amounts due pursuant to tax receivable agreement, net of current portion 27,789  27,789 
Employer compensation liability, net of current portion 11,902  7,764 
Total liabilities 173,837  149,351 
Commitments and contingencies
Equity:
Class A common stock, $0.001 par value; 31,600,000 shares authorized; 15,407,933 and 15,395,641 shares issued and outstanding, respectively
15  15 
Class B-1 common stock, $0.001 par value; 1,000,000 shares authorized, issued and outstanding
1  1 
Class B-2 common stock, $0.001 par value; 15,000,000 shares authorized, issued and outstanding
15  15 
Additional paid in capital 109,281  106,622 
Retained earnings 308,319  286,249 
Cumulative common distributions (115,680) (96,983)
Total shareholders’ equity 301,951  295,919 
Noncontrolling interest 248,801  244,983 
Total equity 550,752  540,902 
Total liabilities and equity $ 724,589  $ 690,253 
See accompanying notes.
3
Table of Contents
The RMR Group Inc.
Condensed Consolidated Statements of Income
(amounts in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2021 2020 2021 2020
Revenues:
Management services $ 44,376  $ 38,625  $ 125,365  $ 129,221 
Incentive business management fees —  —  620  — 
Advisory services 1,134  625  2,849  2,252 
Total management and advisory services revenues 45,510  39,250  128,834  131,473 
Reimbursable compensation and benefits 13,069  13,013  39,453  38,683 
Reimbursable equity based compensation 1,402  736  5,611  1,394 
Other reimbursable expenses 85,263  85,650  259,856  267,852 
Total reimbursable costs 99,734  99,399  304,920  307,929 
Total revenues 145,244  138,649  433,754  439,402 
Expenses:
Compensation and benefits 30,530  29,569  90,610  89,888 
Equity based compensation 1,954  1,299  7,267  3,183 
Separation costs —  —  4,159  645 
Total compensation and benefits expense 32,484  30,868  102,036  93,716 
General and administrative 6,320  6,335  19,684  20,678 
Other reimbursable expenses 85,263  85,650  259,856  267,852 
Transaction and acquisition related costs 61  427  474  1,596 
Depreciation and amortization 245  229  734  731 
Total expenses 124,373  123,509  382,784  384,573 
Operating income 20,871  15,140  50,970  54,829 
Interest and other income 179  727  614  4,102 
Equity in earnings of investees 28  458  755  1,037 
Unrealized gain on equity method investment accounted for under the fair value option 1,312  1,678  6,032  916 
Income before income tax expense 22,390  18,003  58,371  60,884 
Income tax expense (3,361) (2,608) (8,109) (8,944)
Net income 19,029  15,395  50,262  51,940 
Net income attributable to noncontrolling interest (10,797) (8,678) (28,192) (29,306)
Net income attributable to The RMR Group Inc. $ 8,232  $ 6,717  $ 22,070  $ 22,634 
Weighted average common shares outstanding - basic 16,269  16,198  16,259  16,187 
Weighted average common shares outstanding - diluted 31,308  31,198  31,271  31,187 
Net income attributable to The RMR Group Inc. per common share - basic
$ 0.50  $ 0.41  $ 1.35  $ 1.39 
Net income attributable to The RMR Group Inc. per common share - diluted
$ 0.50  $ 0.41  $ 1.31  $ 1.37 
See accompanying notes.
4
Table of Contents
    
The RMR Group Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(dollars in thousands)
(unaudited)
Class A Common Stock Class B-1 Common Stock Class B-2 Common Stock Additional Paid In Capital Retained Earnings Cumulative Common Distributions Total Shareholders' Equity Noncontrolling Interest Total Equity
Balance at September 30, 2020 $ 15  $ 1  $ 15  $ 106,622  $ 286,249  $ (96,983) $ 295,919  $ 244,983  $ 540,902 
Share grants, net —  —  —  1,012  —  —  1,012  —  1,012 
Net income —  —  —  —  8,897  —  8,897  10,856  19,753 
Tax distributions to Member —  —  —  —  —  —  —  (2,820) (2,820)
Common share distributions —  —  —  —  —  (6,230) (6,230) (4,500) (10,730)
Balance at December 31, 2020 15  1  15  107,634  295,146  (103,213) 299,598  248,519  548,117 
Share grants, net —  —  —  1,298  —  —  1,298  —  1,298 
Net income —  —  —  —  4,941  —  4,941  6,539  11,480 
Tax distributions to Member —  —  —  —  —  —  —  (4,459) (4,459)
Common share distributions —  —  —  —  —  (6,230) (6,230) (4,500) (10,730)
Balance at March 31, 2021 15  1  15  108,932  300,087  (109,443) 299,607  246,099  545,706 
Share grants, net —  —  —  349  —  —  349  —  349 
Net income —  —  —  —  8,232  —  8,232  10,797  19,029 
Tax distributions to Member —  —  —  —  —  —  —  (3,595) (3,595)
Common share distributions —  —  —  —  —  (6,237) (6,237) (4,500) (10,737)
Balance at June 30, 2021 $ 15  $ 1  $ 15  $ 109,281  $ 308,319  $ (115,680) $ 301,951  $ 248,801  $ 550,752 
See accompanying notes.

5
Table of Contents
The RMR Group Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Continued)
(dollars in thousands)
(unaudited)
Class A Common Stock Class B-1 Common Stock Class B-2 Common Stock Additional Paid In Capital Retained Earnings Cumulative Common Distributions Total Shareholders' Equity Noncontrolling Interest Total Equity
Balance at September 30, 2019 $ 15  $ 1  $ 15  $ 103,360  $ 257,457  $ (72,194) $ 288,654  $ 240,381  $ 529,035 
Share grants, net —  —  —  634  —  —  634  —  634 
Net income —  —  —  —  9,449  —  9,449  12,175  21,624 
Tax distributions to Member —  —  —  —  —  —  —  (3,830) (3,830)
Common share distributions —  —  —  —  —  (6,195) (6,195) (4,500) (10,695)
Balance at December 31, 2019 15  1  15  103,994  266,906  (78,389) 292,542  244,226  536,768 
Share grants, net —  —  —  1,271  —  —  1,271  —  1,271 
Net income —  —  —  —  6,468  —  6,468  8,453  14,921 
Tax distributions to Member —  —  —  —  —  —  —  (4,156) (4,156)
Common share distributions —  —  —  —  —  (6,194) (6,194) (4,500) (10,694)
Balance at March 31, 2020 15  1  15  105,265  273,374  (84,583) 294,087  244,023  538,110 
Share grants, net —  —  —  598  —  —  598  —  598 
Net income —  —  —  —  6,717  —  6,717  8,678  15,395 
Tax distributions to Member —  —  —  —  —  —  —  (2,949) (2,949)
Common share distributions —  —  —  —  —  (6,200) (6,200) (4,500) (10,700)
Balance at June 30, 2020 $ 15  $ 1  $ 15  $ 105,863  $ 280,091  $ (90,783) $ 295,202  $ 245,252  $ 540,454 
See accompanying notes.
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The RMR Group Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
Nine Months Ended June 30,
2021 2020
Cash Flows from Operating Activities:
Net income $ 50,262  $ 51,940 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 734  731 
Straight line office rent 60  124 
Amortization expense related to other assets 7,062  7,062 
Deferred income taxes 1,983  1,108 
Operating expenses paid in The RMR Group Inc. common shares 2,881  2,658 
Equity in earnings of investees (755) (1,037)
Distributions from equity method investment 1,024  721 
Unrealized gain on equity method investment accounted for under the fair value option (6,032) (916)
Changes in assets and liabilities:
Due from related parties (7,872) 10,393 
Prepaid and other current assets (1,590) 2,253 
Other reimbursable expenses 5,651  (6,782)
Accounts payable and accrued expenses 18,963  10,535 
Net cash from operating activities 72,371  78,790 
Cash Flows from Investing Activities:
Purchase of property and equipment (940) (404)
Net cash used in investing activities (940) (404)
Cash Flows from Financing Activities:
Distributions to noncontrolling interest (24,374) (24,435)
Distributions to common shareholders (18,697) (18,589)
Repurchase of common shares (222) (155)
Net cash used in financing activities (43,293) (43,179)
Increase in cash and cash equivalents 28,138  35,207 
Cash and cash equivalents at beginning of period 369,663  358,448 
Cash and cash equivalents at end of period $ 397,801  $ 393,655 
Supplemental Cash Flow Information and Non-Cash Activities:
Income taxes paid $ 8,931  $ 6,385 
Fair value of share based payments recorded $ 5,611  $ 1,394 
Recognition of right of use assets and related lease liabilities $ 2,249  $ 39,746 
See accompanying notes.
7

The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands, except per share amounts)


Note 1. Basis of Presentation
The RMR Group Inc., or RMR Inc., is a holding company and substantially all of its business is conducted by its majority owned subsidiary, The RMR Group LLC, or RMR LLC. RMR Inc. is a Maryland corporation and RMR LLC is a Maryland limited liability company. RMR Inc. serves as the sole managing member of RMR LLC and, in that capacity, operates and controls the business and affairs of RMR LLC. In these financial statements, unless otherwise indicated, “we”, “us” and “our” refer to RMR Inc. and its direct and indirect subsidiaries, including RMR LLC.
As of June 30, 2021, RMR Inc. owned 15,407,933 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 represented 52.2% of the economic interest of RMR LLC as of June 30, 2021. We refer to economic interest as the right of a holder of a Class A Unit or Class B Unit to share in distributions made by RMR LLC and, upon liquidation, dissolution or winding up of RMR LLC, to share in the assets of RMR LLC after payments to creditors. A wholly owned subsidiary of ABP Trust, a Maryland statutory trust, owns 15,000,000 redeemable Class A Units, representing 47.8% of the economic interest of RMR LLC as of June 30, 2021, which is presented as a noncontrolling interest within the condensed consolidated financial statements. Adam D. Portnoy, one of our Managing Directors, is the sole trustee of ABP Trust, and owns all of ABP Trust’s voting securities.
RMR LLC was founded in 1986 to manage public investments in real estate and, as of June 30, 2021, managed a diverse portfolio of real estate and real estate related businesses. RMR LLC provides management services to four publicly traded equity real estate investment trusts, or REITs: Diversified Healthcare Trust, or DHC, which owns medical office and life science properties, senior living communities and wellness centers; Industrial Logistics Properties Trust, or ILPT, which owns and leases industrial and logistics properties; Office Properties Income Trust, or OPI, which owns office properties primarily leased to single tenants and those with high quality credit characteristics, including the government; and Service Properties Trust, or SVC, which owns a diverse portfolio of hotels and net lease service and necessity-based retail properties. DHC, ILPT, OPI and SVC are collectively referred to as the Managed Equity REITs.
RMR LLC also provides management services to three real estate operating companies: Five Star Senior Living Inc., or Five Star, a publicly traded operator of senior living communities, many of which are owned by DHC; 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 whose U.S. hotels are owned by SVC; and TravelCenters of America Inc., or TA, an operator and franchisor of travel centers primarily along the U.S. interstate highway system, many of which are owned by SVC, and standalone truck service facilities. Hereinafter, Five Star, Sonesta and TA are collectively referred to as the Managed Operating Companies.
In addition, RMR LLC provides management services to private capital vehicles, including ABP Trust and its subsidiaries, or collectively ABP Trust, and other private entities that own commercial real estate, of which certain of our Managed Equity REITs own minority equity interests. In these financial statements we refer to these clients as the Managed Private Real Estate Capital clients.
RMR LLC’s wholly owned subsidiary, Tremont Realty Advisors LLC, or Tremont Advisors, an investment adviser registered with the Securities and Exchange Commission, or SEC, provides advisory services for two publicly traded mortgage REITs: RMR Mortgage Trust, or RMRM, and Tremont Mortgage Trust, or TRMT. RMRM, TRMT and the Managed Equity REITs are collectively referred to as the Managed REITs or the Managed Public Real Estate Capital clients. RMRM and TRMT focus primarily on originating and investing in first mortgage whole loans secured by middle market and transitional commercial real estate. Tremont Advisors has in the past and may in the future manage additional accounts that invest in commercial real estate debt, including secured mortgage debt. Employees of Tremont Advisors also act as a transaction broker for non-investment advisory clients for negotiated fees, which we refer to as the Tremont business.
On April 26, 2021, RMRM and TRMT announced that they have entered into a definitive merger agreement pursuant to which TRMT will merge with and into RMRM, with RMRM continuing as the surviving company. Tremont Advisors will continue to manage the combined company and has waived any termination fee that would otherwise be payable by TRMT as a result of the merger. The merger is expected to close during the third calendar quarter of 2021, subject to the requisite approvals by RMRM and TRMT shareholders and other customary closing conditions.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
The accompanying condensed consolidated financial statements are unaudited. Certain information and disclosures required by U.S. Generally Accepted Accounting Principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, or our 2020 Annual Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
Preparation of these financial statements in conformity with GAAP requires our management to make certain estimates and assumptions that may affect the amounts reported in these financial statements and related notes. The actual results could differ from these estimates.
Note 2. Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU No. 2016-13, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. On October 1, 2020, we adopted ASU No. 2016-13. We have not historically experienced credit losses from our clients and as a result, the adoption of ASU No. 2016-13 did not have a material impact on our condensed consolidated financial statements.
Note 3. Revenue Recognition
Base Business Management Fees—Managed Equity REITs
We earn annual base business management fees from the Managed Equity REITs by providing continuous services pursuant to business management agreements equal to 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 $250,000, plus (c) 0.5% of the average invested capital exceeding $250,000; and
•the sum of (a) 0.7% of the average market capitalization, as defined in the applicable business management agreement, up to $250,000, plus (b) 0.5% of the average market capitalization exceeding $250,000.
The foregoing base business management fees are paid monthly in arrears. 
We earned aggregate base business management fees from the Managed Equity REITs of $24,471 and $21,010 for the three months ended June 30, 2021 and 2020, respectively, and $68,599 and $72,928 for the nine months ended June 30, 2021 and 2020, respectively.
Incentive Business Management Fees—Managed Equity REITs
We also may earn annual incentive business management fees from the Managed Equity REITs under the business management agreements. The incentive business management fees, which are payable in cash, are contingent performance based fees recognized only when earned at the end of each respective measurement period. Incentive business management fees are excluded from the transaction price until it becomes probable that there will not be a significant reversal of cumulative revenue recognized.
The incentive business management fees are calculated for each Managed Equity REIT as 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 relevant measurement period and (b) the amount, expressed as a percentage, by which the Managed Equity REIT’s total return per share, as defined in the applicable business management agreement, exceeded the applicable benchmark total return per share, as defined in the applicable business management
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
agreement, of a specified REIT index identified in the applicable business management agreement for the measurement period, as adjusted for net share issuances during the period and subject to caps on the values of the incentive fees. The measurement period for the annual incentive business management fees is defined as the three year period ending on December 31 of the year for which such fee is being calculated.
We did not earn incentive business management fees from the Managed Equity REITs for the calendar years 2019 or 2020 and, as a result, we did not recognize any incentive business management fees from the Managed Equity REITs for the nine months ended June 30, 2021 or 2020.
Other Management Agreements
Managed Operating Companies
We earn management fees by providing continuous services pursuant to the management agreements from the Managed Operating Companies equal to 0.6% of: (i) in the case of Five Star, Five Star’s revenues from all sources reportable under GAAP, less any revenues reportable by Five Star 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, as defined in the applicable agreement, plus TA’s total nonfuel revenues. These fees are estimated and payable monthly in advance.
We earned aggregate fees from the Managed Operating Companies of $6,976 and $5,277 for the three months ended June 30, 2021 and 2020, respectively, and $17,988 and $17,700 for the nine months ended June 30, 2021 and 2020, respectively.
Managed Private Real Estate Capital
We earn management fees from the Managed Private Real Estate Capital clients based on a percentage of average invested capital, as defined in the applicable management agreements. These management fees are paid monthly in arrears.
We earned aggregate fees from the Managed Private Real Estate Capital clients of $1,276 and $686 for the three months ended June 30, 2021 and 2020, respectively, and $3,463 and $1,926 for the nine months ended June 30, 2021 and 2020, respectively.
Property Management Fees
We earn property management fees by providing continuous services pursuant to property management agreements with our clients. We generally earn fees under these agreements equal to 3.0% of gross collected rents. Also, under the terms of the property management agreements, we receive additional fees for construction supervision services in connection with certain construction activities undertaken at the managed properties up to 5.0% of the cost of such construction.
In June 2021, we and DHC and SVC amended our respective property management agreements to, among other things, provide for our oversight of any major capital projects and repositionings at DHC’s senior living communities, including DHC’s senior living communities managed by Five Star, and SVC’s hotels, including SVC’s hotels managed by Sonesta, as DHC or SVC, as applicable, may request from time to time. We will receive the same fee previously paid to Five Star and Sonesta, respectively, for these services, which is equal to 3.0% of the cost of any such major capital project or repositioning.
We earned aggregate property management fees of $11,653 and $11,618 for the three months ended June 30, 2021 and 2020, respectively, and $35,056 and $35,851 for the nine months ended June 30, 2021 and 2020, respectively.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Advisory Services and Other
Tremont Advisors is primarily compensated pursuant to its management agreements with RMRM (beginning January 6, 2021) and TRMT at an annual rate of 1.5% of RMRM’s and TRMT’s equity, as defined in the applicable agreements. Tremont Advisors waived any business management fees otherwise due and payable by TRMT pursuant to the management agreement for the period beginning July 1, 2018 until December 31, 2020. Tremont Advisors earned aggregate advisory services revenue from TRMT of $377 and $40 for the three months ended June 30, 2021 and 2020, respectively, and $792 and $113 for the nine months ended June 30, 2021 and 2020, respectively.
Tremont Advisors may also earn an incentive fee under its management agreements with RMRM (beginning the second calendar quarter of 2021) and TRMT equal to the difference between: (a) the product of (i) 20% and (ii) the difference between (A) RMRM’s and TRMT’s core earnings, as defined in the applicable agreements, for the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (B) the product of (1) RMRM’s and TRMT’s equity in the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (2) 7% per year and (b) the sum of any incentive fees paid to Tremont Advisors with respect to the first three calendar quarters of the most recent 12 month period (or such lesser number of completed calendar quarters preceding the applicable period, if applicable). No incentive fee shall be payable with respect to any calendar quarter unless core earnings for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters from January 5, 2021 for RMRM and September 18, 2017 for TRMT) in the aggregate is greater than zero. The incentive fee may not be less than zero. Tremont Advisors waived any incentive fees otherwise due and payable by TRMT pursuant to the management agreement prior to December 31, 2020. Tremont Advisors earned incentive fees of zero and $620 from TRMT for the three and nine months ended June 30, 2021, respectively.
RMR Advisors LLC, or RMR Advisors, which previously provided advisory services for RMRM until it merged into Tremont Advisors on January 6, 2021, was compensated through January 5, 2021 pursuant to its agreement with RMRM at an annual rate of 0.85% of RMRM’s average daily managed assets. Average daily managed assets included the net asset value attributable to RMRM’s outstanding common shares and cash on hand, plus the liquidation preference of RMRM’s outstanding preferred shares and the principal amount of any borrowings, including from banks or evidenced by notes, commercial paper or other similar instruments issued by RMRM. RMR Advisors or Tremont Advisors, as applicable, earned advisory services revenue of $757 and $585 for the three months ended June 30, 2021 and 2020, respectively, and $2,057 and $2,139 for the nine months ended June 30, 2021 and 2020, respectively.
The Tremont business earns between 0.5% and 1.0% of the aggregate principal amounts of any loans it brokers. The Tremont business earned fees for such brokerage services of zero and $34 for the three months ended June 30, 2021 and 2020, respectively, and $259 and $816 for the nine months ended June 30, 2021 and 2020, respectively, which amounts are included in management services revenue in our condensed consolidated statements of income.
Reimbursable Compensation and Benefits
Reimbursable compensation and benefits include reimbursements, at cost, that arise primarily from services our employees provide pursuant to our property management agreements at the properties of our clients. A significant portion of these compensation and benefits are charged or passed through to and were paid by tenants of our clients. We recognize the revenue for reimbursements when we incur the related reimbursable compensation and benefits on behalf of our clients. We realized reimbursable compensation and benefits of $13,069 and $13,013 for the three months ended June 30, 2021 and 2020, respectively, and $39,453 and $38,683 for the nine months ended June 30, 2021 and 2020, respectively.
Reimbursable Equity Based Compensation
Reimbursable equity based compensation includes grants of common shares from our clients directly to certain of our officers and employees in connection with the provision of management services to those companies. The revenue in respect of each grant is based on the fair value as of the grant date for those shares that have vested, with subsequent changes in the fair value of the unvested grants being recognized in our condensed consolidated statements of income over the requisite service periods. We record an equal offsetting amount as equity based compensation expense for the value of the grants of common shares from our clients to certain of our officers and employees. We realized equity based compensation expense and related reimbursements from our clients of $1,402 and $736 for the three months ended June 30, 2021 and 2020, respectively, and $5,611 and $1,394 for the nine months ended June 30, 2021 and 2020, respectively.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Other Reimbursable Expenses
Other reimbursable expenses include reimbursements that arise from services we provide pursuant to our property management agreements, which include third party costs related to matters such as maintenance and repairs, security and cleaning services, a significant portion of which are charged or passed through to and were paid by tenants of our clients. We have determined that we control the services provided by third parties for certain of our clients and therefore we account for the cost of these services and the related reimbursement revenue on a gross basis.
We realized other reimbursable expenses reflecting corresponding amounts in revenue and expense of $85,263 and $85,650 for the three months ended June 30, 2021 and 2020, respectively, and $259,856 and $267,852 for the nine months ended June 30, 2021 and 2020, respectively.
Note 4. Investments
Equity Method Investment
As of June 30, 2021, Tremont Advisors owned 1,600,100, or approximately 19.2%, of TRMT’s outstanding common shares. We account for our investment in TRMT using the equity method of accounting because we are deemed to exert significant influence, but not control, over TRMT’s most significant activities. Our share of earnings from our investment in TRMT included in equity in earnings of investees in our condensed consolidated statements of income was $28 and $458 for the three months ended June 30, 2021 and 2020, respectively, and $755 and $1,037 for the nine months ended June 30, 2021 and 2020, respectively. We received aggregate distributions from TRMT of $160 and $16 during the three months ended June 30, 2021 and 2020, respectively, and $1,024 and $721 during the nine months ended June 30, 2021 and 2020, respectively.
Equity Method Investment Accounted for Under the Fair Value Option
As of June 30, 2021, we owned 621,853, or approximately 4.3%, of TA’s outstanding common shares. We account for our investment in TA using the equity method of accounting because we are deemed to exert significant influence, but not control, over TA’s most significant activities. We elected the fair value option to account for our equity method investment in TA and determine fair value using the closing price of TA’s common shares as of the end of the period, which is a Level 1 fair value input. The market value of our investment in TA at June 30, 2021 and September 30, 2020, based on quoted market prices, was $18,184 and $12,152, respectively. The unrealized gain in our condensed consolidated statements of income related to our investment in TA was $1,312 and $1,678 for the three months ended June 30, 2021 and 2020, respectively, and $6,032 and $916 for the nine months ended June 30, 2021 and 2020, respectively.
Note 5. Income Taxes
We are the sole managing member of RMR LLC. We are a corporation subject to U.S. federal and state income tax with respect to our allocable share of any taxable income of RMR LLC and its tax consolidated subsidiaries. RMR LLC is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, RMR LLC is generally not subject to U.S. federal and most state income taxes. Any taxable income or loss generated by RMR LLC is passed through to and included in the taxable income or loss of its members, including RMR Inc. and ABP Trust, based on each member’s respective ownership percentage.
For the three months ended June 30, 2021 and 2020, we recognized estimated income tax expense of $3,361 and $2,608, respectively, which includes $2,467 and $1,900, respectively, of U.S. federal income tax and $894 and $708, respectively, of state income taxes. For the nine months ended June 30, 2021 and 2020, we recognized estimated income tax expense of $8,109 and $8,944, respectively, which includes $5,953 and $6,578, respectively, of U.S. federal income tax and $2,156 and $2,366, respectively, of state income taxes.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
A reconciliation of the statutory income tax rate to the effective tax rate is as follows:
Three Months Ended June 30, Nine Months Ended June 30,
2021 2020 2021 2020
Income taxes computed at the federal statutory rate 21.0  % 21.0  % 21.0  % 21.0  %
State taxes, net of federal benefit 3.2  % 3.6  % 3.2  % 3.7  %
Permanent items 0.9  % 0.1  % 0.7  % 0.1  %
Net income attributable to noncontrolling interest (10.1) % (10.2) % (10.1) % (10.1) %
Other (1)
—  % —  % (0.9) % —  %
Total 15.0  % 14.5  % 13.9  % 14.7  %
(1)     In December 2020, the Internal Revenue Service and Department of Treasury released final regulations which, among other clarifications, established the effective date as it relates to limitations on the deductibility of certain executive compensation. The final regulations provide that the application of the limit applies to deductions after December 18, 2020. As such, during the three months ended December 31, 2020, we reduced our provision for income taxes for limitations applied prior to the effective date by $520, or $0.02 per diluted share, which reduced the effective income tax rate by 0.9% for the nine months ended June 30, 2021.
ASC 740, Income Taxes, provides a model for how a company should recognize, measure and present in its financial statements uncertain tax positions that have been taken or are expected to be taken with respect to all open years and in all significant jurisdictions. Pursuant to this topic, we recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that is greater than 50.0% likely to be realized upon settlement. As of June 30, 2021, we had no uncertain tax positions.
Note 6. Fair Value of Financial Instruments
As of June 30, 2021 and September 30, 2020, the fair values of our financial instruments, which include cash and cash equivalents, amounts due from related parties and accounts payable and accrued expenses, which include liabilities related to other reimbursable expenses, were not materially different from their carrying values due to the short term nature of these financial instruments.
On a recurring basis, we measure certain financial assets and financial liabilities at fair value based upon quoted market prices. ASC 820, Fair Value Measurements, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1), and the lowest priority to unobservable inputs (Level 3). A financial asset’s or financial liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following are our assets and liabilities that have been measured at fair value using Level 1 inputs in the fair value hierarchy as of June 30, 2021 and September 30, 2020:
June 30, September 30,
2021 2020
Money market funds included in cash and cash equivalents $ 357,187  $ 341,612 
Current portion of due from related parties related to share based payment awards 1,440  4,298 
Long term portion of due from related parties related to share based payment awards 11,902  7,764 
Current portion of employer compensation liability related to share based payment awards 1,440  4,298 
Long term portion of employer compensation liability related to share based payment awards 11,902  7,764 
Note 7. Related Person Transactions
Adam D. Portnoy, one of our Managing Directors, is the sole trustee of our controlling shareholder, ABP Trust, and owns all of ABP Trust’s voting securities and a majority of the economic interests of ABP Trust. As of June 30, 2021, Adam D. Portnoy beneficially owned, in aggregate, (i) 160,502 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; (iii) all the
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
outstanding shares of Class B-2 common stock of RMR Inc., or Class B-2 Common Shares; and (iv) 15,000,000 Class A Units of RMR LLC. Adam D. Portnoy and Jennifer B. Clark, our other Managing Director, are also officers of ABP Trust and RMR Inc. and officers and employees of RMR LLC. Matthew P. Jordan, our Executive Vice President, Chief Financial Officer and Treasurer, is also an officer of ABP Trust and an officer and employee of RMR LLC.
Adam D. Portnoy is the chair of the board of trustees of each of the Managed Equity REITs, the chair of the board of directors of each of Five Star and TA, a managing trustee or managing director of each of the Managed REITs, Five Star and TA, a director of Sonesta (and its parent) and the controlling shareholder of Sonesta (and its parent). Jennifer B. Clark, our other Managing Director, is a managing director of Five Star, a managing trustee of OPI and a director of Sonesta (and its parent), and she previously served as a managing trustee of each of DHC and RMRM until June 3, 2021 and January 5, 2021, respectively. Ms. Clark also serves as the secretary of all our publicly traded clients and Sonesta.
As of June 30, 2021, Adam D. Portnoy beneficially owned, in aggregate, 6.4% of Five Star’s outstanding common shares, 1.1% of SVC’s outstanding common shares, 1.2% of ILPT’s outstanding common shares, 1.5% of OPI’s outstanding common shares, 1.1% of DHC’s outstanding common shares, 4.5% of TA’s outstanding common shares (including through RMR LLC), 2.4% of RMRM’s outstanding common shares, and 19.4% of TRMT’s outstanding common shares (including through Tremont Advisors).
The Managed REITs have no employees. RMR LLC provides or arranges for all the personnel, overhead and services required for the operation of the Managed Equity REITs pursuant to management agreements with them. All the officers of the Managed Equity REITs and ABP Trust are officers or employees of RMR LLC. All the officers, overhead and required office space of TRMT and RMRM are provided or arranged by Tremont Advisors. All of TRMT’s and RMRM’s officers are officers or employees of Tremont Advisors or RMR LLC. Many of the executive officers of the Managed Operating Companies are officers or employees of RMR LLC. Some of our executive officers are also managing directors or managing trustees of certain of the Managed REITs and the Managed Operating Companies.
Additional information about our related person transactions appears in Note 8, Shareholders’ Equity, below and in our 2020 Annual Report.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Revenues from Related Parties
For the three months ended June 30, 2021 and 2020, we recognized revenues from related parties as set forth in the following table:
Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
Total Total
Management Management
and Advisory Total and Advisory Total
Services Reimbursable Total Services Reimbursable Total
Revenues Costs Revenues Revenues Costs Revenues
Managed Public Real Estate Capital:
DHC $ 9,699  $ 32,722  $ 42,421  $ 8,435  $ 35,037  $ 43,472 
ILPT 4,243  4,719  8,962  5,212  4,822  10,034 
OPI 9,320  50,527  59,847  9,157  49,286  58,443 
SVC 12,000  2,800  14,800  9,313  2,843  12,156 
Total Managed Equity REITs 35,262  90,768  126,030  32,117  91,988  124,105 
RMRM 757  533  1,290  585  —  585 
TRMT 377  1,218  1,595  40  539  579 
36,396  92,519  128,915  32,742  92,527  125,269 
Managed Private Real Estate Capital:
ABP Trust 1,073  5,457  6,530  346  2,678  3,024 
Other private entities 1,065  1,429  2,494  851  3,905  4,756 
2,138  6,886  9,024  1,197  6,583  7,780 
Managed Operating Companies:
Five Star 1,794  104  1,898  2,123  104  2,227 
Sonesta 1,522  91  1,613  113  96  209 
TA 3,660  134  3,794  3,041  89  3,130 
6,976  329  7,305  5,277  289  5,566 
Total revenues from related parties 45,510  99,734  145,244  39,216  99,399  138,615 
Revenues from unrelated parties —  —  —  34  —  34 
$ 45,510  $ 99,734  $ 145,244  $ 39,250  $ 99,399  $ 138,649 
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
For the nine months ended June 30, 2021 and 2020, we recognized revenues from related parties as set forth in the following table:
Nine Months Ended June 30, 2021 Nine Months Ended June 30, 2020
Total Total
Management Management
and Advisory Total and Advisory Total
Services Reimbursable Total Services Reimbursable Total
Revenues Costs Revenues Revenues Costs Revenues
Managed Public Real Estate Capital:
DHC $ 27,273  $ 105,907  $ 133,180  $ 27,535  $ 100,541  $ 128,076 
ILPT 13,290  14,386  27,676  16,091  20,558  36,649 
OPI 27,215  147,984  175,199  28,800  151,095  179,895 
SVC 33,498  11,166  44,664  34,763  13,578  48,341 
Total Managed Equity REITs 101,276  279,443  380,719  107,189  285,772  392,961 
RMRM 2,057  1,474  3,531  2,139  —  2,139 
TRMT 1,412  2,856  4,268  113  1,821  1,934 
104,745  283,773  388,518  109,441  287,593  397,034 
Managed Private Real Estate Capital:
ABP Trust 3,171  16,022  19,193  918  8,277  9,195 
Other private entities 2,671  4,090  6,761  2,557  11,300  13,857 
5,842  20,112  25,954  3,475  19,577  23,052 
Managed Operating Companies:
Five Star 5,573  289  5,862  6,726  227  6,953 
Sonesta 2,511  170  2,681  1,259  218  1,477 
TA 9,904  576  10,480  9,715  306  10,021 
17,988  1,035  19,023  17,700  751  18,451 
Total revenues from related parties 128,575  304,920  433,495  130,616  307,921  438,537 
Revenues from unrelated parties 259  —  259  857  8  865 
$ 128,834  $ 304,920  $ 433,754  $ 131,473  $ 307,929  $ 439,402 
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Amounts Due From Related Parties
The following table represents amounts due from related parties as of the dates indicated:
June 30, 2021 September 30, 2020
Accounts Reimbursable Accounts Reimbursable
Receivable Costs Total Receivable Costs Total
Managed Public Real Estate Capital:
DHC $ 6,619  $ 23,043  $ 29,662  $ 5,548  $ 22,035  $ 27,583 
ILPT 4,359  1,845  6,204  3,089  5,791  8,880 
OPI 9,711  29,413  39,124  7,883  30,529  38,412 
SVC 7,425  3,273  10,698  4,258  6,326  10,584 
Total Managed Equity REITs 28,114  57,574  85,688  20,778  64,681  85,459 
RMRM 1,007  1,438  2,445  —  —  — 
TRMT 865  693  1,558  19  614  633 
29,986  59,705  89,691  20,797  65,295  86,092 
Managed Private Real Estate Capital:
ABP Trust 987  2,282  3,269  1,106  2,364  3,470 
Other private entities 2,013  828  2,841  —  —  — 
3,000  3,110  6,110  1,106  2,364  3,470 
Managed Operating Companies:
Five Star 487  47  534  149  102  251 
Sonesta 95  —  95  —  —  — 
TA 2,781  310  3,091  176  380  556 
3,363  357  3,720  325  482  807 
$ 36,349  $ 63,172  $ 99,521  $ 22,228  $ 68,141  $ 90,369 
Leases
As of June 30, 2021, RMR LLC leased from ABP Trust and certain Managed Equity REITs office space for use as our headquarters and local offices. We incurred rental expense under related party leases of $1,420 and $1,367 for the three months ended June 30, 2021 and 2020, respectively, and $4,246 and $4,230 for the nine months ended June 30, 2021 and 2020, respectively.
Tax-Related Payments
Pursuant to our tax receivable agreement with ABP Trust, RMR Inc. pays to ABP Trust 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. realizes as a result of (a) the increases in tax basis attributable to our 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. As of June 30, 2021, our condensed consolidated balance sheet reflects a liability related to the tax receivable agreement of $29,950, including $2,161 classified as a current liability that we expect to pay to ABP Trust during the fourth quarter of fiscal year 2021.
Under the RMR LLC operating agreement, RMR LLC is also required to make certain pro rata distributions to each member of RMR LLC quarterly on the basis of the estimated tax liabilities of its members, subject to future adjustment based on actual results. For the nine months ended June 30, 2021 and 2020, pursuant to the RMR LLC operating agreement, RMR LLC made required quarterly tax distributions to holders of its membership units totaling $23,201 and $23,062, respectively, of which $12,327 and $12,127, respectively, was distributed to us and $10,874 and $10,935, respectively, was distributed to ABP Trust, based on each membership unit holder’s respective ownership percentage. The amounts distributed to us were eliminated in our condensed consolidated financial statements, and the amounts distributed to ABP Trust were recorded as a reduction of
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
its noncontrolling interest. We used funds from these distributions to pay certain of our U.S. federal and state income tax liabilities and to pay part of our obligations under the tax receivable agreement.
RMR Mortgage Trust
In connection with its deregistration as an investment company under the Investment Company Act of 1940, as amended, the investment advisory agreement and administration agreement between RMRM and RMR Advisors or Tremont Advisors, as applicable, were terminated effective January 5, 2021 and March 16, 2021, respectively, and Tremont Advisors entered into a new management agreement with RMRM effective January 5, 2021.
On April 26, 2021, RMRM and TRMT announced that they have entered into a definitive merger agreement pursuant to which TRMT will merge with and into RMRM, with RMRM continuing as the surviving company. Tremont Advisors will continue to manage the combined company and has waived any termination fee that would otherwise be payable by TRMT as a result of the merger. The merger is expected to close during the third calendar quarter of 2021, subject to the requisite approvals by RMRM and TRMT shareholders and other customary closing conditions. See Note 1, Basis of Presentation, for further information.
Separation Arrangements
We entered into retirement agreements with certain of our former executive officers. Pursuant to these agreements, we made various cash payments and accelerated the vesting of unvested shares RMR Inc. previously awarded to these retiring officers. We also enter into separation arrangements from time to time with other nonexecutive officers and employees of ours. All costs associated with separation arrangements, for which there remain no substantive performance obligations, are recorded in our condensed consolidated statements of income as separation costs.
In October 2020, we entered into a retirement agreement with David M. Blackman, a former Executive Vice President of RMR LLC. Mr. Blackman, at the time, also served as president, chief executive officer and a director of Tremont Advisors, president, chief executive officer and managing trustee of TRMT, president, chief executive officer and managing trustee of OPI, and executive vice president of RMR Advisors. Pursuant to his retirement agreement, Mr. Blackman remained in his officer, director and trustee roles with RMR LLC, Tremont Advisors, TRMT, OPI and RMR Advisors through December 31, 2020 and he continued to serve as a managing trustee of OPI until June 17, 2021. In addition, Mr. Blackman continued to serve as an employee of RMR LLC through June 30, 2021. Under Mr. Blackman’s retirement agreement, RMR LLC paid Mr. Blackman combined cash payments in the amount of $2,850. In addition, our Compensation Committee approved the acceleration of all 9,400 unvested shares owned by Mr. Blackman of us as of his retirement date, June 30, 2021, subject to applicable conditions.
For the nine months ended June 30, 2021 and 2020, we recognized cash and equity based separation costs as set forth in the following table:
Nine Months Ended June 30,
2021 2020
Former executive officers:
Cash separation costs $ 2,900  $ 260 
Equity based separation costs 295  281 
3,195  541 
Former nonexecutive officers:
Cash separation costs (1)
805  80 
Equity based separation costs 159  24 
964  104 
Total separation costs $ 4,159  $ 645 
(1)During the nine months ended June 30, 2021, we were indemnified for a withdrawal liability of $515 that we had recorded during the three months ended September 30, 2020 related to a prior client’s shared pension plan accounted for as a multiemployer benefit plan.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Note 8. Shareholders’ Equity
We grant our Class A Common Shares to our Directors, officers and employees under the 2016 Omnibus Equity Plan adopted in 2016, or the 2016 Plan. Shares issued to Directors in that capacity vest immediately. Shares issued to employees in that capacity vest in five equal, consecutive, annual installments, with the first installment vesting on the date of grant. We recognize share forfeitures as they occur. Compensation expense related to share grants is determined based on the market value of our shares on the date of grant, with the aggregate value of the granted shares amortized to expense over the related vesting period. Expense recognized for shares granted to Directors in that capacity are included in general and administrative expenses and for shares granted to employees in that capacity are included in equity based compensation in our condensed consolidated statements of income.
On March 11, 2021, we granted 3,000 of our Class A Common Shares, valued at $42.85 per share, the closing price of our Class A Common Shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day, to each of our Directors as part of his or her annual compensation for serving as a Director. For the nine months ended June 30, 2021, we recorded general and administrative expense of $771 for these grants.
Equity based compensation expense related to shares granted to certain officers and employees was $552 and $563 for the three months ended June 30, 2021 and 2020, respectively, and $1,656 and $1,789 for the nine months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, we had 129,570 unvested shares outstanding which are scheduled to vest as follows: 45,020 shares in 2021, 37,550 shares in 2022, 29,660 shares in 2023 and 17,340 in 2024.
In connection with the vesting and issuance of awards of our Class A Common Shares to our Directors, officers and employees, we provide for the ability to repurchase our Class A Common Shares to satisfy tax withholding and payment obligations. The repurchase price is based on the closing price of our Class A Common Shares on the Nasdaq on the repurchase date. During the nine months ended June 30, 2021, we withheld and repurchased 5,708 of our Class A Common Shares for an aggregate value of $222, which is reflected as a decrease to shareholders’ equity in our condensed consolidated balance sheets.
In connection with the issuances and repurchases of our Class A Common Shares, and as required by the RMR LLC operating agreement, RMR LLC concurrently issues or acquires an identical number of Class A Units from RMR Inc.
Distributions
During the nine months ended June 30, 2021 and 2020, we declared and paid dividends on our Class A Common Shares and Class B-1 Common Shares as follows:
Declaration Record Paid Distributions Total
Date Date Date Per Common Share Distributions
Nine Months Ended June 30, 2021
10/15/2020 10/26/2020 11/19/2020 $ 0.38  $ 6,230 
1/14/2021 1/25/2021 2/18/2021 0.38  6,230 
4/15/2021 4/26/2021 5/20/2021 0.38  6,237 
$ 1.14  $ 18,697 
Nine Months Ended June 30, 2020
10/17/2019 10/28/2019 11/14/2019 $ 0.38  $ 6,195 
1/16/2020 1/27/2020 2/20/2020 0.38  6,194 
4/16/2020 4/27/2020 5/21/2020 0.38  6,200 
$ 1.14  $ 18,589 
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
These dividends were funded in part by distributions from RMR LLC to holders of its membership units as follows:
Distributions Per Total RMR LLC RMR LLC
Declaration Record Paid RMR LLC RMR LLC Distributions Distributions
Date Date Date Membership Unit Distributions to RMR Inc. to ABP Trust
Nine Months Ended June 30, 2021
10/15/2020 10/26/2020 11/19/2020 $ 0.30  $ 9,419  $ 4,919  $ 4,500 
1/14/2021 1/25/2021 2/18/2021 0.30  9,419  4,919  4,500 
4/15/2021 4/26/2021 5/20/2021 0.30  9,424  4,924  4,500 
$ 0.90  $ 28,262  $ 14,762  $ 13,500 
Nine Months Ended June 30, 2020
10/17/2019 10/28/2019 11/14/2019 $ 0.30  $ 9,391  $ 4,891  $ 4,500 
1/16/2020 1/27/2020 2/20/2020 0.30  9,390  4,890  4,500 
4/16/2020 4/27/2020 5/21/2020 0.30  9,394  4,894  4,500 
$ 0.90  $ 28,175  $ 14,675  $ 13,500 
The remainder of the dividends noted above were funded with cash accumulated at RMR Inc.
On July 15, 2021, we declared a quarterly dividend on our Class A Common Shares and Class B-1 Common Shares to our shareholders of record as of July 26, 2021, in the amount of $0.38 per Class A Common Share and Class B-1 Common Share, or $6,235. This dividend will be partially funded by a distribution from RMR LLC to holders of its membership units in the amount of $0.30 per unit, or $9,422, of which $4,922 will be distributed to us based on our aggregate ownership of 16,407,933 membership units of RMR LLC and $4,500 will be distributed to ABP Trust based on its ownership of 15,000,000 membership units of RMR LLC. The remainder of this dividend will be funded with cash accumulated at RMR Inc. We expect to pay this dividend on or about August 19, 2021.
Note 9. Per Common Share Amounts
Basic earnings per common share reflects net income attributable to RMR Inc. divided by our weighted average Class A Common Shares and our Class B-1 Common Shares outstanding during the applicable periods. Our Class B-2 Common Shares, which are paired with ABP Trust’s Class A Units, have no independent economic interest in RMR Inc. and thus are not included as common shares outstanding for purposes of calculating basic earnings per common share. Diluted earnings per common share reflects net income divided by our weighted average Class A Common Shares and our Class B-1 Common Shares plus the effect of dilutive common share equivalents during the applicable periods. Diluted common share equivalents reflect the assumed issuance of Class A Common Shares pursuant to our 2016 Plan and the assumed issuance of Class A Common Shares related to the assumed redemption of the 15,000,000 Class A Units using the if-converted method.
Unvested Class A Common Shares granted to our employees are deemed participating securities for purposes of calculating earnings per common share because they have dividend rights. We calculate earnings per share using the two-class method. Under the two-class method, we allocate earnings proportionately to vested Class A Common Shares and Class B-1 Common Shares outstanding and unvested Class A Common Shares outstanding for the period. Earnings attributable to unvested Class A Common Shares are excluded from earnings per share under the two-class method as reflected in our condensed consolidated statements of income.
The 15,000,000 Class A Units that we do not own may be redeemed for our Class A Common Shares on a one-for-one basis, or upon such redemption, we may elect to pay cash instead of issuing Class A Common Shares. Upon redemption of a Class A Unit, the Class B-2 Common Share “paired” with such unit is canceled for no additional consideration. In computing the dilutive effect, if any, that the aforementioned redemption would have on earnings per share, we considered that net income available to holders of our Class A Common Shares would increase due to elimination of the noncontrolling interest offset by any tax effect, which may be dilutive. For the three and nine months ended June 30, 2021 and 2020, the assumed redemption is dilutive to earnings per share as presented in the table below. The calculation of basic and diluted earnings per share for the three and nine months ended June 30, 2021 and 2020, is as follows:
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Three Months Ended June 30, Nine Months Ended June 30,
2021 2020 2021 2020
Numerators:
Net income attributable to The RMR Group Inc. $ 8,232  $ 6,717  $ 22,070  $ 22,634 
Income attributable to unvested participating securities
(72) (48) (194) (166)
Net income attributable to The RMR Group Inc. used in calculating basic EPS
8,160  6,669  21,876  22,468 
Effect of dilutive securities:
Add back: income attributable to unvested participating securities 72  48  194  166 
Add back: net income attributable to noncontrolling interest
10,797  8,678  28,192  29,306 
Add back: income tax expense
3,361  2,608  8,109  8,944 
Income tax expense assuming redemption of noncontrolling interest’s Class A Units for Class A Common Shares (1)
(6,686) (5,313) (17,346) (18,114)
Net income used in calculating diluted EPS $ 15,704  $ 12,690  $ 41,025  $ 42,770 
Denominators:
Common shares outstanding 16,408  16,315  16,408  16,315 
Unvested participating securities (139) (117) (149) (128)
Weighted average common shares outstanding - basic
16,269  16,198  16,259  16,187 
Effect of dilutive securities:
Assumed redemption of noncontrolling interest’s Class A Units for Class A Common Shares
15,000  15,000  15,000  15,000 
Incremental unvested shares 39  —  12  — 
Weighted average common shares outstanding - diluted
31,308  31,198  31,271  31,187 
Net income attributable to The RMR Group Inc. per common share - basic
$ 0.50  $ 0.41  $ 1.35  $ 1.39 
Net income attributable to The RMR Group Inc. per common share - diluted
$ 0.50  $ 0.41  $ 1.31  $ 1.37 
(1)Income tax expense assumes the hypothetical conversion of the noncontrolling interest, which results in estimated tax rates of 29.9% and 29.5% for the three months ended June 30, 2021 and 2020, respectively, and 29.7% and 29.8% for the nine months ended June 30, 2021 and 2020, respectively.
Note 10. Net Income Attributable to RMR Inc.
Net income attributable to RMR Inc. for the three and nine months ended June 30, 2021 and 2020, is calculated as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
2021 2020 2021 2020
Income before income tax expense $ 22,390  $ 18,003  $ 58,371  $ 60,884 
RMR Inc. franchise tax expense and interest income 217  115  646  278 
Net income before noncontrolling interest 22,607  18,118  59,017  61,162 
Net income attributable to noncontrolling interest (10,797) (8,678) (28,192) (29,306)
Net income attributable to RMR Inc. before income tax expense 11,810  9,440  30,825  31,856 
Income tax expense attributable to RMR Inc. (3,361) (2,608) (8,109) (8,944)
RMR Inc. franchise tax expense and interest income (217) (115) (646) (278)
Net income attributable to RMR Inc. $ 8,232  $ 6,717  $ 22,070  $ 22,634 
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Note 11. Segment Reporting
We have one reportable business segment, which is RMR LLC. In the tables below, our All Other Operations includes the operations of RMR Inc., Tremont Advisors and until January 5, 2021, RMR Advisors.
Three Months Ended June 30, 2021
All Other
RMR LLC (1)
Operations Total
Revenues:
Management services $ 44,376  $ —  $ 44,376 
Advisory services —  1,134  1,134 
Total management and advisory services revenues 44,376  1,134  45,510 
Reimbursable compensation and benefits 12,561  508  13,069 
Reimbursable equity based compensation 1,402  —  1,402 
Other reimbursable expenses 85,263  —  85,263 
Total reimbursable costs 99,226  508  99,734 
Total revenues 143,602  1,642  145,244 
Expenses:
Compensation and benefits 29,541  989  30,530 
Equity based compensation 1,922  32  1,954 
Total compensation and benefits expense 31,463  1,021  32,484 
General and administrative 5,335  985  6,320 
Other reimbursable expenses 85,263  —  85,263 
Transaction and acquisition related costs 45  16  61 
Depreciation and amortization 234  11  245 
Total expenses 122,340  2,033  124,373 
Operating income (loss) 21,262  (391) 20,871 
Interest and other income 171  8  179 
Equity in earnings of investees —  28  28 
Unrealized gain on equity method investment accounted for under the fair value option 1,312  —  1,312 
Income (loss) before income tax expense 22,745  (355) 22,390 
Income tax expense —  (3,361) (3,361)
Net income (loss) $ 22,745  $ (3,716) $ 19,029 
Total assets $ 674,378  $ 50,211  $ 724,589 
(1)    Intersegment revenues of $801 recognized by RMR LLC for services provided to our All Other Operations segment have been eliminated in the condensed consolidated financial statements.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Three Months Ended June 30, 2020
All Other
RMR LLC (1)
Operations Total
Revenues:
Management services $ 38,590  $ 35  $ 38,625 
Advisory services —  625  625 
Total management and advisory services revenues 38,590  660  39,250 
Reimbursable compensation and benefits 12,743  270  13,013 
Reimbursable equity based compensation 736  —  736 
Other reimbursable expenses 85,650  —  85,650 
Total reimbursable costs 99,129  270  99,399 
Total revenues 137,719  930  138,649 
Expenses:
Compensation and benefits 28,203  1,366  29,569 
Equity based compensation 1,255  44  1,299 
Total compensation and benefits expense 29,458  1,410  30,868 
General and administrative 5,292  1,043  6,335 
Other reimbursable expenses 85,650  —  85,650 
Transaction and acquisition related costs 317  110  427 
Depreciation and amortization 217  12  229 
Total expenses 120,934  2,575  123,509 
Operating income (loss) 16,785  (1,645) 15,140 
Interest and other income 667  60  727 
Equity in earnings of investees —  458  458 
Unrealized gain on equity method investment accounted for under the fair value option 1,678  —  1,678 
Income (loss) before income tax expense 19,130  (1,127) 18,003 
Income tax expense —  (2,608) (2,608)
Net income (loss) $ 19,130  $ (3,735) $ 15,395 
Total assets $ 655,413  $ 49,310  $ 704,723 
(1)    Intersegment revenues of $988 recognized by RMR LLC for services provided to our All Other Operations segment have been eliminated in the condensed consolidated financial statements.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Nine Months Ended June 30, 2021
All Other
RMR LLC (1)
Operations Total
Revenues:
Management services $ 125,106  $ 259  $ 125,365 
Incentive business management fees —  620  620 
Advisory services —  2,849  2,849 
Total management and advisory services revenues 125,106  3,728  128,834 
Reimbursable compensation and benefits 38,018  1,435  39,453 
Reimbursable equity based compensation 5,611  —  5,611 
Other reimbursable expenses 259,856  —  259,856 
Total reimbursable costs 303,485  1,435  304,920 
Total revenues 428,591  5,163  433,754 
Expenses:
Compensation and benefits 86,517  4,093  90,610 
Equity based compensation 7,160  107  7,267 
Separation costs 4,159  —  4,159 
Total compensation and benefits expense 97,836  4,200  102,036 
General and administrative 16,690  2,994  19,684 
Other reimbursable expenses 259,856  —  259,856 
Transaction and acquisition related costs 409  65  474 
Depreciation and amortization 702  32  734 
Total expenses 375,493  7,291  382,784 
Operating income (loss) 53,098  (2,128) 50,970 
Interest and other income 585  29  614 
Equity in earnings of investees —  755  755 
Unrealized gain on equity method investment accounted for under the fair value option 6,032  —  6,032 
Income (loss) before income tax expense 59,715  (1,344) 58,371 
Income tax expense —  (8,109) (8,109)
Net income (loss) $ 59,715  $ (9,453) $ 50,262 
Total assets $ 674,378  $ 50,211  $ 724,589 
(1)    Intersegment revenues of $3,003 recognized by RMR LLC for services provided to our All Other Operations segment have been eliminated in the condensed consolidated financial statements.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Nine Months Ended June 30, 2020
All Other
RMR LLC (1)
Operations Total
Revenues:
Management services $ 128,404  $ 817  $ 129,221 
Advisory services —  2,252  2,252 
Total management and advisory services revenues 128,404  3,069  131,473 
Reimbursable compensation and benefits 37,290  1,393  38,683 
Reimbursable equity based compensation 1,394  —  1,394 
Other reimbursable expenses 267,852  —  267,852 
Total reimbursable costs 306,536  1,393  307,929 
Total revenues 434,940  4,462  439,402 
Expenses:
Compensation and benefits 84,401  5,487  89,888 
Equity based compensation 3,079  104  3,183 
Separation costs 645  —  645 
Total compensation and benefits expense 88,125  5,591  93,716 
General and administrative 17,731  2,947  20,678 
Other reimbursable expenses 267,852  —  267,852 
Transaction and acquisition related costs 366  1,230  1,596 
Depreciation and amortization 696  35  731 
Total expenses 374,770  9,803  384,573 
Operating income (loss) 60,170  (5,341) 54,829 
Interest and other income 3,753  349  4,102 
Equity in earnings of investees —  1,037  1,037 
Unrealized gain on equity method investment accounted for under the fair value option 916  —  916 
Income (loss) before income tax expense 64,839  (3,955) 60,884 
Income tax expense —  (8,944) (8,944)
Net income (loss) $ 64,839  $ (12,899) $ 51,940 
Total assets $ 655,413  $ 49,310  $ 704,723 
(1)    Intersegment revenues of $4,153 recognized by RMR LLC for services provided to our All Other Operations segment have been eliminated in the condensed consolidated financial statements. 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our 2020 Annual Report.
OVERVIEW (dollars in thousands)
RMR Inc. is a holding company and substantially all of its business is conducted by RMR LLC. RMR Inc. has no employees, and the personnel and various services it requires to operate are provided by RMR LLC. RMR LLC manages a diverse portfolio of real estate and real estate related businesses. As of June 30, 2021, RMR LLC managed approximately 2,100 properties in 47 states, Washington, D.C., Puerto Rico and Canada that are principally owned by the Managed Equity REITs.
Business Environment and Outlook
The continuation and growth of our business depends upon our ability to operate the Managed REITs so as to maintain, grow and increase the value of their businesses, to assist our Managed Operating Companies to grow their businesses and operate profitably and to successfully execute on new business ventures and investments we may pursue. Our business and the businesses of our clients generally follow the business cycle of the U.S. real estate industry, but with certain property type and regional geographic variations. Typically, as the general U.S. economy expands, commercial real estate occupancies increase and new real estate development occurs; new development frequently leads to increased real estate supply and reduced occupancies; and then the cycle repeats. These general trends can be impacted by property type characteristics or regional factors; for example, demographic factors such as the aging U.S. population, the growth of e-commerce retail sales or net in migration or out migration in different geographic regions can slow, accelerate, overwhelm or otherwise impact general cyclical trends. Because of such multiple factors, we believe it is often possible to grow real estate based businesses in selected property types or geographic areas despite general national trends. We also believe that these regional or special factors can be reinforced or sometimes overwhelmed by general economic factors; for example, increases or decreases in U.S. interest rates may cause a general decrease, or increase, in the value of securities of real estate businesses or in their value relative to other types of securities and investments, including those real estate businesses that use large amounts of debt and that attract equity investors by paying dividends such as REITs. We try to take account of industry and general economic factors as well as specific property and regional geographic considerations when providing services to our clients.
The COVID-19 pandemic and the various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact have had a significant impact on the global economy, including the U.S. economy. In addition, the COVID-19 pandemic and related public health restrictions have had a particularly severe impact on certain industries in which our clients operate, including, hospitality, travel, service retail, senior housing and rehabilitation services. Many of the restrictions that had been imposed in the United States during the COVID-19 pandemic have since been lifted and commercial activity in the United States has increasingly returned to pre-pandemic practices and operations. There remains uncertainty as to the ultimate duration and severity of the COVID-19 pandemic, including risks that may arise from mutations or related strains of the virus, the ability to successfully administer vaccinations to a sufficient number of persons or attain immunity to the virus by natural or other means to achieve herd immunity, and the impact on the U.S. economy that may result from the inability of other countries to administer vaccinations to their citizens or their citizens’ ability to otherwise achieve immunity to the virus.
While our clients continue to face challenges related to the COVID-19 pandemic, we continue to believe that our current financial resources enable us to withstand the COVID-19 pandemic. As of June 30, 2021, we had $397,801 in cash and cash equivalents, no debt and for the nine months ended June 30, 2021, we generated cash from operations of $72,371.
Further, we believe that, because of the diversity of properties that our clients own and operate, there may be opportunities for growth in select property types and locations as this pandemic ebbs. We, on behalf of our clients and ourselves, attempt to take advantage of opportunities in the real estate market when they arise. For example: (i) on January 17, 2018, Select Income REIT, or SIR, launched an equity REIT, ILPT, that it formed to focus on the ownership and leasing of industrial and logistics properties throughout the U.S.; (ii) on December 31, 2018, Government Properties Income Trust and SIR merged to form OPI, a REIT with a broader investment strategy than its predecessor companies and ultimately a stronger combined entity positioned for future growth; (iii) on September 20, 2019, SVC acquired a net leased portfolio of 767 service oriented retail properties, providing SVC with a greater diversity in tenant base, property type and geography; and (iv) on March 31, 2020, ILPT completed a $680 million joint venture with an Asian institutional investor, which was expanded to include a large, top tier global sovereign wealth fund, as a second outside investor to this joint venture on November 18, 2020. In addition, we balance our pursuit of growth of our and our clients’ businesses by executing, on behalf of our clients, prudent capital recycling or business arrangement restructurings in an attempt to help our clients prudently manage leverage and to reposition their portfolios and businesses when circumstances warrant such changes or when other more desirable opportunities are identified.
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There are extensive uncertainties surrounding the COVID-19 pandemic, and as a result, we are unable to determine what the ultimate impact will be on our clients and our financial position. For further information and risks related to the COVID-19 pandemic on us and our business, see “COVID-19 Pandemic” in Item 1 and “Risk Factors” in Item 1A of our 2020 Annual Report.
Managed Equity REITs
The base business management fees we earn from the Managed Equity REITs are calculated monthly in accordance with the applicable business management agreement and are based on a percentage of the lower of (i) the average historical cost of each REIT’s properties and (ii) each REIT’s average market capitalization. The property management fees we earn from the Managed Equity REITs are principally based on a percentage of the gross rents collected at certain managed properties owned by the REITs, excluding rents or other revenues from hotels, travel centers, senior living properties and wellness centers, which are separately managed by our Managed Operating Companies or a third party. Also under the terms of the property management agreements, we receive construction supervision fees in connection with certain construction activities undertaken at the managed properties, including senior living communities owned by DHC and managed by Five Star and hotels owned by SVC and managed by Sonesta, based on a percentage of the cost of such construction. For further information regarding the fees that we earn, see Note 3, Revenue Recognition, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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 June 30, 2021 and 2020, as applicable:
Lesser of Historical Cost of Assets
Under Management or
Total Market Capitalization as of
June 30,
REIT Primary Strategy 2021 2020
DHC Medical office and life science properties, senior living communities and wellness centers $ 5,337,144  $ 4,596,718 
ILPT Industrial and logistics properties 1,997,990  2,612,328 
OPI Office properties primarily leased to single tenants, including the government 3,962,573  3,474,277 
SVC Hotels and net lease service and necessity-based retail properties 9,277,211  7,400,127 
$ 20,574,918  $ 18,083,450 
A Managed Equity REIT’s historical cost of assets under management includes the real estate it owns and its consolidated assets invested directly or indirectly in equity interests in or loans secured by real estate and personal property owned in connection with such real estate (including acquisition related costs which may be allocated to intangibles or are unallocated), all before reserves for depreciation, amortization, impairment charges or bad debts or other similar non-cash reserves. A Managed Equity REIT’s average market capitalization includes the average value of the Managed Equity REIT’s outstanding common equity value during the period, plus the daily weighted average of each of the aggregate liquidation preference of preferred shares and the principal amount of consolidated indebtedness during the period. The table above presents for each Managed Equity REIT, the lesser of the historical cost of its assets under management and its market capitalization as of the end of each period.
The basis on which our base business management fees are calculated for the three and nine months ended June 30, 2021 and 2020 may differ from the basis at the end of the periods presented in the table above. As of June 30, 2021, the market capitalization was lower than the historical cost of assets under management for DHC, OPI and SVC; the historical cost of assets under management for DHC, OPI and SVC as of June 30, 2021, were $8,414,221, $6,151,466 and $12,287,857, respectively. For ILPT, the historical cost of assets under management were lower than its market capitalization of $2,601,308 as of June 30, 2021.
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The fee revenues we earned from the Managed Equity REITs for the three and nine months ended June 30, 2021 and 2020 are set forth in the following tables:
Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
Base Business Property Base Business Property
Management Management Management Management
REIT Revenues Revenues Total Revenues Revenues Total
DHC $ 6,478  $ 3,221  $ 9,699  $ 4,995  $ 3,440  $ 8,435 
ILPT 2,652  1,591  4,243  3,353  1,859  5,212 
OPI
4,417  4,903  9,320  4,080  5,077  9,157 
SVC 10,924  1,076  12,000  8,582  731  9,313 
$ 24,471  $ 10,791  $ 35,262  $ 21,010  $ 11,107  $ 32,117 
Nine Months Ended June 30, 2021 Nine Months Ended June 30, 2020
Base Business Property Base Business Property
Management Management Management Management
REIT Revenues Revenues Total Revenues Revenues Total
DHC $ 17,110  $ 10,163  $ 27,273  $ 17,550  $ 9,985  $ 27,535 
ILPT 8,330  4,960  13,290  10,127  5,964  16,091 
OPI
12,361  14,854  27,215  13,447  15,353  28,800 
SVC 30,798  2,700  33,498  31,804  2,959  34,763 
$ 68,599  $ 32,677  $ 101,276  $ 72,928  $ 34,261  $ 107,189 
As of June 30, 2021, we estimate that we would have earned an incentive business management fee from OPI of $22,222 for calendar 2021 if June 30, 2021 had been the end of the next measurement period. However, incentive business management fees from the Managed Equity REITs are contingent performance based fees which are only recognized when earned at the end of the respective measurement period. There can be no assurance that we will in fact earn the estimated amount of, or any, incentive business management fees for calendar 2021, from OPI, or any Managed Equity REIT. Accordingly, this estimated amount of incentive business management fees for calendar 2021 which would have been earned if the measurement period ended on June 30, 2021, is not included in the fees listed in the tables above or in our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Managed Operating Companies and Managed Private Real Estate Capital
We provide business management services to the Managed Operating Companies. Five Star operates senior living communities throughout the United States, many of which are owned by and managed for DHC. Sonesta manages and franchises hotels, resorts and cruise ships in the United States, Latin America, the Caribbean and the Middle East; many of Sonesta’s U.S. hotels are owned by SVC. TA operates, leases and franchises travel centers along the U.S. interstate highway system, many of which are owned by SVC, and standalone truck service facilities. Generally, our fees earned from business management services to the Managed Operating Companies are based on a percentage of certain revenues.
In addition, we also provide management services to the Managed Private Real Estate Capital clients and earn fees based on a percentage of average invested capital, as defined in the applicable agreements, property management fees based on a percentage of rents collected from managed properties and construction management fees based on a percentage of the cost of construction activities.
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Our fee revenues from services to the Managed Operating Companies and the Managed Private Real Estate Capital clients for the three and nine months ended June 30, 2021 and 2020, are set forth in the following tables:
Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
Base Business Property Base Business Property
Management Management Management Management
Revenues Revenues Total Revenues Revenues Total
ABP Trust $ 580  $ 493  $ 1,073  $ 173  $ 173  $ 346 
Other private entities 696  369  1,065  513  338  851 
Five Star 1,794  —  1,794  2,123  —  2,123 
Sonesta 1,522  —  1,522  113  —  113 
TA 3,660  —  3,660  3,041  —  3,041 
$ 8,252  $ 862  $ 9,114  $ 5,963  $ 511  $ 6,474 
Nine Months Ended June 30, 2021 Nine Months Ended June 30, 2020
Base Business Property Base Business Property
Management Management Management Management
Revenues Revenues Total Revenues Revenues Total
ABP Trust $ 1,737  $ 1,434  $ 3,171  $ 375  $ 543  $ 918 
Other private entities 1,726  945  2,671  1,551  1,006  2,557 
Five Star 5,573  —  5,573  6,726  —  6,726 
Sonesta 2,511  —  2,511  1,259  —  1,259 
TA 9,904  —  9,904  9,715  —  9,715 
$ 21,451  $ 2,379  $ 23,830  $ 19,626  $ 1,549  $ 21,175 
Advisory Services and Other
Tremont Advisors manages two publicly traded mortgage REITs: RMRM and TRMT. RMRM and TRMT focus primarily on originating and investing in first mortgage whole loans secured by middle market and transitional commercial real estate. Tremont Advisors is primarily compensated pursuant to its management agreements with RMRM (beginning January 6, 2021) and TRMT based on a percentage of RMRM’s and TRMT’s equity, as defined in the applicable agreements.
Tremont Advisors earned aggregate advisory services revenue from TRMT of $377 and $40 for the three months ended June 30, 2021 and 2020, respectively, and $792 and $113 for the nine months ended June 30, 2021 and 2020, respectively. Incentive business management fees earned from TRMT were zero and $620 for the three and nine months ended June 30, 2021, respectively. Tremont Advisors did not earn incentive fees from TRMT during the three and nine months ended June 30, 2020.
RMR Advisors, which previously provided advisory services for RMRM until RMRM deregistered as an investment company with the SEC on January 5, 2021, was compensated pursuant to its agreement with RMRM based on a percentage of RMRM’s average daily managed assets, as defined in the agreement. The advisory fees earned by RMR Advisors or Tremont Advisors, as applicable, included in our revenue were $757 and $585 for the three months ended June 30, 2021 and 2020, respectively, and $2,057 and $2,139 for the nine months ended June 30, 2021 and 2020, respectively.
The Tremont business acts as a transaction broker for non-investment advisory clients for negotiated fees. The Tremont business earned fees for such brokerage services of zero and $34 for the three months ended June 30, 2021 and 2020, respectively, and $259 and $816 for the nine months ended June 30, 2021 and 2020, respectively, which amounts are included in management services revenue in our condensed consolidated statements of income.
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RESULTS OF OPERATIONS (dollars in thousands) 
Three Months Ended June 30, 2021, Compared to the Three Months Ended June 30, 2020
The following table presents the changes in our operating results for the three months ended June 30, 2021 compared to the three months ended June 30, 2020:
Three Months Ended June 30,
2021 2020 $ Change % Change
Revenues:
Management services $ 44,376  $ 38,625  $ 5,751  14.9%
Advisory services 1,134  625  509  81.4%
Total management and advisory services revenues 45,510  39,250  6,260  15.9%
Reimbursable compensation and benefits 13,069  13,013  56  0.4%
Reimbursable equity based compensation 1,402  736  666  90.5%
Other reimbursable expenses 85,263  85,650  (387) (0.5)%
Total reimbursable costs 99,734  99,399  335  0.3%
Total revenues 145,244  138,649  6,595  4.8%
Expenses:
Compensation and benefits 30,530  29,569  961  3.3%
Equity based compensation 1,954  1,299  655  50.4%
Total compensation and benefits expense 32,484  30,868  1,616  5.2%
General and administrative 6,320  6,335  (15) (0.2)%
Other reimbursable expenses 85,263  85,650  (387) (0.5)%
Transaction and acquisition related costs 61  427  (366) (85.7)%
Depreciation and amortization 245  229  16  7.0%
Total expenses 124,373  123,509  864  0.7%
Operating income 20,871  15,140  5,731  37.9%
Interest and other income 179  727  (548) (75.4)%
Equity in earnings of investees 28  458  (430) (93.9)%
Unrealized gain on equity method investment accounted for under the fair value option 1,312  1,678  (366) (21.8)%
Income before income tax expense 22,390  18,003  4,387  24.4%
Income tax expense (3,361) (2,608) (753) (28.9)%
Net income 19,029  15,395  3,634  23.6%
Net income attributable to noncontrolling interest (10,797) (8,678) (2,119) (24.4)%
Net income attributable to The RMR Group Inc. $ 8,232  $ 6,717  $ 1,515  22.6%
n/m - not meaningful
Management services revenue. For the three months ended June 30, 2021 and 2020, we earned base business and property management services revenue from the following sources:
Three Months Ended June 30,
2021 2020 Change
Managed Equity REITs $ 35,262  $ 32,117  $ 3,145 
Managed Private Real Estate Capital 2,138  1,231  907 
Managed Operating Companies 6,976  5,277  1,699 
Total $ 44,376  $ 38,625  $ 5,751 
Management services revenue increased $5,751 primarily due to the economic recovery following the easing of pandemic related restrictions across the country, which were most impactful on our managed assets within the senior living, service retail and hospitality sectors. The increase in management services revenue was due to (i) increases in the average enterprise value of DHC and SVC resulting in increases to base business management fees of $1,483 and $2,342, respectively, and (ii) increases in
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management fees earned from the Managed Operating Companies of $1,699, primarily driven by continued improvements in operating performance at Sonesta and TA.
Advisory services revenue. Advisory services revenue represents fees earned for managing RMRM and TRMT. Advisory services revenues increased by $509 primarily due to an increase of $337 in fees earned from TRMT as a result of the fee waiver Tremont Advisors previously provided to TRMT expiring on December 31, 2020.
Reimbursable compensation and benefits. Reimbursable compensation and benefits include reimbursements, at cost, that arise primarily from services our employees provide pursuant to our property management agreements at the properties of our clients. A significant portion of these compensation and benefits are charged or passed through to and were paid by tenants of our clients. Reimbursable compensation and benefits increased $56 primarily due to annual increases in employee compensation and benefits for which we receive reimbursement.
Reimbursable equity based compensation. Reimbursable equity based compensation includes grants of common shares from 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 the grants of common shares from our clients to certain of our officers and employees. Reimbursable equity based compensation increased $666 as a result of increases in our clients’ respective share prices.
Other reimbursable expenses. For further information about these reimbursements, see Note 3, Revenue Recognition, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.
Compensation and benefits. Compensation and benefits consist of employee salaries and other employment related costs, including health insurance expenses and contributions related to our employee retirement plan. Compensation and benefits expense increased $961 primarily due to merit increases and higher estimated bonus costs for the current fiscal year, partially offset by higher vacation deferrals and business continuity payments resulting from the COVID-19 pandemic during the prior period.
Equity based compensation. Equity based compensation consists of the value of vested shares granted to certain of our employees under our equity compensation plan and by our clients. Equity based compensation increased $655 primarily due to increases in our clients’ respective share prices for the share awards granted to our employees by our clients.
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 was relatively unchanged from the prior period.
Transaction and acquisition related costs. Transaction and acquisition related costs decreased $366 primarily due to costs incurred in the prior period in connection with RMRM’s conversion from a registered investment company to a commercial mortgage REIT.
Depreciation and amortization. Depreciation and amortization expense was relatively unchanged from the prior period.
Interest and other income. Interest and other income decreased $548 primarily due to lower interest earned during the current period as a result of lower interest rates compared to the prior period.
Equity in earnings of investees. Equity in earnings of investees represents our proportionate share of earnings from our equity interest in TRMT.
Unrealized gain on equity method investment accounted for under the fair value option. Unrealized gain on equity method investment accounted for under the fair value option represents the gain on our investment in TA common shares. For further information, see Note 4, Investments, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Income tax expense. The increase in income tax expense of $753 is primarily attributable to higher taxable income for the current period compared to the prior period.
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Nine Months Ended June 30, 2021, Compared to the Nine Months Ended June 30, 2020
The following table presents the changes in our operating results for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020:
Nine Months Ended June 30,
2021 2020 $ Change % Change
Revenues:
Management services $ 125,365  $ 129,221  $ (3,856) (3.0)%
Incentive business management fees 620  —  620  n/m
Advisory services 2,849  2,252  597  26.5%
Total management and advisory services revenues 128,834  131,473  (2,639) (2.0)%
Reimbursable compensation and benefits 39,453  38,683  770  2.0%
Reimbursable equity based compensation 5,611  1,394  4,217  n/m
Other reimbursable expenses 259,856  267,852  (7,996) (3.0)%
Total reimbursable costs 304,920  307,929  (3,009) (1.0)%
Total revenues 433,754  439,402  (5,648) (1.3)%
Expenses:
Compensation and benefits 90,610  89,888  722  0.8%
Equity based compensation 7,267  3,183  4,084  128.3%
Separation costs 4,159  645  3,514  n/m
Total compensation and benefits expense 102,036  93,716  8,320  8.9%
General and administrative 19,684  20,678  (994) (4.8)%
Other reimbursable expenses 259,856  267,852  (7,996) (3.0)%
Transaction and acquisition related costs 474  1,596  (1,122) (70.3)%
Depreciation and amortization 734  731  3  0.4%
Total expenses 382,784  384,573  (1,789) (0.5)%
Operating income 50,970  54,829  (3,859) (7.0)%
Interest and other income 614  4,102  (3,488) (85.0)%
Equity in earnings of investees 755  1,037  (282) (27.2)%
Unrealized gain on equity method investment accounted for under the fair value option 6,032  916  5,116  n/m
Income before income tax expense 58,371  60,884  (2,513) (4.1)%
Income tax expense (8,109) (8,944) 835  9.3%
Net income 50,262  51,940  (1,678) (3.2)%
Net income attributable to noncontrolling interest (28,192) (29,306) 1,114  3.8%
Net income attributable to The RMR Group Inc. $ 22,070  $ 22,634  $ (564) (2.5)%
n/m - not meaningful
Management services revenue. For the nine months ended June 30, 2021 and 2020, we earned base business and property management services revenue from the following sources:
Nine Months Ended June 30,
2021 2020 Change
Managed Equity REITs $ 101,276  $ 107,189  $ (5,913)
Managed Private Real Estate Capital 6,101  4,332  1,769 
Managed Operating Companies 17,988  17,700  288 
Total $ 125,365  $ 129,221  $ (3,856)
Management services revenue decreased $3,856 primarily due to (i) declines in the average enterprise value of OPI and SVC resulting in decreases to base business management fees of $1,086 and $1,006, respectively, (ii) decreases in property management fees earned from OPI and SVC of $499 and $259, respectively, primarily due to strategic property dispositions
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and (iii) a decline in management fees earned from Five Star of $1,153 driven by COVID-19 pandemic related adverse impacts to its business, partially offset by an increase in management fees earned from Sonesta of $1,252 primarily resulting from an increase in the number of hotels that it manages and franchises during the current period.
Incentive business management fees. Incentive business management fees for the current period include fees earned by Tremont Advisors from TRMT of $620. Tremont Advisors could not earn any incentive fees from TRMT in the prior period due to the fee waiver in effect for the period beginning July 1, 2018 until December 31, 2020. For further information about TRMT’s incentive fees and the fee waiver, see Note 3, Revenue Recognition, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.
Advisory services revenue. Advisory services revenue increased $597 primarily due to an increase of $679 in fees earned from TRMT as a result of the fee waiver Tremont Advisors previously provided to TRMT expiring on December 31, 2020.
Reimbursable compensation and benefits. Reimbursable compensation and benefits increased $770 primarily due to annual increases in employee compensation and benefits for which we receive reimbursement.
Reimbursable equity based compensation. Reimbursable equity based compensation increased $4,217 as a result of increases in our clients’ respective share prices.
Other reimbursable expenses. For further information about these reimbursements, see Note 3, Revenue Recognition, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.
Compensation and benefits. Compensation and benefits expense increased $722 primarily due to higher estimated bonus costs for the current fiscal year and annual employee merit increases effective on October 1, 2020, largely offset by higher mortgage broker commissions, vacation deferrals and business continuity payments during the prior period.
Equity based compensation. Equity based compensation increased $4,084 primarily due to increases in our clients’ respective share prices for the share awards granted to our employees by our clients.
Separation costs. For further information about these costs, see Note 7, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.
General and administrative. General and administrative costs decreased $994 primarily due to decreases in travel, temporary staffing and recruiting fees largely as a result of the pandemic, partially offset by an increase in the value of annual share grants awarded to our Directors.
Transaction and acquisition related costs. Transaction and acquisition related costs decreased $1,122 primarily due to costs incurred in the prior period in connection with RMRM’s conversion from a registered investment company to a commercial mortgage REIT.
Depreciation and amortization. Depreciation and amortization expense was relatively unchanged from the prior period.
Interest and other income. Interest and other income decreased $3,488 primarily due to lower interest earned during the current period as a result of lower interest rates compared to the prior period.
Equity in earnings of investees. Equity in earnings of investees represents our proportionate share of earnings from our equity interest in TRMT.
Unrealized gain on equity method investment accounted for under the fair value option. Unrealized gain on equity method investment accounted for under the fair value option represents the gain on our investment in TA common shares. For further information, see Note 4, Investments, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Income tax expense. The decrease in income tax expense of $835 is primarily attributable to lower taxable income during the current period compared to the prior period, and a reduction in our income tax provision recorded during the three months ended December 31, 2020 of $520 related to final tax regulations released in December 2020. For further information, see Note 5, Income Taxes, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands, except per share amounts)
Our current assets have historically been comprised predominantly of cash, cash equivalents and receivables for business management, property management and advisory services fees. As of June 30, 2021 and September 30, 2020, we had cash and cash equivalents of $397,801 and $369,663, respectively, of which $24,487 and $25,498, respectively, was held by RMR Inc., with the remainder being held at RMR LLC. Cash and cash equivalents include all short term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase. As of June 30, 2021 and September 30, 2020, $357,187 and $341,612, respectively, of our cash and cash equivalents were invested in money market funds. Our cash and cash equivalents leave us well positioned to pursue numerous capital allocation strategies, including the potential return of shareholder capital in the form of a special dividend, in the next twelve months.
Our liquidity is highly dependent upon our receipt of fees from the businesses that we manage. Historically, we have funded our working capital needs with cash generated from our operating activities and we currently do not maintain any credit facilities. We expect that our future working capital needs will relate largely to our operating expenses, primarily consisting of employee compensation and benefits costs, our obligation to make quarterly tax distributions to the members of RMR LLC, our plan to make quarterly distributions on our Class A Common Shares and Class B-1 Common Shares and our plan to pay quarterly distributions to the members of RMR LLC in connection with the quarterly dividends to RMR Inc. shareholders. Our management fees are typically payable to us within 30 days of the end of each month or, in the case of annual incentive business management fees earned from the Managed Equity REITs, within 30 days following each calendar year end. Quarterly incentive fees earned from RMRM or TRMT, if any, are payable generally within 30 days following the end of the applicable quarter. Historically, we have not experienced losses on collection of our fees and have not recorded any allowances for bad debts.
During the nine months ended June 30, 2021, 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 $32,197. On July 15, 2021, we declared a quarterly dividend on our Class A Common Shares and Class B-1 Common Shares to our shareholders of record as of July 26, 2021 in the amount of $0.38 per Class A Common Share and Class B-1 Common Share, or $6,235. This dividend will be partially funded by a distribution from RMR LLC to holders of its membership units in the amount of $0.30 per unit, or $9,422, of which $4,922 will be distributed to us based on our aggregate ownership of 16,407,933 membership units of RMR LLC and $4,500 will be distributed to ABP Trust based on its ownership of 15,000,000 membership units of RMR LLC. The remainder of this dividend will be funded with cash accumulated at RMR Inc. We expect the total dividend will amount to approximately $10,735 and we expect to pay this dividend on or about August 19, 2021. See Note 8, Shareholders’ Equity, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding these distributions.
For the nine months ended June 30, 2021, pursuant to the RMR LLC operating agreement, RMR LLC made required quarterly tax distributions to its holders of its membership units totaling $23,201, of which $12,327 was distributed to us and $10,874 was distributed to ABP Trust, based on each membership unit holder’s then respective ownership percentage in RMR LLC. The $12,327 distributed to us was eliminated in our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, and the $10,874 distributed to ABP Trust was recorded as a reduction of their noncontrolling interest. We expect to use a portion of these funds distributed to us to pay our tax liabilities and amounts due under the tax receivable agreement described in Note 7, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. We expect to use the remaining funds distributed to us to fund our long-term tax liabilities and pay dividends.
Cash Flows
Our changes in cash flows for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020 were as follows: (i) net cash from operating activities decreased $6,419 from $78,790 in the 2020 period to $72,371 in the 2021 period; (ii) net cash used in investing activities increased $536 from $404 in the 2020 period to $940 in the 2021 period; and (iii) net cash used in financing activities increased $114 from $43,179 in the 2020 period to $43,293 in the 2021 period.
The decrease in cash from operating activities for the nine months ended June 30, 2021, compared to the same period in 2020 primarily reflects the net effect of declines in net income, excluding the impacts of non-cash gains, and changes in working capital. The increase in cash used in investing activities for the nine months ended June 30, 2021 compared to the same period in 2020 was due to a modest increase in purchases of property and equipment to support our operations in the 2021 period. Cash used in financing activities for the nine months ended June 30, 2021 increased nominally compared to the same period in 2020.
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Off Balance Sheet Arrangements
We have no off balance sheet arrangements.
Tax Receivable Agreement
We are party to a tax receivable agreement, or Tax Receivable Agreement, which provides for the payment by RMR Inc. to ABP Trust of 85.0% of the amount of savings, if any, in U.S. federal, state and local income tax or franchise tax that RMR Inc. realizes as a result of (a) the increases in tax basis attributable to RMR Inc.’s dealings with ABP Trust and (b) tax benefits related to imputed interest deemed to be paid by it as a result of the Tax Receivable Agreement. See Note 7, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and “Business—Our Organizational Structure—Tax Receivable Agreement” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. As of June 30, 2021, our condensed consolidated balance sheet reflects a liability related to the tax receivable agreement of $29,950, of which we expect to pay $2,161 to ABP Trust during the fourth quarter of fiscal year 2021. 
Market Risk and Credit Risk
We have not invested in derivative instruments, borrowed through issuing debt securities or transacted a significant part of our businesses in foreign currencies. As a result, we are not now subject to significant direct market risk related to interest rate changes, changes to the market standard for determining interest rates, commodity price changes or credit risks; however, if any of these risks were to negatively impact our clients’ businesses or market capitalization, our revenues would likely decline. To the extent we change our approach on the foregoing activities, or engage in other activities, our market and credit risks could change. See Part I, Item 1A “Risk Factors” of our 2020 Annual Report for the risks to us and our clients related to the COVID-19 pandemic.
Risks Related to Cash and Short Term Investments
Our cash and cash equivalents include short term, highly liquid investments readily convertible to known amounts of cash that have original maturities of three months or less from the date of purchase. We invest a substantial amount of our cash in money market funds. The majority of our cash is maintained in U.S. bank accounts. Some U.S. bank account balances exceed the Federal Deposit Insurance Corporation insurance limit. We believe our cash and short term investments are not subject to any material interest rate risk, equity price risk, credit risk or other market risk.
Related Person Transactions
We have relationships and historical and continuing transactions with Adam D. Portnoy, one of our Managing Directors, as well as our clients. For further information about these and other such relationships and related person transactions, please see Note 7, Related Person Transactions, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2020 Annual Report, our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” in our 2020 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative disclosures about market risk are set forth above in “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operation—Market Risk and Credit Risk.”
Item 4. Controls and Procedures
As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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WARNING CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Our forward-looking statements reflect our current views, intents and expectations with respect to, among other things, our operations and financial performance. Our forward-looking statements can be identified by the use of words such as “outlook,” “believe,” “expect,” “potential,” “will,” “may,” “estimate,” “anticipate” and derivatives or negatives of such words or similar words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be factors that could cause actual outcomes or results to differ materially from those stated or implied in these statements. We believe these factors include, but are not limited to the following:
•the duration and severity of the COVID-19 pandemic and the resulting disruptions on us and our clients;
•substantially all of our revenues are derived from services to a limited number of clients;
•our revenues are highly variable;
•changing market conditions that may adversely impact our clients and our business with them;
•potential terminations of our management agreements with our clients;
•our ability to expand our business depends upon the growth and performance of our clients and our ability to obtain or create new clients for our business and is often dependent upon circumstances beyond our control;
•the ability of our clients to operate their businesses profitably and to grow and increase their market capitalizations and total shareholder returns;
•litigation risks;
•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;
•our ability to retain the services of our managing directors and other key personnel; and
•risks associated with and costs of compliance with laws and regulations, including securities regulations, exchange listing standards and other laws and regulations affecting public companies.
For example:
•We have a limited number of clients. We have long term contracts with our Managed Equity REITs; however, the other contracts under which we earn our revenues are for shorter terms, and the long term contracts with our Managed Equity REITs may be terminated in certain circumstances. The termination or loss of any of our management contracts may have a material adverse impact upon our revenues, profits, cash flows and business reputation;
•Our base business management fees earned from our Managed Equity REITs are calculated monthly based upon the lower of each REIT’s cost of its applicable assets and such REIT’s market capitalization. Our business management fees earned from our Managed Operating Companies are calculated based upon certain revenues from each operator’s business. Accordingly, our future revenues, income and cash flows will decline if the business activities, assets or market capitalizations of our clients decline;
•The fact that we have earned significant incentive business management fees from certain of our Managed Equity REITs in previous years and the fact that we estimate we would have earned an incentive business management fee for calendar 2021 from one of our Managed Equity REITs of $22.2 million as of June 30, 2021, if that date had been the end of the next measurement period, may imply that we will earn incentive business management fees for calendar 2021 or in future years. The incentive business management fees that we may earn from our Managed Equity REITs are based upon total returns realized by the REITs’ shareholders compared to the total shareholders return of certain identified indices. We have only limited control over the total returns realized by shareholders of the Managed Equity REITs and effectively no control over indexed total returns. There can be no assurance that we will earn any incentive business management fees from our Managed Equity REITs in the future;
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•The fact that we have earned a $0.6 million incentive fee from TRMT during the nine months ended June 30, 2021 may imply that we will earn incentive business management fees from TRMT and RMRM in future periods. However, there can be no assurance that we will earn any incentive business management fees from TRMT or RMRM in the future;
•We currently intend to pay a regular quarterly dividend of $0.38 per Class A Common Share and Class B-1 Common Share. Our dividends are declared and paid at the discretion of our board of directors. Our board may consider many factors when deciding whether to declare and pay dividends, including our current and projected cash flows and alternative uses for any available cash. Our board may decide to lower or even eliminate our dividends. There can be no assurance that we will continue to pay any regular dividends or with regard to the amount of dividends we may pay;
•We balance our pursuit of growth of our and our clients’ businesses by executing, on behalf of our clients, prudent capital recycling or business arrangement restructurings in an attempt to help our clients prudently manage leverage and to reposition their portfolios and businesses when circumstances warrant such changes or when other more desirable opportunities are identified. However, these efforts may not be successful and, even if they are successful, they may not be sufficient to prevent our clients from experiencing increases in leverage, to adequately reposition our clients’ portfolios and businesses, or to enable our clients to execute successfully on desirable opportunities;
•Our belief that, because of the diversity of properties that our clients own and operate, there should be opportunities for growth in select property types and locations as the COVID-19 pandemic ebbs may prove unfounded or we and our clients may not succeed in executing on those opportunities;
•Our attempts to take into account industry and economic factors as well as specific property and regional geographic considerations when providing services to our clients may not be successful;
•We have undertaken new initiatives and are considering other initiatives to grow our business and any actions we may take to grow our business may not be successful or we may elect to abandon pursuing some or all of those initiatives in order to pursue other initiatives or for other reasons. In addition, any investments or repositioning of the properties we or our clients may make or pursue may not increase the value of the applicable properties, offset the decline in value those properties may otherwise experience, or increase the market capitalization or total shareholder returns of our clients;
•We state that our cash and cash equivalents balance leaves us well positioned to pursue numerous capital allocation strategies, including the potential return of shareholder capital in the form of a special dividend, in the next 12 months. This statement may imply that we will successfully identify and execute one or more capital allocation strategies, including that we will return capital to shareholders in the form of a special dividend, in the next 12 months and that any capital allocation strategy we may pursue will be successful and benefit us and our shareholders. However, identifying and executing on capital allocation strategies are subject to various uncertainties and risks and may take an extended period to realize any resulting benefit to our business. In addition, we may elect to not pursue a capital allocation strategy, including returning shareholder capital in the form of a special dividend, or abandon any such strategy we may pursue; and
•The COVID-19 pandemic may have lasting affects on our business and the businesses of our clients. Our business is dependent on revenue generated from sectors that have been and may continue to be adversely impacted by COVID-19 to a greater degree than other sectors. Further, our revenues from other sectors may become increasingly adversely impacted by COVID-19. Accordingly, there can be no assurances that we will be able to successfully manage through the COVID-19 pandemic, resulting market disruptions and their aftermath, or that we will be able to take advantage of any resulting opportunities.
There are or will be additional important factors that could cause business outcomes or financial results to differ materially from those stated or implied in our forward-looking statements. For example, the COVID-19 pandemic and its aftermath may reduce or limit any growth in the market value of our Managed Equity REITs or cause their rent receipts or construction activities to decline or cause the revenues of our Managed Operating Companies to significantly decline and, as a result, our revenues and cash flows may continue to be adversely impacted.
We have based our forward-looking statements on our current expectations about future events that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, our forward-looking statements should not be relied on as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected or implied in our forward-looking statements. The matters
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discussed in this warning should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q and in our 2020 Annual Report, including the “Risk Factors” section of our 2020 Annual Report. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
Part II. Other Information
Item 1A. Risk Factors
There have been no material changes to the risk factors from those we previously provided in our 2020 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer purchases of equity securities.
The following table provides information about our purchases of our equity securities during the quarter ended June 30, 2021:
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
June 2021 5,258  $ 38.64  N/A N/A
Total 5,258  $ 38.64  N/A N/A
(1)These Class A Common Share withholdings and purchases were made to satisfy tax withholding and payment obligations 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.
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Item 6. Exhibits
Exhibit
Number 		Description
3.1
3.2
3.3
3.4
3.5
4.1
4.2
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
101.LAB XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
104 Cover Page Interactive Data File. (formatted as Inline XBRL and contained in Exhibit 101.)
(1)
Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-207423) filed with the U.S. Securities and Exchange Commission on October 14, 2015.
(2)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-37616) filed with the U.S. Securities and Exchange Commission on March 11, 2016.
(3)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-37616) filed with the U.S. Securities and Exchange Commission on September 15, 2017.
(4)
Incorporated by reference to the Registrant’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-207423) filed with the U.S. Securities and Exchange Commission on November 2, 2015.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  By: /s/ Matthew P. Jordan
Matthew P. Jordan
Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)
Dated: August 5, 2021
 

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Exhibit 10.1
THIRD AMENDED AND RESTATED PROPERTY MANAGEMENT AGREEMENT
THIS THIRD AMENDED AND RESTATED PROPERTY MANAGEMENT AGREEMENT (this “Agreement”) is made and entered into as of June 9, 2021, by and among The RMR Group LLC, a Maryland limited liability company (“Managing Agent”), and Diversified Healthcare Trust, a Maryland real estate investment trust (the “Company”), on behalf of itself and those of its subsidiaries as may from time to time own properties subject to this Agreement (each, an “Owner” and, collectively, “Owners”).
W I T N E S S E T H:
WHEREAS, Owners and Managing Agent are parties to a Second Amended and Restated Property Management Agreement, dated as of June 5, 2015 (as so amended, the “Original Agreement”), pursuant to which Owners have engaged Managing Agent to manage certain of their properties as described therein; and
WHEREAS, Owners and Managing Agent wish to continue the Original Agreement in force and effect with respect to services performed and fees due with respect to such services, on and prior to the date of this Agreement, but wish to amend and restate the Original Agreement as hereinafter provided, effective with respect to services performed and fees due with respect to such services after the date of this Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements herein contained, Owners and Managing Agent hereby agree that the Original Agreement is hereby amended and restated to read in its entirety as follows:
1.Engagement.
(a)Subject to the terms and conditions hereinafter set forth, Owners hereby continue to engage Managing Agent to provide the property management and administrative services with respect to the Managed Premises as contemplated by this Agreement. Managing Agent hereby accepts such continued engagement as managing agent and agrees to devote such time, attention and effort as may be appropriate to operate and manage the Managed Premises in a diligent, orderly and efficient manner.
As used in this Agreement, “Managed Premises” shall mean all properties of Owners that Owners shall from time to time designate as subject to this Agreement, including, without limitation, all of Owners’ office properties.
(b)Managing Agent may subcontract out some or all of its obligations under this Agreement to third parties; provided, however, that, in any such event, Managing Agent shall be and remain primarily liable to Owners for performance hereunder.
(c)Notwithstanding anything to the contrary set forth in this Agreement, the services to be provided by Managing Agent hereunder shall exclude all services (including, without limitation, any garage management or cafeteria management services)


whose performance by a manager to any Owner could give rise to an Owner’s receipt of “impermissible tenant service income” as defined in §856(d)(7) of the Internal Revenue Code of 1986 (as amended or superseded hereafter, the “Code”) or could in any other way jeopardize an Owner’s federal or state tax qualification as a real estate investment trust.
2.General Parameters. Any or all services may be performed or goods purchased by Managing Agent under arrangements jointly with or for other properties owned or managed by Managing Agent and the costs shall be reasonably apportioned. Managing Agent may employ personnel who are assigned to work exclusively at the Managed Premises or partly at the Managed Premises and other properties owned and/or managed by Managing Agent. Wages, benefits and other related costs of centralized accounting personnel and employees employed by Managing Agent and assigned to work exclusively or partly at the Managed Premises shall be fairly apportioned and reimbursed, pro rata, by Owners in addition to the Fee, Construction Supervision Fee and Major Renovation Fee (each as defined in Section 6).
3.Duties. Without limitation, Managing Agent agrees to perform the following specific duties:
(a)To seek tenants for the Managed Premises in accordance with market rents and to negotiate leases, including renewals thereof, and to lease space to tenants, at rentals, and for periods of occupancy all on market terms. To employ appropriate means in order that the availability of rental space is made known to potential tenants, including, but not limited to, the employment of brokers. The brokerage and legal expenses of negotiating such leases and leasing such space shall be paid by the applicable Owner.
(b)To collect all rents and other income from the Managed Premises and to give receipts therefor, both on behalf of Owners, and deposit such funds in such banks and such accounts as are named, from time to time, by Owners, in agency accounts for and under the name of Owners. Managing Agent shall be empowered to sign disbursement checks on these accounts. Managing Agent may also use pooled bank accounts for the benefit of Owners and other owners for whom the Managing Agent provides services, provided separate records and accountings of such funds are maintained.
(c)To make contracts for and to supervise any repairs and/or alterations to the Managed Premises, including tenant improvements on reasonable commercial terms.
(d)For Owners’ account and at its expense, to hire, supervise and discharge employees as required for the efficient operation and maintenance of the Managed Premises.
(e)To obtain, at Owners’ expense, appropriate insurance for the Managed Premises protecting Owners and Managing Agent while acting on behalf of Owners against all normally insurable risks relating to the Managed Premises and complying with the requirements of Owners’ mortgagee, if any, and to cause the same to be provided and
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maintained by all tenants with respect to the Managed Premises to the extent required by the terms of such tenants’ leases. Notwithstanding the foregoing, Owners may determine to purchase insurance directly for their own account.
(f)To promptly notify the applicable Owner’s insurance carriers, as required by the applicable policies, of any casualty or injury to person or property at the Managed Premises, and complete customary reports in connection therewith.
(g)To procure all supplies, other materials and services as may be necessary for the proper operation of the Managed Premises, at Owners’ expense.
(h)To pay promptly from rental receipts, other income derived from the Managed Premises, or other monies made available by Owners for such purpose, all costs incurred in the operation of the Managed Premises which are expenses of Owners hereunder, including wages or other payments for services rendered, invoices for supplies or other items furnished in relation to the Managed Premises, and pay over forthwith the balance of such rental receipts, income and monies to Owners or as Owners shall from time to time direct. In the event that the sum of the expenses to operate and the compensation due Managing Agent exceeds gross receipts in any month and no excess funds from prior months are available for payment of such excess, Owners shall pay promptly the amount of the deficiency thereof to Managing Agent upon receipt of statements therefor.
(i)To keep Owners apprised of any material developments in the operation of the Managed Premises.
(j)To establish reasonable rules and regulations for tenants of the Managed Premises.
(k)On behalf of and in the name of Owner, to institute or defend, as the case may be, any and all legal actions or proceedings relating to the operation of the Managed Premises.
(l)To maintain the books and records of Owners reflecting the management and operation of the Managed Premises, making available for reasonable inspection and examination by Owners or their representatives all books, records and other financial data relating to the Managed Premises at the place where the same are maintained.
(m)To prepare and deliver seasonably to tenants of the Managed Premises such statements of expenses or other information as shall be required on the landlord’s part to be delivered to such tenants for computation of rent, additional rent, or any other reason.
(n)To aid, assist and cooperate with Owners in matters relating to taxes and assessments and insurance loss adjustments, notify Owners of any tax increase or special
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assessments relating to the Managed Premises and to enter into contracts for tax abatements services.
(o)To provide such emergency services as may be required for the efficient management and operation of the Managed Premises on a twenty-four (24)-hour basis.
(p)To enter into contracts on commercially reasonable terms for utilities (including, without limitation, water, fuel, electricity and telephone) and for building services (including, without limitation, cleaning of windows, common areas and tenant space, ash, rubbish and garbage hauling, snow plowing, landscaping, carpet cleaning and vermin extermination), and for other services as are appropriate to the Managed Premises.
(q)To seek market terms for all items purchased or services contracted by it under this Agreement.
(r)To take such action generally consistent with the provisions of this Agreement as Owners might with respect to the Managed Premises if personally present.
(s)To, from time to time, or at any time requested by the Board of Trustees of the Company (the “Trustees”), make reports of its performance of the foregoing services to the Company.
In addition, with respect to the senior living communities owned by Owners and managed by third party operators, including, but not limited to, Five Star Senior Living Inc. or certain of its subsidiaries, if requested by Owners, Manager shall oversee major capital projects and repositionings as requested by Owners from time to time (“Major SL Capital Projects”).
4.Authority. Owners give to Managing Agent the authority and powers to perform the foregoing duties on behalf of Owners and authorize Managing Agent to incur such reasonable expenses, as contemplated in Sections 2, 3 and 5 on behalf of Owners as are necessary in the performance of those duties.
5.Special Authority of Managing Agent. In addition to, and not in limitation of, the duties and authority of Managing Agent contained herein, Managing Agent shall perform the following duties:
(a)Terminate tenancies and sign and serve in the name of Owners such notices therefor as may be required for the proper management of the Managed Premises.
(b)At Owners’ expense, institute and prosecute actions to evict tenants and recover possession of rental space, and recover rents and other sums due; and when expedient, settle, compromise and release such actions or suits or reinstate such tenancies.
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6.Compensation.
(a)In consideration of the services to be rendered by Managing Agent hereunder, Owners agree to pay and Managing Agent agrees to accept as its compensation (i) a management fee (the “Fee”) equal to three percent (3%) of the gross collected rents actually received by Owners from the Managed Premises, such gross rents to include all fixed rents, percentage rents, additional rents, operating expense and tax escalations, and any other charges paid to Owners in connection with occupancy of the Managed Premises, but excluding any amounts collected from tenants to reimburse Owners for the cost of capital improvements or for expenses incurred in curing any tenant default or in enforcing any remedy against any tenant; (ii) a construction supervision fee (the “Construction Supervision Fee”) in connection with all interior and exterior construction renovation or repair activities at the Managed Premises, including, without limitation, all tenant and capital improvements in, on or about the Managed Premises, undertaken during the term of this Agreement, other than ordinary maintenance and repair, equal to five percent (5%) of the cost of such construction which shall include the costs of all related professional services and the cost of general conditions; and (iii) a renovation and repositioning fee (the “Major Renovation Fee”) in connection with all Major SL Capital Projects equal to three percent (3%) of the cost of such Major SL Capital Projects which shall include the costs of all related professional services and the cost of general conditions.
(b)Unless otherwise agreed, the Fee shall be due and payable monthly, in arrears based on a reasonable annual estimate or budget with an annual reconciliation within thirty (30) days after the end of each calendar year. The Construction Supervision Fee and the Major Renovation Fee shall each be due and payable periodically, as agreed by Managing Agent and Owners, based on actual costs incurred to date.
(c)Notwithstanding anything herein to the contrary, Owners shall reimburse Managing Agent for reasonable travel expenses incurred when traveling to and from the Managed Premises while performing its duties in accordance with this Agreement; provided, however, that reasonable travel expenses shall not include expenses incurred for travel to and from the Managed Premises by personnel assigned to work exclusively at the Managed Premises.
(d)Managing Agent shall be entitled to no other additional compensation, whether in the form of commission, bonus or the like for its services under this Agreement. Except as otherwise specifically provided herein with respect to payment by Owners of legal fees, accounting fees, salaries, wages, fees and charges of parties hired by Managing Agent on behalf of Owners to perform operating and maintenance functions in the Managed Premises, and the like, if Managing Agent hires third parties to perform services required to be performed hereunder by Managing Agent without additional charge to Owners, Managing Agent shall (except to the extent the same are reasonably attributable to an emergency at the Managed Premises) be responsible for the charges of such third parties.
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7.Term of Agreement. This Agreement shall continue in force and effect until December 31, 2041, and, on December 31 of each year after the effective date of this Agreement (each, an “Extension Date”), the term of this Agreement shall be automatically extended an additional year so that the term of this Agreement thereafter ends on the twentieth anniversary of such Extension Date.
Notwithstanding any other provision of this Agreement to the contrary, this Agreement, or any extension thereof, may be terminated prior to the expiration of the term:
(a)by the Company (on behalf of itself and Owners), (i) upon sixty (60) days’ prior written notice to Managing Agent (such termination, a “Termination for Convenience”), (ii) for Cause, immediately upon written notice to Managing Agent (such termination, a “Termination for Cause”), (iii) for a Performance Reason, upon written notice to Managing Agent given within sixty (60) days after the end of the calendar year giving rise to such Performance Reason (such termination, a “Termination for Performance”), or (iv) by written notice at any time during the twelve (12) month period immediately following the date a Managing Agent Change of Control occurred; or
(b)by Managing Agent, for Good Reason, upon sixty (60) days’ prior written notice to the Company (or ninety (90) days if the Company takes steps to cure any relevant default within thirty (30) days of written notice to the Company).
Any notice of termination shall include the reason for such termination.
In the event of a Termination for Convenience by the Company or a termination by Managing Agent pursuant to Section 7(b), the Company shall pay Managing Agent an amount in cash (the “Full Termination Fee”) equal to the sum of the present values of Monthly Future Fees payable for the Remaining Term, determined by assuming that a Monthly Future Fee is payable for each month in the Remaining Term on the thirtieth (30th) day after the end of that month and calculating for each Monthly Future Fee the present value of that fee by applying a discount rate to that fee equal to one-twelfth (1/12) the sum of the applicable Treasury Rate plus 300 basis points, with monthly periods for discounting.
In the event of a Termination for Performance, the Company shall pay Managing Agent an amount in cash (the “Performance Termination Fee”) equal to the sum of the present values of Monthly Future Fees payable for the first one hundred twenty (120) months of the Remaining Term, determined by assuming that a Monthly Future Fee is payable for each of the first one hundred twenty (120) months in the Remaining Term on the thirtieth (30th) day after the end of that month and calculating for each Monthly Future Fee the present value of that fee by applying a discount rate to that fee equal to one-twelfth (1/12) the sum of the applicable Treasury Rate plus 300 basis points, with monthly periods for discounting. It is expressly understood and agreed that a Termination for Performance and payment of the Performance Termination Fee is the Company’s intended remedy for a Performance Reason.
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No Full Termination Fee or Performance Termination Fee shall be payable in the event of termination by the Company pursuant to Section 7(a)(ii) (Termination For Cause) or Section 7(a)(iv) (following a Managing Agent Change of Control).
The provisions of this Section 7 shall not apply as a limitation on the amount which may be paid by agreement of the Company and Managing Agent in connection with a transaction pursuant to which any assets or going business values of Managing Agent are acquired by the Company in association with termination of this Agreement and the Full Termination Fee or the Performance Termination Fee, as applicable, is in addition to any amounts otherwise payable to Managing Agent under this Agreement as compensation for services and for expenses of or reimbursement due to Managing Agent through the date of termination.
8. Termination. Upon termination of this Agreement with respect to any of the Managed Premises for any reason whatsoever, Managing Agent shall as soon as practicable turn over to Owners all books, papers, funds, records, keys and other items relating to the management and operation of such Managed Premises, including, without limitation, all leases in the possession of Managing Agent and shall render to Owners a final accounting with respect thereto through the date of termination. Owners shall be obligated to pay all compensation for services rendered by Managing Agent hereunder prior and up to the effective time of such termination, including, without limitation, any Fees, Construction Supervision Fees and Major Renovation Fees, as applicable, and shall pay and reimburse to Managing Agent all expenses and costs incurred by Managing Agent prior and up to the effective time of such termination which are otherwise payable or reimbursable to Managing Agent pursuant to the terms of this Agreement (collectively, “Accrued Fees”). The amount of such fees paid as compensation pursuant to the foregoing sentence shall be subject to adjustment in accordance with the annual reconciliation contemplated by Section 6(b) and consistent with past practices in performing such reconciliation.
A computation of all Accrued Fees and of the Termination Fee, if any, due upon termination shall be delivered by Managing Agent to the Company within thirty (30) days following the effective date of termination. The Accrued Fees and, to the extent applicable, the Full Termination Fee or Performance Termination Fee, due upon termination shall be payable within ten (10) business days following the delivery to the Company of such computation.
In addition to other actions on termination of this Agreement, for up to one hundred twenty (120) days following the date of notice of a termination of this Agreement, Managing Agent shall cooperate with the Company and the Owners and use commercially reasonable efforts to facilitate the orderly transfer of (i) management of the Managed Premises and (ii) Major SL Capital Projects. In connection therewith Managing Agent shall assign to the Company, to one or more Owners, or to their designee(s), as directed by the Company, and the Company, such Owner(s) or their designee(s) shall assume, all contracts entered into by Managing Agent pursuant to this Agreement, but excluding all insurance contracts, and multi-property contracts not limited in scope to the Managed Premises and all contracts with affiliates of Managing Agent. Managing Agent shall also transfer to the Company all proprietary information with respect to the Company and/or the Owners. Additionally, the Company, one or
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more Owners, or their designee(s) shall have the right to offer employment to any employee of Managing Agent whom Managing Agent proposes to terminate in connection with a Covered Termination and Managing Agent shall cooperate with the Company, such Owners, or their designee(s) in connection therewith.
9.Assignment of Rights and Obligations.
(a)Without Owners’ prior written consent, Managing Agent shall not sell, transfer, assign or otherwise dispose of or mortgage, hypothecate or otherwise encumber or permit or suffer any encumbrance of all or any part of its rights and obligations hereunder, and any transfer, encumbrance or other disposition of an interest herein made or attempted in violation of this paragraph shall be void and ineffective, and shall not be binding upon Owners. Notwithstanding the foregoing, Managing Agent may assign its rights and delegate its obligations under this Agreement to any subsidiary of Parent so long as such subsidiary is then and remains Controlled by Parent.
(b)Owners, without Managing Agent’s consent, may not assign their respective rights or delegate their respective obligations hereunder.
(c)Any assignment permitted hereunder shall not release the assignor hereunder.
10.Indemnification and Insurance.
(a)Owners agree to defend, indemnify and hold harmless Managing Agent from and against all costs, claims, expenses and liabilities (including reasonable attorneys’ fees) arising out of Managing Agent’s performance of its duties in accordance with this Agreement including, without limitation, injury or damage to persons or property occurring in, on or about the Managed Premises and violations or alleged violations of any law, ordinance, regulation or order of any governmental authority regarding the Managed Premises except any injury, damage or violation resulting from Managing Agent’s fraud, gross negligence or willful misconduct in the performance of its duties hereunder.
(b)Owners and Managing Agent shall maintain such commercially reasonable insurance as shall from time to time be mutually agreed by Owners and Managing Agent.
11.Notices. Any notice, report or other communication required or permitted to be given hereunder shall be in writing and shall be deemed given on the date of actual delivery, if delivered personally, or on the date of receipt, if sent by overnight courier (providing proof of delivery) to the parties or if sent by email of a .pdf attachment (providing confirmation of transmission) at the following street addresses or email addresses, as applicable (or at such other United States street address or email address for a party as shall be specified by like notice):
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If to the Company or the Owners:
Diversified Healthcare Trust
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts 02458
Attn: President
Email: jfrancis@rmrgroup.com
Attn: Secretary
Email: jclark@rmrgroup.com
        with copies (which shall not constitute notice) to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attn: Lindsey A. Getz
Email: lgetz@sullivanlaw.com
If to Managing Agent:
The RMR Group LLC
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts 02458
Attn: Chief Financial Officer and Treasurer
Email: mjordan@rmrgroup.com
        with copies (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
920 N. King Street
Wilmington, Delaware 19801
Attn: Faiz Ahmad
Email: faiz.ahmad@skadden.com
12.Limitation of Liability. The Declarations of Trust establishing certain Owners, a copy of each, together with all amendments thereto (the “Declarations”), are duly filed with the State Department of Assessments and Taxation of Maryland, provide that the names of such Owners refers to the trustees under such Declarations collectively as trustees, but not individually or personally. No trustee, officer, shareholder, employee or agent of such Owners shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, such Owners. All persons and entities dealing with such Owners, in any way, shall look only to the respective assets of such Owners for the payment of any sum or the performance of any obligation of such Owners. In any event, all liability of such Owners hereunder is limited to the
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interest of such Owners in the Managed Premises and, in the case of Managing Agent, to its interest hereunder.
13.Acquisitions and Dispositions of Properties. Unless Owners and Managing Agent otherwise agree in writing, all properties from time to time acquired by Owners or their affiliates shall automatically become subject to this Agreement without amendment hereof. Similarly, this Agreement shall automatically terminate with respect to all properties disposed of by Owners in the ordinary course of business, effective upon such disposition.
14.Modification of Agreement. This Agreement may not be modified, altered or amended in any manner except by an amendment in writing, duly executed by the parties hereto.
15.Independent Contractor. This Agreement is not one of general agency by Managing Agent for Owners, but Managing Agent is being engaged as an independent contractor. Nothing in this Agreement is intended to create a joint venture, partnership, tenancy-in-common or other similar relationship between Owners and Managing Agent for any purposes whatsoever, and, without limiting the generality of the foregoing, neither the terms of this Agreement nor the fact that Owners and Managing Agent have joint interests in any one or more investments, ownership or other interests in any one or more entities or may have common officers or employees or a tenancy relationship shall be construed so as to make them such partners or joint venturers or impose any liability as such on either of them.
16.Governing Law. The provisions of this Agreement and any Dispute (as defined below), whether in contract, tort or otherwise, shall be governed by and construed in accordance with the laws of the State of Maryland without regard to principles of conflicts of law.
17.Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, any successors or permitted assigns of the parties hereto as provided herein.
18.No Third Party Beneficiary. Except as otherwise provided in Section 21(i), no person or entity other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.
19.Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.
20.Survival. Except for Sections 1 through 5 and Section 13, all other provisions of this Agreement shall survive the termination hereof. Any termination of this Agreement shall be without prejudice to the rights of the parties hereto accrued prior to the termination or upon termination.
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21.Arbitration.
(a)Any disputes, claims or controversies arising out of or relating to this Agreement, the provision of services by Managing Agent pursuant to this Agreement or the transactions contemplated hereby, including any disputes, claims or controversies brought by or on behalf of Company, any Owner, Parent, Managing Agent or any holder of equity interests (which, for purposes of this Section 21, shall mean any holder of record or any beneficial owner of equity interests or any former holder of record or beneficial owner of equity interests) of Company, any Owner, Parent or Managing Agent, either on his, her or its own behalf, on behalf of Company, any Owner, Parent or Managing Agent or on behalf of any series or class of equity interests of Company, any Owner, Parent or Managing Agent or holders of any equity interests of Company, any Owner, Parent or Managing Agent against Company, any Owner, Parent or Managing Agent or any of their respective trustees, directors, members, officers, managers (including Managing Agent or its successor), agents or employees, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement or the governing documents of Company, any Owner, Parent or Managing Agent (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes shall, on the demand of any party to such Dispute or Disputes, be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 21. For the avoidance of doubt, Disputes are intended to include derivative actions against the trustees, directors, officers or managers of Company, any Owner, Parent or Managing Agent and class actions by a holder of equity interests against those individuals or entities and Company, any Owner, Parent or Managing Agent. For the avoidance of doubt, and not as a limitation, a Dispute shall include a Dispute made derivatively on behalf of one party against another party. For purposes of this Section 21, the term “equity interest” shall mean, (i) in respect of the Company, shares of beneficial interest of the Company, (ii) in respect of any other Owner, equity interests in that Owner, (iii) in respect of Managing Agent, “membership interest” in Managing Agent as defined in the Maryland Limited Liability Companies Act and (iv) in respect of Parent, shares of capital stock of Parent.
(b)There shall be three (3) arbitrators. If there are only two (2) parties to the Dispute, each party shall select one (1) arbitrator within fifteen (15) days after receipt by respondent of a copy of the demand for arbitration. The arbitrators may be affiliated or interested persons of the parties. The arbitrators may be affiliated or interested persons of the parties. If there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one (1) arbitrator within fifteen (15) days after receipt of the demand for arbitration. The arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be. If either a claimant (or all claimants) or a respondent (or all respondents) fail(s) to timely select an arbitrator then the party (or parties) who has selected an arbitrator may request AAA to
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provide a list of three (3) proposed arbitrators in accordance with the Rules (each of whom shall be neutral, impartial and unaffiliated with any party) and the party (or parties) that failed to timely appoint an arbitrator shall have ten (10) days from the date AAA provides the list to select one (1) of the three (3) arbitrators proposed by AAA. If the party (or parties) fail(s) to select the second (2nd) arbitrator by that time, the party (or parties) who have appointed the first (1st) arbitrator shall then have ten (10) days to select one (1) of the three (3) arbitrators proposed by AAA to be the second (2nd) arbitrator; and, if he/they should fail to select the second (2nd) arbitrator by such time, AAA shall select, within fifteen (15) days thereafter, one (1) of the three (3) arbitrators it had proposed as the second (2nd) arbitrator. The two (2) arbitrators so appointed shall jointly appoint the third (3rd) and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within fifteen (15) days of the appointment of the second (2nd) arbitrator. If the third (3rd) arbitrator has not been appointed within the time limit specified herein, then AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.
(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.
(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators. For the avoidance of doubt, it is intended that there shall be no depositions and no other discovery other than limited documentary discovery as described in the preceding sentence.
(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the State of Maryland without regard to principles of conflicts of law. Any arbitration proceedings or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq. The Award shall be in writing and shall state the findings of fact and conclusions of law on which it is based. Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset. Subject to Section 21(g), each party against which the Award assesses a monetary obligation shall pay that obligation on or before the thirtieth (30th) day following the date of the Award or such other date as the Award may provide.
(f)Except to the extent expressly provided by this Agreement or as otherwise agreed by the parties thereto, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of the Company’s, Parent’s or Managing Agent’s, as applicable, award to the claimant or the claimant’s attorneys. Each party (or, if there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and
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expenses of its (or their) selected arbitrator and the parties (or, if there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third (3rd) appointed arbitrator.
(g)Notwithstanding any language to the contrary in this Agreement, the Award, including but not limited to, any interim Award, may be appealed pursuant to the AAA’s Optional Appellate Arbitration Rules (“Appellate Rules”). The Award shall not be considered final until after the time for filing the notice of appeal pursuant to the Appellate Rules has expired. Appeals must be initiated within thirty (30) days of receipt of the Award by filing a notice of appeal with any AAA office. Following the appeal process, the decision rendered by the appeal tribunal may be entered in any court having jurisdiction thereof. For the avoidance of doubt, and despite any contrary provision of the Appellate Rules, Section 21(f) hereof shall apply to any appeal pursuant to this Section and the appeal tribunal shall not render an award that would include shifting of any costs or expenses (including attorneys’ fees) of any party.
(h)Following the expiration of the time for filing the notice of appeal, or the conclusion of the appeal process set forth in Section 21(g), the Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between those parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators. Judgment upon the Award may be entered in any court having jurisdiction. To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.
(i)This Section 21 is intended to benefit and be enforceable by the Company, Owners, Managing Agent, Parent and their respective holders of equity interests, trustees, directors, officers, managers (including Managing Agent or its successor), agents or employees, and their respective successors and assigns and shall be binding upon the Company, Owners, Managing Agent, Parent and their respective holders of equity interests, and be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.
22.Consent to Jurisdiction and Forum. The exclusive jurisdiction and venue in any action brought by any party hereto pursuant to this Agreement shall lie in any federal or state court located in Baltimore, Maryland. By execution and delivery of this Agreement, each party hereto irrevocably submits to the jurisdiction of such courts for itself and in respect of its property with respect to such action. The parties irrevocably agree that venue would be proper in such court, and hereby waive any objection that such court is an improper or inconvenient forum for the resolution of such action. The parties further agree and consent to the service of any process required by any such court by delivery of a copy thereof in accordance with Section 11
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and that any such delivery shall constitute valid and lawful service of process against it, without necessity for service by any other means provided by statute or rule of court. EACH PARTY HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE PROVISION OF SERVICES BY MANAGING AGENT PURSUANT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Notwithstanding anything herein to the contrary, if a demand for arbitration of a Dispute is made pursuant to Section 21, this Section 22 shall not pre-empt resolution of the Dispute pursuant to Section 21.
23.Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes any pre-existing agreements with respect to such subject matter.
24.Other Agreements. The Company and Managing Agent are also parties to a Business Management Agreement, dated as of the date hereof, as in effect from time to time (the “Business Management Agreement”). The parties agree that this Agreement does not include or otherwise address the rights and obligations of the parties under the Business Management Agreement and that the Business Management Agreement provides for its own separate rights and obligations of the parties thereto, including, without limitation separate compensation payable by the Company to Managing Agent thereunder for services to be provided by the Managing Agent pursuant to the Business Management Agreement.
[Signature Page To Follow.]
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IN WITNESS WHEREOF, the parties hereto have executed this Third Amended and Restated Property Management Agreement as a sealed instrument as of the date above first written.
MANAGING AGENT:
THE RMR GROUP LLC
By: /s/ Matthew P. Jordan
Name: Matthew P. Jordan
Title: Executive Vice President, Chief Financial Officer and Treasurer
OWNERS:
DIVERSIFIED HEALTHCARE TRUST, on its
own behalf and on behalf of its subsidiaries
By: /s/ Jennifer F. Francis
Name: Jennifer F. Francis
Title: President and Chief Executive Officer
SOLELY IN RESPECT OF
SECTION 21, PARENT:
THE RMR GROUP INC.
By: /s/ Matthew P. Jordan
Name: Matthew P. Jordan
Title: Executive Vice President, Chief Financial Officer and Treasurer
[Signature Page to Third Amended and Restated Property Management Agreement]


Exhibit A
Definitions
The following definitions shall be applied to the terms used in the Agreement for all purposes, unless otherwise clearly indicated to the contrary. All capitalized terms used in this Exhibit A but not defined in this Exhibit A shall have the respective meanings given to those terms in the Agreement. Unless otherwise noted, all section references in this Exhibit A refer to sections in the Agreement.
(1)    “Affiliate” shall mean, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, the first Person.
(2)    “Cause” shall mean: (i) Managing Agent engages in any act that constitutes bad faith, fraud, willful misconduct or gross negligence in the performance of its obligations under this Agreement; (ii) a default by Managing Agent in the performance or observance of any material term, condition or covenant contained in this Agreement to be performed by Managing Agent, the consequence of which is a Material Adverse Effect; (iii) Managing Agent is convicted of a felony; (iv) any executive officer or senior manager of Managing Agent is convicted of a felony or other crime, whether or not a felony, involving his or her duties as an employee of Managing Agent and who is not promptly discharged and any actual loss suffered by the Company as a result of such felony or crime is not promptly reimbursed; (v) any involuntary proceeding is commenced against Managing Agent seeking liquidation, reorganization or other relief with respect to Managing Agent or its debts under bankruptcy, insolvency or similar law and such proceeding is not dismissed in one hundred twenty (120) days; or (vi) Managing Agent authorizes the commencement of a voluntary proceeding seeking liquidation, reorganization or other relief with respect to Managing Agent or its debts under bankruptcy, insolvency or similar law or the appointment of a trustee, receiver, liquidator, custodian or similar official of Managing Agent or any substantial part of its property.
(3)    “Charitable Organization” shall mean an organization that is described in section 501(c)(3) of the Code (or any corresponding provision of a future United States Internal Revenue law) which is exempt from income taxation under section 501(a) thereof.
(4)    “Continuing Parent Directors” shall mean, as of any date of determination, any member of the Board of Directors of Parent, who was (i) a member of the Board of Directors of Parent as of the date of this Agreement or (ii) nominated for election or elected to the Board of Directors of Parent by, or whose election to the Board of Directors of Parent was made or approved by, (x) the affirmative vote of a majority of Continuing Parent Directors who were members of the Board of Directors of Parent at the time of such nomination or election (and not including a director whose initial assumption of office is in connection with an actual or threatened contested solicitation, including, without limitation, a consent or proxy solicitation, relating to the election of directors of Parent or an unsolicited tender offer or exchange offer for Parent’s voting securities) or (y) so long as Parent is Controlled by one or both Founders, by one or both Founders.
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(5)    “Control” of an entity, shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities, by contract or otherwise and the participles “Controls” and “Controlled” have parallel meanings.
(6)    “Covered Termination” shall mean a Termination for Convenience, a Termination for Performance or a termination by Managing Agent pursuant to Section 7(b).
(7)    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
(8)    “Founder” shall mean each of Barry M. Portnoy and Adam D. Portnoy.
(9)    “Good Reason” shall mean: (i) a default by the Company in the performance or observance of any material term, condition or covenant contained in this Agreement to be performed by the Company, the consequence of which was materially adverse to Managing Agent and which did not result from and was not attributable to any action, or failure to act, of Managing Agent, and such default shall continue for a period of sixty (60) days (or ninety (90) days if the Company takes steps to cure such default within thirty (30) days of written notice to the Company) after written notice thereof by Managing Agent specifying such default and requesting that the same be remedied in such sixty (60) day period; (ii) the Company materially reduces the duties and responsibilities historically performed by Managing Agent or materially reduces the scope of the authority of Managing Agent as historically exercised by Managing Agent under this Agreement, including, without limitation, the Company appoints or engages a Person or personnel to perform material services historically provided by Managing Agent or its personnel; or (iii) the consummation of any direct or indirect sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company (including securities of the Company’s subsidiaries) on a consolidated basis, other than a sale, lease, transfer, conveyance or other disposition to a subsidiary of the Company Controlled by the Company, an RMR Managed Company or another entity to which Managing Agent has agreed to provide management services.
(10)    “Immediate Family Member” as used to indicate a relationship with any individual, shall mean (x) any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and any other individual (other than a tenant or employee), which individual is sharing the household of that individual or (y) a trust, the beneficiaries of which are the individual and/or any Immediate Family Member of such individual.
(11)    “Law” means any law, statute, ordinance, rule, regulation, directive, code or order enacted, issued, promulgated, enforced or entered by any governmental entity.
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(12)    “Managing Agent Change of Control” shall be deemed to have occurred upon any of the following events:
(i)    any “person” or “group” (as such terms are used in Sections 13(d) of the Exchange Act), other than a Permitted Managing Agent Transferee or a Person to whom Managing Agent would be permitted to assign this Agreement pursuant to Section 24 of this Agreement, becomes the “beneficial owner” (as defined in Rule 13d-3 and Rule 13d-5 promulgated under the Exchange Act, except that any person shall be deemed to beneficially own securities such person has a right to acquire whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of fifty percent (50%) or more of the then outstanding voting power of the voting securities of Managing Agent and/or Parent, as applicable;
(ii)    the consummation of any direct or indirect sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of Managing Agent (including securities of Managing Agent's subsidiaries) on a consolidated basis, except the transfer of outstanding voting power of the voting securities of Managing Agent or Parent to a Permitted Managing Agent Transferee or if the transaction constitutes a permissible assignment under Section 9 of this Agreement; or
(iii)    at any time, the Continuing Parent Directors cease for any reason to constitute the majority of the Board of Directors of Parent;
provided, however, that if Managing Agent is no longer a subsidiary of Parent as a result of a transaction not constituting a Managing Agent Change of Control, then a Managing Agent Change of Control shall be deemed to have occurred upon any of the foregoing events that affect Managing Agent only (and no Managing Agent Change of Control shall be deemed to have occurred if such event affects Parent).
(13)    “Material Adverse Effect” means any fact, circumstance, event, change, effect or occurrence that, individually or in the aggregate with all other facts, circumstances, events, changes, effects and occurrences, has had a material adverse effect on the business, results of operations or financial condition of the Company and its subsidiaries, taken as a whole, but will not include facts, circumstances, events, changes, effects or occurrences to the extent attributable to: (i) any changes in general United States or global economic conditions; (ii) any changes in conditions generally affecting any of the industry(ies) in which the Company and its subsidiaries operate; (iii) any Performance Reason or any decline in the market price, credit rating or trading volume of the Company’s securities (it being understood that the facts or occurrences giving rise to or contributing to such Performance Reason or decline may be taken into account in determining whether there has been a Material Adverse Effect); (iv) regulatory, legislative or political conditions or securities, credit, financial or other capital markets conditions, in each case in the United States or any foreign jurisdiction; (v) any failure by the Company to meet any internal or published projections, forecasts, estimates or predictions in respect of revenues, earnings or other financial or operating metrics for any period (it being understood that the facts or occurrences giving rise to or contributing to such failure may be taken into account in
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determining whether there has been a Material Adverse Effect); (vi) any actions that were not recommended by Managing Agent that are approved by the Independent Trustees, as defined in the Company’s Bylaws, as in effect from time to time, or the consequences thereof; (vii) any change in applicable Law or United States generally accepted accounting principles (or authoritative interpretations thereof); (viii) geopolitical conditions, the outbreak or escalation of hostilities, any acts of war, sabotage or terrorism; or (ix) any hurricane, tornado, flood, earthquake or other natural disaster.
(14)    “Monthly Future Fee” shall mean (i) the sum of the total Fee, the total Construction Supervision Fee and the total Major Renovation Fee earned by Managing Agent under this Agreement for the twelve (12)-month period immediately preceding the effective date of a Covered Termination, divided by (ii) twelve (12), and rounded upward to the nearest whole number.
If there is a Covered Termination following a merger between the Company and another real estate investment trust to which Managing Agent is providing property management services (an “RMR Managed Company”), the Monthly Future Fee shall be calculated by reference to the sum of (i) the aggregate of the total Fee paid by the Company to Managing Agent and the total similar fee payable by the other RMR Managed Company to Managing Agent for the applicable period, (ii) the aggregate of the total Construction Supervision Fee payable by the Company to Managing Agent and the total construction supervision fee payable by the other RMR Managed Company to Managing Agent for the applicable period and (iii) the aggregate of the total Major Renovation Fee payable by the Company to Managing Agent and the total renovation fee, if applicable, payable by the other RMR Managed Company to Managing Agent for the applicable period.
If there is a Covered Termination following the spin-off of a subsidiary of the Company (by sale in whole or part to the public or distribution to the Company’s shareholders) to which the Company contributed properties (the “Contributed Properties”) and which was an RMR Managed Company both at the time of the spin-off and on the date of the Covered Termination, in determining the Monthly Future Fee, if any portion of the period with respect to which the Monthly Future Fee is calculated is prior to the spin-off, the monthly installments of the Fee shall be reduced to the extent they are based upon the gross collected rents of the Contributed Properties for such period, the monthly installments of the Construction Supervision Fees shall be reduced to the extent they are based upon the construction renovation or repair activities at the Contributed Properties for such period and the monthly installments of the Major Renovation Fees shall be reduced to the extent they are based upon the major renovation or repositioning activities at the Contributed Properties for such period.
(15)    “Parent” shall mean The RMR Group Inc., a Maryland corporation.
(16)    “Performance Reason” shall mean, for any period of three (3) consecutive calendar years beginning with the 2016 calendar year: (i) for each calendar year in such period, the TSR of the Company is less than (A) the percentage total shareholder return of the SNL Index (as defined in the Business Management Agreement) for the year, minus (B) five percent (5%) (for illustrative purposes and the avoidance of doubt, if the percentage total shareholder
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return of the SNL Index for a year is positive fifteen percent (15%), the TSR for the year must be less than ten percent (10%) in the same year to count as one of the three (3) consecutive years that may be included within a Performance Reason), and (ii) for each calendar year in such period, the TSR of the Company is less than the TSR (determined for each company separately) of sixty-six percent (66%) of the member companies in the SNL Index (for illustrative purposes and the avoidance of doubt, if there are ninety (90) member companies in the SNL Index, the Company’s TSR for a year must be less than the TSR of sixty (60) member companies in the SNL Index). For purposes of the calculation of TSR and percentage total shareholder return of the SNL Index in clauses (i) and (ii) of the preceding sentence, each such calendar year shall be treated as a measurement period (a “Measurement Period”).
(17)    “Permitted Managing Agent Transferee” shall mean: (A) Parent or any of its Controlled subsidiaries; (B) any employee benefit plan of Managing Agent, Parent or any of their respective Controlled subsidiaries; (C) any Founder or any of a Founder’s lineal descendants; (D) any Immediate Family Member of a Founder or any of an Immediate Family Member’s lineal descendants; (E) any Qualifying Employee, any Immediate Family Member of a Qualifying Employee or any of the Qualifying Employee’s or Immediate Family Member’s lineal descendants; (F) a Person described in clause (C), (D) or (E) to whom securities are transferred by will or pursuant to the laws of descent and distribution by a Person described in clause (C), (D) or (E) of this definition; (G) any entity Controlled by any Person or Persons described in clause (B), (C), (D), (E) or (F) of this definition; (H) a Charitable Organization Controlled by any Person or Persons described in clause (C), (D), (E) or (F) of this definition; (I) an entity owned, directly or indirectly, by shareholders (or equivalent) of Managing Agent or Parent in substantially the same proportions as their ownership of Managing Agent or Parent, as applicable, immediately prior to the acquisition of beneficial ownership; (J) any Person approved by the Company in writing; or (K) an underwriter temporarily holding securities of Managing Agent or Parent, as applicable, pursuant to an offering of such securities; provided, however, that “lineal descendants” shall not include Persons adopted after attaining the age of eighteen (18) years and any such adopted Person’s descendants, and further provided that any subsidiary described in clause (A) or (B), any entity described in clause (G) and Charitable Organization described in clause (H), shall only be a Permitted Managing Agent Transferee so long as it remains Controlled as provided in clause (A), (B), (G) or (H).
(18)    “Person” shall mean an individual or any corporation, partnership, limited liability company, trust, unincorporated organization, association, joint venture or any other organization or entity, whether or not a legal entity.
(19)     “Qualifying Employee” means any employee of Managing Agent or Parent or any of their respective subsidiaries who is and has been an employee of Managing Agent or Parent or any of their respective subsidiaries for at least thirty-six (36) months.
(20)    “Remaining Term” shall mean the remaining period in the term of this Agreement had the Agreement not been terminated (rounded to nearest month), up to a maximum of twenty (20) years.
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(21)    “Treasury Rate” shall mean, for the calculation of the present value of a Monthly Future Fee, the arithmetic mean of the yields under the heading “Week Ending” published in the most recent Federal Reserve Statistical Release H.15 under the caption “Treasury Constant Maturities” for the maturity corresponding to the date that is the thirtieth (30th) day after the end of the month for which the Monthly Future Fee is assumed to be payable. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such period shall be calculated pursuant to the immediately preceding sentence and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For purposes of calculating the applicable Treasury Rates, the most recent Federal Reserve Statistical Release H.15 (or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities) published prior to the required date of payment of the Termination Fee will be used. If such statistical release is not published at the time of any determination under this Agreement, then any publicly available source of similar market data which shall be selected by Managing Agent, will be used.
(22)    “TSR” of a company shall be determined by (i) subtracting, for the relevant Measurement Period, (A) the closing price of the common shares of the company on the principal national securities exchange (as defined in the Exchange Act) on which the shares are traded, on the last trading day immediately prior to the beginning of the Measurement Period (the “Initial Price”) from (B) the sum of the average closing price of the common shares on the ten (10) consecutive trading days having the highest average closing prices during the final thirty (30) trading days of the Measurement Period, plus the aggregate amount of dividends declared in respect of a common share during the Measurement Period, and (ii) dividing the result by the Initial Price.
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Exhibit 10.2
THIRD AMENDED AND RESTATED PROPERTY MANAGEMENT AGREEMENT
THIS THIRD AMENDED AND RESTATED PROPERTY MANAGEMENT AGREEMENT (this “Agreement”) is made and entered into as of June 22, 2021, by and among The RMR Group LLC, a Maryland limited liability company (“Managing Agent”), and Service Properties Trust, a Maryland real estate investment trust (the “Company”), on behalf of itself and those of its subsidiaries as may from time to time own properties subject to this Agreement (each, an “Owner” and, collectively, “Owners”).
W I T N E S S E T H:
WHEREAS, Owners and Managing Agent are parties to a Second Amended and Restated Property Management Agreement, dated as of June 5, 2015 (as so amended, the “Original Agreement”), pursuant to which Owners have engaged Managing Agent to manage certain of their properties as described therein; and
WHEREAS, Owners and Managing Agent wish to continue the Original Agreement in force and effect with respect to services performed and fees due with respect to such services, on and prior to the date of this Agreement, but wish to amend and restate the Original Agreement as hereinafter provided, effective with respect to services performed and fees due with respect to such services after the date of this Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements herein contained, Owners and Managing Agent hereby agree that the Original Agreement is hereby amended and restated to read in its entirety as follows:
1.Engagement.
(a)Subject to the terms and conditions hereinafter set forth, Owners hereby continue to engage Managing Agent to provide the property management and administrative services with respect to the Managed Premises as contemplated by this Agreement. Managing Agent hereby accepts such continued engagement as managing agent and agrees to devote such time, attention and effort as may be appropriate to operate and manage the Managed Premises in a diligent, orderly and efficient manner.
As used in this Agreement, “Managed Premises” shall mean all properties of Owners that Owners shall from time to time designate as subject to this Agreement, including certain of Owners’ office properties and net lease service retail properties.
(b)Managing Agent may subcontract out some or all of its obligations under this Agreement to third parties; provided, however, that, in any such event, Managing Agent shall be and remain primarily liable to Owners for performance hereunder.
(c)Notwithstanding anything to the contrary set forth in this Agreement, the services to be provided by Managing Agent hereunder shall exclude all services (including, without limitation, any garage management or cafeteria management services)


whose performance by a manager to any Owner could give rise to an Owner’s receipt of “impermissible tenant service income” as defined in §856(d)(7) of the Internal Revenue Code of 1986 (as amended or superseded hereafter, the “Code”) or could in any other way jeopardize an Owner’s federal or state tax qualification as a real estate investment trust.
2.General Parameters. Any or all services may be performed or goods purchased by Managing Agent under arrangements jointly with or for other properties owned or managed by Managing Agent and the costs shall be reasonably apportioned. Managing Agent may employ personnel who are assigned to work exclusively at the Managed Premises or partly at the Managed Premises and other properties owned and/or managed by Managing Agent. Wages, benefits and other related costs of centralized accounting personnel and employees employed by Managing Agent and assigned to work exclusively or partly at the Managed Premises shall be fairly apportioned and reimbursed, pro rata, by Owners in addition to the Fee, Construction Supervision Fee and Major Renovation Fee (each as defined in Section 6).
3.Duties. Without limitation, Managing Agent agrees to perform the following specific duties:
(a)To seek tenants for the Managed Premises in accordance with market rents and to negotiate leases, including renewals thereof, and to lease space to tenants, at rentals, and for periods of occupancy all on market terms. To employ appropriate means in order that the availability of rental space is made known to potential tenants, including, but not limited to, the employment of brokers. The brokerage and legal expenses of negotiating such leases and leasing such space shall be paid by the applicable Owner.
(b)To collect all rents and other income from the Managed Premises and to give receipts therefor, both on behalf of Owners, and deposit such funds in such banks and such accounts as are named, from time to time, by Owners, in agency accounts for and under the name of Owners. Managing Agent shall be empowered to sign disbursement checks on these accounts. Managing Agent may also use pooled bank accounts for the benefit of Owners and other owners for whom the Managing Agent provides services, provided separate records and accountings of such funds are maintained.
(c)To make contracts for and to supervise any repairs and/or alterations to the Managed Premises, including tenant improvements on reasonable commercial terms.
(d)For Owners’ account and at its expense, to hire, supervise and discharge employees as required for the efficient operation and maintenance of the Managed Premises.
(e)To obtain, at Owners’ expense, appropriate insurance for the Managed Premises protecting Owners and Managing Agent while acting on behalf of Owners against all normally insurable risks relating to the Managed Premises and complying with the requirements of Owners’ mortgagee, if any, and to cause the same to be provided and
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maintained by all tenants with respect to the Managed Premises to the extent required by the terms of such tenants’ leases. Notwithstanding the foregoing, Owners may determine to purchase insurance directly for their own account.
(f)To promptly notify the applicable Owner’s insurance carriers, as required by the applicable policies, of any casualty or injury to person or property at the Managed Premises, and complete customary reports in connection therewith.
(g)To procure all supplies, other materials and services as may be necessary for the proper operation of the Managed Premises, at Owners’ expense.
(h)To pay promptly from rental receipts, other income derived from the Managed Premises, or other monies made available by Owners for such purpose, all costs incurred in the operation of the Managed Premises which are expenses of Owners hereunder, including wages or other payments for services rendered, invoices for supplies or other items furnished in relation to the Managed Premises, and pay over forthwith the balance of such rental receipts, income and monies to Owners or as Owners shall from time to time direct. In the event that the sum of the expenses to operate and the compensation due Managing Agent exceeds gross receipts in any month and no excess funds from prior months are available for payment of such excess, Owners shall pay promptly the amount of the deficiency thereof to Managing Agent upon receipt of statements therefor.
(i)To keep Owners apprised of any material developments in the operation of the Managed Premises.
(j)To establish reasonable rules and regulations for tenants of the Managed Premises.
(k)On behalf of and in the name of Owner, to institute or defend, as the case may be, any and all legal actions or proceedings relating to the operation of the Managed Premises.
(l)To maintain the books and records of Owners reflecting the management and operation of the Managed Premises, making available for reasonable inspection and examination by Owners or their representatives all books, records and other financial data relating to the Managed Premises at the place where the same are maintained.
(m)To prepare and deliver seasonably to tenants of the Managed Premises such statements of expenses or other information as shall be required on the landlord’s part to be delivered to such tenants for computation of rent, additional rent, or any other reason.
(n)To aid, assist and cooperate with Owners in matters relating to taxes and assessments and insurance loss adjustments, notify Owners of any tax increase or special
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assessments relating to the Managed Premises and to enter into contracts for tax abatements services.
(o)To provide such emergency services as may be required for the efficient management and operation of the Managed Premises on a twenty-four (24)-hour basis.
(p)To enter into contracts on commercially reasonable terms for utilities (including, without limitation, water, fuel, electricity and telephone) and for building services (including, without limitation, cleaning of windows, common areas and tenant space, ash, rubbish and garbage hauling, snow plowing, landscaping, carpet cleaning and vermin extermination), and for other services as are appropriate to the Managed Premises.
(q)To seek market terms for all items purchased or services contracted by it under this Agreement.
(r)To take such action generally consistent with the provisions of this Agreement as Owners might with respect to the Managed Premises if personally present.
(s)To, from time to time, or at any time requested by the Board of Trustees of the Company (the “Trustees”), make reports of its performance of the foregoing services to the Company.
In addition, with respect to certain hotel properties owned by Owners and managed by third party operators, including, but not limited to, Sonesta International Hotels Corporation, if requested by Owners, Manager shall oversee major capital projects and repositionings as requested by Owners from time to time (“Major Hotel Capital Projects”).
4.Authority. Owners give to Managing Agent the authority and powers to perform the foregoing duties on behalf of Owners and authorize Managing Agent to incur such reasonable expenses, as contemplated in Sections 2, 3 and 5 on behalf of Owners as are necessary in the performance of those duties.
5.Special Authority of Managing Agent. In addition to, and not in limitation of, the duties and authority of Managing Agent contained herein, Managing Agent shall perform the following duties:
(a)Terminate tenancies and sign and serve in the name of Owners such notices therefor as may be required for the proper management of the Managed Premises.
(b)At Owners’ expense, institute and prosecute actions to evict tenants and recover possession of rental space, and recover rents and other sums due; and when expedient, settle, compromise and release such actions or suits or reinstate such tenancies.
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6.Compensation.
(a)In consideration of the services to be rendered by Managing Agent hereunder, Owners agree to pay and Managing Agent agrees to accept as its compensation (i) a management fee (the “Fee”) equal to three percent (3%) of the gross collected rents actually received by Owners from the Managed Premises, such gross rents to include all fixed rents, percentage rents, additional rents, operating expense and tax escalations, and any other charges paid to Owners in connection with occupancy of the Managed Premises, but excluding any amounts collected from tenants to reimburse Owners for the cost of capital improvements or for expenses incurred in curing any tenant default or in enforcing any remedy against any tenant; (ii) a construction supervision fee (the “Construction Supervision Fee”) in connection with all interior and exterior construction renovation or repair activities at the Managed Premises, including, without limitation, all tenant and capital improvements in, on or about the Managed Premises, undertaken during the term of this Agreement, other than ordinary maintenance and repair, equal to five percent (5%) of the cost of such construction which shall include the costs of all related professional services and the cost of general conditions; and (iii) a renovation and repositioning fee (the “Major Renovation Fee”) in connection with all Major Hotel Capital Projects equal to three percent (3%) of the cost of such Major Hotel Capital Projects which shall include the costs of all related professional services and the cost of general conditions.
(b)Unless otherwise agreed, the Fee shall be due and payable monthly, in arrears based on a reasonable annual estimate or budget with an annual reconciliation within thirty (30) days after the end of each calendar year. The Construction Supervision Fee and the Major Renovation Fee shall each be due and payable periodically, as agreed by Managing Agent and Owners, based on actual costs incurred to date.
(c)Notwithstanding anything herein to the contrary, Owners shall reimburse Managing Agent for reasonable travel expenses incurred when traveling to and from the Managed Premises while performing its duties in accordance with this Agreement; provided, however, that reasonable travel expenses shall not include expenses incurred for travel to and from the Managed Premises by personnel assigned to work exclusively at the Managed Premises.
(d)Managing Agent shall be entitled to no other additional compensation, whether in the form of commission, bonus or the like for its services under this Agreement. Except as otherwise specifically provided herein with respect to payment by Owners of legal fees, accounting fees, salaries, wages, fees and charges of parties hired by Managing Agent on behalf of Owners to perform operating and maintenance functions in the Managed Premises, and the like, if Managing Agent hires third parties to perform services required to be performed hereunder by Managing Agent without additional charge to Owners, Managing Agent shall (except to the extent the same are reasonably attributable to an emergency at the Managed Premises) be responsible for the charges of such third parties.
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7.Term of Agreement. This Agreement shall continue in force and effect until December 31, 2041, and, on December 31 of each year after the effective date of this Agreement (each, an “Extension Date”), the term of this Agreement shall be automatically extended an additional year so that the term of this Agreement thereafter ends on the twentieth anniversary of such Extension Date.
Notwithstanding any other provision of this Agreement to the contrary, this Agreement, or any extension thereof, may be terminated prior to the expiration of the term:
(a)by the Company (on behalf of itself and Owners), (i) upon sixty (60) days’ prior written notice to Managing Agent (such termination, a “Termination for Convenience”), (ii) for Cause, immediately upon written notice to Managing Agent (such termination, a “Termination for Cause”), (iii) for a Performance Reason, upon written notice to Managing Agent given within sixty (60) days after the end of the calendar year giving rise to such Performance Reason (such termination, a “Termination for Performance”), or (iv) by written notice at any time during the twelve (12) month period immediately following the date a Managing Agent Change of Control occurred; or
(b)by Managing Agent, for Good Reason, upon sixty (60) days’ prior written notice to the Company (or ninety (90) days if the Company takes steps to cure any relevant default within thirty (30) days of written notice to the Company).
Any notice of termination shall include the reason for such termination.
In the event of a Termination for Convenience by the Company or a termination by Managing Agent pursuant to Section 7(b), the Company shall pay Managing Agent an amount in cash (the “Full Termination Fee”) equal to the sum of the present values of Monthly Future Fees payable for the Remaining Term, determined by assuming that a Monthly Future Fee is payable for each month in the Remaining Term on the thirtieth (30th) day after the end of that month and calculating for each Monthly Future Fee the present value of that fee by applying a discount rate to that fee equal to one-twelfth (1/12) the sum of the applicable Treasury Rate plus 300 basis points, with monthly periods for discounting.
In the event of a Termination for Performance, the Company shall pay Managing Agent an amount in cash (the “Performance Termination Fee”) equal to the sum of the present values of Monthly Future Fees payable for the first one hundred twenty (120) months of the Remaining Term, determined by assuming that a Monthly Future Fee is payable for each of the first one hundred twenty (120) months in the Remaining Term on the thirtieth (30th) day after the end of that month and calculating for each Monthly Future Fee the present value of that fee by applying a discount rate to that fee equal to one-twelfth (1/12) the sum of the applicable Treasury Rate plus 300 basis points, with monthly periods for discounting. It is expressly understood and agreed that a Termination for Performance and payment of the Performance Termination Fee is the Company’s intended remedy for a Performance Reason.
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No Full Termination Fee or Performance Termination Fee shall be payable in the event of termination by the Company pursuant to Section 7(a)(ii) (Termination For Cause) or Section 7(a)(iv) (following a Managing Agent Change of Control).
The provisions of this Section 7 shall not apply as a limitation on the amount which may be paid by agreement of the Company and Managing Agent in connection with a transaction pursuant to which any assets or going business values of Managing Agent are acquired by the Company in association with termination of this Agreement and the Full Termination Fee or the Performance Termination Fee, as applicable, is in addition to any amounts otherwise payable to Managing Agent under this Agreement as compensation for services and for expenses of or reimbursement due to Managing Agent through the date of termination.
8. Termination. Upon termination of this Agreement with respect to any of the Managed Premises for any reason whatsoever, Managing Agent shall as soon as practicable turn over to Owners all books, papers, funds, records, keys and other items relating to the management and operation of such Managed Premises, including, without limitation, all leases in the possession of Managing Agent and shall render to Owners a final accounting with respect thereto through the date of termination. Owners shall be obligated to pay all compensation for services rendered by Managing Agent hereunder prior and up to the effective time of such termination, including, without limitation, any Fees, Construction Supervision Fees and Major Renovation Fees, as applicable, and shall pay and reimburse to Managing Agent all expenses and costs incurred by Managing Agent prior and up to the effective time of such termination which are otherwise payable or reimbursable to Managing Agent pursuant to the terms of this Agreement (collectively, “Accrued Fees”). The amount of such fees paid as compensation pursuant to the foregoing sentence shall be subject to adjustment in accordance with the annual reconciliation contemplated by Section 6(b) and consistent with past practices in performing such reconciliation.
A computation of all Accrued Fees and of the Termination Fee, if any, due upon termination shall be delivered by Managing Agent to the Company within thirty (30) days following the effective date of termination. The Accrued Fees and, to the extent applicable, the Full Termination Fee or Performance Termination Fee, due upon termination shall be payable within ten (10) business days following the delivery to the Company of such computation.
In addition to other actions on termination of this Agreement, for up to one hundred twenty (120) days following the date of notice of a termination of this Agreement, Managing Agent shall cooperate with the Company and the Owners and use commercially reasonable efforts to facilitate the orderly transfer of (i) management of the Managed Premises and (ii) Major Hotel Capital Projects. In connection therewith Managing Agent shall assign to the Company, to one or more Owners, or to their designee(s), as directed by the Company, and the Company, such Owner(s) or their designee(s) shall assume, all contracts entered into by Managing Agent pursuant to this Agreement, but excluding all insurance contracts, and multi-property contracts not limited in scope to the Managed Premises and all contracts with affiliates of Managing Agent. Managing Agent shall also transfer to the Company all proprietary information with respect to the Company and/or the Owners. Additionally, the Company, one or
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more Owners, or their designee(s) shall have the right to offer employment to any employee of Managing Agent whom Managing Agent proposes to terminate in connection with a Covered Termination and Managing Agent shall cooperate with the Company, such Owners, or their designee(s) in connection therewith.
9.Assignment of Rights and Obligations.
(a)Without Owners’ prior written consent, Managing Agent shall not sell, transfer, assign or otherwise dispose of or mortgage, hypothecate or otherwise encumber or permit or suffer any encumbrance of all or any part of its rights and obligations hereunder, and any transfer, encumbrance or other disposition of an interest herein made or attempted in violation of this paragraph shall be void and ineffective, and shall not be binding upon Owners. Notwithstanding the foregoing, Managing Agent may assign its rights and delegate its obligations under this Agreement to any subsidiary of Parent so long as such subsidiary is then and remains Controlled by Parent.
(b)Owners, without Managing Agent’s consent, may not assign their respective rights or delegate their respective obligations hereunder.
(c)Any assignment permitted hereunder shall not release the assignor hereunder.
10.Indemnification and Insurance.
(a)Owners agree to defend, indemnify and hold harmless Managing Agent from and against all costs, claims, expenses and liabilities (including reasonable attorneys’ fees) arising out of Managing Agent’s performance of its duties in accordance with this Agreement including, without limitation, injury or damage to persons or property occurring in, on or about the Managed Premises and violations or alleged violations of any law, ordinance, regulation or order of any governmental authority regarding the Managed Premises except any injury, damage or violation resulting from Managing Agent’s fraud, gross negligence or willful misconduct in the performance of its duties hereunder.
(b)Owners and Managing Agent shall maintain such commercially reasonable insurance as shall from time to time be mutually agreed by Owners and Managing Agent.
11.Notices. Any notice, report or other communication required or permitted to be given hereunder shall be in writing and shall be deemed given on the date of actual delivery, if delivered personally, or on the date of receipt, if sent by overnight courier (providing proof of delivery) to the parties or if sent by email of a .pdf attachment (providing confirmation of transmission) at the following street addresses or email addresses, as applicable (or at such other United States street address or email address for a party as shall be specified by like notice):
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If to the Company or the Owners:
Service Properties Trust
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts 02458
Attn: President
Email: jmurray@rmrgroup.com
Attn: Secretary
Email: jclark@rmrgroup.com
        with copies (which shall not constitute notice) to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attn: Lindsey A. Getz
Email: lgetz@sullivanlaw.com
If to Managing Agent:
The RMR Group LLC
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts 02458
Attn: Chief Financial Officer and Treasurer
Email: mjordan@rmrgroup.com
        with copies (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
920 N. King Street
Wilmington, Delaware 19801
Attn: Faiz Ahmad
Email: faiz.ahmad@skadden.com
12.Limitation of Liability. The Declarations of Trust establishing certain Owners, a copy of each, together with all amendments thereto (the “Declarations”), are duly filed with the State Department of Assessments and Taxation of Maryland, provide that the names of such Owners refers to the trustees under such Declarations collectively as trustees, but not individually or personally. No trustee, officer, shareholder, employee or agent of such Owners shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, such Owners. All persons and entities dealing with such Owners, in any way, shall look only to the respective assets of such Owners for the payment of any sum or the performance of any obligation of such Owners. In any event, all liability of such Owners hereunder is limited to the
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interest of such Owners in the Managed Premises and, in the case of Managing Agent, to its interest hereunder.
13.Acquisitions and Dispositions of Properties. Unless Owners and Managing Agent otherwise agree in writing, all properties from time to time acquired by Owners or their affiliates shall automatically become subject to this Agreement without amendment hereof. Similarly, this Agreement shall automatically terminate with respect to all properties disposed of by Owners in the ordinary course of business, effective upon such disposition.
14.Modification of Agreement. This Agreement may not be modified, altered or amended in any manner except by an amendment in writing, duly executed by the parties hereto.
15.Independent Contractor. This Agreement is not one of general agency by Managing Agent for Owners, but Managing Agent is being engaged as an independent contractor. Nothing in this Agreement is intended to create a joint venture, partnership, tenancy-in-common or other similar relationship between Owners and Managing Agent for any purposes whatsoever, and, without limiting the generality of the foregoing, neither the terms of this Agreement nor the fact that Owners and Managing Agent have joint interests in any one or more investments, ownership or other interests in any one or more entities or may have common officers or employees or a tenancy relationship shall be construed so as to make them such partners or joint venturers or impose any liability as such on either of them.
16.Governing Law. The provisions of this Agreement and any Dispute (as defined below), whether in contract, tort or otherwise, shall be governed by and construed in accordance with the laws of the State of Maryland without regard to principles of conflicts of law.
17.Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, any successors or permitted assigns of the parties hereto as provided herein.
18.No Third Party Beneficiary. Except as otherwise provided in Section 21(i), no person or entity other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.
19.Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.
20.Survival. Except for Sections 1 through 5 and Section 13, all other provisions of this Agreement shall survive the termination hereof. Any termination of this Agreement shall be without prejudice to the rights of the parties hereto accrued prior to the termination or upon termination.
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21.Arbitration.
(a)Any disputes, claims or controversies arising out of or relating to this Agreement, the provision of services by Managing Agent pursuant to this Agreement or the transactions contemplated hereby, including any disputes, claims or controversies brought by or on behalf of Company, any Owner, Parent, Managing Agent or any holder of equity interests (which, for purposes of this Section 21, shall mean any holder of record or any beneficial owner of equity interests or any former holder of record or beneficial owner of equity interests) of Company, any Owner, Parent or Managing Agent, either on his, her or its own behalf, on behalf of Company, any Owner, Parent or Managing Agent or on behalf of any series or class of equity interests of Company, any Owner, Parent or Managing Agent or holders of any equity interests of Company, any Owner, Parent or Managing Agent against Company, any Owner, Parent or Managing Agent or any of their respective trustees, directors, members, officers, managers (including Managing Agent or its successor), agents or employees, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement or the governing documents of Company, any Owner, Parent or Managing Agent (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes shall, on the demand of any party to such Dispute or Disputes, be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 21. For the avoidance of doubt, Disputes are intended to include derivative actions against the trustees, directors, officers or managers of Company, any Owner, Parent or Managing Agent and class actions by a holder of equity interests against those individuals or entities and Company, any Owner, Parent or Managing Agent. For the avoidance of doubt, and not as a limitation, a Dispute shall include a Dispute made derivatively on behalf of one party against another party. For purposes of this Section 21, the term “equity interest” shall mean, (i) in respect of the Company, shares of beneficial interest of the Company, (ii) in respect of any other Owner, equity interests in that Owner, (iii) in respect of Managing Agent, “membership interest” in Managing Agent as defined in the Maryland Limited Liability Companies Act and (iv) in respect of Parent, shares of capital stock of Parent.
(b)There shall be three (3) arbitrators. If there are only two (2) parties to the Dispute, each party shall select one (1) arbitrator within fifteen (15) days after receipt by respondent of a copy of the demand for arbitration. The arbitrators may be affiliated or interested persons of the parties. If there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one (1) arbitrator within fifteen (15) days after receipt of the demand for arbitration. The arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be. If either a claimant (or all claimants) or a respondent (or all respondents) fail(s) to timely select an arbitrator then the party (or parties) who has selected an arbitrator may request AAA to provide a list of three (3) proposed arbitrators in
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accordance with the Rules (each of whom shall be neutral, impartial and unaffiliated with any party) and the party (or parties) that failed to timely appoint an arbitrator shall have ten (10) days from the date AAA provides the list to select one (1) of the three (3) arbitrators proposed by AAA. If the party (or parties) fail(s) to select the second (2nd) arbitrator by that time, the party (or parties) who have appointed the first (1st) arbitrator shall then have ten (10) days to select one (1) of the three (3) arbitrators proposed by AAA to be the second (2nd) arbitrator; and, if he/they should fail to select the second (2nd) arbitrator by such time, AAA shall select, within fifteen (15) days thereafter, one (1) of the three (3) arbitrators it had proposed as the second (2nd) arbitrator. The two (2) arbitrators so appointed shall jointly appoint the third (3rd) and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within fifteen (15) days of the appointment of the second (2nd) arbitrator. If the third (3rd) arbitrator has not been appointed within the time limit specified herein, then AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.
(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.
(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators. For the avoidance of doubt, it is intended that there shall be no depositions and no other discovery other than limited documentary discovery as described in the preceding sentence.
(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the State of Maryland without regard to principles of conflicts of law. Any arbitration proceedings or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq. The Award shall be in writing and shall state the findings of fact and conclusions of law on which it is based. Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset. Subject to Section 21(g), each party against which the Award assesses a monetary obligation shall pay that obligation on or before the thirtieth (30th) day following the date of the Award or such other date as the Award may provide.
(f)Except to the extent expressly provided by this Agreement or as otherwise agreed by the parties thereto, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of the Company’s, Parent’s or Managing Agent’s, as applicable, award to the claimant or the claimant’s attorneys. Each party (or, if there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two
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(2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third (3rd) appointed arbitrator.
(g)Notwithstanding any language to the contrary in this Agreement, the Award, including but not limited to, any interim Award, may be appealed pursuant to the AAA’s Optional Appellate Arbitration Rules (“Appellate Rules”). The Award shall not be considered final until after the time for filing the notice of appeal pursuant to the Appellate Rules has expired. Appeals must be initiated within thirty (30) days of receipt of the Award by filing a notice of appeal with any AAA office. Following the appeal process, the decision rendered by the appeal tribunal may be entered in any court having jurisdiction thereof. For the avoidance of doubt, and despite any contrary provision of the Appellate Rules, Section 21(f) hereof shall apply to any appeal pursuant to this Section and the appeal tribunal shall not render an award that would include shifting of any costs or expenses (including attorneys’ fees) of any party.
(h)Following the expiration of the time for filing the notice of appeal, or the conclusion of the appeal process set forth in Section 21(g), the Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between those parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators. Judgment upon the Award may be entered in any court having jurisdiction. To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.
(i)This Section 21 is intended to benefit and be enforceable by the Company, Owners, Managing Agent, Parent and their respective holders of equity interests, trustees, directors, officers, managers (including Managing Agent or its successor), agents or employees, and their respective successors and assigns and shall be binding upon the Company, Owners, Managing Agent, Parent and their respective holders of equity interests, and be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.
22.Consent to Jurisdiction and Forum. The exclusive jurisdiction and venue in any action brought by any party hereto pursuant to this Agreement shall lie in any federal or state court located in Baltimore, Maryland. By execution and delivery of this Agreement, each party hereto irrevocably submits to the jurisdiction of such courts for itself and in respect of its property with respect to such action. The parties irrevocably agree that venue would be proper in such court, and hereby waive any objection that such court is an improper or inconvenient forum for the resolution of such action. The parties further agree and consent to the service of any process required by any such court by delivery of a copy thereof in accordance with Section 11 and that any such delivery shall constitute valid and lawful service of process against it, without
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necessity for service by any other means provided by statute or rule of court. EACH PARTY HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE PROVISION OF SERVICES BY MANAGING AGENT PURSUANT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Notwithstanding anything herein to the contrary, if a demand for arbitration of a Dispute is made pursuant to Section 21, this Section 22 shall not pre-empt resolution of the Dispute pursuant to Section 21.
23.Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes any pre-existing agreements with respect to such subject matter.
24.Other Agreements. The Company and Managing Agent are also parties to a Business Management Agreement, dated as of the date hereof, as in effect from time to time (the “Business Management Agreement”). The parties agree that this Agreement does not include or otherwise address the rights and obligations of the parties under the Business Management Agreement and that the Business Management Agreement provides for its own separate rights and obligations of the parties thereto, including without limitation separate compensation payable by the Company to Managing Agent thereunder for services to be provided by the Managing Agent pursuant to the Business Management Agreement.
[Signature Page To Follow.]
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IN WITNESS WHEREOF, the parties hereto have executed this Third Amended and Restated Property Management Agreement as a sealed instrument as of the date above first written.
MANAGING AGENT:
THE RMR GROUP LLC
By: /s/ Matthew P. Jordan
Name: Matthew P. Jordan
Title: Executive Vice President, Chief Financial Officer and Treasurer
OWNERS:
SERVICE PROPERTIES TRUST, on its
own behalf and on behalf of its subsidiaries
By:
/s/ John G. Murray
Name: John G. Murray
Title: Chief Executive Officer and President
SOLELY IN RESPECT OF
SECTION 21, PARENT:
THE RMR GROUP INC.
By: /s/ Matthew P. Jordan
Name: Matthew P. Jordan
Title: Executive Vice President, Chief Financial Officer and Treasurer
[Signature Page to Third Amended and Restated Property Management Agreement]


Exhibit A
Definitions
The following definitions shall be applied to the terms used in the Agreement for all purposes, unless otherwise clearly indicated to the contrary. All capitalized terms used in this Exhibit A but not defined in this Exhibit A shall have the respective meanings given to those terms in the Agreement. Unless otherwise noted, all section references in this Exhibit A refer to sections in the Agreement.
(1)    “Affiliate” shall mean, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, the first Person.
(2)    “Cause” shall mean: (i) Managing Agent engages in any act that constitutes bad faith, fraud, willful misconduct or gross negligence in the performance of its obligations under this Agreement; (ii) a default by Managing Agent in the performance or observance of any material term, condition or covenant contained in this Agreement to be performed by Managing Agent, the consequence of which is a Material Adverse Effect; (iii) Managing Agent is convicted of a felony; (iv) any executive officer or senior manager of Managing Agent is convicted of a felony or other crime, whether or not a felony, involving his or her duties as an employee of Managing Agent and who is not promptly discharged and any actual loss suffered by the Company as a result of such felony or crime is not promptly reimbursed; (v) any involuntary proceeding is commenced against Managing Agent seeking liquidation, reorganization or other relief with respect to Managing Agent or its debts under bankruptcy, insolvency or similar law and such proceeding is not dismissed in one hundred twenty (120) days; or (vi) Managing Agent authorizes the commencement of a voluntary proceeding seeking liquidation, reorganization or other relief with respect to Managing Agent or its debts under bankruptcy, insolvency or similar law or the appointment of a trustee, receiver, liquidator, custodian or similar official of Managing Agent or any substantial part of its property.
(3)    “Charitable Organization” shall mean an organization that is described in section 501(c)(3) of the Code (or any corresponding provision of a future United States Internal Revenue law) which is exempt from income taxation under section 501(a) thereof.
(4)    “Continuing Parent Directors” shall mean, as of any date of determination, any member of the Board of Directors of Parent, who was (i) a member of the Board of Directors of Parent as of the date of this Agreement or (ii) nominated for election or elected to the Board of Directors of Parent by, or whose election to the Board of Directors of Parent was made or approved by, (x) the affirmative vote of a majority of Continuing Parent Directors who were members of the Board of Directors of Parent at the time of such nomination or election (and not including a director whose initial assumption of office is in connection with an actual or threatened contested solicitation, including, without limitation, a consent or proxy solicitation, relating to the election of directors of Parent or an unsolicited tender offer or exchange offer for Parent’s voting securities) or (y) so long as Parent is Controlled by one or both Founders, by one or both Founders.
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(5)    “Control” of an entity, shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities, by contract or otherwise and the participles “Controls” and “Controlled” have parallel meanings.
(6)    “Covered Termination” shall mean a Termination for Convenience, a Termination for Performance or a termination by Managing Agent pursuant to Section 7(b).
(7)    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
(8)    “Founder” shall mean each of Barry M. Portnoy and Adam D. Portnoy.
(9)    “Good Reason” shall mean: (i) a default by the Company in the performance or observance of any material term, condition or covenant contained in this Agreement to be performed by the Company, the consequence of which was materially adverse to Managing Agent and which did not result from and was not attributable to any action, or failure to act, of Managing Agent, and such default shall continue for a period of sixty (60) days (or ninety (90) days if the Company takes steps to cure such default within thirty (30) days of written notice to the Company) after written notice thereof by Managing Agent specifying such default and requesting that the same be remedied in such sixty (60) day period; (ii) the Company materially reduces the duties and responsibilities historically performed by Managing Agent or materially reduces the scope of the authority of Managing Agent as historically exercised by Managing Agent under this Agreement, including, without limitation, the Company appoints or engages a Person or personnel to perform material services historically provided by Managing Agent or its personnel; or (iii) the consummation of any direct or indirect sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company (including securities of the Company’s subsidiaries) on a consolidated basis, other than a sale, lease, transfer, conveyance or other disposition to a subsidiary of the Company Controlled by the Company, an RMR Managed Company or another entity to which Managing Agent has agreed to provide management services.
(10)    “Immediate Family Member” as used to indicate a relationship with any individual, shall mean (x) any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and any other individual (other than a tenant or employee), which individual is sharing the household of that individual or (y) a trust, the beneficiaries of which are the individual and/or any Immediate Family Member of such individual.
(11)    “Law” means any law, statute, ordinance, rule, regulation, directive, code or order enacted, issued, promulgated, enforced or entered by any governmental entity.
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(12)    “Managing Agent Change of Control” shall be deemed to have occurred upon any of the following events:
(i)    any “person” or “group” (as such terms are used in Sections 13(d) of the Exchange Act), other than a Permitted Managing Agent Transferee or a Person to whom Managing Agent would be permitted to assign this Agreement pursuant to Section 24 of this Agreement, becomes the “beneficial owner” (as defined in Rule 13d-3 and Rule 13d-5 promulgated under the Exchange Act, except that any person shall be deemed to beneficially own securities such person has a right to acquire whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of fifty percent (50%) or more of the then outstanding voting power of the voting securities of Managing Agent and/or Parent, as applicable;
(ii)    the consummation of any direct or indirect sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of Managing Agent (including securities of Managing Agent’s subsidiaries) on a consolidated basis, except the transfer of outstanding voting power of the voting securities of Managing Agent or Parent to a Permitted Managing Agent Transferee or if the transaction constitutes a permissible assignment under Section 9 of this Agreement; or
(iii)    at any time, the Continuing Parent Directors cease for any reason to constitute the majority of the Board of Directors of Parent;
provided, however, that if Managing Agent is no longer a subsidiary of Parent as a result of a transaction not constituting a Managing Agent Change of Control, then a Managing Agent Change of Control shall be deemed to have occurred upon any of the foregoing events that affect Managing Agent only (and no Managing Agent Change of Control shall be deemed to have occurred if such event affects Parent).
(13)    “Material Adverse Effect” means any fact, circumstance, event, change, effect or occurrence that, individually or in the aggregate with all other facts, circumstances, events, changes, effects and occurrences, has had a material adverse effect on the business, results of operations or financial condition of the Company and its subsidiaries, taken as a whole, but will not include facts, circumstances, events, changes, effects or occurrences to the extent attributable to: (i) any changes in general United States or global economic conditions; (ii) any changes in conditions generally affecting any of the industry(ies) in which the Company and its subsidiaries operate; (iii) any Performance Reason or any decline in the market price, credit rating or trading volume of the Company’s securities (it being understood that the facts or occurrences giving rise to or contributing to such Performance Reason or decline may be taken into account in determining whether there has been a Material Adverse Effect); (iv) regulatory, legislative or political conditions or securities, credit, financial or other capital markets conditions, in each case in the United States or any foreign jurisdiction; (v) any failure by the Company to meet any internal or published projections, forecasts, estimates or predictions in respect of revenues, earnings or other financial or operating metrics for any period (it being understood that the facts or occurrences giving rise to or contributing to such failure may be taken into account in
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determining whether there has been a Material Adverse Effect); (vi) any actions that were not recommended by Managing Agent that are approved by the Independent Trustees, as defined in the Company’s Bylaws, as in effect from time to time, or the consequences thereof; (vii) any change in applicable Law or United States generally accepted accounting principles (or authoritative interpretations thereof); (viii) geopolitical conditions, the outbreak or escalation of hostilities, any acts of war, sabotage or terrorism; or (ix) any hurricane, tornado, flood, earthquake or other natural disaster.
(14)    “Monthly Future Fee” shall mean (i) the sum of the total Fee, the total Construction Supervision Fee and the total Major Renovation Fee earned by Managing Agent under this Agreement for the twelve (12)-month period immediately preceding the effective date of a Covered Termination, divided by (ii) twelve (12), and rounded upward to the nearest whole number.
If there is a Covered Termination following a merger between the Company and another real estate investment trust to which Managing Agent is providing property management services (an “RMR Managed Company”), the Monthly Future Fee shall be calculated by reference to the sum of (i) the aggregate of the total Fee paid by the Company to Managing Agent and the total similar fee payable by the other RMR Managed Company to Managing Agent for the applicable period, (ii) the aggregate of the total Construction Supervision Fee payable by the Company to Managing Agent and the total construction supervision fee payable by the other RMR Managed Company to Managing Agent for the applicable period and (iii) the aggregate of the total Major Renovation Fee payable by the Company to Managing Agent and the total renovation fee, if applicable, payable by the other RMR Managed Company to Managing Agent for the applicable period.
If there is a Covered Termination following the spin-off of a subsidiary of the Company (by sale in whole or part to the public or distribution to the Company’s shareholders) to which the Company contributed properties (the “Contributed Properties”) and which was an RMR Managed Company both at the time of the spin-off and on the date of the Covered Termination, in determining the Monthly Future Fee, if any portion of the period with respect to which the Monthly Future Fee is calculated is prior to the spin-off, the monthly installments of the Fee shall be reduced to the extent they are based upon the gross collected rents of the Contributed Properties for such period, the monthly installments of the Construction Supervision Fees shall be reduced to the extent they are based upon the construction renovation or repair activities at the Contributed Properties for such period and the monthly installments of the Major Renovation Fees shall be reduced to the extent they are based upon the major renovation or repositioning activities at the Contributed Properties for such period.
(15)    “Parent” shall mean The RMR Group Inc., a Maryland corporation.
(16)    “Performance Reason” shall mean, for any period of three (3) consecutive calendar years beginning with the 2016 calendar year: (i) for each calendar year in such period, the TSR of the Company is less than (A) the percentage total shareholder return of the SNL Index (as defined in the Business Management Agreement) for the year, minus (B) five percent (5%) (for illustrative purposes and the avoidance of doubt, if the percentage total shareholder
A-4

return of the SNL Index for a year is positive fifteen percent (15%), the TSR for the year must be less than ten percent (10%) in the same year to count as one of the three (3) consecutive years that may be included within a Performance Reason), and (ii) for each calendar year in such period, the TSR of the Company is less than the TSR (determined for each company separately) of sixty-six percent (66%) of the member companies in the SNL Index (for illustrative purposes and the avoidance of doubt, if there are ninety (90) member companies in the SNL Index, the Company’s TSR for a year must be less than the TSR of sixty (60) member companies in the SNL Index). For purposes of the calculation of TSR and percentage total shareholder return of the SNL Index in clauses (i) and (ii) of the preceding sentence, each such calendar year shall be treated as a measurement period (a “Measurement Period”).
(17)    “Permitted Managing Agent Transferee” shall mean: (A) Parent or any of its Controlled subsidiaries; (B) any employee benefit plan of Managing Agent, Parent or any of their respective Controlled subsidiaries; (C) any Founder or any of a Founder’s lineal descendants; (D) any Immediate Family Member of a Founder or any of an Immediate Family Member’s lineal descendants; (E) any Qualifying Employee, any Immediate Family Member of a Qualifying Employee or any of the Qualifying Employee’s or Immediate Family Member’s lineal descendants; (F) a Person described in clause (C), (D) or (E) to whom securities are transferred by will or pursuant to the laws of descent and distribution by a Person described in clause (C), (D) or (E) of this definition; (G) any entity Controlled by any Person or Persons described in clause (B), (C), (D), (E) or (F) of this definition; (H) a Charitable Organization Controlled by any Person or Persons described in clause (C), (D), (E) or (F) of this definition; (I) an entity owned, directly or indirectly, by shareholders (or equivalent) of Managing Agent or Parent in substantially the same proportions as their ownership of Managing Agent or Parent, as applicable, immediately prior to the acquisition of beneficial ownership; (J) any Person approved by the Company in writing; or (K) an underwriter temporarily holding securities of Managing Agent or Parent, as applicable, pursuant to an offering of such securities; provided, however, that “lineal descendants” shall not include Persons adopted after attaining the age of eighteen (18) years and any such adopted Person’s descendants, and further provided that any subsidiary described in clause (A) or (B), any entity described in clause (G) and Charitable Organization described in clause (H), shall only be a Permitted Managing Agent Transferee so long as it remains Controlled as provided in clause (A), (B), (G) or (H).
(18)    “Person” shall mean an individual or any corporation, partnership, limited liability company, trust, unincorporated organization, association, joint venture or any other organization or entity, whether or not a legal entity.
(19)     “Qualifying Employee” means any employee of Managing Agent or Parent or any of their respective subsidiaries who is and has been an employee of Managing Agent or Parent or any of their respective subsidiaries for at least thirty-six (36) months.
(20)    “Remaining Term” shall mean the remaining period in the term of this Agreement had the Agreement not been terminated (rounded to nearest month), up to a maximum of twenty (20) years.
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(21)    “Treasury Rate” shall mean, for the calculation of the present value of a Monthly Future Fee, the arithmetic mean of the yields under the heading “Week Ending” published in the most recent Federal Reserve Statistical Release H.15 under the caption “Treasury Constant Maturities” for the maturity corresponding to the date that is the thirtieth (30th) day after the end of the month for which the Monthly Future Fee is assumed to be payable. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such period shall be calculated pursuant to the immediately preceding sentence and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For purposes of calculating the applicable Treasury Rates, the most recent Federal Reserve Statistical Release H.15 (or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities) published prior to the required date of payment of the Termination Fee will be used. If such statistical release is not published at the time of any determination under this Agreement, then any publicly available source of similar market data which shall be selected by Managing Agent, will be used.
(22)    “TSR” of a company shall be determined by (i) subtracting, for the relevant Measurement Period, (A) the closing price of the common shares of the company on the principal national securities exchange (as defined in the Exchange Act) on which the shares are traded, on the last trading day immediately prior to the beginning of the Measurement Period (the “Initial Price”) from (B) the sum of the average closing price of the common shares on the ten (10) consecutive trading days having the highest average closing prices during the final thirty (30) trading days of the Measurement Period, plus the aggregate amount of dividends declared in respect of a common share during the Measurement Period, and (ii) dividing the result by the Initial Price.
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Exhibit 31.1
CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
I, Adam D. Portnoy, certify that:
 
1.I have reviewed this Quarterly Report on Form 10-Q of The RMR Group Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2021 /s/ Adam D. Portnoy
 
Adam D. Portnoy
Managing Director, President and Chief Executive Officer (principal executive officer)



Exhibit 31.2
CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
I, Matthew P. Jordan, certify that:
 
1.I have reviewed this Quarterly Report on Form 10-Q of The RMR Group Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2021 /s/ Matthew P. Jordan
 
Matthew P. Jordan
Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)



Exhibit 32.1
Certification Pursuant to 18 U.S.C. Sec. 1350
 
In connection with the filing by The RMR Group Inc. (the “Company”) of the Quarterly Report on Form 10-Q for the period ended June 30, 2021 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:
 
1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Adam D. Portnoy   /s/ Matthew P. Jordan
Adam D. Portnoy
Managing Director, President and Chief Executive Officer (principal executive officer)
 
Matthew P. Jordan
Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)

Date: August 5, 2021