Good day and welcome to the RMR Group Fiscal First Quarter of 2021 Earnings Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Michael Kodesch, Director of Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining RMR’s first quarter of fiscal 2021 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 quarterly results, followed by a question-and-answer session. I would like to note that the 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 2, 2021, 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, which can be found on our website. 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 the calculation of adjusted EBITDA margins will be found in our earnings release. And now I would like to turn the call over to Adam.

Thanks, Michael, and thank you for joining us this morning. For the first quarter of fiscal 2021, which ended on December 31st, we reported adjusted net income of $6.9 million, or $0.41 per share, and adjusted EBITDA of $21.4 million, both sequential quarter increases. We ended calendar 2020 with $32 billion of gross assets under management and remain well capitalized with $383 million of cash and no debt. Similar to last year, due to RMR having a September 30 year-end, and most of our client companies having December 31st year-ends, we are limited as to what we can discuss as we are reporting results in advance of our client companies. Overall, I am reasonably optimistic as we begin 2021. While the pandemic has presented many challenges to the broader economy and many of the real estate sectors we operate in, it has also allowed RMR to demonstrate the resilience and sustainability of our business model. Throughout the pandemic, our business continues to generate cash flow in excess of our dividend and operating margins remain strong. In addition, with over 80% of our revenues coming from our managed equity REITs, our contractual arrangements continue to align us well with our REIT shareholders. I would like to highlight some of the more noteworthy events at our client companies that have occurred since our last earnings call. During this past quarter, we announced the closing of our private capital investment vehicle, which is known as the industrial fund. ILPT used proceeds from the initial asset sales into this fund to repay debt, which should ensure ILPT’s leverage remains at a moderate level. ILPT continues to focus on acquiring high-quality industrial assets, but now has the option to sell interest in these acquisitions to the fund. In early January, ILPT acquired a $44 million Class A industrial building in Kansas City, Kansas, which is 100% leased for 12 years, and this property could be a candidate for eventual sale into the industrial fund. Given RMR’s expertise in sourcing small to medium-sized property acquisitions, we believe our partners who typically require large transactions to efficiently deploy capital appreciate this unique access to investment product, and they have a sizable appetite to grow this vehicle in the future. Turning to OPI. The company continued its capital recycling program in the quarter. It recently announced an opportunistic sale of an office property in Richmond, Virginia for $130 million and the purchase of a newly constructed Class A office building in South Carolina for $35 million. While the pandemic long-term impacts on the office sector remain uncertain, OPI has kept its focus on backfilling upcoming known move-outs, managing property-level expenses and looking for capital recycling opportunities to improve its portfolio. Shifting gears to the managed equity REITs more negatively affected by the pandemic. We are pleased with the progress being made in the distribution of a COVID-19 vaccine. With the rollout of the vaccine gaining momentum, we believe the senior living and hospitality industries are both well positioned to improve materially in the second half of 2021. Within its senior living portfolio, DHC’s primary operator, Five Star has partnered with CVS to administer vaccines to all participating residents and staff at their communities. Currently, more than 65% of Five Star’s residents have received at least the first dose of the vaccine and approximately 93% of Five Star communities are accepting new residents. While we expect the senior living business to recover in the long run, we believe occupancy recoveries may be measured in the future. Given an uncertain economic recovery, DHC recently enhanced its liquidity by securing covenant waivers on its revolving credit facility through June 2022. Similarly, SVC recently obtained covenant waivers through July 2022 related to its credit facility and issued $450 million of senior notes to improve its liquidity. SVC remains on schedule with the transfer of approximately 200 hotels to Sonesta management as part of terminating its relationships with IHG and Marriott. All of the IHG transitions have successfully occurred in the fourth quarter of 2020, and the Marriott conversions are expected to occur in the first quarter of 2021. Finally, in January, SVC received the termination notice from Hyatt covering 22 hotels. Unless discussions with Hyatt result in a mutually beneficial agreement, we would expect SVC to also transition these hotels to Sonesta later this year. On a related note, at year-end, Sonesta announced the acquisition of Red Lion Hotels, which will significantly increase the size of the company to more than 1,200 hotels. This acquisition will also help accelerate Sonesta’s development of a hotel franchising business. That said, the closing of this transaction is subject to a shareholder vote by Red Lion. Travel Centers of America continues executing on its strategic transformation while simultaneously supporting the critical transportation of goods around the country during the pandemic. TA recently closed a $200 million term loan, the proceeds of which will be used for site level improvements, updates to its IT infrastructure and to fund franchising and other growth initiatives. Turning to our efforts in growing the RMR platform. Earlier this month, we were excited to announce the completion of RMR mortgage trust’s conversion to a commercial mortgage REIT. Since announcing its intention to convert, RMR’s mortgage origination and underwriting teams have closed seven loans totaling over $175 million. We also have a strong pipeline of deals, and we hope to have this new mortgage REIT fully invested in the coming months. Given the resources we have dedicated to our credit platform and the momentum we have coming into calendar 2021, we continue to believe there is an opportunity to make this a meaningful part of our assets under management in the future. We also continue to invest significant time in organically building out our private capital asset management business, which includes transactions such as the industrial fund that I discussed earlier. While I cannot share specifics, there has been substantial progress in developing additional relationships with large sources of private capital, which may lead to additional opportunities for RMR and its client companies later this year. We continue sourcing opportunities to grow AUM and accelerate our private capital fundraising capabilities through possible M&A activities. Nevertheless, we recently found a number of attractive opportunities that fit our acquisition criteria to be increasingly limited. Beyond the impact of the pandemic, which has itself caused many potential targets to remove themselves from the market, it is important to note that over the past several years, transaction activity in the real estate asset management space has slowed materially. After a flurry of activity in 2016 and 2017, a limited number of transactions have occurred over the last few years that have involved the sale of a controlling stake in one of these businesses. We are still engaged in discussions with a handful of potential M&A targets, and we believe an acquisition may occur sometime in the coming year. Nevertheless, our experience thus far would suggest that any potential transaction would only require a portion of our available cash balance and leave us with significant excess capital. In addition, we continue to have success organically building our private capital business. Accordingly, our Board continues to assess possible alternative uses for our excess cash, which may involve a combination of strategies, including accretively deploying this capital into new investment vehicles or returning some of it to our shareholders. I will 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 per share of $0.41 and adjusted EBITDA of $21.4 million this quarter. Adjusted EBITDA margin was 49% this quarter, representing a 20 basis point increase sequentially and a 190 basis point increase from our 2020 low point. Management and advisory service revenues were $41.3 million this quarter, a $1.1 million increase on a sequential quarter basis. This increase was due to share price appreciation over the course of the quarter, primarily at SVC and increases in construction management fees due to development activity. As of December 31, 2020, all our managed equity REITs, except ILPT, are paying base business management fees on a market capitalization basis. The impact of being on this lower measure results in a loss revenue opportunity of approximately $52 million. While there is still significant opportunity ahead, we are pleased that recent share price improvements have helped reduce our loss revenue opportunity from a high of $56 million this past summer. As it relates to incentive fees for calendar 2020, unfortunately, none of our managed equity REITs' total returns exceeded their peer averages. While the pandemic and repositioning efforts at our REITs presented headwinds over this past measurement period, we are hopeful that several of the strategic actions outlined in Adam’s prepared remarks could position our REITs to outperform their peer groups in future measurement periods. Looking ahead to next quarter, assuming December average share prices for our managed equity REITs hold steady, we expect management and advisory service revenues to be in line with this quarter. With that said, next quarter’s revenues will include the impact of a number of other variables, which include a projected decline in construction activity on managed REITs resulting in decreased construction management fees of approximately $500,000. An incremental $300,000 in quarterly revenues from the conversion of IHG- and Marriott-branded hotels to Sonesta management that Adam discussed earlier; the reinstituting of TRMT management fees effective January 1, which represent approximately $350,000 in quarterly advisory revenues; and finally, two less days in the second fiscal quarter, which will adversely impact revenues by approximately $500,000. Turning to expenses for the quarter. Cash compensation of $29.5 million is flat sequentially after excluding the $2.2 million bonus true-up in last quarter’s cash compensation. Cash compensation this quarter reflects annual merit increases that were effective October 1st and projected bonus inflation, both of which were offset by recent executive retirements. We expect cash compensation to be approximately $30 million per quarter for the remainder of fiscal 2021. G&A expenses this quarter were $6.3 million, an increase of $400,000 sequentially due to costs associated with implementing COVID-19 safety standards at our offices as well as insurance and IT cybersecurity cost inflation. Looking ahead to next quarter, as in previous years, we expect our Board of Directors will be issued annual share grants, which will result in next quarter including incremental costs of approximately $500,000. As it relates to our tax rate, in December 2019, new tax regulations were released, expanding the types of corporate structures that needed to apply deduction limitations on executive compensation. As these new regulations apply to RMR’s corporate structure, accounting rules required we apply the new regulations upon release. Recently, the IRS announced that the effective date of these new regulations would be December 18, 2020. Accordingly, this quarter’s results include $500,000, or a one-time 2.3% tax rate benefit, to remove the deduction limitations applied prior to December 18, 2020. This one-time benefit was incorporated into adjusted EPS this quarter, and we expect our tax rate to return to approximately 14.5% next quarter. Finally, as Adam mentioned earlier, we ended the quarter with approximately $383 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?

Our first question will come from Bryan Maher with B. Riley FBR. Please go ahead.

Adam and Matt, thanks for those comments. I would like to drill down a little bit more on the Red Lion and Sonesta game plan. And what the thought process is there and the resource allocation to integrate the two and where do you envision that going over the next kind of three to five years?

Sure. So the Red Lion acquisition at Sonesta, while it is subject to a shareholder vote, we can’t assure we will close, but we are optimistic it will close. If it does close, it will really significantly increase the size of Sonesta to over 1,200 hotels. That will make it one of the largest hotel companies in the United States. In terms of number of hotels, it would be bigger than Hyatt to give you a frame of reference. It also significantly increases or accelerates Sonesta’s franchising business. To be a significant and major hotel operating company in America today, you have to have a franchising capability, which we have one at Sonesta. We do franchise some hotels internationally outside the United States. You don’t have much or anything here domestically. Red Lion, virtually all of its hotels are franchised. And it comes with a platform that will really sort of help Sonesta accelerate that growth. Where we see Sonesta going in the next few years is really becoming a top-tier hotel platform or operating business in the industry. And we think that is good for RMR, it is good for Sonesta. It is also really good for SVC. SVC is taking back many of the hotels it had with IHG and Marriott. It may take back some hotels from Hyatt, taking back some hotels from Wyndham. And it is giving almost the lion’s share of those hotels to Sonesta to manage. It is one thing to ask Sonesta to manage those hotels when it is still a relatively small operating business. It is a very different thing for SVC and its shareholders when it is one of the larger hotel operating businesses in America for SVC. And again, from SVC’s perspective, it owns 35% of Sonesta. So it also gets the benefit from that. To answer your question, we really see Sonesta becoming a large top-tier hotel operating business manager and franchisor in the United States in the coming years. In terms of resource allocations, it is growing very fast. This is a very good time to be hiring in the hotel industry; a lot of very good and talented folks have been let go in the space. Sonesta is maybe one of the only hotel operating businesses actively hiring new folks. So we have had a very good pipeline of new people coming on. We recently hired a new Chief Operating Officer there that was announced. And in addition to that, it is drawing upon, in this transition period, a little bit of the resources of RMR. That is per its management agreement with RMR. It gets the ability to do that and it is availing itself of that. So RMR is augmenting Sonesta sort of in this, what I would call, short-term transition period. We don’t think that is going to be a long-term thing. But in a short term, RMR is augmenting some of the staff over at Sonesta. So we are very bullish about Sonesta and where it is going and the benefit for the entire complex.

Great. And my follow-up question is on the private real estate capital expansion, you have done industrial. Do you see or can you foresee moving into another space, whether that is, let’s say, hospitality or office? And in light of all you see kind of day-to-day across your broad expanse of real estate in the U.S., where are you seeing the biggest opportunities that you would like to pursue?

Sure. The short answer is we are talking to folks about various sectors that we are involved with. Everything that you mentioned, we are talking to people in the healthcare side, hospitality side, the retail side, office side. So pretty much every sector we touch and are involved with, we are having some sort of dialogue with private capital investors about being able to expand that. And so I think there will be some additional opportunities for us to organically grow that business in 2021. To answer your question, where I think the most interesting opportunities present themselves today, there are obviously opportunities in hotels. There are also some really interesting opportunities in my mind around net lease retail, single-tenant net lease retail, not necessarily malls, but net lease retail. And then maybe one of the most interesting spaces that I personally think could be very interesting is office. Office, performance-wise, financially, as a sector, has held up extremely well during the pandemic. But there is a lot of sourness around the office sector because there are a lot of folks that believe that there is going to be a wholesale shift in the way office is being used. Within RMR, I’m not sure we believe it is going to be as big a shift, long term, in office use by office users. We take the view that there will be some changes, but eventually, medium to long term, office use will largely return back to the mean, and most folks will end up back in the office, at least most of the time. And that backdrop presents, in my view, a really interesting opportunity around office because you have a supply/demand imbalance in terms of capital seeking out to invest there. And on a risk-adjusted basis, you could argue that office could be perhaps one of the better opportunities out there today. They are, in my view, specifically thinking about office in and around the sunbelt, maybe outside of some of the top-tier gateway cities could be an interesting strategy to think about. So that gives you a sense of how we are thinking about stuff.

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

Great. Just going back to sort of the industrial fund. Just trying to get a sense of how quickly you guys are thinking about that portfolio can grow. I know there is 12 initially. I think you touched on sort of ILPT buying assets potentially dropping down. But how should we think about sort of the potential growth in that and maybe can you also clarify the strategy in terms of what you are looking for in industrial? It sounds like it is small or middle markets property and so forth. Curious about that as well.

Sure. So on the industrial side as a whole, as a firm, we will talk about where the assets might end up. It is hundreds of millions of dollars per year that I think we could deploy there. Now where they actually end up from RMR’s perspective, we are a little bit agnostic. It could end up staying in ILPT, ILPT could decide to drop it down into the fund because remember, it is the option of ILPT to do that. And you might ask next, so what is the decision tree there? The decision tree there is really driven by the cost of capital for ILPT and specifically the cost of equity capital. ILPT has the ability to, basically through the industrial fund, sell equity interest at the property level and NAV today versus selling equity interest at the corporate level far below NAV. So obviously, today, it makes a lot more sense if you are going to raise equity capital to do it down at the property level at ILPT and NAV and drop it down into the fund. And so that is maybe where we sit today, that is maybe the more likely outcome in terms of where assets end up. But again, from where we sit, we are a little agnostic, whether it just stays in ILPT or it goes down the industrial fund, either way, it is growing. And in fact, if it ends up staying in ILPT, it is largely because perhaps our cost of equity capital at the corporate level has improved significantly, and that would be a very good thing across the board, from RMR, for ILPT shareholders, for a whole host of reasons. In terms of the strategy, the type of assets we are looking at, you are right. I think our sweet spot is more small to medium-sized assets. There is a tremendous amount of capital focused on investing in industrial real estate. It is probably the most favored industrial real estate sector in today’s market to invest in. There is a tremendous amount of capital that is earmarked to invest in that sector. Our competitive advantage is there is a lot of players out there that have to put a lot of money to work and they can really bid up large portfolios or larger single-asset transactions. Our sort of sweet spot is, there is a little less competition in, what I would call, sub-$50 million transactions in one-offs. There is still competition there, but it is a little less. And we can efficiently acquire one-off buildings around that size, aggregate them, either at ILPT or within ILPT and then drop down into the industrial fund, which I think our partners very much appreciate that ability to be able to do that. In terms of the type of industrial properties, we are focused on ILPT as well as the fund itself, essentially core industrial. And what do we mean by that, top 25 markets for industrial in the United States typically newer buildings. Typically, most of our buildings are single-tenant net leased. We have also some multi-tenant buildings. And so that is well leased, well-term leased, good credit quality, a larger building, single tenant, typically, core industrial is what you would see us.

Great. That is helpful. Just had another one, thinking about sort of both the fee-paying AUM and incentive fees. I guess, number one, sort of on the fee-paying side, you saw something that AUM cover this quarter. Clearly, a lot of work has gone to the company and so forth. When you are talking to investors and so forth, what sort of the view, what sort of the feedback you are getting in terms of the performance of those companies, right? Because as we sort of reopen, as the economy comes back, the stimulus comes in, it feels like the market could go higher here, which would be upside for you guys. So just sort of curious, what the investor feedback is on the REIT company. Sorry, it is a long one. But the second part of that is our work sort of shows that OPI is getting closer and closer to earning an incentive fee based on the performance of the staff. Just curious what you guys are thinking about there, and how that strategy is evolving.

Sure. So we have four big equity REITs. The two biggest ones are our healthcare REIT, which is DHC and then our hospitality and retail REIT, which is SVC. I think, yes, those two companies are poised well to benefit from the economic reopening, the vaccinations becoming more widespread. There is a house view within RMR. We feel generally pretty confident that things are going to start getting pretty much better as we get into the summer and third and fourth quarters in terms of those industries. Within the senior living industry, it may even be a little earlier than that. Those senior living communities will largely, as an industry, be largely inoculated fully by the end in Q1. That positions them well that they may start to see a recovery, sort of the first sector to see a rebound because if they are fully inoculated, they really can turn their attention to new admissions and growing occupancy, and you could start to see a turnaround there, maybe in the second quarter. So we feel very good about where we are with - as the economy opens and vaccinations in terms of what is going on in our hospitality, health care, and even the retail side of the house as well. Our office and industrial REITs and sectors continue to perform very well through the pandemic, and we expect them to continue to perform well. I will let Matt talk about incentive fees.

Yes. And I guess just on fee-paying AUM, just to add something to Adam’s comment. When we talk to investors, I think the one thing I would highlight is that lost revenue, that is gone from 56 to the low 50s now. If we do nothing, but just focus on our organic REIT, that is all EBITDA flow-through and just straightforward organic growth. So I think in investors see that opportunity and should see it play out in 2021 for some of the reasons that Adam talked about. In terms of incentive fees, we agree with you, Ron. I think what we have seen since this incentive fee structure was put in place is that troughs and performance at our managed equity REITs tend to present opportunities in the long term as they recover and tend to far outperform their peer groups because of that low point. And specifically, as it relates to OPI, while it is still a ways away, you are right through January of this year, we are cautiously optimistic. 2022 is a long way away. So we are really not in a position to comment, but I would agree with you on 2021 for OPI.

Got it. Helpful. Yes, it just seems like think about how the way the company is positioned, as the economy reopens, I think there is potentially a nice upside for the fees. So that answered all my questions. Very helpful.

The next question will come from Kwun Sum Lau with Oppenheimer. Please go ahead.

Adam, could you please give us an update on the progress of your strategic acquisition? And I heard that you mentioned it would happen in the coming years. And if I remember correctly, previously, you mentioned it may be happening in the coming months. Could you please elaborate a little bit if there is any change in the thinking here?

Thanks, Kwun. Thank you for that question. There has been a little bit of a shift in our thinking. I did go into, I think, a little bit of detail in my prepared remarks around that. About two years ago, we were very public in talking to investors about how we were going to basically take this time to really try to seek out an M&A partner or make a strategic acquisition to sort of help jump-start our private capital investment business. And simultaneously with that, we also said we are going to try and organically build it. We have been having, I think, pretty good success in getting some pretty good momentum, building it ourselves organically. On the M&A front, we have, for two years, been at this. We have had numerous conversations. We are continuing to have, what I would characterize as a handful of conversations with folks. But deal activity in and around the real estate asset manager space has been very muted in - specifically, in that sector, especially for control transactions, which, I think, again, what we are focused on is the right thing for us to focus on for various reasons. So there hasn’t been a lot of activity. And then even those conversations that we are still having, it is becoming more and more evident to us that it is unlikely we would be using the majority of the cash that we have built up on our balance sheet. And so we always said that we were going to spend some time to really evaluate the M&A market that we were going to try to use the M&A process to sort of jump-start the private capital investment business. We haven’t given up. We are still trying that. But it is becoming more and more evident sort of where we are going to end up on this. And I think what I mean - what I’m trying to say in my prepared remarks is, we are starting to shift our thinking a little bit to start thinking about, okay, if we do a deal, we may not even do a deal; we may feel very comfortable just growing it organically. But even if we do a deal, it is probably not going to use up most of our capital. If that is the case, we should probably start having some discussions at the Board level about does it make sense to start thinking about returning some of that capital to shareholders. And we have been asked that; I have been asked that, the team has been asked that by many investors for a long time. And I’m trying to indicate there is a slight shift in thinking to say, I think we are a step closer than we were for the last few quarters in terms of taking that on. And I expect in the coming Board meetings we are going to have pretty robust discussions around that in terms of is it now time to start thinking about. Have we gotten to the point where it is now time to start thinking about returning some capital to shareholders? We can get into a debate about how to do that. I don’t think we are quite at a point where I can comment on what that form might be. There are pretty obvious forms on how to do that. But I think that is really sort of a little bit of a shift in terms of where we are at. And I think it is really a result of we have been doing this for a couple of years. We have a pretty good feel of what is out there, what is available and what it is we might do. And so we have a better visibility, I think, into our cash needs.

Got it. Just a quickly follow-up on that thinking. So does it mean that your - I think, you also talked about that a little bit. Does it also mean that you are also open to buyback a one-time dividend? Is it the way investors should think about that?

Yes. I think that is exactly the way we were thinking about it. In terms of when I say return capital to shareholders, those are the obvious things: dividend increase, either one time or recurring or stock buybacks.

Yes. Owen, RMRM, now that their mortgage REIT is going to follow the same contractual arrangement as TRMT, our other mortgage REITs. So it will be 150 basis points of equity and their equity is about $192 million. So it is about $2.9 million in annual fees.

The next question will come from Jim Sullivan with BTIG. Please go ahead.

Thank you, Adam. I just wanted to ask a couple of questions here on the Sonesta acquisition of Red Lion. You talked about this earlier. But looking at what Red Lion has been able to do in terms of franchising over the last two years. They have lost a considerable number of properties where the franchises were terminated. And they operate. I think it is about five brands in mid-scale and five brands in economy, with the economy obviously being the - no pun intended, the lion’s share of the portfolio. So I guess, when you talk about expanding the franchising, that would amount to a kind of a reversal of trend for the company. And I just wonder if you can help us understand what the strategy will be. Will you look to reduce the number of brands here, number one? And number two, will you look to expand the franchising into higher price points or not when it comes under Sonesta ownership?

Sure, Jim, great questions and great to have you on the call. Regarding the franchising business, you are correct that Red Lion, which is public, has seen a decrease in the number of franchisees over the past few quarters. If we are able to acquire Red Lion, which I am optimistic about pending a shareholder vote, our main focus will be on stabilizing the existing business, stopping the decline in franchise numbers, and beginning to turn things around in the upcoming quarters. As for the brands, we have not yet made a final decision on which ones we may continue to operate. There are some clear candidates with a significant number of franchises that we would definitely retain, while there are others that may not make sense to keep. However, those decisions will likely be made only after we complete the acquisition. It’s worth noting that Sonesta has hired an industry veteran with over 35 years of experience in franchising, specifically in a similar market segment. He will be joining Sonesta as an Executive Vice President and the President of Franchising Development, and we believe he will bring valuable expertise to help us improve the business. Initially, our strategy will be to stabilize it, reverse the downward trend, and possibly even grow the existing franchises. Then we will consider logical expansion opportunities for franchising, which primarily involves economy and mid-scale hotels. The reasonable areas for expansion would be the Sonesta ES Suites, Sonesta Simply Suites, or Sonesta Select. Ultimately, our goal is to expand the franchising to include Sonesta and Royal Sonesta. We recognize that franchising economy hotels differs from franchising full-service luxury hotels, and we plan to gradually move up the market segments as we integrate the Red Lion franchising into the Sonesta business.

Okay. And then one quick follow-up question on the possibility of returning cash to shareholders. You have talked about that as a possibility as you consider the alternatives. Is there a timing, a date when you think you are going to make a decision to fish or cut bait here by the end of this year, is it the end of next year? Do you have any informal timing?

We will make a decision one way or the other before the end of our fiscal year in September. And so I think that is sort of the timeline we are focused on, is sort of making a decision around the question of returning capital to shareholders. If we do it, I think the van is sometime before the end of the fiscal year.

The next question will come from Kenneth Lee with RBC Capital Markets. Please go ahead.

Just to piggyback on that previous question in terms of capital return to shareholders. I wonder if you could just share with us some of the key considerations that could potentially influence whether that capital return could take the form of either dividends or share repurchases.

Sure. If we go down this path of returning capital to shareholders, those are the obvious two questions we have. Both put money in shareholders’ hands, so to speak. One is very tangible, the other is less tangible, meaning if it is not cash. The issue around that we have wrestled with. And again, these are early discussions is in and around our flow. And that sort of has an impact on whether we do a stock buyback or not, if we were to do a return of capital to shareholders. And what I mean by that is we don’t have a particularly large flow. And we have dealt with many shareholders that have told us, 'Oh, we would love to buy more shares. And we love to get into your company in a big way. We think your business model is great, but you have such a small float, we can’t efficiently get in and out.' And so we are wrestling with that. That is the issue I think we wrestle in and around. A stock buyback; that is sort of - we also have to deal with. It also depends, of course, where the share price is trading at and when we would consider a stock buyback. And I really don’t have a view as to what that price would be in order to sort of push us one way or the other. But obviously, the share price is obviously a consideration as well. Cash is very tangible. It is something we can put shareholders - it is easy to quantify. And so that is - those are the sort of the considerations as we go through it. And again, I’m not trying to tip the scale one way or the other. I’m just telling you that is how - those are some of the issues we are thinking about.

Great. Very helpful. And just one follow-up, if I may. You mentioned in the prepared remarks, potentially expect some transition of hotels from Hyatt as well later this year. I wonder if you could just frame out the potential either revenue impact or at least give us the number of hotels that are potentially involved.

Yes. If it happens, and again, SVC has been pretty clear around this, that it is likely going to have some discussions with Hyatt. Hyatt sent SVC a termination notice. It sounds a little backwards, but they sent us a termination notice. We are going to be engaged, SVC and RMR. We are going to have some discussions with Hyatt. We will see where those end up. I really don’t have a view one way or the other, where they are going to end up at this point. But if they were to not be fruitful, and we could end up taking back all 22 hotels is a scenario where we only take back some of those hotels, for example, or as a scenario, we take back none of them. But again, it is 22 hotels; they are all Hyatt Places is what they are branded. If they were to become Sonesta’s, I suspect they would become Sonesta Select’s, is what I suspect they would become. Matt, do you have a view on the numbers?

This would be ballpark, Ken. You are probably talking $0.5 million a quarter in potential revenue opportunity, and that is a very round number. I think we will see how the negotiations play out and give you more color next quarter.

The next question will come from Mike Carrier with Bank of America. Please go ahead.

Hey, good morning. This is Dean Stephan on for Mike Carrier. Most of my questions have been answered, so just a quick one from me. Given the lack of multifamily exposure across your real estate portfolio, I was wondering if we could get some of your views in regards to the potential attractiveness of that sector. And if you guys would consider no potential M&A JV or organic growth opportunities in that area down the line. Thanks.

Yes. Great, great question. It is the one you are correct and correct to point out. So the one sector in commercial real estate that we don’t have a significant presence in. Yes, it is an area as we have had strategic conversations around potential M&A that we have been focused on with folks that have a significant expertise and presence in that space. It is an area we could obviously acquire. It is also something that we are thinking about as we think about repositioning many of the assets that in the senior living as well as maybe more importantly, the hotel side of the business that we - SVC and DHC are now - have taken back that it could consider possibly turning them or renovating, converting them into multifamily, specifically workforce housing. That is something that I think the advantage of the RMR platform really gives the REITs is the - it is we are a robust nationwide vertically integrated real estate company. And we have offices all over the country. We can engage in a conversion project ourselves. We don’t need to take a partner on to do something like that, where we could take a handful, maybe more than a handful of some of the properties, especially on the hotel side, perhaps, and think about converting them into multifamily, specifically workforce housing. And that could be sort of a catalyst to sort of to grow a new line of business. That could be a way of organically doing it. Of course, it has to make sense to SVC and/or DHC if we did it with any senior living assets to make that conversion. But that is how we are thinking about it. It could come through strategic M&A, but we are also exploring building it ourselves to some extent.

The next question will come from William Katz with Citi. Please go ahead.

Hi, this is Millie Wu on for William Katz. I just have one question on the dispositions. Can you please give an update on the timing and level of such disposition?

Sure. So across the platform, I don’t expect there to be material dispositions in calendar year 2021. Both the two companies that were poised to consider large-scale dispositions as we went into the pandemic were specifically DHC and SVC, specifically around those two companies. Both those companies have largely put most disposition activity on hold. There will be, I think, a smattering or a limited amount of disposition activity that you could see in and around some hotels, but I don’t think it would be large portfolios; it could be one-offs. You could see some smattering of disposition activity in and around senior living assets. But again, I don’t think it would be a large portfolio; I think it would be one-offs. I think you could see some opportunistic sales. At OPI, we had a very opportunistic sale in Richmond, Virginia. We sold a building for $130 million. That building was fully leased. It is a great building. We did not plan to sell that building. It did not go to market. It was an off-market transaction. We felt it was very good pricing. So we moved forward with it. We could see a couple of transactions like that that appear. But I don’t think dispositions in 2021 will be a material story for the entire platform.

Millie, we have very limited disposition activity in the forward-looking numbers I outlined in my prepared remarks.

The next question will come from Jim Sullivan with BTIG. Please go ahead.

Yes, hi. Thanks for taking the follow-up, Adam. The question I have is, this is obviously with all of the distress that we are seeing in the market, a time for creative thinking. And one of your peers formed a SPAC recently that you probably saw the headline on. And given your level of vertical integration, I’m just curious, obviously, you are sitting on a lot of cash, but I just wonder if you considered the feasibility or the attractiveness or the possibility of forming a SPAC to look at some companies that might be in distressed operators or real estate owners as a way to grow the business going forward.

Sure. Jim, it is a great question. We have been obviously studying the SPAC business pretty closely for several months. A lot of investment banks have pitched us this idea aggressively. So far, we have held off on it. It is not to say we couldn’t think about doing something along the line you have mentioned, Jim. But so far, we have held off. And partly, we have been holding off is because we have talked a lot about how focused we have been on our own M&A activity. And to date, we haven’t closed anything or announced anything. And so I’m a little worried as an organization, then it could be a distraction, to be honest with you. There is an opportunity to make money there, I agree. But until we sort of get the core business in terms of getting a private capital business up and really going and whether we are going to do that through some of M&A on ourselves. I have just been worried that it will just be a large distraction for the organization today. That being said, we have seen our peers - several of our peers, I think Simon just announced one and the Tishman. There has been a lot of folks that have done it. And so we have been studying what they have been doing. I don’t rule it out. I’m just sort of explaining why we have been a little reluctant to date to do it. It has just been where we have been focused on M&A. But it is something we could consider.

This concludes our question and answer session. I would like to turn the conference back over to Adam Portnoy for any closing remarks. Please go ahead, sir.

Thank you for joining us. Prior to our next quarterly earnings conference call, we look forward to seeing many of you at the 2021 RBC Capital Markets Financial Institutions Virtual Conference on March 9th and 10th. Operator, that concludes our call.

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