Rmr Group Inc. Q3 FY2020 Earnings Call

Good day, and welcome to The RMR Group's Fiscal Q3 2020 Earnings Conference Call. Please note that today's event is being recorded. At this time, I would like to turn the conference over to Michael Kodesch, Director of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining RMR's third quarter fiscal 2020 conference call. With me on today's call are President and CEO, Adam Portnoy; and Chief Financial Officer, Matt Jordan. In just a moment, they will provide details about our business and performance, followed by a question-and-answer session. I would like to note that 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, August 7, 2020, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, or SEC, which can be found on our website at www.rmrgroup.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we may discuss non-GAAP numbers during this call, including adjusted net income, adjusted earnings per share, adjusted EBITDA, and adjusted EBITDA margin. A reconciliation of net income determined in accordance with U.S. generally accepted accounting principles to adjusted net income, adjusted earnings per share, adjusted EBITDA, and the calculations of adjusted EBITDA margin can be found in the news release we issued this morning. And now, I would like to turn the call over to Adam.

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 COVID-19 crisis on our businesses. The last four months have been extraordinarily challenging. 100% of our managed office and industrial assets have remained operational and available to our tenants, though approximately half remain lightly utilized. With a nationwide platform of over 2,100 properties across multiple commercial real estate sectors, I would like to first share some insights regarding the sectors we operate in. 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 screened by our acquisitions team decreased by over 40% relative to the average volume of transactions screened in a typical quarter. With overall volume down, private capital dry powder earmarked for commercial real estate, coupled with historically low interest rates, has helped properties hold their value and keep cap rates close to pre-pandemic levels, especially in the top-performing sectors such as industrial and net lease office. In each of these highly sought-after sectors, we've experienced competitive bidding processes with buyers getting close to broker's expectations. With that said, values in the more negatively impacted sectors such as hospitality, senior living, and non-essential 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 impacted many of our managed equity REITs' disposition programs, as we have seen a reduction in the number of buyers available for hotel, senior living, and non-essential service retail dispositions. In many cases, we have had both prospective transactions due to buyers seeking price reductions, or because we had concerns around the viability of buyer financing. While transaction volume has slowed considerably, it is worth noting that, in aggregate, our client companies have 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've collected over 90% of rent each month in the fiscal third quarter, and in July, we collected approximately 99% of rents. The majority of uncollected rents have been addressed through rent relief discussions, mostly in the form of rent deferrals. As it relates to rent deferrals, we remain committed to working with the tenants of our client companies by providing short-term relief to allow them to successfully navigate this pandemic. This collaborative approach to working with our tenants should help upon return to normal and ensure we are a 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 deferral requests 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 a result of tenants not yet receiving government support and the uncertainty of reopening timelines. As government support and partial reopenings have improved tenant confidence, over 50 tenants have rescinded rent deferral requests. 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 and a weighted average roll-up 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 are seeing a mix of tenant behaviors across industries. Many tenants that were in the market to relocate or renew have chosen to sign short-term or blend and extend renewals, whereas industrial 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 plan 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 related needs of our tenants from logistics and distribution support. ILPT was a direct beneficiary of this trend, delivering same-property cash basis NOI growth of 3.4% on a year-over-year basis and over 1.9 million square feet of leasing and rent reset activity with a 23% roll-up in rents. ILPT also continues to benefit from a tenant base where investment-grade rated tenants or Hawaii ground leases represent approximately 75% of annualized rents. With RMR's help, ILPT also continues to explore the possibility of expanding the joint venture it announced last quarter with another direct capital investor. It is our expectation that this vehicle would make additional acquisitions in the future, which in turn would help scale ILPT and result in a new RMR-managed private vehicle. Switching gears to our office REIT, OPI's 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. To date, requests from tenants for changes to their footprint to support flexibility with remote work have been minimal. We continue to believe that densification, employee development, and collaboration, as well as the need for an office touch point, will largely outweigh the current temporary work-from-home trends. OPI's same-property cash basis NOI increased by 2.5% over the prior year, with 642,000 square feet of leases executed at a 3.9% roll-up in rent. OPI recently issued $162 million of 30-year senior unsecured notes and used 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 weather the current economic environment. This quarter, DHC completed two important transactions, as it issued $1 billion of senior unsecured notes and amended its credit facility and term loan agreements. Completion of these transactions should ensure that DHC has sufficient liquidity to meet the unique challenges 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 in its senior living communities, it's important to remember that almost 60% of DHC's NOI comes from its office 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 COVID-19 tests and vaccine-related research. Excluding reductions in parking income as a result of the pandemic, DHC's office segment's same-property cash basis NOI increased by 10 basis points year-over-year. SVC 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. To help ensure SVC can weather the current environment, SVC issued $800 million of senior unsecured notes and obtained waivers from certain financial covenants applicable to its bank facilities. Most recently, SVC sent a notice to IHG to terminate agreements covering 103 hotels. While we hope that IHG honors its contractual arrangements with SVC, we are assessing alternative strategies to protect SVC's cash flows and maximize flexibility regarding these important assets by potentially rebranding these hotels as Sonesta hotels. SVC would also benefit via its 34% ownership of Sonesta and leverage Sonesta's track record of improving returns at hotels where it assumes management. Operationally, SVC has seen signs of recovery throughout the quarter, with hotel occupancy steadily increasing each month to a high of 35.5% in June and service retail rent collections of 80% for the month of July. While these are positive trends, there remains a long road ahead for SVC to get back to pre-pandemic operating results. Lastly, Travel Centers 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. TA was also able to successfully close on an $85.4 million 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 build this business. With regards to strategic M&A opportunities, diligence efforts regained momentum towards the end of the quarter, as some of our potential targets have begun stabilizing their portfolios, and we're in a position to revisit possible transactions. While the overall process is playing out slower than we would like, we remain confident that our RMR private capital management business will get off the ground in 2020, even if we have to build it ourselves and/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 in reaction to the ongoing pandemic have positioned our client companies to weather a prolonged recovery. RMR operations remain well fortified by our 20-year evergreen contracts with the managed equity REITs and our healthy operating cash flows.

Thanks, Adam. Good afternoon, everyone. Since our last earnings call, our organization's operational focus has turned to ensuring our tenants return to safe environments, 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 tenant engagement, along with our health and safety efforts, have led to many tenants sharing positive feedback regarding our protocols and procedures. Where buildings continue to remain underutilized, 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, for the fiscal third quarter, we reported adjusted net income of $6.2 million or $0.38 per share and 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 month 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 REITs 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 based business management fees, the majority of our managed equity REITs 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 COVID-related shutdown in 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 $550,000 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 to 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 decisions. As a result of these efforts, we expect this level of cash compensation to reflect our run rate into next quarter. G&A 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 $500,000 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 covered. 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 would like to highlight that we recently published our inaugural sustainability report, which can be found on our website. This report provides immense detail regarding our strategic focus on long-term sustainability goals across RMR and our client companies, in addition to the charitable contributions we make in our communities and our focus on the organization's most critical asset, our people. That concludes our formal remarks. Operator, would you please open the line to questions.

We will now begin the question-and-answer session. Today's first question comes from Owen Lau with Oppenheimer. Please proceed.

Could you please give us a little bit more color on your hotel and senior living portfolio? And I think you shared some of it in your prepared remarks, but if you can also share the latest trends of the occupancy rate, that would be great. Thank you.

Sure. On the hotel portfolio, we've seen a steady increase in occupancy from April through July. I think it's starting to level off, or it feels like it started to level off as we've gotten into July. Unsurprisingly, that sort of corresponds with the increase in COVID cases through large parts of the country, which has dampened some of the growth that we're experiencing. Our working assumption is that any occupancy growth from here will be pretty slow through the remainder of the year and/or until there's perhaps a vaccine widely available, because I believe that is probably the gating item before hotels really start to come back. So we saw a steady improvement through the middle of the summer, specifically in July, and it feels like it's sort of leveling off here, and we expect it may level off here for some time; the length of that time is unknown. With regards to senior living, again, I would say a slowdown in the deterioration is maybe the best way to phrase it. We've also, as you've probably seen, had occupancy deterioration throughout the quarter. The rate of deterioration, though, was slowing each quarter and was actually getting almost stable as we got into June. Again, similar to what I said about hotels, as we've seen a rise in COVID cases in those communities—not just the ones we operate, but industry-wide—that has also had a direct correlation with increasing deterioration or accelerating deterioration in occupancy. It's not deteriorating at the levels at which it was in April and May, but it's sort of peaked or at best, we saw in June. Since then, it's deteriorated a little bit. That's an industry I think that is going to lag or maybe take one of the longest to recover, just given the fact that it's servicing a very vulnerable population that's affected by COVID. The long-term good news around senior living is that all the demographics that were there prior to COVID continue to be present. A large amount of that business is need-based—it's folks that essentially need the services, and that drives a large majority of new movements. So I believe that as COVID recedes, and we return to a more normal state, that industry, our expectation is that it will eventually return largely to where we were. Again, the amount of time it takes for that to happen, whether that's three months or a year, is hard to predict but will depend on getting on the other side of COVID.

That's very helpful. Thank you for the color. And then, for G&A, again, G&A is down this quarter sequentially, just like many other companies. What's your thought about the operating model of RMR going forward? How much of the expense save can be permanent, and how much of that is temporary, and for how long? Thanks.

Yes, great question, Owen. This quarter's rate at $6.3 million is definitely something I believe we will sustain through the end of the calendar year. As we look into 2021, in a hopefully vaccine environment, like a lot of companies in corporate America, we are assessing some of our controllable costs like travel and evaluating how historical levels can be scaled back through technologies and less in-person visits. So I think going forward for the remainder of this year, this run rate should hold, and we hope not to give back all of the G&A costs—hopefully, we can stay well under $7 million on a run rate basis in a post-COVID world.

Okay, got it. And then, finally, extending from what you just said, how would that impact the revenue from OPI longer term? What's your thoughts on that? Thanks.

You're talking about, Owen, in the future revenues from OPI to RMR? Yes. Again, in our prepared remarks, we are discussing the long-term impact to office as a result of what has happened in the pandemic and work-from-home environments. It's important to stress that it's all conjecture at the moment. We have not seen any material changes in our conversations with tenants. That's a significant distinction. We have not seen tenants come to us since the pandemic with significant changes in plans as a result of remote work environments. I suspect that most companies will want to get through the pandemic before reassessing their needs and will they have an increased number of employees, partially due to work-from-home patterns. A lot of people cite the Bureau of Labor statistics on this; pre-pandemic, about 15% of office workers were at least partly working from home. Within that, about 2% or 3% were permanently working from home. Do we think that number could increase? Sure, that could increase; maybe it goes to 20% or 25%. However, we believe that for all the reasons discussed in our prepared remarks, the need for collaboration, densification, employee development, and the requirement of an office touch point will largely outweigh current temporary work-from-home trends. At the end of the day, the vast majority of office workers will continue to work in offices. I think there will, however, be some movement away. It could see an increase in work-from-home, and it's challenging to gauge how that will impact OPI. OPI benefits from having a pretty long average weighted lease term, having most of its leases with large blocks of space with investment-grade rated high credit quality tenants. More importantly, what I think about regarding office is if there is any shift being accelerated from urban to suburban office. That is a trend that I personally and the company are very attentive to. We don’t have an office portfolio heavily weighted in urban downtown markets; ours is actually more in close-in suburbs or suburban. It's an interesting question, especially in some of the larger gateway cities in America, as to whether there will be a movement that requires more space outside of urban centers and less in urban centers. We're well positioned to benefit from that trend if that's the case, but I am more focused on that than the work-from-home aspect.

Our next question comes from Kenneth Lee with RBC Capital Markets. Please proceed.

You mentioned in the prepared remarks seeing some declines in terms of rent relief. Part of that was due to benefit from the government relief programs. Just wondering if you could share with us some of your thoughts on what the implications for RMR could be should any of the government relief programs start to tail off? Thanks.

That's a really interesting question. It's hard to know exactly why some of the rent relief requests have trailed off. I think, as I mentioned in the prepared remarks, we feel very good about our rent collections across the platform, with July's collections being 99%. That's pretty close to normal operations. We feel really good about our current rent collections. Looking to the future, in the second half of '20, we are monitoring this closely. I'll tell you that in the first few days of August, we haven't seen any increase in rent deferral requests. It's very early in August, but we haven't seen any uptick. Of course, that relief program is winding down. It's really hard to discern how many of our tenants are genuinely utilizing the government relief program. It's mainly our smaller tenants we find that are benefiting from it; we have smaller tenants in Hawaii and some small retail tenants. They seem to be the ones benefiting the most. However, the vast majority of the rents we collect across the platform are from large, well-capitalized, investment-grade rated companies, so it could have an impact, but I don’t believe the effect will be significant if there is no additional government assistance in the second half of the year.

And I guess the only thing I would add, just to add some color around the magnitude, is that in the quarter, deferred rent was about $17 million on assets we directly manage, which cost us about $500,000 in property management fees that will be recovered later in the deferral period. It would take a significant change in the volume of deferrals to reach a level that would materially impact our results.

Got you. That's very helpful color there. And just one follow-up, if I may, regarding any updated expectations for timeframes in terms of asset dispositions within the managed equity REITs, specifically OPI and DHC. Thanks.

Sure. I think we will continue to pursue dispositions across our platforms and the managed companies. I believe it will be less than what we saw when we initially embarked on this matter at the beginning of the calendar year, but there is a finding that is ongoing in the market. Since the pandemic began, there has been a deficit of investment opportunities; however, there's a tremendous amount of capital available for investment in real estate. Interest rates are incredibly low, and debt financing is available, although it is not as accessible as it was prior to the pandemic. I think we are slightly more optimistic now that we will be able to complete transactions in the second half of calendar year '20. With OPI, any disposition would be 100% opportunistic, and we don't really need to sell anything there. We might market some properties for sale, and if we don’t receive the desired price, we have no obligation to sell them. At DHC, we had a defined disposition plan, and I think we will make gradual progress on that in 2020. We’re being very thoughtful about what we pursue under that disposition plan, especially regarding senior living assets, and we are paying careful attention to the prospective buyer's ability to execute. While I didn’t mention it, we are also thinking about dispositions in the hotel space, but if we were to engage in conversations regarding that, we would only do so with buyers free of financing contingencies; we would only engage with cash buyers. So this is a measured approach, and we are being prudent about how we move forward. However, I do believe we will achieve more transactions than we initially anticipated when we announced earnings the last time in late April or early May.

The next question comes from Bryan Maher with B. Riley FBR. Please proceed.

Quick question on your cash reserves, which continue to grow, and how you're thinking about allocating that. We know you've been in the market for a long time looking for something on the private capital management front, but with what's going on with SVC and intercontinental—with the extent that they cannot come to some kind of a deal and possibly an awful lot, maybe over 100 intercontinental hotels—becomes Sonesta. Have you thought about taking some of that money and maybe ramping up Sonesta as a hotel management company to a formidable competitor, since you will have a lot of assets now in that portfolio?

Sure. Regarding Sonesta specifically, RMR has a management agreement with Sonesta, but as Sonesta is a private company, it has its own shareholders. If Sonesta is going to take back hotels and start managing them on behalf of SVC, it will need to ramp up. However, the investors in Sonesta are more than capable and have the liquidity to manage that without RMR needing to invest directly into Sonesta. As for your broader question about the cash build-up at RMR, I agree we are in an advantageous position with zero debt and nearly $400 million in cash. We continue generating cash after dividends and taxes, albeit less than we were at the beginning of the year; we are still generating some cash. This is a unique time. The way I would have thought about using capital at RMR pre-pandemic has changed as we have entered into the pandemic. I see this pandemic as perhaps a once-in-a-generation opportunity from an investment perspective to leverage opportunities that may present themselves. Companies that are low leverage—like us, with no leverage—are best prepared to take advantage of these types of opportunities. That said, some of these opportunities may not present themselves immediately in a downturn; they might arise midway through or as we emerge from it. While I may have had a different perspective on the timeline and allocation of that cash at the beginning of the year, I think we will be a bit more patient as we navigate this COVID period. It could present a real opportunity for RMR to do something remarkable in terms of significant strategic M&A. I believe it's crucial for us to stay liquid and without leverage to position ourselves for potential opportunities.

Right. That's a great answer. But to that point, I don’t know how—sitting on $400 million in cash—Adam Portnoy can resist when you see where these stocks traded down to in the second quarter, not allocating $50 million or $100 million to buy some of those managed equities outright. I know you've said in the past you don’t necessarily want to use that money to double down on those four managed REITs, but with how the share prices fell in Q2, it seems like it might have been, and possibly still can be, opportunistic to allocate some of that cash to buy managed equities. Any thoughts on that after what you’ve witnessed in the second quarter?

Bryan, I understand your perspective, and others may share it as well. I still believe that the stock prices have been severely impacted, and at RMR, we certainly felt that impact. Our management contracts are directly tied to that, and we're taking a significant haircut as a consequence of those stock prices declining; we are highly aligned and incentivized to try to improve those stock prices, as we gain from that, since our management fees go up. You’re correct that we are very much aware and agree with you that those stock prices are badly beaten up, and we hope and desire to improve them through good management of those companies. With respect to your specific question about investing in those historically established vehicles, I don't think there is much appetite at the RMR level to do that. We remain focused on using our capital to grow the platform and to be forward-thinking about how we deploy that capital to diversify revenue streams. I agree with you that there is possibly an opportunity to take advantage of some low stock prices, but we must weigh that against using that capital to grow the platform and expand our client base in the future. So I don't think there is a real change in thinking regarding that, but I appreciate your point.

Okay, and just last for me, as it relates to the ILPT JV partner and the likelihood of another JV partner joining that entity. Do you see any potential? You have relationships around the world with private capital. Do you see that unfolding with any of the other externally managed REIT platforms, or do you think that's more specific to ILPT?

No, I think there's potential for something to develop with the other managed vehicles as well. First, we are working to finalize the ILPT project, and I hope we'll have something to announce regarding that soon. If we accomplish that, there could be follow-on opportunities with the other managed REITs as well, and that's something we are considering.

The next question comes from Bill Katz with Citigroup. Please proceed.

So just coming back to the opportunity to leverage capital through M&A. In the early part of your commentary, I heard you mention wanting to get something off the ground in the second half of the year. Then, just listening to the commentary on capital management being patient, can you talk a little bit about the timeline there and what milestones we should be looking for from some of the activities that might suggest you’re getting closer to deploying some of that capital?

Yes. Bill, I think we're looking at two fronts—there are two parallel paths we've been following to establish a private capital management business. I'm confident that, in calendar 2020, there will be announcements that largely establish that business. We are having productive conversations on both fronts. I would say that the pace of discussions regarding the ability to raise direct capital ourselves and form vehicles independently seems to have accelerated. That said, we are also engaged in discussions regarding strategic M&A simultaneously. I think we can expect to see announcements regarding both strategies in the second half of 2020. These announcements could involve a request for some of the capital, or, of course, if it pertains to strategic M&A, we would utilize some of the capital. However, it's hard for me to envision in 2020 that we would earmark all $400 million of our cash. I don't believe we will spend all of it; I expect that some amount of it will still be available for deployment as we move into '21. Again, I think the opportunities from transformative M&A may not appear until late '20 or into '21. It is essential for us to remain liquid and ready to take advantage of opportunities that can arise.

Okay, that’s helpful. So, just on that, as you consider your footprint today, assuming you have something underway in the private market side, when you speak of transformation, could you expand on your thinking about how you could foresee that transformation taking shape?

Sure. The easiest example would be acquiring a substantial real estate private equity shop that could add significant value to our platform. I am confident we will build a moat; if we don’t buy it, we will build it ourselves. It might take time, but we aim to create a multi-billion dollar private capital platform. We can accelerate that growth through strategic M&A, which could be substantial acquisitions we might consider. However, there is currently nothing sizable that would consume our entire capital that we are actively pursuing. I just want to clarify. I believe it is important for the company to be prepared to explore opportunities in this unique environment. This is precisely when opportunities arise, and significant gains can be made during downturns like this. Therefore, it's crucial that we remain flexible and liquid enough to capitalize on any of these prospects.

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.