The RMR Group to Acquire CARROLL Multifamily Platform

The RMR Group (Nasdaq: RMR) today announced that it has entered into a definitive agreement to acquire 100% of the equity interests in MPC Partnership Holdings, LLC, doing business as CARROLL (“CARROLL”), a vertically integrated multifamily platform, in an all cash transaction for $80 million, subject to customary purchase price adjustments, with the potential for incremental earnout consideration up to $20 million based on the deployment of future capital.

The acquisition is an attractive opportunity for RMR to enter the only major commercial real estate sector in which RMR does not have a significant presence. CARROLL also brings an advanced technology infrastructure and digital marketing capabilities that may be leveraged across the RMR platform. The transaction further advances RMR’s strategic focus on growing its private capital business, adding approximately $7 billion in assets under management (“AUM”) and over 20 institutional partner relationships.

Founded in 2004 and headquartered in Atlanta, Georgia, as of March 31, 2023 CARROLL provides asset and property management services to 81 multifamily properties with more than 28,000 units, primarily located across the Sunbelt markets of the United States. With approximately 700 employees, CARROLL’s platform combines leading operations with deep market knowledge and expertise in capital raising, property acquisitions, asset management and property management through its in house brand, ARIUM Living, to unlock value at managed assets. The company’s highly scalable, profitable and asset light business generates recurring fee income, with a track record of delivering average gross realized returns of nearly 30% for institutional investors. Since inception, CARROLL has executed more than $12 billion in real estate acquisitions and currently has the potential to make multifamily investments in excess of $3 billion in its current general partner fund series.

Adam Portnoy, President & Chief Executive Officer of The RMR Group, made the following statement:

“We are excited to announce the strategic acquisition of CARROLL, a leading vertically integrated multifamily housing platform. This transaction will further diversify and expand the reach of RMR, augmenting RMR’s already considerable scale with differentiated operational expertise in a favored commercial real estate sector. Importantly, the CARROLL platform is uniquely positioned to continue benefitting from favorable demographic tailwinds in high-growth Sunbelt markets. Additionally, this acquisition will advance RMR’s private capital growth strategy with high-quality global institutional investors and drive continued growth across the combined platform with the potential to make in excess of $3 billion of additional multifamily investments. We look forward to welcoming the CARROLL team to RMR at closing and supporting CARROLL’s continued growth and expanding its operations as part of RMR.”

Patrick Carroll, Founder & Chief Executive Officer of CARROLL, made the following statement:

“I’m incredibly proud of the business my team and I have built over the past nearly 20 years with the support of our investors and partners and I’m thrilled to see CARROLL take the next step under RMR’s ownership. CARROLL’s long track record of success and expertise in the multifamily sector will perfectly complement RMR’s diverse real estate investment management platform. I believe RMR is the right company to lead the CARROLL team and business through the next phase of growth, while continuing to focus on the core tenets of our business – consistently delivering best-in-class management and generating meaningful value for our partners.”

Strategic and Financial Rationale

The acquisition of CARROLL represents the successful advancement of RMR’s strategic plan to expand its private capital business and utilize its balance sheet to diversify into additional real estate sectors. The transaction advances the following objectives:

Diversification

• Expands the RMR platform by providing multifamily expertise across the Sunbelt markets via a leading vertically integrated operator.
• Provides additional high quality institutional investors through CARROLL’s existing joint venture and limited partner relationships.
• Adds a profitable, scalable and asset light business with a recurring revenue stream.
• Leverages CARROLL’s experience and expertise in value add multifamily investing, diversifying RMR’s capabilities beyond core plus real estate and supporting future multifamily vehicles.

Growth & Scale

• Enhances RMR’s position as a leading alternative asset management platform, growing total AUM to approximately $44 billion and private capital AUM to approximately $15 billion.
• Positions RMR for continued growth, including through the ability of CARROLL’s general partner fund series to make in excess of $3 billion of additional multifamily investments.

Value Creation

• Expected to be immediately accretive to Adjusted EBITDA, Adjusted EPS and Distributable Earnings per share.
• Provides RMR with a proven fund platform to generate performance-based promote fees on new co-investments.

Key Transaction Details

RMR is acquiring 100% of the equity interest in CARROLL for $80 million, subject to customary purchase price adjustments, with the potential for incremental earnout consideration up to $20 million tied to the deployment of future capital. The sellers are to retain existing general partner co-investments and promote fees derived from those investments. The transaction is expected to be funded entirely with cash on hand, and the transaction price, excluding contingent earnout consideration, reflects an implied valuation of 11.4x to 13.3x of CARROLL’s recurring 2024 EBITDA and 6.2x to 7.3x of CARROLL’s recurring 2024 EBITDA adjusted for potential synergies.

In the first full year of operations post closing, RMR expects the CARROLL platform to generate more than $35 million in recurring fees and approximately $11 million to $13 million of Adjusted EBITDA, including $5 million to $6 million of synergies. Post transaction, RMR expects to have no debt and approximately $200 million of cash on hand for further opportunistic growth strategies.

Approvals and Closing

The transaction, which was unanimously approved by RMR’s Board of Directors, is expected to close in the fall of 2023, subject to customary conditions, primarily obtaining limited partner, joint venture partner and lender consents.

Advisors

The CenterCap Group, LLC is serving as exclusive financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to RMR on this transaction. UBS Investment Bank is acting as exclusive financial advisor and King & Spalding LLP is acting as legal advisor to CARROLL.

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