RMR GROUP INC. - Annual Report: 2019 (Form 10-K)

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•	substantially all our revenues are derived from services to a limited number of client companies;

•	our revenues are highly variable;

•	changing market conditions that may adversely impact our client companies and our business with them;

•	potential terminations of our management agreements with our client companies;

•	our ability to expand our business depends upon the growth and performance of our client companies 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 client companies 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 client companies, such as Service Properties Trust’s (formerly known as Hospitality Properties Trust) recent acquisition of a portfolio of net leased properties for $2.4 billion, including, among other things, whether the costs and benefits of such acquisition will be as expected;

•	risks related to potential impairment of our equity investments;

•	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;

•	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; and

•	other risks described under “risk factors” beginning on page 14.

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We have a limited number of client companies. We have or had long term contracts with our Managed Equity REITs (collectively, Industrial Logistics Properties Trust, a Maryland real estate investment trust, including its subsidiaries, or ILPT; Office Properties Income Trust, a Maryland real estate investment trust, including its subsidiaries, or OPI; Select Income REIT, or SIR (until it ceased to exist on December 31, 2018); Senior Housing Properties Trust, a Maryland real estate investment trust, including its subsidiaries, or SNH; and Service Properties Trust (formerly known as Hospitality Properties Trust), a Maryland real estate investment trust, including its subsidiaries, or SVC); 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;

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Our base business management fees earned from our Managed Equity REITs are calculated monthly based upon the lower of each real estate investment trust’s, or REIT’s, cost of its applicable assets and such REIT’s market capitalization. Our business management fees earned from our Managed Operators (collectively, Five Star Senior Living Inc., a Maryland corporation, including its subsidiaries, or Five Star; Sonesta International Hotels Corporation, a Maryland corporation, including its subsidiaries, or Sonesta; and TravelCenters of America Inc., a

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The fact that we earned significant incentive business management fees from certain Managed Equity REITs in the calendar years 2018, 2017 and 2016 may imply that we will earn incentive business management fees in future years. The incentive business management fees which 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 our 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 in the future;

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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 earnings, our 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;

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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. In addition, any investments or repositioning of the properties we or our client companies 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 client companies; and

•	We state that The RMR Group LLC’s $100.0 million commitment to the RMR Office Property Fund LP, or the Open End Fund, may be drawn in the future by the Open End Fund. The acquisition environment for office properties in the United States is competitive and the Open End Fund may not be successful in drawing and investing all, or any, of this capital.

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•	ILPT (Nasdaq: ILPT) primarily owns and leases industrial and logistics properties. As of September 30, 2019, ILPT owned 300 properties, including 226 buildings, leasable land parcels and easements in Oahu, Hawaii and 74 buildings located in 29 other states.

•	OPI (Nasdaq: OPI) primarily owns office properties leased to single tenants and those with high quality credit characteristics, including the government. As of September 30, 2019, OPI owned 200 properties located in 36 states and the District of Columbia.

•	SNH (Nasdaq: SNH) primarily owns senior living, medical office and life science properties. As of September 30, 2019, SNH owned 436 properties located in 41 states and the District of Columbia.

•	SVC (Nasdaq: SVC) primarily owns a diverse portfolio of hotels and net lease service and necessity-based retail properties. As of September 30, 2019, SVC owned 1,274 properties (328 hotels and 946 net lease properties) located in 48 states, Puerto Rico, Canada and the District of Columbia.

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•	Five Star (Nasdaq: FVE) operates senior living communities, many of which are owned by SNH. As of September 30, 2019, Five Star operated 267 senior living communities located in 32 states, including 190 communities that it owned or leased and 77 communities that it managed.

•	Sonesta is a privately owned franchisor and operator of hotels, resorts and cruise ships in the United States, Latin America, the Caribbean and the Middle East, and some of those U.S. hotels are owned by SVC. As of September 30, 2019, Sonesta’s business included 78 properties in seven countries.

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TA (Nasdaq: TA) operates and franchises travel centers along the U.S. Interstate Highway System, many of which are owned by SVC, and standalone truck service facilities and restaurants. As of September 30, 2019, TA’s business included operating or franchising 304 properties of which TA owns 58 (51 travel centers, six standalone restaurants and one truck service facility) located in 44 states and Canada.

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Revenue Base. Our revenues are primarily from fees earned under long term agreements with high credit quality companies, many of which are permanent capital vehicles. Our agreements with the Managed Equity REITs are 20 year term evergreen contracts with significant termination fees payable in certain circumstances. For the fiscal year ended September 30, 2019, fees earned from the Managed Equity REITs represented 90.1% of our total revenue.

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Cash Flow and Dividend. Our net income and Adjusted EBITDA for the fiscal year ended September 30, 2019 were $169.0 million and $108.4 million, respectively, and we have no debt outstanding. Our prior dividend rate of $0.35 per share per quarter ($1.40 per share per year) has been well covered by our earnings and cash flows. We recently announced an increased dividend rate of $0.38 per share per quarter ($1.52 per share per year), beginning with the quarterly dividend that we paid on November 14, 2019. This new dividend rate remains well covered by our earnings and cash flows. Adjusted EBITDA is a non U.S. generally accepted accounting principles, or GAAP, financial measure. For a definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA, see footnote (3) to “Selected Financial Data” on page 31.

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Broad Real Estate Experience. We provide management services to a wide range of real estate assets and businesses that include healthcare facilities, senior living and other apartments, hotels, office buildings, industrial buildings, leased lands, net-lease service and necessity-based retail, including travel centers, and various specialized properties such as properties leased to government tenants and properties specially designed for medical and biotech research. The properties and businesses we managed as of September 30, 2019, are located throughout the United States in 48 states and Washington D.C., and in Puerto Rico and Canada.

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Growth. Since the founding of RMR LLC in 1986, we have substantially grown our real estate assets under management and the number and variety of real estate businesses we manage. As of September 30, 2019, we had $32.8 billion of assets under management, including more than 2,200 properties. The synergies among our clients may also facilitate their and our growth. We assist our clients in realizing investment opportunities by working together to make acquisitions, obtain financing, identifying possible joint venture partners, completing redevelopment activities, and facilitating capital recycling from strategic property dispositions.

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Quality and Depth of Management. Our highly qualified and experienced management team provides a broad base of deep expertise to our clients. Our senior management has worked together through several business cycles in which they acquired, financed, managed and disposed of real estate assets and started real estate businesses. As of September 30, 2019, we employed approximately 600 real estate professionals in more than 30 offices throughout the United States, and the companies we manage collectively had over $12.0 billion of annual revenues and nearly 50,000 employees. We have also assisted our clients to grow by successfully accessing the capital markets; since our founding in 1986, our clients have successfully completed over $38.0 billion of financing in over 170 capital raising transactions.

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Alignment of Interests. We believe our structure fosters strong alignment of interests between our principal executive officer and our shareholders because our principal executive officer, Adam D. Portnoy, has a 51.6% economic interest in RMR LLC. Alignment of interests also exists between us and our Managed Equity REITs due to the manner upon which we earn base management fees and incentive management fees under our Management Agreements with the Managed Equity REITs, as described in more detail below.

•	provide research and economic and statistical data in connection with the Managed Equity REIT’s real estate investments and recommend changes in the Managed Equity REIT’s real estate investment policies when appropriate;

•	investigate, evaluate and negotiate contracts for the investment in, or the acquisition or disposition of, real estate and related interests, financing and refinancing opportunities and make recommendations concerning specific real estate investments to the Board of Trustees of the Managed Equity REIT;

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•	investigate, evaluate, prosecute and negotiate any of the Managed Equity REIT’s claims in connection with its real estate investments or otherwise in connection with the conduct of the Managed Equity REIT’s business;

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administer bookkeeping and accounting functions as required for the Managed Equity REIT’s business and operation, contract for audits and prepare or cause to be prepared reports and filings required by a governmental authority in connection with the conduct of the Managed Equity REIT’s business, and otherwise advise and assist the Managed Equity REIT with its compliance with applicable legal and regulatory requirements;

•	advise and assist in the preparation of all equity and debt offering documents and all registration statements, prospectuses or other documents filed by the Managed Equity REIT with the SEC or any state;

•	retain counsel, consultants and other third party professionals on behalf of the Managed Equity REIT;

•	provide internal audit services;

•	advise and assist with the Managed Equity REIT’s risk management and business oversight function;

•	advise and assist the Managed Equity REIT with respect to the Managed Equity REIT’s public relations, preparation of marketing materials, internet website and investor relations services;

•	provide communication facilities for the Managed Equity REIT and its officers and trustees and provide meeting space as required;

•	provide office space, equipment and experienced and qualified personnel necessary for the performance of the foregoing services; and

•	to the extent not covered above, advise and assist the Managed Equity REIT in the review and negotiation of the Managed Equity REIT’s contracts and agreements, coordination and supervision of all third party legal services and oversight for processing of claims by or against the Managed Equity REIT.

•	seek tenants for the Managed Equity REIT’s properties and negotiate leases;

•	collect rents and other income from the Managed Equity REIT’s properties;

•	make contracts for, and supervise repairs and/or alterations on, the Managed Equity REIT’s properties;

•	for the Managed Equity REIT’s account and at its expense, hire, supervise and discharge employees as required for the efficient operation and maintenance of the Managed Equity REIT’s properties;

•	obtain appropriate insurance for the Managed Equity REIT’s properties and notify the Managed Equity REIT’s insurance carriers with respect to casualties or injuries at the properties;

•	procure supplies and other necessary materials;

•	pay from rental receipts, other income derived from the Managed Equity REIT’s properties or other monies made available by the Managed Equity REIT for such purpose, all costs incurred in the operation of the Managed Equity REIT’s properties that are expenses of the Managed Equity REIT;

•	establish reasonable rules and regulations for tenants of the Managed Equity REIT’s properties;

•	institute or defend, on the Managed Equity REIT’s behalf and in the Managed Equity REIT’s name, any and all legal actions or proceedings relating to the operation of the Managed Equity REIT’s properties;

•	maintain the books and records of the Managed Equity REIT reflecting the management and operation of the Managed Equity REIT’s properties and prepare and deliver statements of expenses for tenants of the REIT’s properties;

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•	aid, assist and cooperate with the Managed Equity REIT in matters relating to taxes and assessments and insurance loss adjustments;

•	provide emergency services as may be required for the efficient management and operation of the Managed Equity REIT’s properties; and

•	arrange for day to day operations of the Managed Equity REIT’s properties, including water, fuel, electricity, cleaning and other services.

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the sum of (a) 0.5% of the historical cost of transferred real estate assets, if any, as defined in the applicable business management agreement, plus (b) 0.7% of the average invested capital (exclusive of the transferred real estate assets), as defined in the applicable business management agreement, up to $250.0 million, plus (c) 0.5% of the average invested capital exceeding $250.0 million; and

•	the sum of (a) 0.7% of the average market capitalization, as defined in the applicable business management agreement, up to $250.0 million, plus (b) 0.5% of the average market capitalization exceeding $250.0 million.

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The incentive business management fee is calculated as an amount equal to 12.0% of the product of (a) the equity market capitalization of the Managed Equity REIT, as defined in the applicable business management agreement, on the last trading day of the year immediately prior to the measurement period, and (b) the amount, expressed as a percentage, by which the Managed Equity REIT’s total return per share realized by its common shareholders (i.e. share price appreciation plus dividends) or the “total return per share,” exceeds the total shareholder return of a specified REIT index, the “benchmark return per share,” for the relevant measurement period, with each of (a) and (b) subject to adjustments for common shares issued by the Managed Equity REIT during the measurement period.

•	The specified REIT index utilized to calculate the benchmark return per share for each of our Managed Equity REITs when calculating the incentive business management fees is as follows:

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◦	ILPT: On December 31, 2018, our business management agreement with ILPT was amended to provide that for periods beginning on and after January 1, 2019, the SNL U.S. Industrial REIT Index would be utilized. Prior to January 1, 2019, the SNL U.S. REIT Equity Index was utilized.

◦	OPI: On December 31, 2018, our business management agreement with OPI was amended to provide that for periods beginning on and after January 1, 2019, the SNL U.S. Office REIT Index would be utilized. Prior to January 1, 2019, the SNL U.S. REIT Equity Index was utilized.

◦	SNH: SNL U.S. REIT Healthcare Index

◦	SVC: SNL U.S. REIT Hotel Index

•	No incentive business management fee is payable by the Managed Equity REIT unless its total return per share during the measurement period is positive.

•	The measurement period for an annual incentive business management fee is defined as the three year period ending on December 31 of the year for which such fee is being calculated, except for ILPT, whose annual incentive business management fee is based on a shorter period from its initial public offering on January 12, 2018 through the applicable calendar year end.

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If the Managed Equity REIT’s total return per share exceeds 12% per year in the measurement period, the benchmark return per share is adjusted to be the lesser of the total shareholder return of the specified REIT index for such measurement period and 12% per year, or the “adjusted benchmark return per share.” In instances where the adjusted benchmark return per share applies, the incentive fee will be reduced if the Managed Equity REIT’s total return per share is between 200 basis points and 500 basis points below the specified REIT index by a low return factor, as defined in the applicable business management agreement, and there will be no incentive business management fee paid if, in these instances, the Managed Equity REIT’s total return per share is more than 500 basis points below the specified REIT index.

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The incentive management fee payable by the Managed Equity REIT is subject to a cap equal to the value of the number of its common shares which would, after issuance, represent (a) 1.5% of the number of its common shares outstanding on December 31 of the year for which such fee is being calculated multiplied by (b) the average closing price of its common shares during the 10 consecutive trading days having the highest average closing prices during the final 30 trading days of the relevant measurement period.

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Incentive fees paid by the Managed Equity REIT for any measurement period may be subject to certain “clawback” if the financial statements of the Managed Equity REIT for that measurement period are restated due to material non-compliance with any financial reporting requirements under the securities laws as a result of the bad faith, fraud, willful misconduct or gross negligence of RMR LLC and the amount of the incentive fee paid by the Managed Equity REIT was greater than the amount it would have paid based on the restated financial statements.

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•	have more than $1.07 billion in annual revenues in a fiscal year;

•	issue more than $1.0 billion of non-convertible debt during the preceding three year period; or

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become a “large accelerated filer” as defined in Rule 12b-2 promulgated under the Exchange Act, which would occur after: (i) we have filed at least one annual report pursuant to the Exchange Act; (ii) we have been a company reporting with the SEC for at least 12 months; and (iii) the market value of our common shares that are held by non-affiliates equals or exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter.

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•	other asset managers may have greater financial, technical, marketing and other resources and more personnel than our Client Companies and we do;

•	other asset managers may offer more services than we do or may be more adept at developing, marketing and managing new services than we are;

•	our Client Companies may not perform as well as other companies, including companies managed by other asset managers;

•	other asset managers and the companies that compete with our Client Companies may have access to more capital or access to capital at lower costs than our Client Companies and we do;

•	other asset managers may have stronger ties within certain industries or communities from which they identify investment opportunities;

•	other asset managers and the companies that compete with our Client Companies may have higher risk tolerance, different risk assessment or a lower return threshold, which could allow them to acquire a wider variety of assets and a broader range of investments and as a result we and our Client Companies may grow our business less and more slowly than those competitors;

•	there are few barriers to entry into the asset management business, and the successful efforts of new entrants into the asset management business are expected to continue to result in increased competition;

•	other asset managers may have better expertise or be regarded by potential clients as having better expertise with regard to specific assets or investments;

•	other asset managers may have more scalable platforms and may operate more efficiently than we do;

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•	other asset managers may have better brand recognition than we have, and there is no assurance that we will maintain a positive brand in the future;

•	our competitors may from time to time recruit our employees away from us; and

•	the market for qualified professionals is intensely competitive, and our ability to continue to compete effectively will also depend upon our ability to attract, retain and motivate our key and talented personnel.

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•	the Managed Equity REITs face competition for tenants at substantially all of their properties and competing properties may be more attractive to tenants;

•	our Client Companies face significant competition for investment opportunities from other investors, some of which have greater financial resources, including publicly traded REITs, non-traded REITs, insurance companies, banking firms, private institutional funds, private equity funds and other investors;

•	rising interest rates may increase operating costs, reduce the value of properties and make raising capital difficult for our Client Companies, whereas a sustained period of low interest rates may increase the amount of debt capital available, which may result in declining capitalization rates for property acquisitions and impede the growth of our Client Companies’ businesses;

•	changing general economic and financial market conditions could significantly reduce the value of the real estate, loans and other investments of our Client Companies and reduce the amounts earned on those investments;

•	the real estate and real estate related investments of our Client Companies may be less liquid than other investments, and the ability of our Client Companies to adjust their portfolios in response to changes in economic or other conditions may be limited;

•	changes in investor preferences or market conditions could limit our Client Companies’ ability to raise capital to competitively maintain their properties and operations or make new investments;

•	shareholder activism, complaints about management strategies and structures, corporate governance and other matters may divert management attention and be disruptive to the operation of our Client Companies;

•	changes in tax laws, regulation or accounting rules may make certain types of investments in or by our Client Companies less valuable;

•	our Client Companies are exposed to environmental, building and other laws, natural disasters and other factors beyond their control as a result of their investment in real estate;

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our Client Companies have significant investments in certain types of assets, such as hotels, senior living communities, healthcare properties and travel centers, and market changes which impact these specific types of assets (e.g., new competition for short term accommodations, changes in Medicare and Medicaid rates and fuel efficiency improvements) may adversely impact certain of the Client Companies’ ability to maintain or grow their business;

•	the failure of a Managed REIT to continue to qualify as a REIT would subject it to U.S. federal income tax and reduce cash available for distributions to its shareholders, adversely impacting its ability to raise capital and operate its business; and

•	complying with REIT requirements may cause a Managed REIT to forgo otherwise attractive opportunities or liquidate otherwise attractive investments.

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•	a relatively thin trading market for our Class A Common Shares could cause trades of small blocks of shares to have a significant impact on the price of our Class A Common Shares;

•	our quarterly or annual earnings, or those of other comparable companies;

•	actual or anticipated fluctuations in our operating results;

•	changes in accounting standards, policies, guidance, interpretations or principles;

•	announcements by us, our Client Companies or our competitors of significant investments, acquisitions or dispositions;

•	the inclusion, exclusion, or deletion of our Class A Common Shares from any trading indices;

•	the failure of securities analysts to cover our Class A Common Shares;

•	changes in earnings estimates by securities analysts or in our ability to meet those estimates;

•	the operating and stock price performance of other comparable companies;

•	overall market fluctuations; and

•	general economic conditions.

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•	actual receipt of an improper benefit or profit in money, property or services; or

•	active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.

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(1)

These Class A Common Share withholdings and purchases were made to satisfy tax withholding and payment obligations of our current and former officers and other RMR LLC employees in connection with the vesting of awards of our Class A Common Shares. We withheld and purchased these shares at their fair market value based upon the trading price of our Class A Common Shares at the close of trading on Nasdaq on the purchase dates.

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(1)

Effective October 1, 2018, we adopted new accounting guidance that required us to account for the cost of services provided by third parties to our Client Companies, and the related reimbursement revenue, on a gross basis. As a result, our consolidated statement of comprehensive income for the fiscal year ended September 30, 2019 reflects corresponding increases in revenue and expense of $354,540, in other client company reimbursable expenses, compared to the prior years, with no impact to net income. For further information about these reimbursements, see Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

(2)

In addition to presenting a calculation of assets under management of the Managed Equity REITs according to the method used to determine fees pursuant to the terms of the business management agreements as presented in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K, we have determined to also present total assets under management for all of our Client Companies in a manner that we believe more clearly reflects the size of our business. The calculation of our assets under management for all of our Client Companies as of the dates indicated primarily includes: (i) the gross book value of real estate and related assets, excluding depreciation, amortization, impairment charges or other non-cash reserves, of the Managed Equity REITs and ABP Trust, plus (ii) the gross book value of real estate assets, property and equipment of the Managed Operators, excluding depreciation, amortization, impairment charges or other non-cash reserves, plus (iii) the fair value of investments of AIC and the Open End Fund, the managed assets of RIF and the equity of TRMT. This calculation of total assets under management may include amounts in respect of the Managed Equity REITs that are higher than the calculations of assets under management used for purposes of calculating fees under the terms of the business management agreements, which are based, in part, upon the lesser of historical cost of real estate assets or total market capitalization, determined monthly.

(3)

EBITDA and Adjusted EBITDA are non-GAAP financial measures calculated as presented in the table below. We consider EBITDA and Adjusted EBITDA to be appropriate supplemental measures of our operating performance, along with net income, net income attributable to The RMR Group Inc. and operating income. We believe that EBITDA and Adjusted EBITDA provide useful information to investors because by excluding the effects of certain amounts, such as those outlined in the table below, EBITDA and Adjusted EBITDA may facilitate a comparison of current operating performance with our historical operating performance and with the performance of other asset management businesses. EBITDA and Adjusted EBITDA do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income, net income attributable to The RMR Group Inc. or operating income as an indicator of our financial performance or as a measure of our liquidity. These measures should be considered in conjunction with net income, net income attributable to The RMR Group Inc. and operating income as presented in our consolidated statements of comprehensive income. Also, other asset management businesses may calculate EBITDA and Adjusted EBITDA differently than we do. The following table is a reconciliation of net income to EBITDA and Adjusted EBITDA:

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(1)	SIR merged with and into OPI on December 31, 2018 with OPI continuing as the surviving entity.

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(1)	Excludes reimbursable compensation and benefits and other client company reimbursable expenses.

(2)	SIR merged with and into OPI on December 31, 2018 with OPI continuing as the surviving entity.

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(1)	Excludes reimbursable client company operating expenses and reimbursable compensation and benefits.

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(1)	In addition to the contractual obligations presented in this table, we also have a $100,000 commitment to the Open End Fund that may be drawn in the future. For additional information regarding this commitment, see Note 6, Related Person Transactions, to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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•	business management fees, including base and incentive business management fees; and

•	property management fees, including construction supervision fees and reimbursement for certain compensation and benefits related expenses.

•	our representation on the entity’s governing body;

•	the size of our investment in each entity compared to the size of the entity and the size of other investors’ interests; and

•	the ability and rights to participate in significant policy making decisions and to replace our manager of those entities.

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(1)	Consists of shares available for issuance pursuant to the terms of the 2016 Plan. Share awards that are repurchased or forfeited will be added to the shares available for issuance under the 2016 Plan.

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•	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.

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(1)	Transitional impact for the year ending September 30, 2018 is the $19,817 adjustment to our deferred tax asset due to the reduction in our corporate income tax rate under the Tax Act.

(2)	Permanent items for the year ending September 30, 2018 include the $24,710 reduction in our liability related to the Tax Receivable Agreement with ABP Trust discussed in Note 6, Related Person Transactions.

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(1)	Revenues from related parties for the fiscal year ended September 30, 2019 include other Client Company reimbursable expenses of $354,540 and reflects the adoption of ASC 606 as summarized in Note 2, Summary of Significant Accounting Policies.

(2)	SIR merged with and into OPI on December 31, 2018 with OPI continuing as the surviving entity. This table presents revenues for the fiscal years ended September 30, 2018 and 2017 and, for the part of the fiscal year ended September 30, 2019, from SIR separately as they relate to periods prior to this merger.

(3)	For the three months ended December 31, 2018, we recognized $47,843 in revenues from SIR, which amounted to 17.1% of our revenues from related parties for that period.

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(1)	Amounts due from related parties as of September 30, 2019 include other Client Company reimbursable expenses of $65,909 reflecting the adoption of ASC 606 as summarized in Note 2, Summary of Significant Accounting Policies.

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ABP Trust Registration Rights Agreement. RMR Inc. is party to a registration rights agreement with ABP Trust pursuant to which RMR Inc. has granted ABP Trust demand and piggyback registration rights, subject to certain limitations, covering the Class A Common Shares ABP Trust owns, including the shares received on conversion of Class B-1 Common Shares or redemption of the paired Class B-2 Common Shares and Class A Units of RMR LLC.

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Founders Registration Rights and Lock-Up Agreements. Adam D. Portnoy and ABP Trust are parties to a registration rights and lock-up agreement with each of OPI, SNH and SVC with respect to each such Managed Equity REITs’ common shares pursuant to which ABP Trust and Adam D. Portnoy agreed not to transfer the Managed Equity REITs’ common shares they acquired in connection with RMR LLC’s reorganization in June 2015 for a period of ten years, subject to certain exceptions, and each of those Managed Equity REITs has granted ABP Trust and Adam D. Portnoy demand and piggyback registration rights, subject to certain limitations.

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(1)	Intersegment revenues of $3,975 recognized by RMR LLC for services provided to our All Other Operations segment have been eliminated in the consolidated financial statements.

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(1)	Intersegment revenues of $4,002 recognized by RMR LLC for services provided to our All Other Operations segment have been eliminated in the consolidated financial statements.

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(1)	Intersegment revenues of $738 recognized by RMR LLC for services provided to our All Other Operations segment have been eliminated in the consolidated financial statements.

(1)	Includes incentive business management fee revenue of $120,094.

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(1)	Includes incentive business management fee revenue of $155,881.

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