First Capital Real Estate Investment Trust

TSX:FCR.UN

Earnings Call Transcript 2021-Q2

[Operator]

Welcome to the First Capital REIT's Q2 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Alison. Please proceed with your presentation.

[Alison Harnick, Senior VP, General Counsel & Corporate Secretary]

Thanks, and good afternoon, everyone. In discussing our financial and operating performance, and in responding to your questions during today's call, we may make forward-looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements. A summary of these underlying assumptions, risks and uncertainties is contained in our various securities filings, including our Q2 MD&A, our MD&A for the year ended December 31, 2020, and our current AIF, which are available on SEDAR and on our website. These forward-looking statements are made as of today's date, and except as required by securities law, we undertake no obligation to publicly update or revise any such statements.During today's call, we will also be referencing certain financial measures that are non-IFRS measures. These do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these measures as a complement to IFRS measures to aid in assessing the REIT's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call.I'll now turn the call over to Adam.

[Adam E. Paul, President, CEO & Trustee]

Thank you very much, Alison. Good afternoon, everyone, and thank you for joining us today for our Q2 conference call. In addition to Alison, with me today are several members of the FCR team, including Jordie Robins and Neil Downey, both of who you will hear from shortly.The second quarter, our portfolio continued to demonstrate remarkable stability and resiliency and growth. Notwithstanding a quarter that continued to be subject to major restrictions in Ontario, and the GTA specifically, FCR's largest market by far, we are pleased with our operating metrics across the board. Consistent with every quarter during the pandemic, our leasing statistics were solid and again demonstrated the outcome of pairing high-quality real estate with a talented leasing and operations team.Occupancy was a solid 95.9%, up marginally from Q1. Although down by 40 basis points year over year, the impact was offset by growth in rents, which helped to deliver marginal same property NOI growth and, consequently, FFO growth for Q2. For clarity, that excludes the impact of bad debt expense, which clearly had a very positive impact during the quarter.Importantly, it certainly feels as if we are at a major turning point. Given our strong position and the reopening activities that are underway, as well as other tailwinds that continue to build, we are excited about the future for FCR. The strength and value of real estate assets of FCR's caliber is evident in the private markets, which we are capitalizing on. At the beginning of the year, we said that while we desire to monetize a portion of our asset base, we would be aggressive but patient in order to achieve premium pricing that reflects the quality of our properties.Our patience in that regard has served us well. A significant portion of our nearly $400 million of assets classified as held for sale are subject to third party sale agreements. Notably, the pricing we expect to achieve is meaningfully higher than what we believed was achievable at the beginning of the year. Simply put, our properties have never been worth more than they are today. These expected transactions and progress at our Christie Cookie property in Toronto were the main contributors to strong NAV growth in Q2. Our $23.36 NAV per unit represents an increase of 4.3%, or $0.96 in Q2, in line with our highest NAV ever.So we're very optimistic as we look ahead. Our Q2 results were solid, despite being achieved while elements of the business continued to operate at less than their full potential. Besides the recent lifting of the major restrictions that were in place in the GTA, there are other revenue sources that will continue to strengthen as the reopening takes hold. Properties like our newly renovated Hazelton Hotel, which has recently seen occupancy gains, although still below pre-pandemic levels, parking revenue at many of our properties and other forms of ancillary revenue, not to mention certain lease transactions that are conditional on a decision maker stationed outside of Canada being able to physically visit the respective property, which quarantine rules have prevented.As we look ahead, we see conditions that will augment current earnings by gradually returning FCR's full potential. We're seeing many signs of a very encouraging and constructive environment for our business, and it seems like the best is yet to come. We're moving forward from a solid position. Just under 96% occupancy, highest in place rental rates we've ever had, the best demographic profile, a strengthening balance sheet, and importantly, a rising NAV per unit.We've made substantial progress on our real estate portfolio and, specifically, several strategic transactions, the most impactful of which is our Christie Cookie property, which will be FCR's largest development to date. When we initially acquired the property 5 years ago, we noted how optimistic we were about the potential at Christie. It's working out better than planned. The master plan is complete, and zoning will soon be in place permitting 7.5 million square feet of density, plus many elements reminiscent of a complete community, including parks, public realm, transit and other infrastructure as well as extensive community services. Therefore, it is the appropriate time to add a strategic and aligned partner with deep residential and major construction expertise.We feel Pemberton Group, an existing partner of FCR, was a superb candidate, and we're thrilled to expand our partnership on such an important development. With Pemberton on board, together with FCR's platform, we have all the expertise required to successfully deliver on what will become a new super urban neighborhood in Toronto. So please continue to stay tuned on this one. Jordie will expand on Christie as well as some of our other properties shortly.In Q2, we also made steady progress in advancing our ESG goals, which included a number of firsts in our sector. First Capital is the first Canadian REIT to be a signatory in support of the Task Force on Climate-related Financial Disclosures. We are committed to establishing a concrete plan to align with the TCFD recommendations. And secondly, FCR is the first Canadian retail REIT to achieve the WELL Health-Safety Rating for Facility Operations and Management from the International WELL Building Institute at 35 of our buildings, totaling over 7 million square feet of space.We're also proactive in working with our tenants, which we believe is a necessity to drive maximum performance and healthier buildings. This quarter, we're proud to have received the Gold 2021 Green Lease Leader recognition by the Institute for Market Transformation and the U.S. Department of Energy's Better Buildings Alliance for our leadership in green lease implementation. We look forward to providing further updates on our ESG initiatives in the future. And in the meantime, please refer to our latest ESG report as well as detailed information on all of our related efforts, which can be found on the enhanced ESG section of FCR's website.And with that, I will now pass things over to Neil.

[Neil WilliamEdward Downey, Executive VP of Enterprise Strategies & CFO]

Thank you, Adam, and good afternoon, everyone. For my prepared remarks today, I will begin by referring to Slide 7 of our quarterly conference call presentation deck.Q2 2021 funds from operations was $76 million or $0.35 per unit. This represented an increase of 60% over Q2 2020's $47 million, which equated to $0.22 on a per unit basis.Second quarter results from this year included $17.5 million or $0.08 per unit of other net gains. The other gains amount principally related to an unrealized fair value gain on the shares of a construction management software company that completed its initial public offering during the second quarter. These common shares are a component of a USD 5 million venture capital investment made in May of 2018 as part of FCR's innovation initiative. Having a market value of more than USD 20 million currently, we're quite pleased with the significant compounding of our investment over a short period of time.The Q2 contribution to FFO from this investment is a mark-to-market matter. In future reporting periods, changes in the share price of this investment will contribute to or possibly detract from reported FFO. And of course, we cannot reasonably predict these future amounts, if any. Therefore, for purposes of comparisons made through the balance of my remarks today, I will simply refer to FFO, excluding other gains, losses and expenses. On this basis, Q2 FFO of $59 million equated to $0.27 per unit, representing a 23% year-over-year increase from $0.22 per unit last year.Now drilling into the results. As shown on Slide 6, Q2 net operating income of $104 million increased by $15 million from $89 million in the second quarter of 2020. The NOI increase was comprised of $13.7 million of same property NOI growth, a $2.8 million contribution from acquisitions and developments, offset by $1.7 million of lost NOI related to property dispositions. The Q2 2021 comping against the initial depths of the pandemic, most, albeit not all of this quarter's same property NOI growth, related to lower bad debt expense.Interest and other income of $2.1 million declined by approximately $1 million year over year, primarily due to lower loan receivable balances. And for context, our loans receivable at June 30 this year were $77 million, down from $134 million at midyear last year.G&A expenses of $8 million increased by a sizable $2.4 million year over year, thus returning them to a level that approximates a normalized amount.While not detailed specifically in this conference call deck, I will provide a few points of context regarding our Q2 results relative to Q1 of this year. FFO per unit increased sequentially by $3.6 million or 6% from Q1's $55 million. This equated to $0.27 per unit, up from $0.25. The key elements of this sequential growth were, firstly, a $2.7 million increase in net operating income, driven by improvement in certain variable revenue sources, notwithstanding the ongoing lockdown through much of Q2; as well as higher cash and straight-line rent due to new tenant possessions at our Leaside Village expansion and including a new Farm Boy food store that should be opening in a few months at our Station Place mixed-use development. Secondly, our Q2 G&A expenses were $1.2 million lower than in Q1. As you recall, we previously cited some severance costs and higher non-cash compensation amounts in our Q1 results during our last conference call. Of note, Q2 bad debt expense of $2.9 million was similar to the amount incurred in Q1.Moving ahead, please use Slide 7 and 8 for reference purposes. The former provides a 6-month comparative summary of our FFO results. And for purposes of transparency, the latter, or Slide 8, provides the details of our other gains, losses and expenses amounts. These amounts are a real component of our business. The included items can occur with some frequency, although not usually repeated each quarter. So we believe providing this detail can assist you in assessing FCR's operating trends.On Slide 9, the REIT's FFO per unit payout ratio in Q2 of this year was 41%, down from 100% in the same period last year. Our adjusted cash flow from operations payout ratio, which is derived on a trailing 4-quarter basis, was 62%. In total dollar terms, this equates to $149 million of cash distributions paid relative to $240 million of ACFO. Our ACFO payout ratio should continue to decline over the next 2 quarters, and notably, the low payout ratio is now helping to propel net asset value per unit growth.Moving to some of our operating performance metrics, beginning with Slide 10. Here, we're providing you with an update on our rent collections. As of yesterday, we collected 95.4% of our Q2 gross billed rent. This collection rate is 60 basis points higher than the 94.8% statistic that we provided with respect to Q1 collections in our early May conference call. But looking back at Q1 today, we note that collections for that quarter have increased to 97%. Increasing trends in cash collections over time provides us with an element of comfort, particularly now that tenants across the portfolio are open and operating.Moving to Slide 11. Our Q2 end-of-period occupancy was 95.9%, steady relative to Q1, albeit down 40 basis points year over year. The stability in Q2 occupancy reflected tenant openings of 108,000 square feet, exceeding closures of 94,000 square feet during the quarter.And turning to Slide 12. As mentioned earlier, Q2 same property NOI growth was $13.7 million or 16.6%. And of course, these results are comped against the toughest pandemic quarter. So much of the same property NOI increase was due to the $13.1 million year-over-year decrease in bad debt expense. But excluding this bad debt expense and the effects of lease termination payments, which, frankly, were very small in both periods, same property NOI growth was plus 0.3%. While it's a muted number, it remains notable that this organic growth was in the face of same property occupancy that was about 40 basis points lower year-over-year.As shown on Slide 13, leasing velocity strengthened in Q2. During the quarter, we completed 713,000 of lease renewals at an average year 1 rent spread of 8.0%. During the first half of 2021, renewal velocity is up 40% year over year to nearly 1.2 million square feet, again, at an average leasing spread of 8.1%.As referenced on Slide 14, we transferred $88 million of properties from development status to income-producing status in Q2. Included was approximately 95,000 square feet of commercial GLA at an average net rent of $29.05 per square foot. The largest component of this new GLA were the Farm Boy at Station Place at [ Tobigo ], Pharmaprix, Dollarama and Metro stores at Wilderton in Montreal and several small health and wellness related tenants at our Leaside Village. Some of you may have noted that our straight-line rent increased in Q2 to approximately $1.7 million from around $0.5 million in Q1 of this year. This increase does relate to the fixturing period for some of these new commercial tenants. And as we move through the next couple of quarters, in particular the fourth quarter, we expect this straight-line rent to trail off and, in essence, convert to cash rent.Also during the quarter, we transferred approximately 50% of the rental suites at our Station Place mixed-use project to income-producing status. As a reminder, the nature of a new residential lease-up building is such that we anticipate this property will carry a modest NOI deficit through the back half of this year.Providing some context on capital deployment and as summarized on Slide 15, we invested $39 million into development leasing and residential development during the second quarter. Turning to financing activities. It was actually quite a quiet quarter. We paid off a $19 million mortgage early in May. We funded $7 million of mortgage principal amortization through the period. And in totality, this brought 6-month year-to-date term debt repayment to $201 million.Slide 17 and 18 of the conference call deck summarized some of our liquidity and debt metrics. At June 30, total assets at our proportionate share were $10.2 billion or approximately $200 million higher than at Q1. The key drivers of the increase included $143 million of investment property fair value gains and Q2 total FFO that exceeded cash distributions by more than $50 million. As part of our normal course valuation review process, and based upon observed transactions in the marketplace during Q2, we did compress the cap rates on a handful of high quality, typically major market suburban food anchored retail properties. On an overall basis, however, our Q2 weighted average stabilized cap rate remained at 5.0%, consistent with both Q1 and the outset of this year.Our midyear net debt was $4.7 billion, little change from Q1. Primarily due to the higher gross asset valuation, our net debt to total assets ratio declined by 100 basis points sequentially, 46.3%. At June 30, we had $7 billion of unencumbered assets, representing about 70% of our balance sheet. The $696 million of availability under our credit facilities and including a modest cash balance, the REIT's total liquidity at June 30 was a sizable $723 million.After quarter end, we repaid a $37 million mortgage, which was our only remaining term debt maturity for the balance of this year. The repayment has drawn down liquidity to $675 million currently. Over the next several quarters, we expect to convert a sizable portion of our growing held for sale asset pool into cash, and this should provide for a significant strengthening of our already sound liquidity position.And with that, I'll now turn the floor to FCR's Chief Operating Officer, Jordie Robins, so he can provide some comments related to our development and entitlement activities and our asset monetizations. Jordie?

[Jordan Robins, Executive VP & COO]

Thanks, Neil, and good afternoon. Q2, as you've heard from both Neil and Adam, was a positive quarter on many fronts. Most notably, we advanced both our entitlement program and our disposition program, which laid the groundwork for what will be some exciting progress in Q3. I want to provide a little more color for you this afternoon on our activity in each of these areas, as we're really proud of what we've achieved, particularly in the face of the adversity due to COVID.The success in both these programs will result in a quantitative benefit to our business. The entitlements secured during this past quarter, along with several conditional and firm agreements related to property sales, have positively impacted our NAV and debt to assets ratio. On closing and thereafter, we anticipate additional positive impact on our debt metrics.Equally as important, the new strategic relationships we have formed will provide our business qualitative benefits that we will realize immediately and for years to come. As we had referenced on our last quarter call, Toronto City Council approved a secondary plan and bylaw for 2150 Lake Shore in May of this year. As the approval process advanced, First Capital sought out a development partner, as we had previously secured an option to purchase our existing partner's 50% interest for approximately $56 million.We have now entered into an agreement to sell this 50% interest to Pemberton for $156 million with closing anticipated in Q3. First Capital will maintain its 50% interest in the property. The transactions are expected to positively impact First Capital's net asset value and net asset value per unit by at least $175 million and $0.80, respectively. And approximately 1/2 of this amount has already been recognized in our Q2 2021 financial results.We are existing partners with Pemberton, and we chose to expand our relationship by partnering on 2150 Lake Shore as we believe Pemberton is ideally suited to augment our team as we transform the property into a sustainable and inclusive master planned, mixed-use, transit-oriented neighborhood. Pemberton's deep residential development, community building and large-scale construction expertise will be a critical asset for the expected 7.5 million square feet of residential, retail, commercial and the significant community uses contemplated.Pemberton will provide all development and construction management services in connection with the residential and the infrastructure works. First Capital will act as development manager of the retail and commercial components, and upon completion, will act as property and leasing manager for the retail and commercial space.And what also may be new news to many of you, this past month, the rezoning for our 138 Yorkville project was approved at Toronto City Council. The approved gross floor area of the building is 313,000 square feet, 65,000 square feet more than the zoning that was contemplated when we first purchased the site. We expect demolition of the existing buildings onsite will commence in Q4 of 2021, and the sales center will open in Q3 of 2022.Our outlook for 138 remains incredibly positive. The property is one of, if not the best, luxury condominium sites in the country. And the boutique building that we have designed will be the first true ultra-luxury development in our country's most prestigious neighborhood. It will house less than 100 units geared toward owner occupiers; not investors. What's more, the ownership and development of 138 remains strategic for us and is consistent with our evolved strategy. Design of the building, the owner profile of the new condominium units, and the tenants of the retail space in 138 will be synergistic with our significant presence in the neighborhood, including the Hazelton Hotel, the street front retail and Yorkville Village. The new building will tie directly into Yorkville Village, adding potentially a new anchor tenant and several new exterior points of ingress and egress to improve both circulation and accessibility.Turning to investments. You will note, as at June 30, we have asset values at $377 million classified as held for sale. $123 million increase in the held for sale balance since Q1 2021 is in part the result of our having entered into firm agreement to sell a partial interest in a property, which I will expand on shortly, as well as conditional agreements to sell several other income-producing properties for which we hope to be able to provide an update on in the near future.In Toronto, we've entered into a binding agreement to sell a 50% interest in Station Place to Centurion Apartment REIT. Centurion owns and manages $3.3 billion in assets comprised of 87 residential properties and over 12,000 units in 29 cities in North America. As the lease-up risk is shared, on closing of this transaction, Centurion will become an aligned residential owner and the property manager for the residential component of the project. Station Place is a purpose-built rental property located at Dundas Street West and Auckland Road. The building is a 40-storey tower with 333 rental apartment units and 50,000 square feet of retail, anchored by a Farm Boy who are in possession and plan to open in the third quarter. The property is situated adjacent to Kipling Station, a multimodal transit hub with connectivity to the TTC, the GO train and the Metrolinx Kipling bus terminal. Station Place is nearing completion with the first residential occupancies having commenced in June of 2021.The sales price for Station Place is well in excess of our cost. As a result of the transaction, First Capital's effective stake in the property will be reduced from 70.8% to 35.4%. Closing of the transaction is scheduled to occur in Q3.As I indicated, there are a number of other assets that we have sold subject to conditions. We will share the details of these sales with you as circumstances permit. What should be clear in any event is that we are now seeing the fruits of our labor over the last several years. The crystallization of this value that we have created as a result of this work gives us a real sense of optimism about our business and the things we will achieve.And with that, Roxanne, can you now open it up for questions?

[Operator]

[Operator Instructions] We will take our first question from Dean Wilkinson.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

On the gain on the exercising the option and slipping the property over into the joint venture with Pemberton, are you able to shelter the entirety of that move? Or is some of that going to flow into income and you may have to look at doing a special distribution or anything of that nature?

[Neil WilliamEdward Downey, Executive VP of Enterprise Strategies & CFO]

Dean, it's Neil. It is the fact of the matter that when you crystallize gains because you're making money. But the short answer is we do not anticipate any requirement for a special distribution.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Perfect. And then another question on the gains, if I may. What you booked in the quarter, and Neil, you kind of indicated that the overall cap rate has really not changed from the beginning of the year. Should we read that to, in effect, the fair market marks against last year have kind of been almost entirely erased by this? Is it that things are a lot better than you expected? Or perhaps in the eye of the hurricane last spring, that the marks that were taken against the portfolio were perhaps just more conservative than they needed to be?

[Neil WilliamEdward Downey, Executive VP of Enterprise Strategies & CFO]

Yes. It's a good question, Dean. But it's not a remarking up of the same assets that were marked down. So the assets we marked down last year were ones that -- it was actually less cap rate change and more cash flow change that drove the write-downs. And those assets, at least some of them have still not recovered to their full potential. We see every indication that they're on their way. And so the trigger for the write-ups this quarter were, by and large, limited to properties where there were third party transactions, typically with FCR. In a few cases not with FCR, but in very similar assets and very close proximity that couldn't be ignored. And those are different assets than the ones that suffered the markdowns last year. But it was limited to those. There's certainly a case to be made for that valuation profile to be rolled out more broadly. We did not do that in Q2, but it's something we'll continue to be looking at.

[Operator]

[Operator Instructions] We will take the next question from Tal Woolley.

[Tal Woolley, Research Analyst]

At Station Place, do you have like in terms of where you're leased up and the asking rents right now and how that lease-up process is going? I know some people have been engaging in some incentives, but that's seeming to start to roll off a little bit. Can you just give us a color on how the lease-up with the asset's going?

[Jordan Robins, Executive VP & COO]

Yes. I would say, first and foremost, Tal -- sorry, it's Jordie. It's very early days. We started occupancy still under lockdown, which is, as you can imagine, not the greatest time to start leasing a residential rental property. In any event, pursuant to the open up, leasing traction has -- or I would say the leasing velocity has certainly expedited. And at the moment, we are offering incentives that I would say are consistent with the market. And rents, for all intents and purposes, are as budgeted.

[Adam E. Paul, President, CEO & Trustee]

Yes. So just to follow up on that, Tal. As a reminder, we previously noted actually the most impacted type of asset that we own from the pandemic is purpose-built rental in Downtown Toronto, so whether that's King High Line or now Station Place. And yes, no surprise. It's a lot easier to lease space that people are going to live in when they can actually physically see it before they commit to it. One thing we will note is that while the lease-up has been slower than what we'll call a typical environment, the last 2 to 3 weeks we have seen a meaningful shift in the volume, certainly at King High Line, and it's -- we expect it to filter through elsewhere. But when we started leasing Station Place, it was slow. It's continued to pick up. And I think Neil made some commentary about the NOI drag. Hopefully that proves to be conservative. But I think we've taken a pretty realistic approach on that front.

[Tal Woolley, Research Analyst]

Yes. That sounds pretty consistent with what we think about it, yes.

[Neil WilliamEdward Downey, Executive VP of Enterprise Strategies & CFO]

Tal, it's Neil. Just to elaborate. The doors are still freshly open. We only have about half of the suites actually available for lease. So the rest will be probably transferred by the end of the third quarter.

[Tal Woolley, Research Analyst]

Okay. And then just, Neil, like thinking about next quarter, I'm trying to remember the sequencing last year for your provisions. But I thought that in Q3 last year, you actually reversed some of them. So should we just be cautious on same property NOI expectations for Q3 just because of that kind of flip in the numbers?

[Neil WilliamEdward Downey, Executive VP of Enterprise Strategies & CFO]

Well, if you're asking will same property NOI growth to be 16.6%, I will take a bet against that.

[Tal Woolley, Research Analyst]

Yes.

[Neil WilliamEdward Downey, Executive VP of Enterprise Strategies & CFO]

So clearly, you're on the right track, Tal, in terms of we are no longer lapping those "easy comps". But -- yes. So your line of thinking is -- makes sense.

[Tal Woolley, Research Analyst]

Okay. And then just a couple other like financial questions. So if your profitability, if maybe we can shift the software gain to the side this quarter, if you were sort of to annualize at this level, is your distribution sort of at the right spot for tax purposes? I'm trying to get a sense of what level of profitability you guys might actually have to be forced to moving the distribution.

[Neil WilliamEdward Downey, Executive VP of Enterprise Strategies & CFO]

At this stage, we -- what we said when we made the adjustment is consistent with what we would say now. We believe it's a 2-year reduction. We believe we will be able to maintain that at this point. We don't foresee a special distribution. That could change. But at this point, we don't foresee that. And we also foresee an increase to the distribution after the 2-year time frame that puts it in line with where it was prior to the adjustment. So there's been no change on that front, to answer your question.

[Tal Woolley, Research Analyst]

Okay. And then just lastly, if I'm doing my math correctly, Neil, if I look at your debt to EBITDA ratio and sort of back out the income attributable to your held for sale properties and the expected proceeds from those properties, it should drop your leverage to around 11x, if I'm doing my math correctly. Is that -- am I in the ballpark?

[Neil WilliamEdward Downey, Executive VP of Enterprise Strategies & CFO]

Well, we're not in the forecasting business, per se, Tal. But clearly, we've got more assets held for sale today than we did 3 months ago. You can see clearly that those assets characteristically have a very low NOI yield to them. So over the next couple of quarters in particular, we do anticipate some quite significant improvements in that debt metric that you've just referenced. So you see some improvements in the last quarter, the last 3 months that we just reported, but directionally, that should actually accelerate through to year end.

[Tal Woolley, Research Analyst]

And if you successfully execute on your held for sale assets, based on your conversations with the ratings agencies, do you think that that's enough to forestall any further action? Or do you think that you need to go beyond that level?

[Neil WilliamEdward Downey, Executive VP of Enterprise Strategies & CFO]

Well, it's hard for us to speak for the rating agencies directly on their behalf. But I would say that we believe our actions, we believe that the demonstration of tangible near-term progress on our debt metrics will carry a lot of weight in how they view FCR.

[Adam E. Paul, President, CEO & Trustee]

Yes. And we're intending to go beyond that level, whether it's a benefit to how rating agencies look at us or not. We think it's better for the business. So yes, we're not planning to stop at that point, if that helps.

[Tal Woolley, Research Analyst]

No, that's great. Very helpful.

[Operator]

There are no further questions registered at this time. I would like to turn the call over to Adam Paul.

[Adam E. Paul, President, CEO & Trustee]

Okay. Thank you. I guess we set another first this quarter with the shortest number of questions. I'd just like to take an opportunity to thank everyone. I know it's a busy conference call day. So thank you very much for attending. Thank you for your interest in FCR, and we look forward to updating you soon in the future. Have a good afternoon.

[Operator]

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.