The RMR Group Inc.
Q2 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Good day and welcome to The RMR Group Fiscal Second Quarter 2021 Earnings Call. 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.

[Michael Kodesch:]

Good afternoon and thank you for joining RMR’s second 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.

[Adam Portnoy:]

Thank you, Michael and thank you for joining us this afternoon everyone. To begin today’s call I wanted to first touch on the broader economy and its impact on RMR and our clients. Throughout the early part of 2021, we believe the country has achieved several critical milestones that have and will continue to provide positive tailwinds across many aspects of our platform. With over 58% of the U.S. adult population having received at least the first dose of the vaccine and COVID restrictions generally easing, we are starting to see signs of a return to normal. Some examples of this include

[Matt Jordan:]

Thanks, Adam and good afternoon everyone. In the second fiscal quarter, we reported adjusted net income of $6.1 million, or $0.37 per share and adjusted EBITDA of $21 million. This quarter’s results were adversely impacted by two items we highlighted on our last earnings call. First, we incurred approximately $800,000 in G&A costs, or $0.02 per share related to annual share grants issued to our Board of Directors. And secondly, the first calendar quarter of each year includes increased levels of cash compensation as payroll tax withholdings and 401(k) contributions restart, which represented approximately $1.1 million, or $0.02 per share.

[Operator:]

Certainly. And the first question will come from Jim Sullivan with BTIG. Please go ahead.

[Jim Sullivan:]

Thank you. So, a couple of questions. First of all, you talked about the special dividend, the one-time dividend. And I just wonder if you could help us kind of think about sizing here. I know that you have had ongoing consideration of buying a private equity platform, but could that special dividend be as much as half of the cash that you are currently sitting with?

[Adam Portnoy:]

Sure. Hi, Jim. Thanks for the question. The good news is about returning capital to shareholders is we are sort of debating sort of a happy problem, which is what’s the best form to do it and how much to return to shareholders. And I think reasonable people can come to different conclusions on this and no one is particularly right or wrong. In terms of the size of a special dividend, I think that it could be up to half or approximately half the cash, generally speaking. I think the final determination will be made by the board in the coming meetings. Like I have said before our last quarterly call, I expect that we will make an announcement before the end of our fiscal year.

[Jim Sullivan:]

Okay. Very good. Thank you for that. And then Adam, in your prepared comments where you talked about still having continuing discussions regarding the acquisition of a private equity platform. You used the word handful. You are still in conversations with a handful of or maybe considering a handful of situations or opportunities. And I am just curious have – is it your conclusion that there is simply less product or potential opportunities available to acquire or then maybe you thought there might be or that there is just too big of a spread between the bid and the ask on what is available?

[Adam Portnoy:]

Yes, great question. To step back for a second, over 2 years ago, we sort of started this initiative when we said we wanted to expand our capital base and put the work money from private capital sources beyond just public capital sources. And at the time, we really said we are going to try and go down two paths at the same time. We said we are going to try and build it organically and we are going to try to think about M&A to sort of accelerate that. I think we have had a fair amount of success building it organically and I think we are going to continue to have some success. We are continuing to have good conversations with a lot – with different partners, large groups or private investors or sovereign wealth investors about not only our existing industrial fund, but other asset classes as well. And you heard in my prepared remarks, how we are thinking about maybe expanding our own capital markets’ capabilities internally as well. At the same time, as we looked at M&A for the last couple of years, it’s not that there is a lack of opportunities. There has actually been more than a handful of firms that were quite eager to engage with us, but that we decided did not make strategic sense for us to go forward. There has been a couple of firms that we have gone down and had pretty significant discussions with. And I think it’s fair to say that it’s not necessarily price when we find something that we think is attractive, it really comes down to control and social issues at that point. And I think that’s really what’s sort of put a – has led us to have some difficulties in closing on some of these opportunities or moving forward with some of these opportunities. But it’s not for a lack of opportunities. I just – you could say we are being very diligent, very thorough. Remember, I am one of the largest shareholders here in this company and I don’t want to just do an acquisition for acquisition sake. It’s got to really bring a lot of value to the table. And there are some opportunities that I think fit the bill, but we just haven’t been able to make it work to-date. That all being said we are continuing to have more success building it organically. And as we get more success building organically sort of the bar in my mind to do an acquisition sort of rises, comes a little higher. Because as we are able to do it more and more on our own, we have less of a need to bring in an external source, because it’s going to be less of an accelerant than it might – than if we don’t build it organically. So hopefully, that answers your question, Jim.

[Jim Sullivan:]

Yes, sure. And I think it makes sense. And then the final question for me, in the prepared comments about the three factors that would drive management revenues higher over the course of the year to the $44.5 million to $46 million per quarter range. The third item was had to do with Sonesta and I wonder if one of you could simply repeat that comment, what you are expecting from Sonesta over the balance of the year? Obviously, the company is growing rapidly with it’s – with the combined acquisition as well as the brand transitioning. So if we could just – if you could just repeat what the quarterly impact is that you are indicating or expecting in your guidance?

[Matt Jordan:]

Yes. So Jim, this quarter, Sonesta generated about $600,000 in fee revenue for RMR. Next quarter, we are expecting that to go to about $1.1 million, up $500,000 is what we referenced in our prepared remarks. And we would expect that to again grow by another $0.5 million in our fourth fiscal quarter to $1.6 million. Obviously, a piece of that is the growth of the transition hotels and then expectations around trends in a recovery and where the U.S. economy is headed.

[Jim Sullivan:]

Okay, terrific. Thank you.

[Operator:]

And the next question will come from Bryan Maher with B. Riley FBR. Please go ahead.

[Bryan Maher:]

Good afternoon, Adam and Matt. Just to clarify on Jim’s question and your response with building organically. What specifically do you mean there? Are you hiring in-house individuals to kind of pursue that business as opposed to buying an actual entity?

[Adam Portnoy:]

Hi, Bryan. Yes, a little bit in terms of hiring individuals around capital markets. And so when you say pursue that entity, what we are really talking about is raising capital to invest principally in core real estate. We are not – for a long time, we have not specifically been trying to – we don’t think RMR’s expertise in the marketplace while we have done it is necessarily that we have a long track record of doing a lot of opportunistic investing or value-add investing in real estate. I think most folks look at us and say, we have a long track record and a successful track record around owning core real estate, mature real estate that’s cash flow and well occupied. And so we, when I say growing it organically, we are making inroads and I think doing it well with large pools of capital, principally sovereign wealth investors about investing on their behalf and managing capital on their behalf to invest in core real estate in different sectors, not just industrial, but including industrial and others. So, that’s what we mean by building it organically. What we have been always looking for in an acquisition and this might help answer your question is not necessarily the ability to manage and identify real estate. We have always felt very confident that we have that expertise internally. It was much more about buying relationships with capital and to a certain extent building a track record. A track record, what I mean by that is a track record running, let’s say, private funds that you can then build off of to go to other capital sources. Those were the two principal things that we would have and continue to be find most attractive in an M&A situation. And so when I say hiring folks, it’s really expanding beyond what we have sort of have laid the groundwork in terms of what today – to-date, sovereign investors but thinking about building out a capital markets team that it first might be rather small, 1 or 2 individuals that would spend their time focused on raising capital, let’s say, from other sources besides sovereign wealth investors. But again, with a focus towards investing in core real estate, which is again what our expertise is, that’s where – that’s what we do better than I think most others and we have a long track record of doing. So I hope that answers your question, Bryan.

[Bryan Maher:]

Right. I mean, I think that what people I have talked to and just in my own experience is we wouldn’t want to see you go spend money buying a small PE or M&A shop, where the assets walk out the door every night, right. And we have all seen that in the past 20 years, X buys Y and a year later, a third of the people are gone, right. So I have always felt that it’s maybe a little bit better if you are going to do something start off small to go hire those people, right, from somebody else. So that’s kind of what I was driving at?

[Adam Portnoy:]

Yes.

[Bryan Maher:]

Kind of moving on and sticking with sovereign wealth for a second. What would you say that their appetite has been for doing more deals with you, a) like we saw ILPT and b) maybe like a diversified healthcare trust with the Vertex Pharmaceutical building? Is their appetite elevated, the same gone away, what’s the thought process there?

[Adam Portnoy:]

Yes. I think I was alluding to it a little bit in my prepared remarks. I’d say their appetite is elevated. I think that one, as we have done deals with some partners, they have been – I think they have had a good experience both with the assets they have invested, but also the experience of working with RMR. I think they have come to appreciate our operating platform, our ability to produce reports, our timeliness in communications, our professionalism. I think we have done a very good job in the last, call it, 6 months to a year with some of these firms that we have a relationship with now. And that leads two additional relationships

[Bryan Maher:]

Okay. And then last for me and maybe this is a two-part question. It’s clear that ILPT and OPI both have the capacity and I think the desire to begin kind of growing again or more is probably a better word. What level of appetite is there maybe as measured in hundreds of millions and are you seeing a marked increase in deal flow?

[Adam Portnoy:]

Right. OPI has got about $930 million of liquidity. So, I guess you could say that could be our maximum appetite. And ILPT has about $550 million of current liquidity. So, you could say that’s the near-term appetite. And so that’s well over, call it, close to $1.5 billion combined between those two entities that we could have the appetite for acquisitions. In terms of deal flow, on the industrial side, deal flow has been robust. It has been robust now for several months. It continues to be robust. The issue there is that it’s becoming a very competitive market in industrial. There is no shortage of opportunities that we are looking at and bidding on. Unfortunately, we just haven’t been able to hit – win on many of those bids unfortunately. On the office side, I would say that there has been an uptick in opportunities of late. I think as we are in the midst of, let’s say, the worst of the pandemic, there weren’t a lot of folks that owned office real estate that thought it was the right time to sell. But I think there has been a significant amount of firing, especially for the higher quality assets that are well leased to good credit tenants, which is a type of buildings that OPI will be looking at. There has been an uptick in offerings on the office side, but I would say, it’s pretty specific. It’s core office, well leased, good location, newer assets longer term lease. So, it checks a lot of boxes. Those types of assets weren’t even really in the market 6 months ago, they are now in the market. So I think there are more opportunities there.

[Bryan Maher:]

Great. Thanks, Adam. That’s all for me.

[Operator:]

The next question will be from Owen Lau with Oppenheimer. Please go ahead.

[Owen Lau:]

Good afternoon. Thank you for taking my question. Could you please give us an update on your maybe occupancy rate in hotels and senior living center compared to the pre-pandemic level? How much upside is there and what makes you – what makes you confident that you can get back to that pre-pandemic level? Thank you.

[Adam Portnoy:]

Sure. So you’ve hit on the two sort of areas then within our whole platform. That have suffered the greatest during the pandemic, which has been the senior living communities that we own as well as operate through Five Star as well as the hotels, which we own at SVC and operate at Sonesta. Both – let me take the senior living industry first, and then I’ll talk about hotels. In senior living, the good news is I think we probably hit bottom in terms of occupancy, in Q1 – calendar Q1 of this year. In our portfolio of senior living communities that we own as well as operate. Starting in March of this year, we started to see a slight uptick in occupancy. And we’ve continued to see that. We’re seeing an uptick in leads or what we call tours of the communities by potential residents. We’re also seeing a bigger conversion rate of those folks that are coming to look at the communities, the issue in the senior living space is that in a matter of 14 months from the beginning of the pandemic, or call it, 13, 14 months, you had, generally speaking, across the industry, including our own, about 1,300 basis points drop in occupancy. That is an unprecedented drop in occupancy. And that’s simply because you had regular move-outs sort of at pre-pandemic levels, but no move-ins. We’ve turned the corner. The question is, and I don’t think anybody knows the answer to this, by the way, is how fast the occupancy will increase I believe they – we will have increased occupancy in senior living communities in 2021, and we will end the year much better place than we did beginning of the year, but it’s almost anybody’s guess whether it’s going to be 200 basis points increase in occupancy or a 500 basis point increase in occupancy between – where we’re going to be at the end of the year. I can make the argument either way, and I could tell you how you could get to either one. But in terms of when do we get back to pre-pandemic levels, occupancy specifically, I think general conventional wisdom is somewhere between 2 to 3 years, and some folks in the industry think it could take longer. The good news around the senior living space is there is – construction activity has been muted. It has slowed down. And so you don’t have as much competition in the marketplace. But again, I think we’re starting to see a return, things getting better. On the hotel side, again, very devastating drop in occupancy. We look at occupancy at hotels, but we probably spend more time focused on RevPAR and/or flow through to EBITDA, hotel EBITDA. Occupancy, I think you will actually see – if you focus just on that metric, I think you could see occupancy in certain of our hotels this summer be higher than it was in 2019. Again, if they leisure destination, full-service hotels or even not even full-service hotels, leisure destinations, I think you could see a higher occupancy alone. But what we’re really focused on is when do we get back to pre-pandemic RevPAR and when do we get back to pre-pandemic EBITDA. And I think the wildcard there is, I don’t believe in the hotel – in the – business activity is going to be much slower in terms of that returning to the hotel sector in terms of the room nights that are going to be spent on business. Leisure is coming back very quickly. Business, as you know, is 70% to 75% of all hotel nights, historically have been driven by business. And so it’s the lion’s share of the market. The question is when does that come back? I think part of what we have done in our own companies at SVC and through – by taking back hotels and with Sonesta, we’ve actually positioned that company to benefit in a post-pandemic hotel world, where I think there is going to be a lot less business travel. I think that rewards program is going to be less important than it was before. I think you got to be a lot more scrappy to pick up every incremental customer. And I think a company like Sonesta is actually better positioned, I believe, better positioned than the major brands to be able to operate in that type of environment going forward. So when do we get back to ‘19 RevPAR and hotel EBITDA? Some people in the industry think it could take 4 to 5 years. I think it will be faster than that. I think in the short to medium term, we are actually especially well positioned to do better than some of the major brands, just given the way Sonesta operates and its history versus, let’s say, some of the major brands. So that’s a long-winded answer for you, but that’s my view.

[Owen Lau:]

Yes. That’s very comprehensive. Thank you, Adam. Just quickly on capital return. I want to go back to that question. I think, Adam, you mentioned potentially giving a one-time dividend. Then how about buyback? Is it off the table or the Board is still considering buyback? And I guess, I think the ultimate question is how would you think about the flow versus doing buybacks?

[Adam Portnoy:]

Yes, great question. And again, I want to reiterate we’re talking about happy problems here, right? We’re talking about what’s the best form to return capital to shareholders. And this is – again, I think reasonable people can differ on this, and there is no right or perfectly wrong answer. I think the Board is very much open to – if you want to ask specifically the Board, I think they are very open to everything, dividend or share buyback. What I said in my prepared remarks is I believe the management, including myself, I am currently leaning towards, and I can give you the reasons why a special onetime dividend would be perhaps our recommendation. And I think there is three principal reasons driving it. And one of them you alluded to, which is we don’t have a very big float. And one of the things we did in – when we did a large secondary equity offering, where we were selling secondary shares, not primary shares a few years ago, was the stated purpose from RMR’s perspective was to increase the flow. So that shareholders could participate in the company and its growth. And so I think a share buyback sort of defeat some of that. When it comes to the – then when you think about a dividend, I think we’re sort of migrating or on leaning a little bit towards a one-time dividend is being driven more by – it’s tax-driven to a certain extent. I think we, as an organization, believe that taxes will be higher next year than they are in 2021. If that’s the case, try to get as much of the income in 2021 versus in later years. And then we look at it as if you’re going to go down the dividend path also, comparing a one-time dividend to just increasing our regular dividend. And the concerns around increasing your time – your regular dividend to the point where it may look like you’re distributing more cash than you’re generating in cash flow. I do think many investors still look at our regular dividend, and they compare it to our recurring cash generation, and they say, okay, what are you paying out as a percentage of recurring cash generation, and they looked at that metric to judge the health of the business. And so I think that’s another reason we would be a little reluctant if we’re going to go down the path of doing it by a dividend, by doing it in increasing the recurring dividend versus a one-time dividend. Again, this is how I am leaning. Again, I think these are all happy problems. These are good problems. We are all debating how to give the money back to shareholders, what’s the best way to do it. And I guess I’m leading personally as management, as CEO and as one of the largest shareholders, that I think a one-time dividend is maybe the better option for the company. But again, this will be debated in the coming Board meetings and the Board himself is still very open to all the options.

[Owen Lau:]

Alright. Thank you, Adam. That’s it for me.

[Operator:]

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

[Ronald Kamdem:]

Hey, a couple of quick ones from me. Look, number one is there has been a lot of M&A in the triple-net space with Realty Income and VEREIT and there is potentially going to be some office assets spun off. Just sort of curious if you guys have ever looked at those assets as something that would fit the bill for OPI, would there be any interest there? Thanks.

[Adam Portnoy:]

Sure. I think it’s safe to say that we are a large enough player in the markets that whenever activities like that, or those types of transactions present themselves, it’s fair to assume that we’re always looking at those opportunities. And we evaluate them on a regular basis. And I think the things that you’re mentioning, of course, we would evaluate them because there are things that I think, given our size and given the different pockets of capital we have access to that we would look at. And I think we’ve looked at them in the past, and we will look at those as well. But I don’t think there is anything particularly special that I’m saying on the phone and it here that I’m saying, well, those assets coming out of, let’s say, the VREIT, realty income merger, let’s say, those are somehow more important or we feel better about those than others. I just think as a part of our job as a manager is to be in the marketplace every day looking at opportunities when they present themselves. We look at, as you can imagine, the vast majority of what we look at doesn’t get acted on. But we just see that as – that’s our job. And we’re able to evaluate a lot of things, and I think this is partly why the sovereign investors enjoy working with us is because we’re large enough that we can evaluate a lot of stuff. But again, the vast majority of what we look at never comes to fruition is just given the dynamics of how the market is.

[Ronald Kamdem:]

Got it. That’s helpful. And then I want to go back to, I think, some of the comments earlier regarding to the relationship with the sovereign investors. I think I heard you say there potentially could be another sort of announcement as early as this year. Would it be sort of – is that basically building on sort of the success you’ve seen with ILPT? Would it be sort of structured similarly, presumably to be with outside of industrial or just curious if you could just – any color to the extent that you can? That was really interesting.

[Adam Portnoy:]

Yes. I think, yes, it could be something where we do it in a very similar fashion that you saw with ILPT where it’s a joint venture that may be one of our managed equity REITs participates in. But we are also talking to them about doing it without the participation of, let’s say, one of our managed equity REITs participating in it. Part of the reason we keep a healthy, even if we do a dividend or give some capital back to shareholders, we are retaining – we plan to retain a significant amount of cash is to do co-investments in some – in opportunities like what you’re suggesting. So I think, again, we’re trying to maintain flexibility in the sense that we can do it through RMR, meaning RMR can maybe be a co-investor for a piece of it, and we will manage it on behalf of the sovereign investor or other investors or we could think about doing it similar to what we did with ILPT, where it may make sense with some of our managed equity REITs to consider a similar structure. Of course, we would have to go through the appropriate Board approvals and make sure that our independents feel comfortable with any transaction like that, because it would have to make sense for the REIT itself, not just for RMR. And so that’s obviously a hurdle that we must jump over before we would consider something like that. To get back to the first part of your question, yes, we are having success to get success. And we are having success and additional success because we are having – I think the investors that have worked with us to date are having a good experience. And so they are interested to do more with us. They are introducing us to other potential partners. And I don’t think they would bother introducing us other partners unless they were having a good relationship with us. And so, that’s sort of why we have some optimism around the belief that we can hopefully grow that part of our business organically.

[Ronald Kamdem:]

Got it. And then my last question was just going back to the $1.5 million incremental construction management fees, which is the delta that you’re sort of forecasting. Can you maybe talk a little bit broader about sort of – is that related to just – is that nationally? Is there a specific asset type? And also would just like to hear your broader color on what you’re seeing in the construction market. Obviously, we hear it’s pretty tight, but curious what you guys are seeing on the ground? Thanks.

[Matt Jordan:]

Well, I can start with the fee impact. The first calendar quarter of any year, Ron, is always light as people get their budgets in line, get work bid out. So we’ve historically seen this drop off occur. And it comes on the tail of the fourth calendar quarter, always being one of the higher periods. And just to put it in context, last quarter, we managed about $50 million in construction. This quarter, we did $26 million, so a very sizable drop-off, whereby next quarter, we expect to get much closer to that $45 million, $50 million run rate, which is a lot of what’s driving the guidance we provided on the construction fee side.

[Adam Portnoy:]

In terms of general construction activity in the market, I think you’re seeing the completion of a lot of projects that were obviously underway. You’ve certainly seen a stalling, especially in senior living and around hotels, especially our office developments for projects that are sort of on the drawing board, things have definitely slowed down. There is little pockets of activity that are occurring sort of niche markets. For example, anything that touches, let’s say, life science is an area where you’re seeing – you’re still seeing considerable interest in construction activity. Both in sort of the core markets that you would see life science, which would be the Boston, San Francisco, maybe San Diego markets, but – in other markets as well. So there is niches, niche areas of real estate where you’re starting to see some pick up interest in construction, of course, industrial. Industrial construction continues to be robust. And most of its being done on a spec basis throughout the country and I don’t see any real slowdown in construction activity in and around industrial assets.

[Ronald Kamdem:]

Got it. Very helpful. That’s all for me. Thank you.

[Operator:]

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

[Kenneth Lee:]

Hi. Thanks for taking my question. Wondering if you could just share with us any thoughts around near-term milestones that we could be watching for as you scale up Sonesta and build out the platform there? Thanks.

[Adam Portnoy:]

Sure. So I think the near-term milestones – in 2021, there is a lot of work that needs to happen, both within Sonesta, but also, we also need the industry as a whole to come back. And so you sort of have two things you got to be watching. I think generally, most folks believe there is starting to become a tailwind to the industry and that occupancy is going to come back, especially in the leisure space. I think what we need to do, and this is RMR, SVC and Sonesta is we have to basically rationalize the portfolio of hotels that have been taking back. One of the principal reasons that SVC took back a whole bunch of hotels and Marriott and IHG as well as Wyndham was it gave a tremendous amount of flexibility in terms of what it could then do with those hotels, far more flexibility than what we would have been able to do if they stayed under the brands, they were they were running under prior. And so I think through this year, we need to spend a lot of time figuring out which hotels we’re going to invest significant capital in which hotels we’re going to keep, but maybe not invest so much capital in, which hotels do we maybe sell? And then maybe there’ll even be a smaller group of which hotels we might convert into something else. I think the convert into something else will be a pretty small list. But I think the other three buckets, it’s sort of – it’s hard to know at this time how many of the hotels are going to fit into each one of those buckets today. And I think the milestone will be, as we get to the second half of the year, an announcement around what are we doing as a company with these hotels? What’s the flexibility we’ve been afforded, how we’re taking advantage of that flexibility in terms of repositioning the hotels or representing the portfolio or selling. As we get into ‘22 and ‘23, Sonesta, I think will be – a lot of its external growth will likely come from franchising. So that’s obviously something to keep an eye on. I think we feel pretty good as an organization that Sonesta is going to be able to build out its network of franchised hotels in the coming years. And then I think you get into ‘22/23 from the managed portfolio, it’s comparing its hotel level EBITDA and RevPAR to its peers. And we have a lot of optimism about how Sonesta is going to be able to operate the portfolio in a post-COVID world, post-pandemic world, which we believe is going to be as good as, if not better, than some of the major brands would perform in a post-COVID world, after the pandemic. And it’s really benchmarking them as you get into ‘22 and ‘23 to their peers. And so, that’s sort of the – those are sort of the milestones as I look at it.

[Kenneth Lee:]

Great. That’s very helpful color. And just one quick follow-up if I may. Wonder if you could just provide any updates on potential investment opportunities within the commercial mortgage REIT side this year? Thanks.

[Matt Jordan:]

Well, right now, on the mortgage side of our business, we are pretty focused on the merger of our two mortgage REITs, Tremont and RMR Mortgage Trust, which obviously is subject to a shareholder vote later this summer. They have about $400 million in dry powder to put the work as it is today. There is a robust pipeline, but it’s a competitive environment they are operating in. There is a lot of capital chasing the credit space right now, especially in the bridge loan and transitional bridge loan space that we operate in, our two mortgage REITs. So right now, our focus is on deploying the capital we have before we think about anything further.

[Kenneth Lee:]

Great. That’s helpful. Thank you very much.

[Operator:]

The next question will come from Dean Stephan with Bank of America. Please go ahead.

[Dean Stephan:]

Hey guys, good afternoon. This is Dean on for Mike Carrier. You guys touched on this a little bit, but just wondering if we could get some additional color around the ILPT joint venture, how that’s performing versus your original expectations and maybe the growth and expansion outlook for that platform longer term? Thanks.

[Adam Portnoy:]

Great. Thanks, Dean. I think we’re still optimistic that, that venture will see growth. I think there is a very good chance. We will see growth in that venture in calendar year 2021. I would say, honestly, it’s probably growing a little slower than we originally anticipated. And that’s, for no other reason, then the amount of competition for opportunities in the marketplace that exist. And I think it’s no shortage of opportunities to bid on, and we are underwriting a tremendous number of opportunities. And we are bidding, but pricing for whatever reason, has gotten pretty aggressive in that space. And we’ve gotten to the point where this is not our partner saying to us that the pricing has gotten too aggressive. It’s often us as the GP, let’s say, not feeling comfortable that this is an opportunity that we would recommend to them. So it’s largely being driven by us saying the risk-adjusted return on this particular asset just doesn’t make sense at this pricing. And we’re an oftentimes surprised by some of the pricing that we see some of these industrial assets be sold at. That being said, we are making progress. We are buying things, and we will, I believe, pretty confidently have growth in that vehicle in 2021. But I’d be remiss to say, when we first announced it, yes. Our hope was we’d be growing it a little faster than we are, but also the market has gotten much more competitive since we’ve announced the venture as well.

[Dean Stephan:]

Got it. That all makes sense. That’s it for me. Thank you.

[Operator:]

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Adam Portnoy for any closing remarks.

[Adam Portnoy:]

Thank you for joining us today. Operator, that concludes our call.

[Operator:]

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