Shankh Mitra: Mike, I was just not going to sit here and try to speculate what might or might not happen, but I will repeat what I’ve said before. If we went back to pre-COVID occupancy and pre-COVID margin, I will be really disappointed. If that’s where we end, we’ll be disappointed.
Operator: We’ll go next to Derek Johnston at Deutsche Bank.
Derek Johnston: In addition to the REIT community, a lot of generalist investors are closely following WELL. So, I know we touched on it in the opening, but can you expand on this favorable Private Letter Ruling with the IRS. I think around 45,000 independent living units are not really being designated as healthcare facilities and/or subject to RDEA. And so what does that mean, right? And importantly, how the decision may drive further earnings growth, especially given the beefed-up asset platform? Thanks.
John Burkart: Yes. I’ll touch on that. So, what it means, I think the easiest way to look at it is if you just go back and read history a little bit and you look at the multifamily world when everyone kind of came together in the mid-’90s when I started — where I was at. And what you saw is this move from fee managers to owner operators was a fundamental shift. And what I think a lot of people missed was there was a basic economics behind that. In essence, as a fee manager, you get paid a percentage, let’s say, 5% to collect $1, and that means you wouldn’t spend more than $0.05 to collect the dollar; as an owner operator you paid $1 to collect $1, so that’s — you would spend $0.99 to collect $1. And so that fundamental shift enabled us as owner operators to move much, much faster and changed how we looked at the world, whether it be investing in websites, technology, et cetera, or bringing things in-house, marketing in-house, et cetera.
All these things enabled a tremendous improvement in margins. And that’s what it ultimately means is it will allow us to step into that business and have tremendous impact on the margins. More than that, I would say, I break the business down into three components overall. There’s a real estate or multifamily component. There’s what I call the hospitality component, which relates to meals, housekeeping activities, and then there’s a care component. And so, our various residential businesses have one to three of those parts. So, as we step in, we address the real estate as well as this hospitality component at our independent living, we’ll be able to take those best practices and move those into the assisted living, which we’re obviously not managing.
But if we find better ways, more effective ways to deliver higher quality meal service, et cetera, that will all be pushed out through our platform, no different than what we’re doing right now in our case study on revenue management, how we push that out to one of the assisted living properties. So, the same concept will apply. So, this is pretty huge, and it will impact our overall residential platform.
