Q4 2023 Killam Apartment REIT Earnings Call
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Operator: Real Estate Investment Trust www.realestate.com Real Estate Investments, Real Estate Investment Trust www.realestate.com Good morning, ladies and gentlemen, and welcome to the Killam Apartment Real Estate Investment Trust Fourth Quarter 2023 Financial Results. At this time, all lines are in the listen-only mode. Following the presentation, we will conduct a question and answer session. At any time during this call, you require me to... Please press star zero for the option
Good morning, ladies and gentlemen, and welcome to the Kilim apartment real estate investment Trust fourth quarter 2023 financial results Conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question.
<unk> and answer session and if at any time. During this call you require me to the system. Please press star zero for the operator also note that this call is being recorded on Thursday February 15th 2024, and I would like to turn the conference over to Philip Fraser President and CEO. Please go ahead Sir.
Operator: Also, note that this call is being recorded on Thursday, February 15th, 2021, and I would like to turn the conference over to Philip Fraser, President and CEO. Please go ahead. Thank you. Good morning, and thank you for joining Killam Apartment REIT's Q4 2023 year-end financial results conference call. I am here today with Robert Richardson, Executive Vice President, Dale Noseworthy, Chief Financial Officer, and Aaron Cleveland, Senior Vice President of Finance. Slides to accompany today's call are available on the investor relations section of our website under events and presentations. I'll ask Aaron to read our cautionary statement.
Thank you good morning, and thank you for joining killing apartment rates Q4, 2023 year end financial results Conference call.
I am here today with Robert Richardson Executive Vice President don't Noseworthy, Chief Financial Officer.
And Erinn, Cleveland Senior Vice President of Finance.
Slides to accompany today's call are available on the Investor Relations section of our website under events and presentations.
Now ask Karen to read our cautionary statements.
Aaron Cleveland: Thank you, Philip. This presentation may contain forward-looking statements with respect to Killam Apartment REIT and its operation, strategy, financial performance, or otherwise. The actual results and performance of Killam discussed here today could differ materially from those expressed or implied by such a statement.
Philip.
Some patients may contain forward looking statements with respect to calendar permanently and its operation strategy financial performance condition or otherwise.
The actual results and performance of kill them discussed here today could differ materially from those expressed or implied by such statements such statements involve numerous inherent risks and uncertainties and all they'll kill them management believes that the expectations reflected in the forward looking statements are reasonable there can be no assurance that future results levels of activity performance or achievements.
Aaron Cleveland: The statements involve numerous inherent risks and uncertainties, and although Killam Management believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that future results, levels of activity, performance, or achievements will occur as anticipated. For further information about the inherent risks and uncertainties in respect to forward-looking statements, please refer to Killam's most recent annual information form and other securities regulatory filings found online on CDAR.com. All forward-looking statements made today speak only as of the date to which this presentation refers, and Killam does not intend to update or revise any such statements unless otherwise required by applicable securities laws. Thank you, Aaron.
All occur as anticipated.
For further information about the inherent risks and uncertainties. In fact are forward looking statements. Please refer to kill them. Most recent annual information form and other securities regulatory filings found online on SEDAR com.
All forward looking statements made today it only as of the date, which this presentation refer and kill them does not intend to update or revise any such statements unless otherwise required by applicable securities law.
Thank you Eric we are very pleased with our strong financial and operational results for the fourth quarter and the year ending December 31 2023.
Philip Fraser: We are very pleased with our strong financial and operational results for the fourth quarter of the year ending December 31st, 2023. We achieved 7.8% same property NOI growth across the portfolio, which included 7.6% same property NOI growth in our apartment portfolio, 3.5% same property NOI growth in our manufactured home community section, and 15.8% same property NOI growth for our commercial properties. Just like 2022, last year's multifamily residential fundamentals in Canada were the strongest we have seen in our 21-year history.
We achieved seven 8% same property NOI growth across the portfolio, which included seven 6% same property NOI growth in our private portfolio three 5% same property NOI growth in a manufactured home community section and $15 eight same property.
Why growth before our commercial properties just.
Just like 2022 last year's multifamily residential fundamentals in Canada were the strongest we have seen in.
21 year history.
Philip Fraser: Killam earned $1.15 per unit FFO, which is a 3.6% increase from $1.11 in 2022. And we made progress on our strategic targets, as shown on slide four. We grew our portfolio, with the completion of Civic 66, the Governor, and the purchase of Nolan Hill Phase 2 in December. We also completed the disposition of $169 million of properties.
<unk> earned $1.15 per unit, <unk>, which is a three 6% increase from $1 11 and 2022.
And we made progress on our strategic targets as shown on slide four.
We grew our portfolio the completion of civic 66, the governor.
And the purchase of known he'll phase II in December we also completed the disposition of $169 million of properties.
Philip Fraser: We are optimistic about the opportunities ahead and focus on growing our portfolio through developments and acquisitions, growing our cash flow, and increasing the underlying value of our assets. Dale will take us through our financial results, followed by Robert, who will provide us with an operational update. I will conclude with an update on our current and recent developments in capital allocation strategy. I will now hand it over to Dale.
We are optimistic about the opportunities ahead and focus on growing our portfolio through developments and acquisitions growing our cash flow.
And increasing the underlying value of our assets.
Dale will take us through our financial results, followed by Robert who will provide us with an operational update.
I'll conclude with an update on our current and recent developments and capital allocation strategy I will now hand, it over to Dale.
Dale Noseworthy: Thanks, Bill. Slide five highlights Killam's financial performance. Killam earned FFO per unit of $1.15, up 3.6% from last year. AFFO per unit was 97 cents, up 4.3% from 2022.
Thanks, Phil.
Slide five highlights kill them financial performance Killam errand FFL per unit of $1 15 up three 6% from last year.
<unk> per unit was <unk> 97 up four 3% from 2022.
Dale Noseworthy: Killam's same property NOI, FFO, and AFFO growth due for and for the year are summarized on slide 6. Growth in FFO and AFFO was attributable to increased NOI from our same property portfolio and incremental contributions from our three developments completed in 2022. These gains were partially offset by higher interest expense as we refinanced at higher interest rates during the year.
Same property NOI, <unk>, <unk> and <unk> growth Q4, and for the year are summarized on slide six.
Growth in <unk> in <unk> was attributable to increased NOI from our same property portfolio and incremental contributions from our three developments completed in 2022.
These gains were partially offset by higher interest expense as we refinanced at higher interest rate during the year.
Dale Noseworthy: Q4 was another strong quarter with top-line growth continuing to drive positive results. Same property revenue growth of 5.4% was driven by higher rental rates across all three business segments. Combined with effective cost containment, Kiln Same Property NOI was up 8.8% in the quarter, driving a $210 basis point operating margin improvement.
Q4 was another strong quarter with top line growth continuing to drive positive results same property revenue growth of five 4% was driven by higher rental rates across all three business segments combined.
Combined with effective cost containment kill them same property NOI was up eight 8% in the quarter driving a 210 basis point operating margin improvement.
Dale Noseworthy: The Weighted Average Rental Increase chart on slide 7 captures the increase in rents based on the leases that came into effect each period. This chart shows that in Q4, we achieved a weighted average increase of 7.5% for new and renewing leases that started from October to December. This blended rental rate increase is made up of 3.4% rent growth on lease renewals and an average increase of 19.8% on unit turns from new tenants moving in during the quarter. Strong fundamentals in our markets support wide mark-to-market spreads, and we're harnessing our internal data analytics to ensure that our team is capturing this top-line growth when units turn. Slide 8 illustrates our total same property operating expenses. Effective cost management and lower property taxes in PEI and New Brunswick resulted in modest same property total operating expense growth of 1.6% for the year. During Q4, same property operating expenses were down 0.3%, supported by quarter-over-quarter savings in both natural gas and insurance costs.
Weighted average rental increase chart on the top of slide seven captures the increase in rent based on the leases that came into effect each period.
This chart shows that in Q4, we achieved a weighted average increase of seven 5% for new and renewing leases at.
It started from October to December this blended rental rate increase is made up of three 4% rent growth on lease renewals and an average increase of 19, 8% on unit turns from new tenants moving in during the quarter strong fundamentals in our markets support wide mark to market spreads and where harness.
Seeing our internal data analytics to ensure that our team is capturing this topline growth when units turn.
Slide eight illustrates our total same property operating expenses Ifs.
Effective cost management, and lower property taxes, NPI and New Brunswick resulted in modest same property total operating expense growth of one 6% for the year.
During Q4 same property operating expenses were down <unk>, 3% supported by quarter over quarter savings in both natural gas and insurance cost.
Dale Noseworthy: After realizing significant price escalation from both these line items over the last few years, we're pleased to see these costs start to moderate. This trend has kept up so far in 2024 with savings in natural gas and insurance costs in the first part of this year. Kilm's debt maturity profile, which can be seen on slide 9, includes average apartment mortgage rates by year versus prevailing CMHC insured mortgage rates.
After realizing significant price escalation from both of these line items over the last few years. We're pleased to see these costs start to moderate this trend has kept up so far in 2024 with savings in natural gas and insurance costs in the first part of this year.
Kill them as debt maturity profile, which can be seen on slide nine includes average apartment mortgage rates by year versus prevailing CMA sea insured mortgage rates.
Dale Noseworthy: In 2023, Killam refinanced $252 million of maturing mortgages with approximately $320 million of new debt at a weighted average interest rate of 4.89%, 183 basis points higher than the average rate on the maturing debt. Refinancing at higher rates is expected to lead to increased interest expense, however, this increase is expected to be gradual due to the staggered nature of Kiln's Debt Ladder. We're pleased with the successful strengthening of our balance sheet in 2023. Kilm's key debt metrics are included on slide 10.
In 2023 kilometer refinance $252 million of maturing mortgages with approximately $320 million of new debt at a weighted average interest rate of 4.89% 183 basis points higher than the average rate on the maturing debt.
Refinancing at higher rates is expected to lead to increase interest expense. However, this increase is expected to be gradual due to the staggered nature of kilns that fire.
We're pleased with the successful strengthening of our balance sheet in 2023 kilns key debt metrics are included on slide 10 through a disciplined capital allocation process, we've reduced our variable rate debt by $150 million ending 2023, with only 3% of our total debt being variable.
Robert Richardson: Through a disciplined capital allocation process, we've reduced our variable rate debt by $150 million, ending 2023 with only 3% of our total debt being variable. We ended the year with a debt-to-normalized EBITDA of 10.29 times, down nicely from 11.21 times at year-end 2022. Also, debt as a percentage of total assets decreased by 240 basis points to 42.9%. I will now turn the call over to Robert, who will discuss our operations in more detail. Thank you, Dale. And good morning, everyone.
We ended the year with debt to normalized EBITDA of 10.29 times down nicely from 11.21 times at year end 2022.
So that as a percentage of total assets decreased by 240 basis points to 42, 9%.
I will now turn the call over to Robert who will discuss our operations in more detail.
Thank you Dale and good morning, everyone kill them delivered solid earnings growth in 2023 delivered by a dedicated team of experienced real estate professionals population growth continues to outpace multifamily housing supply supporting record occupancy and earnings as we await official figures from statistics, Canada to <unk>.
Robert Richardson: Killam delivered solid earnings growth in 2023, delivered by a dedicated team of experienced real estate professionals. Population growth continues to outpace multifamily housing supply, supporting record occupancy and earnings. As we await official figures from Statistics Canada to be released, preliminary estimates for year-end 2023 indicate that Halifax's population eclipsed a record high of 500,000 people, an increase of 6% or 30,000 people year over year.
We released preliminary estimates for year end 2023 indicate that Halifax as population eclipsed a record high of 500000 people, an increase of 6% or 30000 people year over year.
Robert Richardson: This increase follows 2022's population increase of 4.5%, indicating growth in the region is not slowing. This supports Halifax's market vacancy rate of 1% for the third consecutive year, according to CMHC's latest rental market report. As expected, the tight rental market has resulted in Killam's suite turnover rate declining in 2023 to 19% from 22% the year before. The recent five-year suite turnover rate averaged 27%, whereas the historical rate has been more in the 35% range.
This increase follows 2022 as population increase of 4.5%, indicating growth in the region is not slowing.
This supports Halifax as market vacancy rate of 1% for the third consecutive year. According to <unk> latest rental market report.
As expected the rental market has resulted in kilns suite turnover rate declining in 2023 or 219% from 22% in the year before the recent five year Sweet turn rate averaged 27%, whereas the historical rate has been more in the 35% range.
Robert Richardson: In rent-controlled markets, fewer sweep turns are creating wider mark-to-market spreads versus renewal rates. As seen on slide 12, Kiln's current leasing spreads are approximately 30% for our portfolio, with both Halifax and St. John, New Brunswick tied at 25%, second only to Kitchener-Waterloo, where the highest average mark-to-market spreads are 33%. Looking ahead, rental rates are expected to continue to grow, but likely at a more moderate pace compared to the last two years. In an environment where market rents are stabilizing, Killam's opportunity to capture mark-to-market spread on suite terms is expected to remain strong as we capture the embedded growth on these suites. Although 57% of Killam's net operating income is exposed to rent control, Killam has proven its ability to grow the portfolio's top line despite lower turnover rates.
Controlled markets fewer suite turns are creating wider mark to market spreads versus renewal rates as seen on slide 12, count currently seen spreads are approximately 30% for our portfolio with both Halifax and St. John New Brunswick tied at 25% second only to Kitchener Waterloo reach.
<unk> were the highest average mark to market spreads are at 33%.
Looking ahead rental rates are expected to continue to grow but likely at a more moderate pace compared to the last two years and in an environment where market rents are stabilizing comes opportunities to capture mark to market spread on suite turns is expected to remain strong as we capture the embedded gross on the sweets, although 57% of <unk>.
Net operating income is exposed to rent control kill them has proven its ability to grow the portfolio as top line. Despite lower turnover rates. For example in 2024 almost forecasting rent growth on lease renewals to a pace of two 8% increase achieved in 2023.
Robert Richardson: For example, in 2024, Killam is forecasting rent growth on lease renewals to outpace the 2.8% increase achieved in 2023. We are pleased to report that provinces with permanent or temporary rent controls have approved 2024 guideline increases that better reflect the inflationary pressures all Canadians are experiencing. For example, in Nova Scotia, where the Premier has stated rent control restrictions will be lifted in 2026, the province has given guideline increases of 5% for the next two years. As well, British Columbia's Renewal Cap increased to 3.5% for this year, PEI's Rent Cap increased to 3%, and Ontario's Renewal Cap is 2.5% for 2024. Geographic diversification continues to remain a strategic focus for Killam.
We are pleased to report that provinces with permanent or temporary rent controls have approved 2024 guideline increases that better reflects the inflationary pressures. All Canadians are experiencing for example, in Nova Scotia, where the Premier hesitated rent control restrictions will be lifted for 2026 the problems.
Has given guidelines increases of 5% for the next two years.
As well British Columbia renewal cap increased to three 5% for this year.
Rent cap increase of 3% and Ontario's renewal cap is two 5% for 2024.
Geographic diversification continues to remain a strategic focus for Killen.
We ended 2023 with 337, 4% of killings net operating income generated outside Atlanta, Canada.
160 basis points improvement from 35, 8% in 2022.
Robert Richardson: We ended 2023 with 37.4% of Killam's net operating income generated outside Atlantic Canada, a 160 basis point improvement from 35.8% in 2022. This 160 basis point gain is due to a number of contributors, including acquisitions, calculated dispositions, and new development completions. Killen will continue to execute on this strategy, and the 2024 goal is to generate 38% of Killen's NOI outside Atlantic Canada.
This 160 basis point gain is due to a number of contributors, including acquisitions calculated dispositions and new development completions.
Kelvin will continue to execute on this strategy and the 2024 goal is to generate 38% of NOI outside Atlantic Canada.
Fundamental to our strategy is also the ability to drive incremental value through energy efficiency initiatives in 2023, we invested $8 $8 million and projects such as solar panels energy efficient boilers heat pumps building automation systems, and electricity and water conservation projects.
Robert Richardson: Fundamental to our strategy is also the ability to drive incremental value through energy efficiency initiatives. In 2023, we invested $8.8 million in projects such as solar panels, energy efficient boilers, heat pumps, building automation systems, and electricity and water conservation projects. We are waiting for six newly installed PV solar arrays to be commissioned. Once online, they will increase Kiln's electricity produced through renewable energy by 1.5%, enabling Kiln to then offset a total of 5.2% of its common area electricity from renewable resources.
We are waiting on six newly installed PV solar arrays to be commissioned once online. They will increase cones electricity produced through renewable energy by one 5%, enabling kilometer than offset a total of five 2% of its common area of electricity from renewable resources.
Reducing carbon emissions and energy cost is consistent with our capital recycling and disposition approach as we look to grow and maintain our portfolio. We consider the capital requirements of each property and how these align with our long term targets to grow NOI and reduce our carbon footprint self will now provide an update on our development.
And capital allocation strategy.
Thank you Robert during.
During the fourth quarter of 2023, Killen fulfills its commitment to purchase the second phase of Golden Hill development, Calgary with $65 million, adding 234, new units to our portfolio.
Philip Fraser: Reducing Killam's emissions and energy costs is consistent with our capital recycling and disposition approach. As we look to grow and maintain our portfolio, we consider the capital requirements of each property and how these align with our long-term targets to grow NOI and reduce our carbon footprint. Philp will now provide an update on our developments and capital allocation strategy. Thank you, Robert.
<unk> completed civic 66, and the governor during 2023.
Which added 181 units of new product.
We also completed the disposition of 14 properties summarized on slides 15, and 16 totaling 1122 units for a combined sale price of $169 million with net cash proceeds of $94 million.
Philip Fraser: During the fourth quarter of 2023, Killam fulfilled its commitment to purchase the second phase of Nolan Hill Development in Calgary for $65 million, adding 234 new units to our portfolio. Killam completed Civic 66 in the Governor during 2023, which added 181 units of new product. We also completed the disposition of 14 properties summarized on slides 15 and 16, totaling 1,122 units for a combined sale price of $169 million with net cash proceeds of $94 million. Proceeds were used to reduce Kelms Credit Facility and to fund our ongoing development. Developing high-quality properties in our core markets is an important component of Killam's capital allocation strategy, and it allows us to make a contribution to the housing supply for all Canadians.
Proceeds were used to reduce <unk> credit facility into fund her ongoing developments.
Developing high quality properties in our core markets is an important component of <unk> capital allocation strategy.
And it allows us to make a contribution to the housing supply for all Canadians.
As seen on slide 18, the carrot or 139 unit development in Waterloo is progressing nicely and is expected to be completed in Q2 of 2025.
The exciting news on the carrier is that we had been approved by CMA sea to receive a low interest rate construction and permanent financing loan.
Of $62 4 million through the apartment construction loan program previously known as the <unk> program, which is part of the government of Canada's National housing strategy.
The program has a number of advantages for killing a blow CMA seen short interest rate that is fixed from the start a waiver the CMA sea application fees and a commitment by kill them to include $39 affordable units and the development.
Philip Fraser: As seen on slide 18, the Carrick, our 139-unit development in Waterloo, is progressing nicely and is expected to be completed in Q2 of 2025. The exciting news about the Carrick is that we have been approved by CMHC to receive a low-interest-rate construction and permanent financing loan of $62.4 million through the Apartment Construction Loan Program, previously known as the RCFI program, which is part of the Government of Canada's National The program has a number of advantages for Killam, including a below-CMHC insured interest rate that is fixed from the start, a waiver of the CMHC application fees, and an obligation by Killam to include 39 affordable units in the development, as shown on slide 19.
As shown on slide 19.
We will start the development of <unk> and eight story 55 unit building in Halifax This month.
The strong population growth three and a half years of high inflation and 20 plus months of rising interest rates have created a housing shortage and an affordability crisis.
During the last nine months the federal government has started to shift their attention to this issue and is working towards a solution to help them develop it is industry create more supply to the housing accelerator fund.
The housing accelerator fund is a program administered by so you may see.
That provides $4 billion in funding directly to municipalities to eliminate municipal barriers such as the lengthy approval processes.
The program is aimed to accelerate the supply of housing through Canada.
Kill them owns many properties that will are going to be impacted by the forthcoming municipal changes for example.
Philip Fraser: We will start the development of Eventide, an HBARY 55-unit building in Halifax this month. A strong population growth, three-and-a-half years of high inflation, and 20-plus months of rising interest rates have created a housing shortage and an affordability crisis. During the last nine months, the federal government has started to shift its attention to this issue and is working towards a solution to help the development industry create more supply through the Housing Accelerator Fund. The Housing Accelerator Fund is a program administered by CMHC that provides $4 billion in funding directly to municipalities to eliminate municipal barriers such as the lengthy approval process.
Following municipalities in which <unk> operates have already received funding approval to make changes to the land use bylaws.
The city of Calgary, London, Kitchener, Waterloo, Mississauga, Fredericton Mountain and Halifax.
Benefits to kill them could include greater density or infill opportunities more development rights for transit oriented sites incentives for wood construction build form requirements that are less expensive to build and others.
We are still evaluating potential developments for our sites across the portfolio as additional action plans are approved funded inactivated.
Philip Fraser: The program is aimed to accelerate the supply of housing throughout Canada. Killam owns many properties that will or are going to be impacted by the forthcoming municipal changes. For example, the following municipalities in which Killam operates have already received funding approval to make changes to the Land Use By-law: The City of Calgary, London, Kitchener, Waterloo, Mississauga, Fredericton, Moncton, and Hulliford.
As an example in October 2023, Halifax became one of the first cities to receive approval.
Of its action plan.
By early January the municipality had initiated many significant changes to their zoning bylaws.
Those owning changes are expected to be approved as early as April 2024, with more to come over the next two years.
<unk> is providing immediate changes to zoning along transit corridors.
This will impact zoning on several killing properties and in particular two of our larger sites for identified for positive changes.
Philip Fraser: Benefits to Kilton could include greater density or infill opportunities, more development rights for transit-Oriented sites, incentives for wood construction, build form requirements that are less expensive to build, and others. We are still evaluating potential developments for sites across the portfolio as additional action plans are approved, funded, and activated. As an example, in October of 2023, Halifax became one of the first cities to receive approval for its action plan. By early January, the municipality had initiated many significant changes to its zoning bylaw. Those zoning changes are expected to be approved as early as April 2024, with more to come over the next two years. Halifax is making immediate changes to zoning along transit Corridors.
Langton Crescent and Victoria Gardens.
The Harlington Crescent property is a 16 acre site containing 298 units and Victoria Gardens is a 10 acre site containing a 198 units with infill opportunities on taken Atlanta at both locations.
To conclude we are very pleased with our 2023 performance and remain committed to investing in high quality assets in development to continue to execute our overall strategy and create value for all of our unit holders.
Finally, I would like to thank our employees for their hard work and dedication.
Thank you.
I'll now open up the call for questions.
Thank you.
Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on it.
Tom phone you will then hear AIDS retold prompt acknowledging your request and if you would like to withdraw from the question queue. You will need to press star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset before pressing any case. Please go ahead and press Star one now if you do have any questions.
Operator: This will impact zoning on several of Killam's properties, and in particular, two of our larger sites were identified for positive changes, Arlington Crescent and Victoria Gardens. The Arlington Crescent property is a 16-acre site containing 298 units, and Victoria Gardens is a 10-acre site containing 198 units, with infill opportunities on vacant land at both locations. To conclude, we are very pleased with our 2023 performance and remain committed to investing in high-quality assets and development to continue to execute our overall strategy and create value for all of our unit holders. Finally, I would like to thank our employees for their hard work and dedication. Thank you. I will now open up the call for questions. Thank you. Ladies and gentlemen, if you would like to ask a question..., a star followed by a 1. You will then hear a three-tone prompt acknowledging your... would like to withdraw. You will need to press star followed by the number you see on the screen. You will need to press a star followed by the number you see on the screen. For example, Please go ahead and press star 1 now if you do have any questions.
And first question will be from Jonathan Caltech.
TD Cowen. Please go ahead.
Thanks, Good morning.
First question first question just on the your targets for the year and specifically the 6% same property NOI.
Is that right.
When I look at this stuff, it's tough to see revenues not being up.
Significantly more than 6%.
And youre getting a pretty it sounds like youre getting a pretty good handle on costs I'm. Just wondering if you're just being a little bit conservative given that we're still in Q1 or for what the or was there something in there that I'm missing.
I mean, I think turnover is one we're looking at carefully so agreed we're getting really pleased with the topline growth that we're getting on on turns so we would've seen turnover come down in 2023 and that may tick down a little bit more.
And 24, so a better grade we're quite bullish on the rent growth on the expense side.
We would have disclosed so far very very start of 2020 for Natgas is working in the right direction. So that is good to see property tax as we've talked about before it is a bit of a question Mark and we don't get those finalized really until kind of the end of the second quarter.
Unnamed Analyst from KELOLAND.com TV: Question? KELOLAND dot com TV.
Unnamed Analyst from KELOLAND.com TV: Thanks. Good morning. First question is on your targets for the year and specifically the 6% same property NOI. When I look at this stuff, it's tough to see revenues not being up significantly more than 6%, and you're getting a pretty good handle on cost. I'm just wondering if you're just being a little bit conservative, given that we're still in Q1, or if there's something in there that. You know, I mean, I think turnover is one we're looking at carefully. So, we agreed.
And that's one where we're seeing headlines even today, our cross country property taxes are moving up so that's one that I'd say.
Were perhaps being conservative but.
Yeah, but overall, we'd say at greater than 6%.
We feel quite confident to meet that target.
Okay.
And then just I guess secondly for OLED and does it on the.
Talking about some of the opportunities you might get in in Halifax with on existing properties with the zoning changes.
Unnamed Analyst from KELOLAND.com TV: We're getting, you know, really pleased with the top line growth that we're getting on terms. So, we would have seen turnover come down in 2023, and that may tick down a little bit more. We're quite bullish on the rent growth. On the expense side, we would have disclosed so far, at the very, very start of 2024, NatGas is working in the right direction. So that is good to see. Property tax, as we've talked about before, is a bit of a question mark. And we don't really get those finalized until the end of the second quarter.
Near term.
Yes.
That's something we can think about.
I think the way we were thinking of these opportunities we might have been able to.
To sort of.
Really a little bit about this information the last couple of quarters, but we're always thinking there was going to take maybe two to three years from a sort of a complete.
Permitting process in terms of getting it resolved and getting the application in.
And what this program has done.
Dale Noseworthy: And that's one where we're seeing headlines, even today, across the country, property taxes are moving up. So that's one that I'd say... We're perhaps being conservative, but overall, you know, we say it's greater than 6%. We feel quite confident to meet that target. Okay. And then just.
Is essentially there's going to be a lot of changes approved by council in April.
So if that's the case then you quickly go into design.
So that you know there is a.
Potential that we could actually be in the ground on one of these sites this year, which.
Two months ago three months ago, we were thinking it was two to three years.
Philip Fraser: I guess secondly, Phil, you ended by talking about some of the opportunities you might get in Halifax with existing properties with the zoning changes. How near term? Is that something we can think about? I think the way we were thinking of these opportunities, and we might have been able to sort of relay a little bit about this information in the last couple of quarters, but we were always thinking it was going to take maybe two to three years from a sort of complete permitting process in terms of getting it rezoned, getting the application in. And what this program has done is essentially, there are going to be a lot of changes approved by Council in April. So if that's the case, then you quickly go into design.
But the opportunity was amazing.
Yeah.
Okay.
Okay. So and then I guess, that's sort of my last question to you starting even this year, but your targets too.
Two projects to start I was just thinking are going to ask worthy.
Where do you think the second one might be what's the best opportunity I think the other one.
The other one we're working on and.
And we're making great progress is another location in Kitchener.
It's the Whistler.
Hi, there.
In the north end of the city.
Okay.
Helpful I'll turn it back thanks.
Thank you.
Next question will be from Kyle Stanley at Deutsche Bank. Please go ahead.
Thanks, Good morning, everyone.
Okay.
So just I guess sticking with kind of the guidance and kind of along the lines of Johns questioning.
Philip Fraser: And so there's a potential that we could actually be in the ground on one of these sites this year, www.realestate.com Okay, just okay. So, and I guess that's sort of my last question to you. You're starting Eventide this year, but your target is two projects to start. I was just thinking, or going to ask where the second one might be, what's the best opportunity or possibility? Yeah, the other one we're working on, and we're making great progress on is another location in the kitchen. The Whistler Property, in the north end of the city.
I think you've made it quite clear on the top line and on the Opex Youre waiting to see what happened.
Do you have a sense of where property tax increases could go just preliminarily I.
I guess to your point that is kind of the one uncertainty of real uncertainty.
Certainly I mean, we work with advisors.
Annual age you got to feel with what Theyre expecting to I would say weighted average work that day.
Philip Fraser: Okay, that is helpful. I'll turn it back. The next question will be from Kyle Stanley at Deja Vu. Thanks, morning, everyone.
Around 6%.
Okay. Okay. Thank you for that and when you Peel those always we work hard.
Kyle Stanley: So just, I guess, sticking with kind of the guidance and kind of along the lines of John's questioning, I think, you know, you made it quite clear on the top line and on the OpEx that you're waiting to see what happens. Do you have a sense of where property tax increases could go just preliminarily? I guess, to your point, that is kind of the one uncertainty or real uncertainty, www.realestate.com annually to get a feel for what they're expecting. So I would say the weighted average works, around 6%. Okay, okay. Thank you for that. And we, you know, we appeal those always.
Hard to manage those where we can but that's the general.
Weighted average for the portfolio that based on some third party.
All of them.
Okay.
And then there's been obviously a lot of talk about the the rent cap in Nova Scotia being set at five I'm. Just wondering as you have those discussions with your tenants and passing through that increase there.
Been pushback have you been able to kind of achieve that 5% lift without much issue.
Yeah.
So the response, we are hearing from the tenant base actually is very quiet and they understand that inflation has been running north of that number north of 5% in the last couple of years. So no they're understanding the 2% wasn't covering it in the five is more in line and but no no real pushback, which is great.
Okay Fantastic that's great to hear.
Dale Noseworthy: We work, you know, work hard to manage those where we can, but that's the general weighted average for the portfolio that's based on some third parties. Okay. And then, you know, there's obviously been a lot of talk about the rent cap in Nova Scotia being set at five. I'm just wondering, as you have those discussions with your tenants and pass through that increase, you know, has there been pushback? Have you been able to kind of achieve that 5% lift without much issue?
And then just the last one.
I was just looking at your mortgage maturities chart on slide nine and maybe this is just my eyes looking at it but it seems like the spread between the five and 10 year <unk> financing rates is definitely a bit wider today than maybe it has been over the last several months.
If that is in fact, the case would you would you lean towards the shorter term for your 2024 maturities just to minimize that the financing cost impact.
Yeah.
Philip Fraser: So the response we're hearing from the tenant base is actually very quiet. They understand that inflation has been running north of that number, north of the 5% in the last couple of years. So no, they're understanding that 2% wasn't covering it, and the 5% is more in line. But no real pushback, which is great.
Well I guess the good news for US is that the first quarter is very light in the second quarter is heavily weighted to the end of the quarter.
So other than working on the re applications of the refinancing applications.
And a number of them are with CMA sea, we're not going to have to make that decision until basically millions.
May and June and I would tell you like even the last week, we're just keep bouncing around like Theyre, starting you know theres a trend for a weekend and they just turnaround and bounced right back up so we're optimistic that.
Philip Fraser: Okay, fantastic. That's great to hear. And then just the last one, I was just looking at your mortgage maturities chart on slide nine, and maybe this is just my eyes looking at it, but it seems like the spread between the five and 10 year CMHC financing rates is definitely a bit wider today than maybe it has been over the last several months. If that is in fact the case, would you lean towards the shorter term for your 2024 maturities just to minimize the financing cost impact? Well, I guess the good news for us is that the first quarter is very light, and the second quarter is heavily weighted to the end of the quarter. So other than working on the re-applications and the refinancing applications, a number of them are with CMHC, we're not going to have to make that decision until basically May and June.
Buy into.
Into the May June time period and.
We will see hopefully that yield curve inverted and then we'll be looking at the assets in determining whether it's a five or 10 year term.
Okay, no that I think that makes sense and I think hopefully things are shifting in your favor in the rest of your peers. So I'll turn it back thanks very much.
Thank you <unk>.
Next question will be from Mario <unk> of <unk>.
<unk> Bank. Please go ahead.
Hi, good morning.
So just coming back to the zoning changes in Halifax can you can just maybe elaborate a little bit in terms of what actually has changed and whether you think that could serve as a blueprint for other municipalities across the country to policy.
Philip Fraser: And I tell you, even the last week, they just keep bouncing around like they're starting, you know, there's a trend for a week, and then they just turn around and bounce right back up. So we're optimistic that by, you know, into the May, the June time period, we'll see, hopefully, that yield curve inverted. Looking at the assets and determining whether it's a five or ten year
I think it's as I mentioned, there as well.
Huge numbers, it's like plus 15 cities have already.
Believe that sort of submit their application into the federal government looking for.
Money from this housing accelerator fund.
Everything is tied to.
The city or the municipality show that Theyre going to reduce the wait time from permitting point of view and a lot of times. It is changing and so many of these.
Dale Noseworthy: Okay, no, I think that makes sense. And yeah, I think, hopefully, things are shifting in your favor and the rest of your peers'. So I'll turn it back. Thanks very much. The next question will be from Mario... Go to www.realestate.com to learn more. Go to www.realestate.com to find out how you can invest in real estate.
These locations so for the city here.
And Colfax dormant they have gone around to a number of different sites and so we now are recommending changes that city Council will approve in April and that we're going to increase.
Mario: Phil, just coming back to the zoning changes in Halifax, can you just maybe elaborate a little bit in terms of what actually has changed and whether you think that could serve as a blueprint for other municipalities across the country to follow? I think it's, as I mentioned, there's a huge number, there's like plus 15 cities have already, I believe, submitted their application to the federal government looking for money from this housing accelerator fund, and everything is And a lot of times it is changing enough zoning to accommodate these locations. So for the city here in Halifax, Dartmouth, they have gone around to a number of different sites and said that they are now recommending changes that city council will approve in April and that we're going to increase the density through the zoning process.
The density through the zoning process.
And then they've gone down streets, like Quinn pool, and basically for the first time ever said, we're going to allow up to 40 stories.
Along some of the sort of major bus routes in the city and then again the <unk>.
That I've mentioned there are great locations in terms of public transit.
They've got retail they've got the ability to sort of absorb this and theyre currently sitting way below in terms of any sort of the density of housing inside the city.
Okay. So the major changes just very simply.
Pace of approval.
And the actual zoning they've gone from basically whatever it is like an hour or four.
You know with the with a height of maybe five stories, allowing now 15 in some cases. It really has it's a game changer and I think the program right across the country is doing that so I mean, I think it's going to be a very successful program that the federal government has initiated.
Mario: And then they've gone down streets like Quinnpool and basically, for the first time ever, said, we're going to allow up to 40 stories along some of the major bus routes in the city. And then again, the sites that I mentioned, they're great locations in terms of public transit. They have retail, they have the ability to sort of absorb this.
Right, Okay, so with that in mind, given that it could be a game changer.
Does that change your capital allocation philosophy over the next couple of years, so ago I saw the minimum kind of dispositions in 'twenty four is 50 million.
We were one of the earlier rights to start selling assets.
[noise] ago.
How do you think about the last couple of years.
Philip Fraser: And they're currently sitting way below in terms of any sort of density of housing inside the city. Okay, so the major change is just very simply the pace of approval, or the case in the actual zoning. They've gone from basically whatever it is, like an R4 with a height of maybe five stories, allowing now 15 in some cases. It really has, it's a game changer.
Well I think that it's going to accelerate I mean, it's going to take we can't sort of snap our fingers and say, we're going to get into the ground in four or five projects. So.
I think it will be very fortunate if we can start as I mentioned earlier to this year, but it's the length of time, that's going to get shortened to be able to have a number of these projects ready to go.
And I think it's a little bit too early for us to be able to say like this will ramp up and we'll be doing X amount of units.
Philip Fraser: And I think the programs right across the country are doing that. So, I mean, I think it's gonna be a very successful program that the federal government has initiated. Right. Okay.
Total number of developments in the.
The next sort of 18 to 24 months, but it's all about the planning process that this program is allowing us to accelerate our timelines and have it ready to go.
Philip Fraser: So, with that in mind, given that it could be a game changer, how does that change your capital allocation kind of philosophy over the next couple years? I saw that the minimum kind of disposition in 24 is $50 million.
Got it.
Very early but have you have there been any evidence of changes in residential land values as a result.
It's too early because again.
I don't see that.
I haven't seen it yet.
Okay.
Switching gears.
Robert you made a comment on market rents stabilizing.
Philip Fraser: You were one of the earlier REITs to start selling assets a couple of years ago. So how do you think about that over the next couple of years? Well, I think that it's going to accelerate. I mean, it's going to take time. We can't sort of snap our fingers and say we're going to get into the ground in four or five projects. So I think we'll be very fortunate if we can start, as I mentioned earlier, two this year, but it's the length of time that's going to get shortened to be able to have a number of these projects ready to go.
Just wanted to clarify whether stabilizing means that they're no longer moving optics or the pace of the increase that we've seen over the past couple of years is moderating.
It's a comment more on pace Mario.
We're seeing that it's slowing down of debt, but not everywhere. So we're seeing in some of the markets better.
Scene.
Larger increases initially and it seems to be tapering off a little bit, but I got when I say that it's not like it's changing materially it's just showing some yes.
Abating.
Got it.
Okay, and what would you Oh would you classify as your strongest markets for rent growth today versus the ones where.
Philip Fraser: And I think it's a little bit too early for us to be able to say, like, this will ramp up and we'll be doing X amount of units and total number of developments in the next 18 to 24 months, but it's all about the planning process that this program is allowing us to accelerate our timelines and have it ready to go. And it's very early, but have you, has there been any evidence of changes in residential land value? It's too early because, again, I don't see that. I haven't seen it yet,
Pieces debating.
So.
Yeah.
Kitchener Waterloo has been strong for us for some time. So it continues to be when we look at new Brunswick had a great great quarter and a very good year in 2023, So that's and Halifax has remained steady as well. So those three are standouts for us a little bit in Newfoundland, which is nice to see.
Good morning.
Okay and.
Just on the new and renewal spreads on slide seven.
Obviously, theres a nice trend there the mark to market on slide 12, I appreciate the disclosure that looks impressive.
Philip Fraser: Okay, switching gears. Robert, you made a comment on market rent stabilizing. I just wanted to clarify whether stabilizing means that they're no longer moving up or the pace of the increase that we've seen over the past couple of years. It's a comment more on pace, Mario.
Within your 6% plus same store outlook for 'twenty four.
I think Gil you mentioned, you expect turnover to come down a little bit can you quantify whats embedded within your guidance and the types of new lease spreads.
Okay.
We went from 22 and.
22 to two.
Robert Richardson: So we're seeing that it's slowing down a bit, but not everywhere. So in some of the markets that have seen larger increases initially, and it seems to be tapering off a little bit, but when I say that, it's not like it's changing materially, it's just showing some abating. Okay, and what would you classify as your strongest markets for rent growth today versus the ones you mentioned? Kitchener-Waterloo has been strong for us for some time, so it continues to be one we look at. New Brunswick had a great quarter and a very good year in 2023, and Halifax has remained steady as well. So those three are standouts for us, a little bit in Newfoundland, which is nice to see. Okay, and just on the new and renewal spreads on slide seven, obviously, that there's a nice trend there, the mark to market on slide 12. Appreciate the disclosure. That looks impressive.
2019, and 23, so I mean.
And somewhere we wouldn't be surprised to end up around 17.
Okay, and then in terms of the new lease spreads.
The 30% Mark to market.
Slide 12, you did 20% in Q4.
How should we think about those numbers going forward.
Well you know, it's always about what units turn and how long that unit tenants have been in the.
In the unit so that the numbers that we're presenting at 19.
And Q4 some of those units were only occupied for a year.
Some of them for longer so.
I think that we have quite a nice trend that we've shown over the last probably eight to 12 quarters and we're not seeing anything to indicate that that is coming is reversing and so I think that there.
There is an opportunity to continue to.
To move that up.
Perfect. Okay. Thank you.
Thank you.
Next question will be from Jamie Shen at RBC capital markets. Please go ahead.
Robert Richardson: Within your 6% plus answer, I would look for 24. I think Dale, you mentioned you expect turnover to come down a little bit. Can you quantify what's embedded within your guidance and the types of new spread? We went from 22 to 19 and 23.
I think just first just a follow up on the zoning changes that you talked about with more density.
How does that improve your development yield.
Can you.
Simple as that ratio is is that it reduces your land cost because youre going to have more units per site.
Dale Noseworthy: I think somewhere we wouldn't be surprised to end up around seven. Okay, and then in terms of the new lease project, you're showing a 30% mark to market, www.realestate.com and Q4. How should we think about those? Well, you know, it's always about what units turn and how long the unit tenants have been in the unit. So the numbers that we're presenting at 19.8 and Q4, you know, some of those units were only occupied for a year, some of them for longer. I think that we have quite a nice trend that we've shown over the last probably 8 to 12 quarters, and we're not seeing anything to indicate that that is coming is reversing. So I think that there's an opportunity to continue and move on with that. Okay.
The other part of that is that without the HST I mean that improves the yield as well and then we're looking at.
Then right across the board what markets is there any slack in labor.
Would stabilize and maybe even bring down some.
Some of the cost. So for example, what we're seeing there today out there today is that Alberta is probably the cheapest market too.
Built in right.
Right now.
So that's pretty attractive from a from a number of reasons.
And then there's the other part that again, we're looking at some of these changes.
Would be to go from Congress back into wood and wood product is quite a bit cheaper than the mid rise concrete today.
So all these things are all we're trying to do is look at it figure out.
Again, adding the features that we typically would put in a building and bringing the costs stabilize the cost or reducing it in the next few developments.
Uh-huh so when I look at the then tied.
Jamie Shen: This question is from Jamie Shen at RBC Capital. Just to follow up on the zoning changes that you talked about with more density, how does that improve your development yield? The simplest ratio is that it reduces your land cost because you're going to have more units per site. The other part of that is that without the HST, I mean, that improves the yields.
That you have on your slide there that are smaller.
55 unit building, they get four and a half to five I, presumably that good you mentioned, a queen pool, presumably the yield on on that would be would be higher if you can build 40 story Hyde building.
Yes, but again, if you're going to do that then it's the length like we were well within.
To be able to start this month it means there's about two and a half years of planning.
Philip Fraser: And then we're looking at, you know, again, right across the board, what markets have any slack in labor, which would stabilize and maybe even bring down some of the costs. So, for example, what we're seeing out there today is that Alberta is probably the cheapest market to build in right now. So that's pretty attractive from a number of reasons. And then there's the other part that, again, they're looking at some of these changes would be to go from concrete back to wood, and the wood product is quite a bit cheaper than the mid-rise concrete. All these things, all we're trying to do is look at it, figure out, you know, again, adding the features that we typically would put in a building and bringing the cost, stabilizing the cost, or reducing it in the next year's development.
The sector and said, Okay, I got a little piece of land I can put 40 stories on Sunday Youre back into a two to three year design.
Again getting the permits at just the city is allowing increase.
Density and zoning you still have to go through the <unk>.
Whole process, which is showing them your plans and everything else being approved.
So.
The length of time to switch gears.
You are comparing it with an asset or an opportunity. We're starting today I mean, you just back to square one so it's easier to just go on to the next project, where the vacant land and start looking at it.
From today's point of view.
Okay and then my second question is that how do you think the the cap on foreign students. How do you think that impacts any of your assets or any or any of your markets.
Not at all.
That's an interesting question. So I think right now where we are across all our markets.
Philip Fraser: So when I look at the Eventide project that you have on your slide there, the smaller, I have a 55-unit building that gets $4.50 to $5.00, presumably the yield on that. Hire If You Can Build 4-Story Houses, Yes, but again, if you're going to do that, then it's the length of like we were well be able to start this month. It means there's about two and a half So if you sat there and said, okay, I got a little piece of land. I can put 40 stories on it someday. You're back into a two to three year design process. You know, again, getting the permits. The city is allowing increased density and zoning, but you still have to go through the whole process of showing them your plans and everything else being approved.
The cap is coming but the buildings are full.
There is demand in every single market whether it's.
Geared to or we went to a student versus.
Our non student.
We will really not see any impact here from that reduction.
This is what I believe.
Okay. Thank you.
Thank you.
Once again, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone.
And your next question will be from Mike Knapp.
Cornell at National Bank Financial Please go ahead.
Good morning, guys.
Just wanted to go back to the comments around market rents kind of the growth leveling off.
I think January we saw a 125000 an increase in the working population in Canada and housing starts were down 25000 in the month of January do you think that there's the potential for kind of a lull and then reacceleration or is the limiter ultimately affordability on on these units.
Philip Fraser: So the length of time to switch gears, if you're comparing it with an asset or an opportunity we're starting today, I mean, you're just back to square one. You just go on to the next project, whether it's vacant land, and start looking at it from today's point of view. Okay, and then my second question is, how do you think the Federal government, at www.realestateinvestments.com, Federal. That's an interesting question.
We're not anticipating although that's not what we're seeing in the market what we're seeing in the market.
If it's.
It's not significant I think that maybe it's being overblown a little bit.
Once it's been written.
Philip Fraser: So I think right now, where we are across all our markets... The cap is coming, but the buildings are full. There is demand in every single market, whether it's geared to or we rent to a student versus a non-student, so we will really not see the impact here from that reduction, I believe. Okay, thank you. Thank you. Once again, ladies and gentlemen, if you would like to ask something... a star followed by a 1.
We do have just.
Our unit will be on for incentive.
<unk> at least it will take.
A week or two so there's just we're just monitoring it closely and there is some hesitation, but its certainly nothing significant.
No that makes sense in the context of our population growth I think you've got it right.
Long tailwind.
Just flipping a switching gears on the development side.
Unnamed Analyst: Good morning, guys. Just wanted to go back to the comments around market rent and the growth leveling off. I mean, I think January we saw a $125,000 increase in the working population in Canada, and housing starts were just down $25,000 in the month of January. Do you think that there's the potential for kind of a lull and then re-acceleration, or is the limiter ultimately affordability on these units? We're not anticipating a lull. That's not what we're seeing in the market. What we're seeing in the market is just.. www.realestate.com. It's not significant. I think that maybe it's being overblown a little bit once it's been written.
From a modeling standpoint I'm looking at.
Slide 15.
<unk>, yet with the different lease ups.
First off for Nolan Hill, I think gets added into the Calgary unit count, but I don't think the vacancy was adjusted should.
Should we be assuming that they can see in Calgary.
And then lease that up over.
Q1, or all of these kind of will be stabilized second half of the year.
And just because we use that for our vacancy its for the period for the quarter. So I think it's the timing of when NOLA.
Robert Richardson: A unit will be on for instead of, "Automatically lease it'll take a week or two." No, that makes sense. And in the context of population growth, I think you've got a line. A long tailwind.
That's why we wouldn't have seen that impact in the vacancy because it was really only there for the last.
Likelihood too so I think that that's why you wouldn't have seen it in the they can take us it was such a small piece of that but we'd never show vacancy on the lease up of the new building, but we show it in our total already versus same property.
Unnamed Analyst: Just flipping or switching gears on the development side, from a modeling standpoint. I'm looking at slide 15 with the different lease-ups. First off, for Nolan Hill, I think it's added to the Calgary unit count, but I don't think the vacancy was adjusted. Should we be assuming that vacancy in Calgary is lower and then lease that up? Q1 or all of these kind of will be stabilized in the second half. And just because we use them for our vacancy, it's for the period, for the quarter. So I think it's the timing of when Nolan moved, but that's why we wouldn't have seen that impact in the vacancy because it was really only there for the last, www.realestateinvestment.com, but I think it's the second half. Okay, and Civic 66 and the governor, in that those numbers would already be kind of in your total.
But I think it's the second half of the plan.
Thank you, Steve and civic 56, and the governor and in that those numbers would already be kind of in your total I think you'd disclosed for kitchen right.
The governor is small but is.
Is there any incremental NOI coming from the latitude the K oar luma that wouldn't have been in Q4.
We're fully stabilized in Q4.
No they would have been fully stabilized in Q4, yes.
Okay. Thanks, Ed.
Thank you. Thank you and at this time, we have no other questions registered please proceed.
This concludes today's Q4 2023 analysts call. Thank you very much for listening and participating in the call today.
Dale Noseworthy: I think you disclosed for Kitchener that Civic is a big up or small but... Is there any incremental NOI coming from the latitude decay or LUMA that wouldn't have been in Q4? Are those we're fully stabilized in Q4? www.realestate.com, Okay. Thanks, Seth. Thank you. And at this time, we have no other questions registered. This concludes today's Q4 2023 Analyst Call. Thank you very much for listening and participating in the call today, and we look forward to updating you on our first quarter call on May 8th. Thank you. Ladies and Gentlemen, this is, Once again, thank you for attending, and at this time, we do ask that you please stand by. www.realestate.com
And we look forward to updating you.
On our first quarter call me 38, thank you.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
Okay.
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