Q3 2020 RMR Group Inc Earnings Call
Everyone. This is the operator.
Please continue to hold we will begin the arm our conference call. Shortly thank you.
[music].
Crushing the Starkey followed by zero.
After today's presentation, there will be an opportunity to ask questions.
Please note today's event is being recorded.
At this time I would like to turn the conference Everett you Michael Kodesch Director of Investor Relations. Please proceed.
Good afternoon. Thank you for joining our March 3rd quarter fiscal 2020 conference call.
With me on today's call, our President and CEO, Adam Portnoy, and Chief Financial Officer match or.
Just a moment they will provide details about our business in performance followed by a question answer session.
We'd like to note that the recording and retransmission of today's conference call is prohibited without 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 law.
These forward looking statements are based on our Mars beliefs and expectations as of today August seven 2020, and actual results may differ materially from those that we project.
The company undertakes no obligation to revise or publicly released 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 securities and Exchange Commission, whereas you see can be found on our website at www Dot RMR group Dot com.
Lessors 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. The calculation of adjusted EBITDA margin can be found in the news release, we issued this morning, and now I would like to turn call over to Adam.
Thanks, Michael and good afternoon, everyone.
I'd like to begin today's call by recognizing the immense effort and dedication we've seen across our organization. Despite the impact of the covert 19 crisis on our businesses.
For the last four months have been extraordinarily challenging 100% of our managed office and industrial assets have remained operational and available to our tenants no approximately half remain lightly utilized.
With a nationwide platform of over 2100 properties across multiple commercial real estate sectors I like the first share some insights regarding the sectors we operated.
As it relates to commercial real estate investment sales, we've witnessed transaction volume declines across all sectors as a point of reference the volume of transactions screen by our acquisitions team decreased by over 40% relative to the average volume of transactions screened a typical quarter.
With the overall volume down private capital dry powder earmark for commercial real estate, coupled with historical low interest rates has helped properties hold their value and keep cap rates close to three pandemic levels.
Especially in the top performing sectors, such as industrial and net leased office.
In each of these highly sought after seven years, we've experienced competitive bidding processes with buyers getting close to brokers expectations with that said values in the more Meg negatively impacted sectors, such as hospitality senior living and nonessential retail will take longer to recover and we expect.
There may be select acquisition opportunities with these types of properties at distressed prices in the future.
These same trends have been packed in many of our managed equity reach disposition programs as we've seen a reduction a number of buyers available for hotel senior living and not a central service retail dispositions.
In many cases, we have both <unk> perspective transactions due to buyers seeking price reductions because we had concerns around the viability of buyer financing.
Well transaction volume has slowed considerably it's worth noting that in aggregate. Our client companies are closed on the sale of 18 properties for proceeds of $176 million since the beginning of March.
Turning to industry and tenant behavior.
I'm pleased to report that across our platform, we collected over 90% of red each month in the fiscal third quarter and in July we collected approximately 99% of Rex.
Majority of uncollected rents have been addressed the rent relief discussions mostly in the form of right for us.
As it relates the rent deferrals, we remain committed to working with the tenets of our client companies by providing short term relief to allow them to successfully navigate this pandemic.
This collaborative approach to working with our tenant should help upon returned to normal and making sure we are preferred and trusted landlord for longer term real estate needs.
Today, we have granted net rent relief to over 300 tenants with the pace of rent the for request across our client companies declining over the course of the quarter.
We believe the higher volume of deferral requests in March and April was partially the result of tenants not yet receiving government support and the uncertainty of reopening timelines.
As government support impartial reopening sovereign proved tenant confidence over 50 tenants have rescinded rent there for a request.
During the third quarter, we arranged over 3.2 million square feet of leases and rent resets on behalf of our client companies with a weighted average lease term of 11 years at a weighted average rollup in rent of almost 8%.
Leasing activity was primarily driven by near term expirations or rent abatements given in exchange for extended lease terms.
Given the market uncertainty and the impact of work from home orders, we're seeing a mix of tenant behaviors across industries. Many tenants that were in the market to relocate or new have chosen to sign short term or blend and extend renewals, whereas industrial and Gulf and government tenants.
Have mostly proceeded as they would normally.
Finally, as it relates to construction activity at our client companies. The initial stages of the pandemic caused some markets to slow or stop construction activity altogether.
As markets began to reopen bans on construction have been lifted and municipalities have adopted measures to continue with planned reviews permitting and inspections.
Most large scale development projects managed by RMR remain on schedule with the impacts of the pandemic being far less dramatic than we had thought during our last earnings call.
This quarter RMR directly supervised over $40 million in capital improvements at our client companies, an increase of almost $10 million on a year over year and sequential quarter basis.
Moving to some of the more significant highlights at our client companies during the quarter.
Industrial real estate remains firmly in favor as warehouse demand remains well supported by continued growth in E commerce and the related needs of our tenants for logistics and distribution support.
Hi, LPG was a direct beneficiary of this trend delivering same property cash basis, and a wide growth of 3.4% on a year over year basis.
The 1.9 million square feet of leasing and rent reset activity with a 23% rollup in rents.
Hi, LPG also continues to benefit from a tenant base, where investment grade rated tenants or Hawaii ground leases represent approximately 75% of annualized rents.
With our more to help I LPT also continues to explore the possibility of expanding the joint venture it announced last quarter with another direct capital Investor.
It is also it is our expectation that this vehicle would make additional acquisitions in the future, which in turn would help scale well add scale to high LPT and result in a new RMR managed private vehicle.
Switching gears to our office right.
Oh PPI diverse portfolio of high credit quality and government tenants has remained resilient throughout the pandemic. While much has been made regarding the future of office space. We believe it is too early to conclude on where tenant behaviors will ultimately land today request from tenants for changes to their footprint to support.
Flexibility with remote work have been minimal we continue to believe de Densification employee development and collaboration and the need for an office touch point will largely outweigh the current temporary work from home trends.
Oh, PPI same property cash basis, and Hawaii increased 2.5% over the prior year were 642000 square feet of leases executed at a 3.9% roll up in Red.
Oh, PPI recently issued $162 million, a 30 year senior unsecured notes and use the proceeds to pay down its revolving credit facility.
With nearly 63% of its annualized revenue derived from investment grade rated tenants OPI remains well positioned to whether the current economic environment.
This quarter DHC completed two important transactions as it is issued $1 billion of senior unsecured notes and amended its credit facility in term loan agreements completion of these transactions should ensure ghd has sufficient liquidity to meet the unique challenges.
As presented by the pandemic pay down near term maturities provide flexibility in meeting debt covenants and allow it to continue investing in its portfolio.
While DHC continues to experience pandemic related headwinds and its senior living communities. It's important to remember that almost 60% of DHS and NOI comes off the segment. The office segment continues to benefit from a healthy biotech and lab real estate market as pharmaceutical.
And medical device manufacturers experienced surges in demand associated with Covidien test.
And vaccine related research.
Excluding reductions in parking income as a result of the pandemic DHS office segment same property cash basis, and NOI increased 10 basis points year over year.
SBC continues to face the most significant pandemic related challenges amongst all our managed businesses as the hospitality and service retail sectors have been some of the hardest hit.
Help ensure asked me he can whether the current environment SBC issued $800 million of senior unsecured notes and obtained waivers from certain financial covenants applicable to its bank facilities.
Most recently SVC sent the notice do I, each GE to terminate agreements covering 103 hotels.
While we hope that ICICI honors its contractual arrangements with SBC, we're assessing alternative strategies to protect sbcs cash flows and to maximize flexibility regarding these important assets.
Potentially rebranding these hotels as sonesta hotels SBC would also benefit the its 34% ownership of sonesta and leveraged investors track record of improving returns at hotels, where it assumes management.
Operationally as VC has seen signs of recovery throughout the quarter with hotel occupancy steadily increasing each month too high of 35.5% in June and service retail rent collections of 80% for the month of July.
Well these are positive trends the remains a long road ahead for SBC to get back to pre pandemic operating results.
Lastly, Travelcenters of America, which continues to support the critical work of professional truck drivers transporting vital goods across the country reported strong diesel fuel volume and adjusted fuel gross margins. Despite the ongoing pandemic.
Jay was also able to successfully close on a 85.4 million dollar public stock offering in early July with the proceeds expected to fund capital expenditures and implement growth initiatives.
Turning to our efforts to expand and grow the RMR platform, we continue exploring opportunities to grow our private capital management business.
We're having productive conversations with direct private capital investors in an effort to internally built this business.
With regard strategic M&A opportunities diligence efforts regain some momentum towards the ended the quarter as some of our potential targets have begun stabilizing their portfolios and Warner position to revisit revisit possible transactions.
While the overall process is playing out slower than we would like we remain confident than our RMR private capital management business will get off the ground in 2020, if you're building it ourselves indoor through strategic or through strategic M&A.
As in prior earnings calls, we cannot speak directly to any specific transaction at this time.
In closing the actions we've taken a reaction to the ongoing pandemic have positioned our client companies the weather a prolonged recovery.
Furthermore, our operations remain well fortified by our 20 your evergreen contracts with the manage equity reads and our healthy operating cash flows I'll now turn the call over to Matt Jordan, Our Chief Financial Officer.
Thanks, and good afternoon, everyone since our last earnings call. Our organizations operational focus has turned to ensuring our tenant return to safe environment as well as continuing to care for our employees health and safety.
Across the country. Our operations teams are engaging with tenants regarding their plans to bring their workforces back to the office.
This 10 engagement and our health and safety efforts have led to many tenants sharing positive feedback regarding our protocols and procedures.
Where buildings continue to remain under utilized we have kept our focus on mitigating unnecessary costs, which includes energy savings and the reduction of non essential building services.
Turning to our financial results.
The fiscal third quarter, we reported adjusted net income of $6.2 million, what 38 cents per share.
Adjusted EBITDA of $19.6 million.
Over the course of the quarter, we were pleased to see a sequential increase of almost $600 million in our fee paying assets under management, which in turn helped drive our monthly management services revenues higher each successive months in the quarter.
Management and advisory services revenues were $39.3 million this quarter, which represents a decrease of $4.9 million on a sequential quarter basis.
This decrease is due to declines in the market capitalization of our managed equity read and the adverse impact of the pandemic on our managed operators.
Revenues of $39.3 million exceeded the high end of our guidance due in part to our managed equity REIT share price improvements this quarter as well as tenant rent deferrals and construction delays being less impactful than initially projected.
As it relates to our monthly base business management fees. The majority of our managed equity rates continue paying these fees on an enterprise value basis.
The impact of being on this lower measure results in annual lost revenues of over $50 million.
Using July average share prices, coupled with an assumption that there is not another coven related shut down significant parts of the country.
We are projecting total management and advisory services revenues to be approximately $39 million to $41 million per quarter for the remainder of the calendar year.
Turning to expenses.
Cash compensation of $29.6 million was down approximately $550000 on a sequential quarter basis.
Which reflects a favorable employee mix and reduced overtime costs.
Cash compensation reimbursements grew modestly on a sequential quarter basis the 44%.
While we continue to resist short term reductions that would otherwise disrupt the scalable infrastructure we've built.
We have added processes to reassess all open roles and challenge replacement staffing decision.
As a result of these efforts we expect this level of cash compensation to reflect our run rate into next quarter.
DNA expense this quarter was $6.3 million, a decrease of approximately $1 million on a sequential quarter basis.
This decrease is being driven by almost $500000 of annual share grants to our board of directors last quarter.
As well as our ongoing efforts to manage discretionary spending.
We ended the quarter with approximately $394 million in cash and we continue to have no debt.
Our adjusted EBITDA after considering our cash tax obligations continues to ensure our dividend remains well cover.
Finally, our strong balance sheet leaves us readily prepared to take advantage of strategic opportunities and invest in new business initiatives.
Before we go to questions I I would like to highlight that we recently published our inaugural sustainability report, which can be found on our website.
This report provide the men detail regarding our strategic focus on long term sustainability growth goals across RMR and our client companies. In addition to the charitable contributions we make in our communities and our focus on the organizations most critical asset our people.
That concludes our formal remarks, operator would you. Please open the line the question.
We will now begin the question answer session.
A reminder to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from owing well with Oppenheimer. Please proceed.
Good afternoon, Adam and Matt. Thank you for taking my questions.
Could you please give us a little bit more color on your whole Chow and seeing that isn't portfolio and I think you shared some of that.
We mark but if you can also share at the latest trend of the occupancy rate will be great. Thank you.
Sure.
The hotel portfolio, we've seen a steady increase in occupancy.
Through Joe from April through July.
I think it's starting to level off.
Well it feels like it started to level off as we've gotten into July and that not surprisingly saw corresponds with the increase in covert cases due in large parts of the country, which is sort of put a damper on some of the growth that we are experiencing.
Our working assumption is that any occupancy growth from here will be pretty slow.
Through the remainder of the year end or until there's perhaps vaccine.
Sadly available indoor therapies widely available because I believe that is sort of the gating item.
At least we think it might be the gating item before hotels really start to come back.
So we saw steady improvement through the middle in summer July and it feels like it sort of leveling off here and we expected may level off your for some time the length of that time is unknown.
With regards to senior living.
Again, I would say a DC.
Slowdown in the deterioration is maybe the best way to say there. We've also as you've probably seen had occupancy deterioration throughout the quarter.
The rate of deterioration, though was slowing each quarter, and which actually getting almost stable.
Yes, we got into June.
Again, similar to what I said about hotels.
As we've seen a rise in covert cases in those communities not just the ones we operate but industry wide that has also.
Sort of had a direct corollary with sort of increasing deterioration or accelerating deterioration in occupancy. It is not deteriorating at the levels of which it was in April and May, but it's sort of sort of Pete or say sorry, guys best as we saw in June and.
Since then it sort of deteriorated a little bit.
That's an industry I think that is going to lag or maybe take perhaps one of the longest industries to recover.
Just given the fact that is servicing a very vulnerable population.
That is affected by coated the on the long term good news around senior living is that all the demographics that were there prior to coated continue to be there.
Large amounts of that business is needs based it's folks that.
Essentially need to services and that drives the large majority of new new.
New move ins.
And so I think as co good recedes, and we get back to a more normal state that industry.
Our expectation is that it will eventually return largely to where we were.
Yes again.
The amount of time it takes for that to happen, whether thats three months or a year.
And it's sort of hard to know once we sort of get on the other side of coated.
That's very helpful. Thank you Hello.
And then flow Gen. A so again DNA.
This quarter sequentially just like many other companies. So what's your thought about the operating model of our model going forward how much of the expense savings can be permanent and how much of that it's a temporary and how long. Thanks.
Great question Alan.
This quarter's rate at 6.3 million is definitely something I believe we will sustain through the end of the calendar year.
And then as we look into 2021.
And hopefully vaccine environment.
I think similar to a lot of companies in corporate America, we are assessing some of our controllable costs like travel.
And challenging weather our historical levels.
Can be scaled back through technologies and less in person visits and things of that Elk.
So I think going forward for the remainder this year this run rate.
Should hold and going forward, we're hoping not to give back all of the gionee costs and hopefully we can stay well under 7 million on a run rate basis.
In a post cobot world.
Okay got it and then finally, so extending from what you just said how should that or how would that impact the weapon you will fall off.
Good.
What's your thoughts thanks.
You're talking about oil in the future revenues from OPI Ter RMR because yes.
Yes, OPI, because bumble and bumble would that impact some of the rest in the form of yet and then that would slow back to you.
Sure I know that I understand your question better now yes.
Again in our prepared remarks, there's a lot of discussion and talk about the long term impact the office as result of what's happened in the pandemic work from home it's important to stress.
It's all clock at the moment, we have not seen any of it materialize in our conversations with tenants.
And that's an important distinction.
We have not seen tenants come to us to date since the pandemic with significant changes in plans because of work from home environment.
I suspect that most companies are going to most maybe not all but most companies are going to wait so to get through the pandemic.
And reassess on the back end, what they need to do or will they have an increased number of employees I.
I think partially work from home.
A lot of people site the bureau of Labor statistics on this.
Pre the pandemic about 15% of office workers were at least partially working from home and within that about three two or 3% were permanently working from home.
Do we think that number could increase sure that could increase.
Maybe goes to 20.
Percent or maybe it goes to 25, we don't believe though in our view.
For all the reasons that.
We talked about our prepared remarks that an environment where people together.
And the de Densification and training and mentoring and having a touch point where people get together.
Building a culture I think at the end of the day. The vast majority of office workers will still work in office.
But I think there will be some movement.
Away no each would be some increase in work from home. It is really hard to gauge how thats going to impact LPI OPI benefits from having a very large having a pretty long average weighted lease term, having most of its leases with large blocks of space with investment grade rated.
Hi credit quality tenants.
I think it's more what I think about more than the work from home elements in office actually is is there any sort of shift its being accelerated from urban suburban office that is something I think I personally and I think the company, we think a lot about.
We don't have an office portfolio that is heavily weighted in urban downtown markets ours is actually more.
Close in suburbs or suburban.
There is an interesting question, especially in some of the larger what you call Gateway cities in America, whether they will be a tendency that more space will be needed outside.
Those urban centers in less in the urban centers.
We are well positioned to benefit from that trend if thats, if that's true, but I actually think more about that then the work from home trend. It is there a trend to move out of.
Downtown urban environments in some of these gateway cities into more close in suburbs or even other states. That's something I think we're closely watching.
Okay. That's very helpful. Thank you very much.
Our next question comes from Kenneth Lee with RBC capital markets. Please proceed.
Hi, Thanks for taking my questions.
You mentioned the in the prepared remarks, seeing some declines in terms of rent relief and part of that was due to benefit from the government programs. Just wondering if you could just share with some of your thoughts you know what could be the implications for our marsh should any of your government programs start to tail off thanks.
Yes, that's a really interesting question you know it's hard to know exactly why some of the rent release of tailed off trailed off.
I think as I mentioned in my prepared remarks, we feel very good about our rent collections across the platform for July was 99%.
That's that's pretty much just normal course I mean.
It's close to normal course.
So we think that you know.
We feel very good about.
Our rent collections today in terms of in the future into second half for 20.
If that could have an implication we're watching it very closely I will tell you in the first few days of August we have not seen any sort of uptick in rent deferral requests. It's very early into August, but we haven't seen any uptick in of course.
That relief program.
Is winding down.
It's really hard to say, how many of our tenants are.
Really benefiting or using the relief program from the government. It's mostly are smaller tenants we find.
Its most prevalent in sort of the smaller tenants, we have some smaller tenants in Hawaii, and we have some smaller retail tenants, they're the ones that seem to be the most benefiting from it but the vast majority of the rents we collect across the platform.
The vast majority are from large well capitalized investment grade rated companies. So it could have an impact but I don't believe the impact will be significant if there is not additional government assistance in the second half a year and I guess, the only thing I would add can just to.
Add some color around the magnitude in the quarter deferred rent was about $17 million on assets, we directly manage which cost us about $500000 in property management fees that will be recovered later on in the deferral period. So it would take a significant change.
In the volume of deferrals to get to a number that would have a material impact aren't result.
Gotcha, that's very helpful color, there and just one follow up.
If I may.
Wondering if you could just talk about any updated expectations for time frames in terms of asset dispositions within the other managed equity rates, specifically OPI and do you see thanks.
Sure.
I think we'll continue to have dispositions it across the platforms apply across the match companies I think you will be less than what we saw what we embark what we talked about embarking on at the beginning of the calendar year, but there is a fine is going on in the market.
To date persons depend demick began there's really been a dearth of investment opportunities, but that said there is a tremendous amount of capital available for investment in real estate interest rates are incredibly low debt financing is largely available it's not as available as it was prior to the pandemic Buddy.
It's available.
And so we think we will.
Whereas in.
April in May we were pretty down on our on our view that we were going to be able to sell anything in the near term I think were slightly more optimistic that we will be able to get some transaction sold in the second half of calendar year 20, with regards to OPI and DHC.
Oh, PPI, specifically any disposition there would be 100% opportunistic.
And we don't really need to sell anything there and so we might markets. Some properties for sale and if we don't get the price. We want there is no we don't have to sell it.
DHC.
We had us that we haven't stated disposition plan.
I think we will chip away at that in 2020, we're being very thoughtful in terms of what we pursue in that disposition plan.
Some especially on the senior living assets, we're very focused on the ability of the potential buyer to actually perform.
And also you didn't ask about it but in the hotel space. We're also active and thinking about dispositions, but they are even more importantly, if we are engaged nature a disposition activity.
We would not probably engage their with somebody they had a financing contingency, let's say, we would only deal or engage with somebody who was an all cash buyers. So is there a case by case and we're being thoughtful or the way we approach it but I do think we'll sell more.
And be able to sell more than maybe we originally thought when we announced earnings.
In Boston I am on our earnings call late April early May.
Got you very helpful. Thank you very much.
The next question comes from Bryan Maher with B. Riley FBR. Please proceed.
Good afternoon, Adam and.
Doing well.
Quick question on your cash hoard, which continues to grow.
And how you're thinking about allocating that we know that you've been in the market for long time looking for something on the private capital management front, but with what's going on with SVC and Intercontinental to the extent that they can't come to some kind of a deal and maybe awful lot maybe.
Plus Intercontinental hotels becomes and that does have you thought about taking on some of that money and maybe ramping up so thats. The as a hotel management company to a pretty formidable competitor since you'll have a lot of assets now in that portfolio.
Sure It sonesta, specifically regarding your question.
RMR Hasnt management agreement.
With an estimate semesters, a private company has its own shareholders and I guess, what I'd say the answer your question on point.
If sonesta is going to take back hotels and start managing and on behalf invest more hotels on behalf of SVC It will need to ramp up.
But I think that the product the investors in soonest or more than capable and have the liquidity that they would be able to do that without the need for RMR to invest directly into sonesta.
On that question with regards to be more general question around the cash build up.
RMR I agree we are at a very fortuitous position of having no debt in almost 400 million of cash we are still generating cash after we pay our dividend and pay taxes, albeit less than we were at the beginning of the year, but we are still generating some cash.
No. This is a unique time the you know the way I would've thought about using capital at RMR pre pandemic I think is changed as we've gotten into the demick.
I see the pandemic has perhaps one single generational opportunity from an investment perspective.
To take advantage of opportunities that may present themselves.
And I think companies that are as low leverage than we have no leverage have so significant liquidity, our best prepared to take advantage of those opportunities.
I think some of those opportunity may not necessarily present themselves.
Early in the downturn and I still think unfortunately, we're early in the downturn. It may present themselves more mid low midway through the downturn or on the back half.
As you come out of this downturn so.
You know, whereas I might have had a different view and timeline and using that cash at the beginning the year I think we're going to be a little bit more patient.
As we as we are in this covance period, and thinking that this could really present us a real opportunity to do something pretty special.
It RMR in terms of a possible future large strategic M&A that could transform the traject trajectory of the company, let's say.
And I just want to I think it's important.
The company stay liquid.
No no leverage and well positioned to take advantage of that I firmly believe we know these are the times when there's such a pull back in the market in the economy that opportunities present themselves and a lot of money can be made and these types of times.
So I just think it's important and we keep RMR flexible liquid to be able to take advantage of that.
Right and Thats, a great answer to that point I don't know how sitting on 400 million in cash you Adam Portnoy entering this when you see where some of these stocks traded down too in the second quarter, not allocating 50 or 100 million to just buying some of those.
Please just outright and I know you've said in the past you don't necessarily want to use that money to double down on on those for managed street, but the share prices in the second quarter got like stupid cheap.
You know what these are where you now in the real world.
It seems like it might have banning possibly can still even be opportunistic to maybe allocate some of that cash to buy some of these managed equities any thoughts on that after what you've seen in the second quarter.
Brian I understand perspective, I think others made shared as well I do believe that stock prices have been beat up pretty bad.
It RMR, we certainly felt the pain of that as you know our management contracts are directly tied to that.
We're taking a big haircut as a result of those thought prices coming down and we are highly aligned incentivized to try to get those stock prices to improve because we directly benefit from that because our management fees go up so you're correct that we are well aware and agree with you that those stock prices are bad.
We beaten up and that where our hope and desires that we can improve them through the good management of those companies with regards to your specific question about investing in those what I'd call historical well established.
Vehicles.
I don't think theres much appetite.
At the RMR level to do that.
I think we continued to be very focused on using our capital specifically to grow the platform and be very forward thinking.
In terms of how we deploy that capital in terms of diversifying the revenues. There is a I agree with you, perhaps an opportunity to take advantage of some low stock prices in but we have the way that versus using that capital to potentially grow the platform.
And really diversify our client base in the future and so I I don't think Theres, a real change in thinking.
Around that but I understand your point.
Okay, and just last for me as it relates to the LPG.
JV partner and the likelihood of another JV partner.
Joining that entity do you see any other I mean, you have relationships around the world with private capital do you see that maybe unfolding with any of the other externally managed.
Platforms or do you think that that's kind of mostly Justin I LPT thing.
No I think that Theres, something there that could unfold with the other managed vehicles as well I think.
First course, we're very well I think we're well get close on this.
LPT project.
Hopefully, we'll have something to announce on that soon.
And if we get that behind US I think there could be follow on opportunities at the other managed Reits as well and so that is something we are thinking about.
Great. Thanks, that's all for me.
The next question comes from Bill Katz with Citigroup. Please proceed.
Thank you very much for taking the questions. The noon, so just coming back to the opportunity to put capital through M&A.
In early part of your commentary sort of heard you want to get something off the ground in the second after the you added denovo through deals and then just listening to the commentary on capital management being patient to talk a little bit about the timeline there and then maybe what kind of milestones should we be looking for from some of the data that might suggest you might be getting closer to deploying some of that capital.
Yes, Bill I think you know.
Two fronts, which we're working very there's two parallel test we have been.
Going down.
To try to get a private.
Capital management business up and going and I'm confident that in calendar 2020.
There will be announcements that largely establish that business really scared largely off the ground.
We have having very productive conversations in both fronts.
I would say that the speed of the Congress should we seem to be having.
Accelerated conversations with regards to.
Village need to raise the direct capital ourselves.
And formed vehicles on our own.
That's not to say we are in discussions regarding strategic M&A at the same time.
And so I think you know there will be announcements on either either on either strategy or both.
In calendar 2020 is is what I think.
And I think that.
In those announcements there could be an allocation of some of the capital obviously, if its strategic M&A I think we'd be using some of the capital if its launching a vehicle it may or may not have a component where.
RMR is contributing capital.
But I think you'll see announcements in count in the second half for 2020.
On both or one of those stores strategies as and then I think.
It's hard for me imagine in 2020, we would.
You are mark all 400 million of our cash note over by the way too I think we'd ever spent all 400 of it.
But.
We would I think there would be some amount of it that still there to be deployed as we got into 21.
And again.
I think the opportunities that could present themselves around what I'd call, a meaningful and transformational perhaps M&A opportunity.
May not appear until late 20 or into 21 and.
Again, I think it's important for us.
Sure remain liquid and be there to take advantage of that Theres a lot of.
Some of our competitors that are not as good a fortunate position has us.
And I think that could be opportunities to engage with those competitors.
And do something pretty interesting now that may not happen, but I just it's I think again, we're in such a unique period in such a unique time.
I would really hope that we would try we remain flexible and liquid enough to take advantage of any of those opportunities.
Okay. That's helpful. So just on that as you look at your footprint today and assume that you have something going on in the private market side.
When you sit transformational can you maybe expand a little bit on to thinking about how you could foresee that transformation.
Sure well in Adhesives example would be a very large private real estate private equity shop, let's say.
That.
You know.
That we could buy.
That has the ability to add significant hey, whim to our platform that would be the most obvious.
Well I'm confident we will build a month, if we don't buy it we will build.
It may take some time, we will build a multibillion dollar private capital platform.
We can accelerate that growth.
And maybe it hit and expand upon that growth through potential M&A.
And it could be potential first substantially sizable M&A.
That we could think about.
There is nothing sizeable.
That would use up all of our capital today than Weve seen look again, I just want to be clear, but I want to be in a position I think it's important for the company being a position given the environment. We're in that we could be able to look at something like that if were to present itself.
And so that's that's how we're thinking about.
Thank you very much.
Okay.
Again, if you do have a question. Please press Star then one on your Touchtone phone.
Our next question comes from Mike Carrier with Bank of America.
Please proceed.
Hey, guys. This is dean stepping on for my carrier.
Did a good job of raising capital and increasing liquidity at the manage reads throughout the quarter I'm. Just wondering if you can provide any more color on on the current liquidity position that the reads any near term debt maturities, we should be aware of and if you anticipate raising any additional capital moving forward.
Oh sure we think all of our managed businesses, including the equity reads, probably precise specifically have tremendous have good liquidity.
We have dealt with all essentially all maturities through 21.
Our two biggest vehicles DHC NSBC are sitting on both over $1 billion of liquidity.
And no maturities are no meaningful maturities through 21.
I feel we feel very good about their liquidity to position the other businesses also remain.
Very liquid and so we don't we don't we don't believe we need to raise additional liquidity anywhere.
Doesnt mean that on an opportunistic basis, if we might raise additional capital some of the vehicles, but it would not be based on a need to increase liquidity me much more around being opportunistic around reason liquidity.
Got it Thats helpful. And then just as a follow up given the sustainability report that Matt Matt talked about can you provide or can you talk about the impact yes, GE has had on the overall business, how you're seeing that impacting the business longer term and what sort of client demand there has been for iasci transparency.
At either in the RMR or where the managed street level.
So, yes, GE is becoming.
More and more important across the platform, it's important to investors in our vehicles, it's important to tenants that lease space from us.
It is important as we think about expanding into the private capital business for potential investors in that space direct capital providers are more and more focused on MSG.
No.
As a real estate company up until the pandemic I would say the E. In he SG was probably the most focused on because we real estate company. So there were most focused on the environmental aspect of it being a public company being public companies I think governance has become more and more important but in the world We live.
Even today I guess, the yes, the social has become more important too and I think thats in something that.
Investors tenants.
Employee base.
All focused on and it's something that we have to devote and we should and I believe we're good at it.
Our devoting more effort and resources around Matthew everything that I guess, the only thing I would highlight we used the word inaugural sustainability report, but this is not a new concept for us and we tried to highlight that throughout a report that these concepts have been in place as part of our infrastructure for over a decade now and I think we took great.
Pride and finally getting to a point, where we put it on one report to tell the world about all the great things we do.
But it's clearly an underpinning of our organization on something we're really excited about getting out there in the public domain.
Got it thanks guys.
This concludes our question and answer session. At this time I would like to turn the conference back over to Adam Portnoy for any closing remarks.
Thank you for joining us on today's earnings call operator that concludes our call.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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