| Related Party Transactions | 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 September 30, 2019, Adam D. Portnoy beneficially owned, in aggregate, (i) 144,502 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 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 is also 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, RIF and TA, a director of AIC and the majority owner and director of Sonesta. Jennifer B. Clark, our other Managing Director, is a managing trustee of SNH and RIF, president and chief executive officer of AIC and a director of Sonesta. As of September 30, 2019, Adam D. Portnoy beneficially owned, in aggregate, 35.8% 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 SNH’s outstanding common shares, 4.1% of TA’s outstanding common shares (including through RMR LLC), 2.3% of RIF’s outstanding common shares, and 19.5% of TRMT’s outstanding common shares (including through Tremont Advisors). On July 1, 2019, OPI, SNH and SVC sold all their Class A Common Shares in an underwritten public offering at a price to the public of $40.00 per share pursuant to an underwriting agreement among us, those Managed Equity REITs and the underwriters named therein. The Managed Equity REITs and AIC have no employees. RMR LLC provides or arranges for all the personnel, overhead and services required for the operation of the Managed Equity REITS and AIC pursuant to management agreements with them. All the officers of the Managed Equity REITs, AIC and the Open End Fund are officers or employees of RMR LLC. TRMT has no employees. All the officers, overhead and required office space of TRMT are provided or arranged by Tremont Advisors. All of TRMT’s officers are officers or employees of Tremont Advisors or RMR LLC. Many of the executive officers of the Managed Operators are officers or employees of RMR LLC. All of RIF’s officers are officers or employees of RMR Advisors or RMR LLC. Some of our executive officers are also managing directors or managing trustees of certain of the Managed REITs, the Managed Operators and RIF. As of September 30, 2019, ABP Trust owned 14.3% of AIC and 206,300 limited partnership units of the Open End Fund and RMR LLC owned no limited partnership units, but it has committed to contributing $100,000 to the Open End Fund. The general partner of the Open End Fund is a subsidiary of ABP Trust. Revenues from Related Parties For the fiscal years ended September 30, 2019, 2018 and 2017, we recognized revenues from related parties as set forth in the following table: Fiscal Year Ended September 30, 2019 (1) 2018 2017 $ % $ % $ % Managed Equity REITs: ILPT $ 43,242 6.1 % $ 10,935 2.7 % $ — — % OPI (2) 239,291 33.5 53,954 13.3 35,378 13.0 SIR (2) (3) 47,843 6.7 62,321 15.4 44,746 16.5 SNH 210,728 29.5 118,301 29.2 60,926 22.4 SVC 102,029 14.3 118,596 29.3 95,198 35.0 643,133 90.1 364,107 89.9 236,248 86.9 Managed Operators: Five Star 9,702 1.4 9,840 2.4 9,624 3.5 Sonesta 3,186 0.4 2,847 0.7 2,341 0.9 TA 14,191 2.0 15,357 3.8 14,772 5.4 27,079 3.8 28,044 6.9 26,737 9.8 Other Client Companies: ABP Trust 15,070 2.1 4,865 1.2 3,916 1.5 AIC 570 0.1 240 0.1 240 0.1 Open End Fund 20,366 2.9 608 0.2 — — RIF 3,013 0.4 2,888 0.7 2,451 0.9 TRMT 3,509 0.5 2,505 0.6 85 — 42,528 6.0 11,106 2.8 6,692 2.5 Total revenues from related parties 712,740 99.9 403,257 99.6 269,677 99.2 Revenues from unrelated parties 628 0.1 1,722 0.4 2,051 0.8 $ 713,368 100.0 % $ 404,979 100.0 % $ 271,728 100.0 % (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. For additional information regarding our management or advisory agreements with these related parties, please see Note 2, Summary of Significant Accounting Policies . TRMT Initial Public Offering and 2019 Offering On September 18, 2017, TRMT, then a 100% owned subsidiary of Tremont Advisors, completed an initial public offering, or the TRMT IPO. Tremont Advisors entered into a management agreement with TRMT, dated September 18, 2017, pursuant to which Tremont Advisors provides certain services to TRMT. Tremont Advisors agreed to pay 100% of the initial organizational costs related to TRMT’s formation and the costs of the TRMT IPO, which costs totaled approximately $6,573 and are included in transaction and acquisition related costs in our consolidated statements of comprehensive income for the fiscal year ending September 30, 2017. Concurrently with the closing of the TRMT IPO, Tremont Advisors purchased 600,000 common shares of TRMT at $20.00 per share, the initial public offering price in the TRMT IPO, pursuant to a private placement purchase agreement entered into by Tremont Advisors and TRMT on September 13, 2017. This private placement purchase agreement also provides Tremont Advisors with demand and "piggyback" registration rights, subject to certain limitations, covering the common shares of TRMT owned by Tremont Advisors. On May 21, 2019, TRMT issued and sold 5,000,000 common shares of beneficial interest, $0.01 par value per share, or TRMT Common Shares, in an underwritten public offering, or the Offering, pursuant to an underwriting agreement among TRMT, Tremont Advisors and the underwriters. Tremont Advisors purchased 1,000,000 TRMT Common Shares in the Offering at a total price of $5,650 . The underwriters did not receive any discount for the TRMT Common Shares that Tremont Advisors purchased in the Offering. As of September 30, 2019, Tremont Advisors owned 1,600,100 (including 100 common shares issued to Tremont Advisors in connection with TRMTs formation in June 2017), or approximately 19.4% , of TRMT’s common shares. Credit Agreement between TRMT and Tremont Advisors Until May 23, 2019, TRMT was a party to a credit agreement with Tremont Advisors as the lender, or the Credit Agreement. Pursuant to the Credit Agreement, from time to time until August 4, 2019, the scheduled expiration date of the Credit Agreement, TRMT was able to borrow up to $25,000 and, beginning May 3, 2019, up to $50,000 in subordinated unsecured loans at a rate of 6.50% per annum. In connection with TRMT’s repayment of the outstanding amount of $14,220 on May 23, 2019, TRMT terminated the Credit Agreement. As part of the repayment amount, TRMT paid Tremont Advisors approximately $39 of interest and $7 of facility fees related to the Credit Agreement. RIF Rights Offering In September 2017, RIF completed a pro rata offering of transferable rights to holders of RIF common shares, which rights entitled the holders thereof to subscribe for up to 2,550,502 RIF common shares, in aggregate, at a subscription price equal to $17.74 per RIF common share. RMR Advisors agreed to pay all expenses of this rights offering of approximately $2,277 . ABP Trust is a shareholder of RIF and purchased 19,642 RIF common shares in this rights offering. In addition, Adam D. Portnoy, a shareholder of RIF, and Barry M. Portnoy, now deceased but at the time a shareholder of RIF, purchased 54,524 and 282,297 RIF common shares in this rights offering, respectively. RMR Office Property Fund LP On August 31, 2018, ABP Trust formed the Open End Fund. In connection with the formation of the Open End Fund, ABP Trust contributed 15 properties to the Open End Fund with an aggregate value of $206,300 in exchange for 206,300 limited partnership units in the Open End Fund and RMR LLC committed to contribute up to $100,000 to the Open End Fund when called by the general partner in exchange for 100,000 limited partnership units in the Open End Fund. The valuation of the 15 properties contributed to the Open End Fund by ABP Trust was agreed to by a special committee of our Board of Directors consisting of members that were unaffiliated with ABP Trust and with the assistance of an independent third-party appraiser. This same special committee also approved RMR LLC’s $100,000 capital commitment to the Open End Fund. ABP Office Property Fund General Partner LLC, a wholly owned subsidiary of ABP Trust, is the general partner of the Open End Fund. RMR LLC conducts and performs fund management functions for the Open End Fund, including the evaluation of real estate assets to be invested in, planning and other business and administrative functions. Amounts Due From Related Parties The following table represents amounts due from related parties as of the dates indicated: September 30, 2019 (1) 2018 Managed Equity REITs: ILPT $ 10,630 $ 2,692 OPI 39,233 7,870 SIR — 5,887 SNH 25,505 9,705 SVC 18,933 8,391 94,301 34,545 Managed Operators: Five Star 136 281 Sonesta 37 30 TA 392 599 565 910 Other Client Companies: ABP Trust 2,580 383 AIC 7 20 Open End Fund 4,567 608 RIF 75 31 TRMT 664 532 7,893 1,574 $ 102,759 $ 37,029 (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. Leases As of September 30, 2019, we leased from ABP Trust and certain Managed Equity REITs office space for use as our headquarters and local offices. During the fiscal years ended September 30, 2019, 2018 and 2017, we incurred rental expense under related party leases aggregating $5,646 , $4,839 and $4,184 , respectively. Our related party leases have various termination dates and many have renewal options. Some of our related party leases are terminable on 30 days ’ notice and many allow us to terminate early if our management agreements for the buildings in which we lease space are terminated. 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 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 RMR Inc. as a result of the Tax Receivable Agreement. In connection with the Tax Act and the resulting lower corporate income tax rates applicable to RMR Inc., we remeasured the amounts due pursuant to our Tax Receivable Agreement with ABP Trust and reduced our liability by $24,710 , or $1.53 per share, which is presented on our consolidated statements of comprehensive income for the fiscal year ended September 30, 2018 as Tax Receivable Agreement remeasurement. During the fiscal years ended September 30, 2019, 2018 and 2017, we paid $2,266 , $2,962 and $2,931 , respectively, to ABP Trust pursuant to the Tax Receivable Agreement. As of September 30, 2019, our consolidated balance sheet reflects a liability related to the Tax Receivable Agreement of $32,061 , including $2,111 classified as a current liability that we expect to pay to ABP Trust during the fourth quarter of fiscal year 2020. 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 estimated quarterly, subject to future adjustment based on actual results. For the fiscal years ended September 30, 2019, 2018 and 2017, pursuant to the RMR LLC operating agreement, RMR LLC made required quarterly tax distributions to holders of its membership units totaling $79,074 , $92,430 and $74,447 , respectively, of which $41,099 , $47,940 and $38,526 , respectively, was distributed to us and $37,975 , $44,490 and $35,921 , 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 consolidated financial statements, and the amounts distributed to ABP Trust were recorded as a reduction of its noncontrolling interest. We used funds from these distributions to pay our U.S. federal and state income tax liabilities and to pay our obligations under the Tax Receivable Agreement. Tender Offer for Shares of Five Star by Certain Related Persons On November 11, 2016, a subsidiary of ABP Trust, ABP Acquisition LLC, purchased 17,999,999 shares of Five Star common stock at $3.00 per share pursuant to a public tender offer. Following this purchase, Adam D. Portnoy, Barry M. Portnoy (now deceased), ABP Trust and ABP Acquisition LLC collectively owned 18,339,621 shares of Five Star common stock, or approximately 36.8% of Five Star’s then outstanding common stock. On September 30, 2019, Five Star effected a one-for-ten reverse stock split. As of September 30, 2019, and after giving effect to that reverse stock split, Adam D. Portnoy, directly and indirectly through ABP Trust, owned 1,817,549 shares of Five Star common stock, or approximately 35.8% of Five Star’s then outstanding common stock. In connection with ABP Acquisition LLC’s purchase of the Five Star common stock, ABP Trust, ABP Acquisition LLC and our founders also entered into a consent, standstill, registration rights and lock-up agreement with Five Star pursuant to which ABP Trust, ABP Acquisition LLC, Adam D. Portnoy and Barry M. Portnoy each agreed not to transfer, except for certain permitted transfers as provided therein, any shares of Five Star common stock acquired after October 2, 2016, including shares acquired in the tender offer but not including shares issued to Barry M. Portnoy or Adam D. Portnoy under a Five Star equity compensation plan, for a lock-up period of up to ten years . They also each agreed, for a period of ten years , not to engage, and to cause their controlled affiliates (a term which includes us and our subsidiaries) not to engage, in certain activities involving Five Star without the approval of the Five Star board of directors, including not to make or seek to effect any tender or exchange offer, merger or other business combination, or extraordinary transaction involving Five Star or a sale of all or a substantial portion of Five Star’s consolidated assets or solicit proxies to vote any voting securities of Five Star or encourage others to take any of the restricted activities. This consent, standstill, registration rights and lock-up agreement also provides ABP Trust, ABP Acquisition LLC and Adam D. Portnoy with certain demand and "piggyback" registration rights with respect to certain shares of Five Star common stock, at any time after the lock-up period described above, subject to specified terms and conditions. Purchase of TA Shares On October 10, 2018, RMR LLC purchased 1,492,691 TA common shares from TA’s former Managing Director, President and Chief Executive Officer pursuant to a right of first refusal. RMR LLC paid an aggregate purchase price of $8,382 for these shares. On August 1, 2019, TA affected a one-for-five reverse stock split. As a result, as of September 30, 2019, RMR LLC owned 298,538 shares of TA common stock. Registration and Lock-up Agreements We are parties to the following registration rights agreements, which we entered in connection with RMR LLC’s reorganization in June 2015: • 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. • 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. Relationships Between Client Companies Several of our Client Companies have historical and ongoing material relationships with other Client Companies. As of September 30, 2019, SVC owned 8.5% of the outstanding common shares of TA and SNH owned 8.3% of the outstanding common stock of Five Star. Each of ABP Trust, the Managed Equity REITs, Five Star and TA owns 14.3% of AIC. SVC is TA’s principal landlord and TA is SVC’s largest tenant, operating travel center locations owned by SVC pursuant to long term leases. SNH is Five Star’s principal landlord and Five Star is SNH’s largest tenant and manager of senior living communities, operating senior living communities owned by SNH pursuant to long term agreements. In April 2019, SNH and Five Star agreed to restructure their business arrangements. If the transactions contemplated by those restructuring arrangements are completed, among other things, Five Star will manage all the SNH senior living communities that FVE operates, FVE will issue shares of its common stock to SNH so that, following such issuance, SNH will own approximately 34% of Five Star’s outstanding common stock, and Five Star will distribute a number of shares of Five Star common stock that equals approximately 51% of its then outstanding common shares to SNH’s shareholders; the noted percentage ownership amounts are post-issuance, after giving effect to the issuances of Five Star common stock to SNH and SNH’s shareholders. Those transactions are expected to be completed as of January 1, 2020, but the transactions are subject to conditions; as a result, those transactions may not occur, may be delayed or their terms may change. Sonesta manages a number of SVC’s hotels pursuant to long term management agreements. On December 31, 2018, SIR merged with and into a wholly owned subsidiary of OPI. Several of the independent trustees and independent directors of our publicly owned Client Companies also serve as independent trustees or independent directors of other publicly owned Client Companies, and one of our Managing Directors and the independent trustees and independent directors of the Managed REITs, Five Star and TA serve on the board of directors of AIC. Separation Arrangements David J. Hegarty, Mark L. Kleifges, Bruce J. Mackey Jr., Thomas M. O’Brien and John C. Popeo, each a former Executive Vice President of RMR LLC, retired from and resigned their RMR LLC officer positions between November 29, 2017 and December 31, 2018. We entered into retirement agreements with these former officers in connection with their retirements. 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. As of September 30, 2019, there remained no further substantive performance obligations with respect to any such arrangements, and we in turn recognized all applicable provisions in our consolidated statement of comprehensive income as separation costs. For the fiscal years ended September 30, 2019 and 2018, we recognized cash and equity based separation costs as set forth in the following table: Fiscal Year Ended September 30, 2019 2018 Former executive officers: Cash separation costs $ 5,312 $ 1,875 Equity based separation costs 1,488 483 6,800 2,358 Former nonexecutive officers: Cash separation costs 153 1,372 Equity based separation costs 97 — 250 1,372 Total separation costs $ 7,050 $ 3,730 Other The Managed REITs and Managed Operators award common shares directly to certain of our officers and employees in connection with the provision of services to those companies. For a description of the accounting implications to us of these share awards, please see Note 2, Summary of Significant Accounting Policies and Note 7, Shareholders’ Equity . The compensation of senior executives of the Managed Operators, who are also employees or officers of RMR LLC, is the sole responsibility of the party to or on behalf of which the individual renders services. In the past, because at least 80.0% of each of these executives’ business time was devoted to services to the Managed Operator, 80.0% of their total cash compensation was paid by the Managed Operator and the remainder was paid by RMR LLC. In June 2017, we became aware that we had been a victim of a criminal fraud that law enforcement authorities refer to as business email compromise fraud. This fraud involved a person pretending to be the representative of the seller in a property acquisition transaction for one of our Managed Equity REITs. The impostor provided fraudulent wire instructions to one of our senior level employees. As a result, funds were sent by wire transfer to an account that was believed to be, but in fact was not, the seller’s account, which resulted in our incurring a loss of $590 , as well as additional expenses of $184 in connection with this matter for the fiscal year ended September 30, 2017. We recorded these amounts in general and administrative expense in our consolidated statements of comprehensive income. The affected Managed Equity REIT did not incur any loss in connection with this matter. |
