Choice Properties Real Estate Investment Trust (CHPUN) Earnings Call Transcript & Summary

Good morning, and welcome to the Choice Properties Real Estate Investment Trust Second Quarter 2022 Earnings. My name is Rob, and I will be your conference operator today. Today's call is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Erin Johnston, Vice President of Finance. Please go ahead.

Thank you. Good morning, and welcome to the Choice Properties Q2 2022 Conference Call. I'm joined here this morning by Rael Diamond, President and Chief Executive Officer; Mario Barrafato, Chief Financial Officer; and Ana Radic, Executive Vice President, Leasing and Operations. Before we begin today's call, I would like to remind you that by discussing our financial and operating performance, and in responding to your questions, we may make forward-looking statements, including statements regarding Choice Properties' objectives, strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook and similar statements concerning anticipated future events, results, circumstances, performance or exceptions that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements. Additional information on the material risks that can impact our financial results and estimates and the assumptions that were made in applying in making these statements can be found in our recently filed Q2 2022 financial statements and management discussion and analysis, which are available on our website and on SEDAR. And with that, I will turn the call over to Rael.

Thank you, Aaron, and good morning, everyone. Welcome to our second quarter earnings call. To start the call, I'll provide a brief recap of our quarterly performance and cover the highlights of our transaction and development activities. Ana will cover operational results, followed by Mario, who will conclude the call with a review of our financial results before we open the lines for Q&A. Before we dive into the activities of the quarter, I'd like to first highlight that along with our earnings release, we announced that the science-based targets initiatives or SBTi, has validated Choice's greenhouse gas emissions targets, making Choice one of the first entities in Canada to have net zero targets approved by the SBTi. As we've said before, fighting climate change is fundamental to our purpose of creating enduring value for our stakeholders, and we are proud to deepen our environmental commitment with these targets. Turning to our results. Last quarter, we announced that we are focusing our time and capital on the opportunities available in our core business areas of essential retail, industrial and our growing residential platform. Our strong operating results in the quarter demonstrate this focus with improved occupancy in each of these core asset classes and same asset cash NOI growth of 3.8%. Our performance in the quarter was underpinned by several key themes. First, the strength of our retail portfolio. Next, the significant growth potential of our industrial portfolio and finally, a focus on managing risk in the current economic environment. Our retail portfolio is one of the best performing in the Canadian REIT industry, is primarily leased to necessity-based tenants that provide stable and steady cash flow growth, and we also benefit from our strategic relationship and long-term leases with Loblaw. This relationship provides us with both long-term stability and growth opportunities. An example of long-term stability includes the renewal of 2.9 million square feet of Loblaw leases subsequent to the quarter for an average term of 7.7 years, which Ana will expand on shortly. An example of growth on 5 active Shoppers Drug Mart developments representing a total investment of $22 million and expected initial yield of 6.75% with additional projects in planning. The size, quality and growth potential of our industrial portfolio contributed to our strong operating performance in the quarter. Our 17.4 million square feet industrial portfolio includes large, purpose-built distribution facilities for Loblaw as well as high-quality generic industrial assets that can accommodate a wide range of tenants. We have significantly embedded growth in our industrial portfolio with non-Loblaw tenants representing 2/3 of NOI with leases being on average below -- being on average 40% below market. In addition to the growth in our existing assets, we believe that over time we have the ability to significantly increase our industrial portfolio through development. Our investment activity in the quarter significantly increased our future industrial development pipeline, which now has approximately 6.5 million square feet under development on various stages of the rezoning and planning process. First, we acquired an additional 97-acre part of land adjacent to the future industrial site in Caledon that we acquired in 2021. This acquisition increased our total future net development industrial land in this multiphase industrial park to approximately 380 acres, of which we own 85% interest. The [ assembly ] has been completed at an attractive pricing of $700,000 per acre. We're currently working through the rezoning process for the town of Caledon to permit a total of approximately 5.5 million square feet of industrial space. Next, we exercised our previously announced equity conversion rights from the Rice Group to acquire 75% ownership interest in 154 acres of developable industrial land in East Gwillimbury in the GTA. The plan is to build a multiphase industrial park with a potential for approximately 1.8 million square feet of new generation logistics space. For the first phase of the development, we have entered into a 100-acre land lease with Loblaw with Loblaw intends to build 1.2 million square feet, fully automated, multi-temperature industrial facility. We expect an initial yield of between 6.5% and 7% on this land lease to Loblaw with rent commencing in the first quarter of 2024. And finally, we also had 2 other active industrial developments under construction totaling 500,000 square feet in Vancouver and Edmonton, which are expected to be completed in the second half of 2023 with leasing expected to be completed prior to construction completion. Turning to the current economic environment. Since the beginning of the year, concerns over inflation have resulted in a significant increase in interest rates. This increase has put downward pressure on the valuation of our investment properties and resulted in higher incremental borrowing costs. Mario will discuss shortly the steps we have taken during the quarter to ensure that in light of these changes, our balance sheet remains extremely strong. I'm now going to pass the call over to Ana to discuss our operational results. Ana?

Thank you, Rael, and good morning, everyone. As Rael mentioned, our operational results for the quarter were strong, driven by our high-quality portfolio and the talent of our operational team. We continue to see strong new leasing velocity and tenant retention driven by increasing consumer spending, retailer confidence in opening new locations and continued demand from industrial users. Our period end occupancy was exceptionally strong at 97.6%, an increase of 60 basis points compared to last quarter. During the quarter, we completed 517,000 square feet of new leasing commencing in the quarter. We had approximately 1.4 million square feet of lease expiries, and we renewed 1.3 million square feet at leasing spreads 7.8% higher than expiring rents. Tenant retention in the quarter was exceptionally strong at 92.7%, resulting in positive absorption of 419,000 square feet. Turning to our asset classes. Our approximately 44 million square foot retail portfolio, which consists of open-air centers with necessity-based tenants once again delivered stable results. Canada has maintained strong retail sales through the first half of this year, with consumer spending exceeding 2019 levels. Our retail portfolio continued to strengthen, increasing 10 basis points to 97.5% occupied. We completed 512,000 square feet of renewals in the quarter, with tenant retention of 87%. Long-term renewals were completed at rents 5.3% above expiry. We also had 67,000 square feet of new retail deals commenced in the quarter. In addition, subsequent to quarter end, we finalized renewals with Loblaw for 42 locations expiring in 2023. Loblaw exercised a 5-year renewal option on 42 retail leases totaling 2.9 million square feet. The average rents increased from $16.16 to $16.98, which is an increase of 5% over the expiring rent. Loblaw and Choice agreed to an additional 5-year extension on 23 of the 42 leases totaling 1.7 million square feet. These rents increased from $16.52 to $17.80, which is an increase of 7.8% over the 2028 expiring rent. Lease renewals in future years present greater opportunity for rental rate growth as compared to these earlier years, where in place rents are closer to the current market rents. Turning to our industrial portfolio. Demand for industrial continue to surge, driving the availability rate in Canada to a new record low of 1.6% in the second quarter. Half of Canadian markets have availability rates of 1% or less, with Edmonton and Calgary experiencing the largest quarterly decrease in availability, 110 basis points and 80 basis points, respectively. The asking net rental rate in Canada rose 17.4% year-over-year to $11.20 per square foot, recording its strongest quarter on record with Toronto and Montreal seeing rental rate growth of 30% year-over-year. Occupancy in our industrial portfolio increased 200 basis points in the quarter, finishing at 99.2%. We completed 751,000 square feet of renewals in the quarter at rents 13.1% above expiry and reflecting tenant retention of 97%. We also had 440,000 square feet of new leasing commenced in the quarter. The increase in occupancy was primarily due to the completion of 2 new deals in Alberta and one in Ontario. As we mentioned on our prior quarter call, 2 of these spaces were vacated in Q1 of this year, and we were able to capitalize on the strong industrial market fundamentals to quickly re-lease these spaces at new rents significantly exceeding the expiring rents. 170,000 square feet in Calgary was re-leased at rents 30% above the previous tenants expiring rent, while in the GTA a 113,000 square foot building was leased at rents 150% higher than that paid by the previous tenant. Both deals required limited landlord capital. Subsequent to the quarter, we also completed 2 new deals with Amazon. Amazon leased 603,000 square feet at 2700 Francis-Hughes in Laval for a 10-year term. Amazon's starting rent is 90% higher than the previous tenants expiring rent with 2.75% annual rent steps. Amazon also leased 290,000 square feet at 2625 Sheffield Road in Ottawa, a building we purchased from Loblaw last year with a plan to release it. The deal was done at a strong market rent, also with a 2.75% embedded annual rent step. Both deals commenced in September of this year and rent will commence in November once Amazon completes their [ fixturing ]. Demand for rental residential continues to increase. Our rental residential portfolio consists of 3 stabilized assets, which ended the quarter at approximately 97.4% leased. Our 2 newest assets, the Brixton and Liberty House, located in the Queen West and Liberty Village neighborhoods, respectively are 72% occupied and 77% leased. We expect the Brixton to reach stabilized occupancy by the third quarter of this year and Liberty House by the second quarter of next year, if not sooner. Our operating results in the first half of 2022 were exceptionally strong, and we remain confident that our portfolio will continue to deliver solid operating results through the balance of 2022. I'll now pass the call over to Mario to discuss our financial performance.

Thank you, Ana, and good morning, everyone. As Rael and Ana mentioned, we are very pleased with our strong underlying operational performance so far in 2022. In addition, we continue to take steps to ensure we maintain our strong balance sheet despite pressure from inflation and rising interest rates, which I will speak to in a moment. Our reported funds from operations for the second quarter was $175.3 million or $0.242 per unit. On a gross dollar basis, our funds from operations for the quarter increased $3.4 million or 1.7% compared to the prior year, and this was primarily due to higher same asset net operating income in both retail and industrial, higher interest income from our mezzanine loan program and lower overall interest cost driven by low interest rates on our 2021 debt refinancings. Included in FFO was approximately $1.3 million in nonrecurring NOI primarily from lease surrender revenue. On a per unit diluted basis, our Q2 FFO was $0.242 per unit, up 1.7% compared to the 23.8% in the second quarter of 2021. Occupancy increased in the quarter and contributed to our strong same asset results. Same-asset cash NOI increased by $8.2 million or 3.8% compared to the second quarter of 2021. By asset class, retail increased by $6.8 million or 4%. This increase was primarily driven by a combination of new leasing activity, higher renewal rents on expiring leases, Loblaw rent steps and higher capital recoveries. The increase also included a reduction in bad debt expense of $1.4 million. Industrial increased by $1.1 million or 3.3%. This increase was driven by higher occupancy and rents. Mixed-use residential and other increased by $200,000 or 2.2%, and this was driven by positive leasing in our residential assets, coupled with a decline of $250,000 in bad debt expense. And this gain was partially offset by challenges primarily on our remaining Alberta office portfolio. Turning to our balance sheet. We continue to take a transparent and conservative approach to valuations. With a higher cost of capital, putting pressure on real estate valuations, we have updated our valuations to incorporate this impact as well as other market factors. In the quarter, we reported a fair value loss on investment properties of $522 million. This represents a decline of 3.3%, driven primarily by our retail portfolio and partially offset by gains in our industrial portfolio and certain development projects. The net fair value loss on our retail portfolio reflects the impact of current market conditions. Gains from new leasing and appraisals were more than offset by the impact of cap rate expansion from changing return expectations due to higher borrowing costs and also increased risk just due to overall market uncertainty. This resulted in an approximately 40 basis point increase to the implied retail overall cap rate, bringing it to 6.42%. The fair value gains in our industrial portfolio were driven by strong industrial fundamentals, with leases renewing at significantly higher rates. Gains on our development assets primarily relate to our industrial development pipeline and demonstrate the future value creation potential of these projects. In addition to the net fair value loss on our investment properties, we reported a $159 million downward fair value adjustment on our investment in Allied Properties units. Under IFRS, we are required to mark-to-market this investment to its trading price at June 30. Our business is supported by our industry-leading balance sheet and disciplined approach to financial management. With ongoing economic uncertainty and recently heightened stagflation and recession concerns, we continue to prioritize liquidity and a balanced debt maturity ladder to reduce risk and create financial flexibility. We closed the quarter with strong debt metrics and ample liquidity. Our debt to EBITDA was 7.4x up slightly from 7.3 reported in the second quarter of 2021. This was due to the acquisition of our industrial development lands that Rael referred to earlier. And from a liquidity perspective, we have approximately $1.4 billion available on our credit facility, and this was further supported by approximately $12 billion of unencumbered properties. We successfully completed the issuance of $500 million unsecured debentures for a 10-year term, bearing interest at 6%. And the proceeds from this offering, we used to redeem our $300 million, 3.6% Series 10 senior unsecured debentures and repay a portion of the balance drawn on our credit facility. The issue was part of our overall financing strategy, which in this period of volatility places more emphasis on maintaining a high level of liquidity and a balanced debt maturity ladder. For the remainder of the year, we have a very manageable $128 million of remaining debt obligations coming due. We are fortunate to have access to several sources of capital, including unsecured debentures, commercial mortgages, CMHC financing and property dispositions to deal with this refinancing. So overall, we continue to believe the resilience of our earnings in conjunction with our strong balance sheet and our commitment to prudent financial management will allow us to navigate through market volatility and uncertainty. And with that, Rael, Ana, Erin and I would be glad to ask your questions. Back to you, Rob.

[Operator Instructions] Your first question comes from the line of Sam Damiani from TD Securities.

First of all, maybe just on the Loblaw lease renewals. Just the -- I just want to clarify some of the numbers. You said that the rent increase on the first 5-year term was 5% and the new rent was $16.98, I didn't quite catch the prior rent.

yes, the prior rent was $16.16 going to $16.98.

Okay. Okay. And then the -- on 23 leases, there's another 5 years added with the 7.8% increase on the 2020 rent. And so how -- so annualized, that's slightly above, I guess, 1% on average, maybe 1.25%, whatever the math might be. How does that compare to what these leases delivered in terms of rent increases on average over the last 5 years?

No. On average, they delivered about 1%, 1.5% annualized when you average it annually.

Sorry, that's the new term?

Yes. The portfolio is set up that there were various steps. And on average, the portfolio as a whole delivers 1.5%. These renewals, as you pointed out, were...

Sorry, yes, they were about 1.25% when you average it over the term, the 7.7% kind of average term. And again, as I sort of said, it just depends which leases are rolling at a given time and what the spread is between that in-place rent and the market rent of the tranche of leases.

Okay. And I missed your comments earlier, but you said that these rents were a little closer to market versus the average Loblaw lease. Is that what you were saying?

Yes.

Okay. And so for future extensions with Loblaw, you would expect that, on average, the increase would be a little bit higher, all else the same.

Yes, I do.

Okay. And just on the -- was there any -- paid to Loblaw to achieve these extensions?

Nothing.

And on the 2 leases not renewed, is there any color you can share in terms of the locations, properties or alternative plans for them?

Yes. Both are in Quebec, Sam, vacant stores that have great redevelopment potential, ones on the island on the Northwest and the other ones just across in Laval across the A19 bridge. So...

Are there any plans sort of underway at the moment?

We're actually working with Loblaw because they've been thinking about reopening the stores or maybe in a different format. So we actually be working with them, and we hope to share plan shortly, but they both -- we do expect to have a food store component and then either residential [indiscernible] density.

Great. Great. And just switching over to the industrial development. It looks like the yields were pretty much intact from what was announced last quarter. Of course, the addition of the Loblaw ground lease at 6.5% to 7%, it was great to see. Have you recast your proformas with updated costs and rents and everything. I'm just wondering how you think about yields on development of industrial going forward.

So the proformas had good contingencies in them. So we've obviously recast the cost, and we're still within the original numbers disclosed. The rents, Sam, we do believe, are probably conservative just given what's going on in the market, but we haven't leased them, so we haven't updated our proforma accordingly. How we think about it like -- we have a phenomenal industrial development land bank at very low land cost, and we can be extremely competitive. And the bulk of our development is in the GTA and rents keep pushing up. Recently, we heard of about 1 million feet that was done at a rent starting at about $19 in new development. So we're very, very bullish on our land holdings. And as soon as we have news to share, we will share it with you.

Okay. Great. And last question for me, just on the lease surrender fees of around $1.9 million. Was there any particular property or a tenant that drove the bulk of that.

Yes. It was, yes, 2 locations with National Sports where they -- we had closed the locations, and we backfilled actually one space completely and 70% of the other one and negotiated a lease surrender with Canadian Tire for the locations.

Your next question comes from the line of Jenny Ma from BMO Capital Markets.

Just going back to the Loblaw lease renewal, I want to clarify the numbers that you gave. The $16.16 to $16.98, that is the -- the $16.98 is the average of the renewals over the expiring rent. Is that correct?

Yes, it's a flat rail. So it goes from $16.16 average to the $16.98 average over the 2.9 million square feet.

Okay. So -- so $16.98 the day 1 on the new lease? Or is that going to step up over time over the 5 years?

That's the day 1. Yes...

Okay. But then there's no more rent steps for the duration of the 5 years?

Correct.

Okay. I'm just wondering, considering the inflation that we're seeing and maybe the Loblaw leases have different terms. But are you starting to see any inflationary pressure on the annual rent bumps you might be seeing, whether it be from third parties or from Loblaws specifically?

Jenny, just maybe we'll step back. And the way the leases with Loblaw work is they are negotiated at market, but there's a ceiling and a floor in this inflationary environment, it's obviously very fluid, and we do expect it to have a positive impact on future leasing given we do expect, obviously, replacement cost is increasing significantly, and therefore, the economic rents of the locations are increasing, and therefore, rent should increase.

Okay. But it wasn't a factor for this negotiation? Is it just a matter of timing?

We definitely actually start speaking to Loblaw a couple of months ago on this. And it was actually just papered up prior at the end of the quarter. So no, it wasn't a real factor in this negotiation.

Okay. When I look at the 2023 lease rolls, it looks like the Loblaw component is 3.8 million square feet. So I'm just wondering if you could provide some color on the $700,000 remaining, that wasn't part of the IPO portfolio. Is that something that you and Loblaw will be addressing later in the year or throughout 2023?

Actually, that's the Francis-Hughes industrial building that I spoke of that has been leased to Amazon. So that -- which we re-leased it.

Okay. Okay. Perfect. Okay. I wanted to move forward to the IFRS valuation. Mario, I know you spoke about some of the factors driving the changes in the retail portfolio, and it looks like it was at the discount rate that was moved. But quarter-over-quarter, the overall capitalization rate didn't actually move. I wonder if you could speak to from the appraisal side with the internal valuation side. What would it take for that number to be moving versus the discount rate?

Actually, Jenny, that was a typo. So we actually just amended our MD&A and reposted it on our SEDAR and our website. So actually, the overall cap rate for retail went up by 38 basis points. And so that's just a function of the discount rate and the terminal cap rate. So it did have some movement. And I think that translates into a 25 basis point increase in the overall cap rate for the portfolio.

Okay. Got you. That makes a lot more sense then.

Yes, it does.

Your next question comes from the line of Tal Woolley from National Bank Financial.

Just want to stick on the fair value question. Can you talk a bit about what are sort of the toughest parts for you guys to estimate right now when you're trying to establish fair values? And why did you feel it was necessary to add the cautionary language about the second half of the year?

I can tell you, maybe our thought process, Rael can share what the toughest part is because he not only has to value the asset and deploy capital. So in our part, like we do every quarter. And in this quarter, we saw that almost every buyer has a higher cost of capital, which means that the returns on portfolios will be less. So they have to factor in what their return expectations are. We also thought there's a riskier environment right now, so people would expect a higher return. The appraisals weren't very helpful. They're all backward looking. There were very few transactions, but we did get broker sentiment and it was consistent across the board that it would take every asset would be a 100 basis point potential impact. So nothing tangible, but we saw the sentiment, and we talked to a few others in the industry who shared that sentiment. So we just did a general blanket cap rate expansion and so. But there's no -- the number, it can be challenged. But directionally and the sentiment is what's reflected in our financials.

Yes. I think Tal, just on the second half of the year, no one knows, we'll have to wait and see. It's more of a cautionary outlook. But I think the toughest part was all indicators in the market are pointing that valuations are trending down. But as Mario said, there'll be no trades. So we debate it is now the right time or do you hang your hats on the fact that there'd be no trades. And we just felt that it was prudent to start reflecting that we are seeing a slowdown in volume of transactions. We're seeing a bigger spreads between buys and sells. And we just felt it was prudent to do it now versus hang your hats on waiting because there are no trades.

Got it. You guys do the $500 million debenture offering. I'm assuming part of the rationale for choosing to take that money at that time was to maybe keep your credit lines fully available. If the market does weaken here, do you guys have a shopping list of things that your -- the type of assets you're looking for? And can you talk a little bit about that?

Look, the first thing is, we always want to make sure that our entity is exceptionally strong, and we have a fortress balance sheet. And if things do dislocate, we are in a position of strength, and we would look to buy in all of our core asset classes of retail, industrial and residential.

Okay. And then I guess just lastly, given the -- given that you have, as you put it a fortress balance sheet, and you have an active and arguably quite enticing industrial development program ahead of you, and that is -- that's -- industrial development is much faster than a lot of other types, like residential and things like that. Would you consider maybe stepping up the speed or pace at which you choose to pursue development of the industrial portfolio?

Yes. We're always looking to say how can we do it as quick as possible on a risk-adjusted basis. So we will do buildings on spec, but we'll never do too many on spec that puts pressure on the entity. But we have a phenomenal land cost basis and are very optimistic about the prospects in that asset class.

Is it fair to say that like with the supply chain challenges there are right now, it's easier to do industrial development than other types? Or is it still kind of still bit challenging across all asset classes?

Just given the complexity of the building, it is easier from that point of view. But I don't know, Tal, if you're looking for more.

Okay. And then just lastly, in your retail portfolio, do you have an estimate of how many of the sites are anchored by discount banners versus market banners?

I don't have that information, sorry. Offhand, I don't know, sorry. We can get it for you.

[Operator Instructions] Your next question comes from the line of Pammi Bir from RBC Capital Markets.

Just coming back to the fair value markdown in retail, it sounds like, again, it was more of a blanket reduction. But were any regions may be more impacted than others, primary versus secondary markets? Or are you may be open air centers versus the freestanding grocery stores?

No, nothing that significant, Pammi. Really just based on broker sentiment maybe they made a comment on maybe larger assets might be less liquid. So there is slight difference there. But otherwise, no, it's more of a blanket view that more higher cost of capital, greater risk -- return expectations really [indiscernible].

Okay. And I did want to clarify one of your earlier questions on the renewals with Loblaw. Again, it was a 5% bump in year 1 to $16.98. But to clarify, there are no steps over the -- like over the, I guess, the next 5 years?

Well, the second tranche has another step. But so there's 23 of the 42 were extended for 10 years. So there's a subsequent bump on those leases that is 7.8% higher. Did I answer your question?

Yes, that helps, yes. And then just lastly, if I look back to some of the commentary from last quarter in terms of the organic growth outlook, I think you kind of guided something in that 1.5% to 2% range for this year. But given, I guess, the strength that you've had so far through the first half, plus, I think you maybe talked about some downtime from a vacancy standpoint in industrial, which it looks like it's been addressed. So when you put all that together, has your outlook for the balance of the year changed or the overall -- or it changed for property NOI kind of something north of 2% on the back of the strength in leasing?

Yes. Pammi, you're right. No, you're right. The 2 big things was, yes, a lot of that industrial downtime hasn't materialized. We may have a little bit in Q3. But that was big. And then when you look at the rents we're getting on the industrial rollover, that's been higher than we expected. And the retail is really -- it's been resilient and rents are strong. And so I think that's the byproduct of maybe this inflationary environment coming off of COVID. We are performing well. And I think given where we are, we're at 3.7%, I think, for the 6 months. So we don't expect to maintain that, but we do see ourselves being high 2s, low 3s for the year, yes.

Okay. Got it. Last one, I guess, for me, just again, given the concerns over a slower economy and I guess, wearing on the fact that you actually expect organic growth to go up pretty well. Are you may be seeing any early signs of changes in any tenant behavior at all? Whether it's on renewals, new leasings, expansions? And I guess, more so on the retail side more than anything -- industrial clearly continues to hold up quite well, but curious if there's any cracks that might be coming to light.

No, Pammi, we're really not seeing that. We're seeing really high tenant retention, and we have various high-quality tenants in great locations. And so we're not seeing a lot of headwinds right now.

And there are no further questions at this time. Rael Diamond, I turn the call back over to you for some closing remarks.

Thanks, Rob. To summarize, we are very pleased with our second quarter operating performance. And in the face of broader market volatility, we are really uniquely positioned to remain in a position of strength. I say this because we have an exceptionally high-quality income-producing portfolio that is long-term leases with stable and growing cash flow with one of the best development pipelines in Canada that provides us with long-term growth potential. And finally, our strong balance sheet with over $1.4 billion of liquidity provides us with flexibility. Thank you for your interest, your investment in Choice and for joining us this morning. Have a good weekend.

This concludes today's conference call. You may now disconnect.