The RMR Group Inc. (RMR) Q1 2020 Earnings Report, Transcript and Summary

Good day, and welcome to the RMR Group First Quarter 2020 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michael Kodesch, Director of Investor Relations. Please go ahead.

Good morning and thank you for joining RMR’s first quarter of fiscal 2020 conference call. With me on today’s call are President and CEO, Adam Portnoy; and Chief Financial Officer, Matt Jordan. In just a moment, they will provide details about our business and performance followed by a question-and-answer session. I would like to note that recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on RMR's beliefs and expectations as of today, February 06, 2020, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, or SEC, which can be found on our website at www.rmrgroup.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we may discuss non-GAAP numbers during this call, including adjusted net income, adjusted earnings per share, adjusted EBITDA and adjusted EBITDA margin. A reconciliation of net income determined in accordance with U.S. generally accepted accounting principles to adjusted net income, adjusted earnings per share, adjusted EBITDA and calculations of adjusted EBITDA margin can be found in the news release we issued this morning. And now, I would like to turn the call over to Adam Portnoy to begin our quarterly review.

Thanks, Michael, and thank you everyone for joining us this morning. For the first quarter of fiscal year 2020, which ended on December 31, we reported adjusted net income of $9.3 million, or $0.57 per share, and adjusted EBITDA of $28 million, both of which were in line with the guidance we provided during our last earnings call. In addition, we ended the quarter with gross assets under management of $32.2 billion, a $2.5 billion increase from a year ago. With over 80% of our revenues continuing to come from our four Managed Equity REITs, all of which are perpetual capital vehicles with 20 year evergreen contracts, we remain focused on the strategic actions underway at each of our REITs with the ultimate goal of their share price appreciation. As we've highlighted in the past, our contractual arrangements with our Managed Equity REITs creates a powerful alignment of interest between our client companies and RMR. Specifically, the low share prices at three of our foreign Managed Equity REITs are causing RMR’s recurring revenues to be less than they could otherwise be if our revenues were based on gross AUM. However, there is recent evidence to suggest that through the combination of successfully executing on strategic initiatives and active investor outreach, the gap between gross AUM and fee-paying AUM can be reduced. More specifically, OPI announced in early January that it had exceeded its strategic disposition targets. The successful execution of their stated plan has been well received by shareholders, which in turn helped OPI’s total shareholder return for calendar year 2019 exceed its benchmark peer group by over 300 basis points. Further for the four month period ending January 31, 2020, OPI share prices increased by over 11%. As a reminder, as OPI stock price improves, RMR’s base business management fees will also increase. From an operations perspective this quarter, we remain very busy with our organization arranging almost 3 million square feet of leases on behalf of our client companies with a weighted average lease term of over eight years and a weighted average roll up in rent of just under 7%. We also directly supervised $41 million in capital improvements in our client companies. Similar to last year due to RMR having a September 30 year end and most of our client companies having December 31 year ends, we are reporting results in advance of our client companies and are limited as to what we can discuss. With that said, I would like to bring you up-to-date on some of the more significant matters since our last earnings call. As I previously highlighted, OPI has announced a total of approximately $850 million of proceeds from the disposition of 58 properties in calendar year 2019. These proceeds went towards deleveraging with net debt to adjusted EBITDA down to 6.2 times from a high of 7.5 times and help lead to OPI's investment grade rating being reaffirmed. Looking ahead, with the disposition program complete and a dividend that we made is well covered, OPI has transitioned its focus towards a disciplined capital recycling program to accretively improve its portfolio in calendar year 2020 and beyond. We are also working actively towards executing a joint venture transaction at ILPT that would involve a portfolio of mainland industrial properties, which may provide a new source of equity capital to help grow ILPT in the future. By partnering with a well funded institutional investor, ILPT may be able to grow without issuing dilutive equity or putting pressure on its leverage levels. At the beginning of calendar year 2020, SNH took measurable steps in transformation of the company including changing its name to Diversified Healthcare Trust, or DHC, which more accurately depicts the company's portfolio of diverse high quality healthcare real estate. In conjunction with the name change, DHC and Five Star senior living completed the previously announced restructuring of the business arrangements effective January 1. DHC continues to make progress on its disposition program, which is expected to reduce the company's leverage and better position DHC’s portfolio for the future. Through the end of calendar year 2019, DHC has approximately $678 million of assets sold or under agreement to sell and an additional $231 million of assets with offers from prospective buyers. Shifting gears in connection with the SMTA transaction, SVC committed to sell approximately $800 million in assets. In November 2019, SVC announced the sale of over $500 million of net leased assets with the remaining $300 million in planned dispositions of lower performing hotels expected to be completed by mid-year 2020. At the beginning of the year, SVC also announced that its agreement with Marriott, one of SVC’s largest relationships, was extended to 2035 and the agreement included enhanced credit support from Marriott going forward. Collectively, these steps ensure that SVC remains well positioned heading into 2020 with a well covered dividend and an investment grade balance sheet. Finally, we continue to believe that our mortgage origination platform has significant untapped potential to take advantage of the mortgage origination momentum that Tremont Mortgage Trust has generated. We have facilitated two strategic transactions to ensure we remain active in the marketplace. First, we launched a private vehicle focused on middle market lending opportunities called Centre Street Finance with a $50 million commitment from ABP Trust. Secondly, the RMR Real Estate Income Fund, or RIF, has filed a proxy with the SEC regarding its intent to convert to a commercial mortgage REIT and an effort to increase shareholder value and the distributions paid to its shareholders. Turning to our efforts to expanding and growing the RMR platform. We continue to spend time focused on our private capital asset management business, including transactions involving our Managed Equity REITs such as ILPT’s possible joint venture I discussed earlier. We continue to develop relationships with large sources of private capital such as sovereign wealth funds, which may lead to separately managed account opportunities for RMR in the future. In addition, we continue exploring opportunities to grow AUM and accelerate our private capital fundraising capabilities through possible M&A activities. We remain engaged in discussions with private real estate groups that could result in us acquiring a firm that may help accelerate the growth of our private capital asset management business. We appreciate that this process has been methodical and that there may be concerns regarding whether we can find an acquisition that will meet the various attributes we have outlined in the past. Nevertheless, we remain confident that opportunities to transact do exist and we continue to work with our advisers to engage in productive discussions, regard with possible targets. Of course, we cannot speak to any specific transactions at this time. I'll now turn the call over to Matt Jordan, our Chief Financial Officer, who will review our financial results for the quarter.

Thanks, Adam, and good morning everyone. As Adam highlighted earlier, we reported adjusted net income attributable to RMR of $9.3 million, or $0.57 per share this quarter, and adjusted EBITDA of $28 million, both of which were in line with the guidance provided during our last earnings call. In addition to recurring adjustments for separation costs and unrealized gains on our investment in TA, adjusted earnings this quarter includes an add-back of $0.02 per share for transaction costs related to risk intention to convert to a commercial mortgage REIT. This quarter's earnings were also adversely impacted by recently released IRS regulations, expanding the limits on executive compensation to legal structures such as ours. The application of these new regulations increased our effective tax rate to 14.7% for fiscal 2020. The impact of these regulations to this quarter was approximately $200,000, or $0.01 per share. Management and advisory service revenues were $48.1 million this quarter, which was just under our forecast, but a $3 million increase on a sequential quarter basis. The sequential quarter increases primarily due to fee growth at SVC, partially offset by seasonal declines at our managed operators. The shortfall to projected service revenues this quarter was primarily due to share price declines adversely impacting base business management fees. For the second quarter of fiscal 2020, we are projecting management and advisory service revenues to be approximately $46 million based on current REIT share prices and projections regarding disposition activity. It is also worth noting that on a sequential quarter basis, there is one less day in the second fiscal quarter, which represents approximately $500,000 in service revenues. As it relates to incentive fees, while we did not earn any incentive fees in calendar 2019, we believe there is a silver lining to this news due to the way our incentive fees are calculated. In a down year, the three year cumulative calculation establishes a base upon which we can generate shareholder returns that can possibly exceed peer returns in the periods to follow. As an example, this could be similar to calendar 2015 in which many of the client company REITs at a low watermark and in turn we saw a highest levels of incentive fees in the years that followed. Turning to expenses for the quarter. Cash compensation of $30.2 million represents an increase of $2.2 million on a year-over-year basis and $1.2 million on a sequential quarter basis. These increases are primarily attributable to wage and bonus inflation, which reflect the competitive employment landscape we are operating in. Looking ahead, we expect cash compensation to be approximately $30.5 million per quarter for the remainder of the fiscal year. This quarter, our reimbursement of cash compensation declined to approximately 43% due to changes in our workforce mix, mainly due to open reimbursable leadership positions within our operations team. We are expecting workforce mix to remain at these levels and our reimbursement rate to be between 43% and 44% for the remainder of the fiscal year. G&A expenses this quarter were $7 million, which was in line with our expectation. While this remains our run rate level for G&A costs, in March we expect our Board of Directors will be issued annual share grant, which results in our second quarter including incremental G&A cost of approximately $600,000, or $0.01 per share. Based on our expectations regarding revenues, operating costs and our new effective tax rate, we expect adjusted earnings per share to be between $0.50 and $0.53 and adjusted EBITDA to be between $25 million and $26 million next quarter. We ended the quarter with approximately $386 million in cash and we continue to have no debt. We believe our balance sheet continues to leave us well positioned to assess strategic opportunities and invest in new business initiatives. That concludes our formal remarks. Operator, would you please open the line to questions?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Bryan Maher of B. Riley FBR. Please go ahead.

Good morning. A couple of quick questions, but really starting from more of a strategic big picture view, Adam, given that the heavy lifting has basically been done at most of the REITs in 2019. What are your thoughts as far as 2020 and 2021 go? Are there other things that are big that you're planning? Or do you think you go more into harvest mode and work on narrowing the valuation disconnect between the market caps and the historical cost of real estate?

Good morning, Bryan. Great question. Thank you. I think I largely agree with your characterization that a lot of the heavy lifting is really behind this and was done in 2019. I think there is a little bit of a tail to some of that heavy lifting especially at maybe DHC that we have worked through, but again, the majority of heavy lifting is behind us. I also agree with sort of – you were asking the question that I do see 2020 and 2021 really more about focusing on the operations of the REITs themselves and trying to really focus on improving their stock prices and share performance. All I think with the actions we've done over the last year to year and a half, we've really either have fixed or put on a path that's well defined to fix all the balance sheets, I think all the dividends are well covered. I think all the – the four Managed Equity REITs are really in a great shape for their prospects going into 2020 and 2021. And so, yes, the focus really is on asset management finishing up some of the repositioning programs most specifically at DHC and completing the sales that then outlined a little bit of sales activity still to come at SVC as well. But it's really about executing on stage of the market that we are executing exactly on this – on the plans that we've been outlining now for several quarters. And no, we do not foresee any significant or major repositionings or transactions at those vehicles as we sit here today in 2020 and further. So it's really about stock price improvement. And I can't help but emphasize a lot of investors for whatever reason at those REITs, that's still, for whatever reason, not quite understanding that the high alignment of interest between RMR as the manager in those REITs, I mean, we have every incentive, in fact, far more incentive right at this point to improve those stock prices and to let’s say just grow for growth sakes. We are far more aligned and can earn a lot more money at RMR by just improving the stock prices there. And so, that's really the focus where we are today and in 2020 into 2021.

Great. And then when we think about DHC to the extent that you can comment kind of pre their earnings. Can you talk a little bit about the sale of the senior housing components versus MOB or life science? And what does cap rates has been relative to your expectations going into that process?

So, I think, dovetailing a little bit with DHC has already announced. I think we have been pleased with the bidding both for the senior living and the MOBs. I think overall valuations have come in modestly higher than we originally anticipated in on an overall basis, some came in less, some came in more, but overall it's actually coming a little higher. There is still a very strong bid per senior living in the marketplace, which from stepping back for a moment, might be a little disconnected from the fundamentals in the business as they exist today. But that being the case, there's still a very strong bid. There's still a lot of capital. There's interested in owning and acquiring senior living assets. And of course that continues to be and has been for some time a lot of interest in buying medical office buildings and life science building. So we've been generally pleased with the response we've gotten in the market in the dispositions at DHC.

Thanks. I'll go back into the queue. Let others ask questions. Thank you.

The next question comes from Owen Lau of Oppenheimer. Please go ahead.

Good morning. Thank you for taking my question to Matt and Adam. So for a bigger picture question, I want to go back to the M&A criteria. Do you still focus on the $5 billion to $15 billion AUM real estate private equity asset manager? Is any change there? Also are you still considering real estate securities management businesses as well? Thank you.

Sure. Owen, thank you for the question. Generally speaking, there is a gray line. I call the gray line $5 billion in more is really criteria. And to talk a little bit more about that, I said it in my prepared remarks. I'm sure people are probably tired of hearing me talk about how we're out in the marketplace and talking to lots of folks by have nothing concrete to show people. I can assure you I am also frustrated by that as well. But I can tell you that there we are much more advanced in our discussions at this point than we were at the last conference call we've had and our conversations have advanced with a limited number of participants that we're engaged with. And I'm confident that we will announce something in this calendar year around M&A. But yes, the parties that we're talking to are having what I'd call advanced discussions with, they are bigger than $5 billion and that continues to be what I'd call a gray line. I mean, of course, there could be exceptions to that, but I really do think – to make it meaningful for us, it would need to be bigger than $5 billion. Again, we're not really trying to do a roll up here. This is not about trying to buy two or three asset managers and roll it up. This is just really about trying to buy the right asset manager, especially in the first case. We're trying to be very methodical, very – we want to be good stewards of capital. We want to allocate the capital correctly. If I wanted to just put an announcement up, a long time ago we could have closed with somebody. There have been parties that we have walked away from that we just didn't think it made a good fit. But I do think we are having some advanced discussions with a small number of folks and I'm confident that something could happen in 2020. Now with regards to the securities management platform, generally speaking no. We are not actively trying to grow that business. I think you could take a pretty strong queue from the fact that we filed a proxy at RIF, the one vehicle that is focused on securities management within our platform to convert that vehicle into a commercial mortgage REIT. That's sort of a short dovetail of where we're thinking and what we're thinking about the securities management business. That all being said, it's possible that's in an M&A transaction that something we – somebody we transact with could have a small part of their business that's involved in securities management that – so that could happen. But again, it's not a focus for us.

That's very helpful. Thank you. So a modeling question, for the interest and other income line item, it had been around $2.5 million in the previous three quarters, but it dropped to around $1.9 million, but the cash balance went up a little bit. Is there anything you want to call out? And how should we think about this line item going forward? Thank you.

But, Owen, we would look at it using current rates. Interest rates have obviously come down. We put most of our money in money market accounts. So the drop in interest income is really just a function of rates dropping on the monies we have with our banking relationship.

And then for the EPS guidance, it kind of like maybe dropped a little bit from the $0.57 this quarter. And how should we think about the delta between the first quarter and the second quarter?

A good question, Owen. I guess, there is a couple one offs we tried to highlight throughout the prepared remarks. Number one, you've got the tax rate change, which will be at least a penny when you think about modeling go forward from my 39 historical rate to 47. You have one less day, which unfortunately is another penny. And then in Q2 as it most usually does each year will include director share awards in our G&A line, which is another penny. So you have $0.03 and what I would call one-time items that need to be cared for in the modeling. And then you have some projections based on current share prices of where we think business management fees will be. Obviously, we hope those share prices improve. But we are using current trends and we're also caring for a disposition activity, we expect will close this quarter, which should generate a decline in property management fees of around $400,000, which is also a penny.

Okay. Thank you very much.

The next question today comes from Bill Katz of Citigroup. Please go ahead.

Okay, thank you. Good morning and appreciate taking the question this morning. You had mentioned [indiscernible] the joint venture. I was wondering if you could just talk a little bit more about that and how the economics might waterfall back to RMR?

Sure. The Centre Street Finance business that I – is what I think you're talking about, is that…

Right, correct.

Okay, the term on joint venture. Yes, the economics for that joint venture Centre Street are identical to the economics that Tremont Realty Trust pays to RMR, which is a 0.5 on the equity as well as any – an incentive fee, which kicks in after I believe an 8% return to RMR – that RMR received. So the economics, we basically mirrored the public vehicle and setting up the separate account for Centre Street.

Okay, that's helpful. And then Matt, you mentioned that you a little mocked mistake on performance fees, excuse me I have had a question. Could you sort of walk back a little bit and just sort of help me to understand what some of the sensitivities might be for that sort of swing from zero to actually putting something – to generating some performance fees?

Yes. So as it relates to the incentive fee line, obviously we didn't earn any in 2019. It's still early for 2020 and it's definitely very early in the cycle when I think about calendar 2021. But in terms of what we're thinking right now and we tried to highlight this in the prepared remarks, OPI had a very good 2019. It beat its benchmark by 300 basis points. SVC has been at or beat its benchmark the last two years as well. So we think those are both good trends as we think about 2020 and definitely as we look into 2021 for the potential to swing back into performance fee and incentive fee territory. And as you know, 2019 is the first year since we went public that we didn't earn any incentive fees and we'd previously been averaging about 100 million a year. So as we look forward, we think trends are positive and hopefully will continue as the year progresses for the 2020 measurement periods and the 2021 measurement period.

Got you. Okay, that's helpful. And then just last one, I mean, come back to you just on M&A. I appreciate that you still mentioned $5 billion sort of like a minimum stock point for you guys. Can you talk a little bit about how you think about financial criteria against that? I think that was another question and your – and any answer on that. And how are you thinking about deal multiples? So I think that's trying to think about the opportunity for you.

Sure. Bill, just to make sure I understand the question. The question is around financial metrics around any sort of possible transaction? Is that right?

Right, exactly. Right, right. Because the other side of just [indiscernible] we're hearing a lot of folks very in interestingly in the alternative space deal multiples have been going up rather sizeably and some other traditional buyers have been sort of cautious. I'm just trying to understand the economic opportunity for you.

Sure. So multiples it sort of depends on the type of assets you will be acquiring. What I mean by that is do they have a large incentive fee or carry interest as part of it or they – do they not, are they much more focused on core real estate versus value-add are opportunistic. Multiples generally have been – that we have been talking to folks about would be below where we're trading and if I can basically put it to you that way. So we trade – you look at our EBITDA multiples, what we are looking at doing would hopefully – we would hopefully transact at something below that, especially after you would factor in synergies on the back end. And so, that's how we've been approaching it. Of course, any transaction that we would engage with there would be obviously an upfront component of a compensation paid, but then there'd probably be some sort of tail that you'd obviously want to incentivize, so that you’d incentivize that the AUM stays and/or grows as it transitions to our platform. And so, I'm giving a roundabout answer, but I think we can acquire a firm and do it accretively at RMR. But I also think that aside. What we are really focused on why we're saying this $5 billion as bigger is – and it's not really a roll up strategy. It's not about buying two, five – three or four different firms. It's really about trying to identify that one firm that we acquire. We really integrate it into our RMR and it itself becomes the platform that we then grow the private capital business around. And so, that's also a very important part of this. I'd want people to understand how we're thinking about it and the way – and what it could produce going forward. It's really about accelerating the growth of that AUM from that capital sources, from private capital sources and getting a platform up and going around it that we can hopefully grow. We're over 30 billion of AUM today. Most – almost all of that is in publicly traded – managing publicly traded REITs. It's a strategic priority for RMR to try and get many billions of dollars under management that we manage on the private side. I think it's very important that we become diversified like that. And so that's really how we're thinking about. But at the heart of your question, I think we can do it accretively at the end of the day.

That's very helpful. I appreciate all the color. Thank you.

The next question comes from Kenneth Lee of RBC Capital Markets. Please go ahead.

Hi, thanks for taking my question. I'm wondering if you could just go further into the growth opportunities within Centre Street Finance and when can you start seeing some potential contribution to earnings? And similarly, the recent conversion to the commercial mortgage REIT, I just want to better understand the growth opportunity there as well and also when you would see a contribution in terms of earnings from that one as well. Thanks.

So, the growth opportunity, let me – there's a big sort of strategic answer I want to give you and then I'm going to let Matt go through the real specifics. So, strategically, it's our hope that Centre Street can also perhaps serve as an anchor to raise additional private capital to invest in commercial mortgages. So we've basically set up this separate managed account, committed $50 million to its equity and we have a line of credit that's been lined up to also provide – as a repo facility to provide the appropriate leverage on that $50 million to go out and buy roughly $200 million or invest in roughly $200 million of total mortgages when you incorporate leverage. We've got that up and going now and that's starting to evaluate and commit to making investments now. At the same time, we're using it as sort of an anchor to go out to large pools of capital and say, you know, would you be interested in co-investing or side by side investing in Centre Street Finance. And that's really strategically what we're also doing and why we have Centre Street Finance up and going. With regards to the contribution to RMR, I'll let Matt to handle that.

Yes. When all the capital is deployed and again before the any possible third-party money, it's about $750,000 incremental fee impact at the economics, Adam discussed earlier 0.5 point on equity. Our internal projections as the money will probably be put to work sometime in the summer, the full $50 million. So it'll be kind of – it will bleed in until then and then you'd have the $750,000 run rate starting the summer again without assuming any third-party money is raised.

Great. Very helpful. And just one follow-up question in terms of the whole M&A discussions. And this is more in terms of the potential financial capacity. Looking on the cash on the balance sheet, you have about $385 million or so. How much of that – could you remind us again, how much of that could be considered excess and deployable capital? Thanks.

So a large majority of that could be considered excess capital and deployable. I don't believe that an M&A transaction would use, let's say, the majority of it. In fact, I think it would use less than half of it probably. But that's for an M&A. You also have to think of the follow-on question, which is, as I said, if we were to buy a platform and start to grow a private capital business, we'd like to hopefully grow it after it's acquired. And part of the plan around growing it would be to raise new funds and co-invest in those funds. When you're a newer player in the private capital market, it's my view that you might have to have larger co-investments in the beginning to help attract capital and get the platform really going when you do once you are a large established player. And so yes, I think we'll use probably well less than half that money, let's say, in M&A specifically to buy something if we were to buy something, but then there's the capital that we might need soon thereafter to try to grow the platform. And that's really how we're earmarking and thinking about the money. And I don't – and today because we don't have a transaction definitive or an announceable yet, I don't have an exact amount that I can point to and say this is exactly how much money we're going to use to buy somebody in, this is how much we plan to for co-investment. So it's a little – it's hard to put an exact pin in it today, but that's how we're thinking about it.

And the only thing I would add to reinforce Adam's point, just remember we're throwing off about $110 million of EBITDA a year, a third dedicated to taxes, a third dedicated to our dividend commitment and the remaining third is available for growth, working capital, what have you. So that $385 million is all available for growth based on how we generate cash as a business.

And Matt, $110 million run rate EBITDA is before incentive fees.

Correct.

Understood, very helpful. Thank you very much.

The next question comes from Ronald Kamdem of Morgan Stanley. Please go ahead.

Hey guys, a lot of my questions have been asked. I have three quick ones from me. The first is, sort of as you're going out in the market and talking to investors, can you just give us an update of what asset classes are still sort of in vogue versus what asset classes people are staying away from? And the reason I ask is have you felt – felt the shift in any particular asset classes over the last, let’s say, three to six months that that's notable?

Yeah, it's a great question. I would say there hasn't been a significant shift in what people are favoring over the last three to six months. The two asset classes that continue to attract the most amount of money is multifamily and industrial. I would say that the asset class that attracts a least amount of private capital is probably retail. And in between, this office that I would say most people aren't allocating a lot of new capital towards office investing, they feel quite full in their office allocations today. That being said, things like MOBs or life science, which people might consider very specialized office can attract a lot of capital. And I think that's – that continues to be the case. I guess if there's been any shift, I have seen there's even more money today I think focused on life science then I've seen maybe it's – there's been a strong bids for life science for some time, but if you asked me what's changed the last three to six months, I’d say the bids even getting stronger and there's even more people trying to find a way to buy more life science assets or get there. It's a very niche small market, but it's attracting even more capital there today. Senior living is an asset class that continues to attract, I'd say, a modest – reasonable amount of money given the underlying performance of the operations hotels is an area that I would say, you know, there hasn't been nearly as much transaction volume in the last three to six months in hotels as you saw in the prior periods. So that's – I'm not sure I could comment on where valuations are in hotels, there's just been a real dearth of transactions that have occurred. That being said, within our REIT SVC, we are trend – we have earmarks, several hotels for dispositions. And we are getting strong bids. We are getting more – multiple parties bidding. And so, there is a bid on that as well. But again, we're talking about 300 million in portfolios hotels, it’s not – that's probably one of the larger transactions in the market today is that $300 million of hotels that were in the market we're selling today. There are not a lot of hotels just moving or transacting.

Got it. That's helpful. And my second question was sticking to just – I think it was just SVC and thinking about just the high level of the business plan. How much do you think is the market sort of misunderstanding sort of the change in risk profile with the triple net acquisitions versus – are people just waiting to execute on the sales before sort of we want to see the sales executed before they take sort of a hard look at the company? I am just trying to get a sense of what sort of the market missing? What are some of the misconceptions that you're hearing on it?

It's a great question. I don't have a real perfect answer. I have been a little dumbfounded where SVC has been trading, especially over the last several weeks. It's a 10% dividend yield. It makes, in my view, no sense. The company's dividend is very well, well covered. The balance sheet is in great shape. We've already executed on well over half of the dispositions we said we would execute on. I think we're well on track to execute on the dispositions that we said we would execute on. We had a really favorable announcement around Marriott at the end of the year. That's for some reason I'm not sure why people haven't picked up on that. We have well over a hundred hotels with Marriott. And this is going to be a – we've extended the agreement with them and we've got credit support from Marriott. We've extended the credit support. So I have to be honest, I don't have a perfect answer for you what's going on at SVC. It doesn't make a lot of sense for me. The only thing I could point to is as you've pointed out the two things, people are trying to understand better, the execution around net leased real estate and retail, which is performing fine and is integrated very well into our existing operation and they're just waiting for us to complete the additional 300 million of hotel sales which is underway.

That's helpful. The last one is just a quick one just because I don't think I've heard to ask already, but just on – how are you guys thinking about the buybacks at this point? Is it sort of – obviously there's a lot of focus on the growth initiatives, but just thought I get that one in there.

Yes. With regards to returning capital to shareholders, it's a great question we get asked it a lot. We really got to see where things shake out on the M&A side with regards to growing the private capital platform. That's incredibly important strategic initiative for RMR in 2020. And in 2019 and even parts of 2018, the majority of the focus at RMR is really in repositioning our – our existing client companies and getting them onshore footings. That's largely behind us. And now while 2019 we were doing some work really getting behind trying to grow the private capital initiative, I can tell you that it's front and center, 100% focus as we are in 2020. And so, we really have to sort of see where that shakes out over the next several months. And of course, being myself, one of the largest shareholders in RMR, I stand the benefit from any return of capital. I think we got to get to true, let's see where we are in the next few months with the M&A and growing the private capital business. And then I think if we still are generating excess cash and we still have large balances on our balance sheet. I think the board would then think about, it doesn’t make sense to think about returning some capital shareholders. I will tell you I have a slight bias as management and this would be fully vetted at the board, maybe not, but me personally towards returning capital to shareholders in the form of a dividend versus a stock buyback. That being said, nothing is off the table depending on where the stock price might be and whether it makes sense. But that's good generally how I'm thinking about it and where we are in the thinking of it.

Helpful. Thanks for taking my questions.

The next question comes from Michael Carrier of Bank of America Merrill Lynch. Please go ahead.

Hi, this is actually Dean Stephan on from Mike. Just a quick question around the strategic repositioning efforts. So besides the current efforts underway, are there any other plans? I know you mentioned investor outreach in place to maybe better align the REIT market values with their historical values and capture some of that $36 million revenue opportunity. Or do you anticipate the current plans will kind of be enough to narrow that gap?

Well, we want to execute on the current plans, especially DHC and mainly – like I said, the tail at SVC, we want to get that behind us. We'll see where the stock prices are and see if it's warranted to do any sort of additional actions. I'll tell you, any additional actions from that point we’ll really be focused. What do we do – what can we do to improve the stock price at that point? Other thing that we have talked about in and around the RMR Managed Equity REITs is governance reforms. We've talked about this in our proxies in the years past. We've been talking to that – about that with our largest shareholders at those managed equity REITs. Things like expanding the size of the board and other examples, lessening the cross-border, boarding among the REITs, things like that that we've talked about with shareholders of the REITs that I think we are more and more embracing and we have said that we would be doing. And I think those are things that we'll see some – we're going to continue to do and you'll see announcements around that, especially as we get into the annual meeting season for the equity REITs. Here in the spring there'll be some – what I think will largely be expected governance announcements because we've been transparent in telling the market that they were coming at the equity REITs. But that's another lever that we haven't spent a lot of time talking about that is coming in the next couple of months.

Great, thanks.

You’re welcome.

This concludes our question-and-answer session. I would now like to turn the conference back over to Adam Portnoy for any closing remarks.

Thank you all for joining us prior to our next quarterly earnings call. We look forward to seeing many of you at the Citi 2020 Asset Managers, Brokers, Dealers and Exchanges and Insurance Conference on February 25 in New York as well as the 2020 RBC Capital Markets Financial Institutions Conference on March 10 in New York. Operator that concludes our call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.