Q4 2024 Innovative Industrial Properties Inc Earnings Call
Good day and welcome to the Innovative Industrial Properties, Inc. fourth quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2.
Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Eli Cantor, Associate Finance. Please go ahead.
Speaker Change: Thank you for joining the call. Presenting today are Alan Gold, Executive Chairman, Paul Smithers, President and Chief Executive Officer, David Smith, Chief Financial Officer, and Ben Regin, Chief Investment Officer.
Speaker Change: Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995.
Speaker Change: And actual results may differ materially due to a variety of risks, uncertainties, and other factors.
Speaker Change: Please refer to the documents filed by the company with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements.
Speaker Change: We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Speaker Change: In addition on today's call, we will discuss certain non-GAAP financial information such as FFO, normalized FFO, and AFFO.
Speaker Change: You can find this information together with reconciliations to the most directly comparable GAAP financial measure in our earnings release issued yesterday, as well as in our 8K filed with the SEC. I'll now hand the call over to Alan. Alan?
Alan Gold: Thanks Eli. Good morning everyone and welcome to our call to discuss our 2024 results and recent activity.
Alan Gold: The company has continued to execute, generating over $255 million of cash flow from operations and returning over $210 million to shareholders through dividends.
Alan Gold: continuing our track record of increasing our annual dividends each year since our inception in 2016. On the investment front, we remain highly selective in evaluating opportunities.
Alan Gold: Deploying over $70 million in capital to acquire two properties and providing additional building infrastructure allowances to enhance our facilities capacity for our operators.
Alan Gold: We also made significant progress in leasing, executing new leases at six properties, representing 530,000 square feet, or 6% of our total portfolio.
Alan Gold: Additionally, we further strengthen our liquidity position and strong balance sheet with the upsizing of our credit facility to $87.5 million with four banks now participating.
Alan Gold: For the year, we generated total revenues of $308.5 million and AFFO of $256.1 million, continuing our success of generating significant revenue from the regulated cannabis industry.
Alan Gold: The regulated cannabis industry continues to experience headwinds, which we are navigating through with one of the most experienced management teams in the industry.
Alan Gold: As of year-end, our total available liquidity exceeded $235 million, providing us with ample dry powder to pursue additional strategic investments.
Alan Gold: We are proud to have strategically positioned ourselves to have one of the lowest levered balance sheets in the REIT industry at 11% debt to total gross assets.
Alan Gold: David will provide more detail on our financial results and capital position.
Alan Gold: Last week, we announced that two of our independent directors, David Stecker and Mary Curran, have made the decision to retire from our board and not stand for re-election when their terms expire. David has served on the board since 2017 and Mary since 2020, and we want to thank them both for their service to the company over the years and are in the process of searching for replacement directors.
Alan Gold: I also want to take a moment to congratulate Tracy Hager and Kelly Spiker, who were both promoted to Senior Vice President in January. Tracy has managed our Asset Management Department since 2021, and Kelly has provided incredible real estate legal support since 2019.
Alan Gold: Both are seasoned professionals who have added incredible value, and we are truly fortunate to have such dedicated and talented members on our management team.
Alan Gold: Before I turn the call over to Paul, I wanted to touch on our resolution with Pharmakin.
Alan Gold: We are pleased with the outcome announced last month and believe it reflects our management team's capabilities in navigating challenging situations to the benefit of our shareholders. Paul will provide additional detail on the resolution. Paul?
Thanks, Alan.
Alan Gold: As we noted in our press release last month, we reached a comprehensive resolution to Pharmacan's defaults that included, among other things, Pharmacan recommencing rent payments on 9 of 11 leases in February,
Alan Gold: a required capital infusion by Pharmacan investors and a junior secured note issued to IIP.
Alan Gold: We are proud of our team's ability to navigate this situation swiftly and believe this is the best path forward to maximize shareholder value.
Alan Gold: On the regulatory front, with the election behind us and a unified Congress, there is potential for federal reform, including rescheduling and safe banking.
Alan Gold: Rescheduling efforts to reclassify cannabis from a Schedule 1 drug to Schedule 3 drug were stalled by a DEA administrative law judge cancelling the rulemaking hearing that was set to begin in January.
Alan Gold: Since that postponement, President Trump has recently appointed Terrence Cole to lead the DEA.
Alan Gold: President Trump has not released any official policy directive related to rescheduling, but Kohl has voiced opposition to legalization efforts.
Speaker Change: However, President Trump has shown public support for cannabis reform, including for both rescheduling and the approval of adult use in Florida, and we remain cautiously optimistic that rescheduling will continue to make progress.
Speaker Change: We do continue to see growth prospects in the state markets.
with four states voting on cannabis legislation in 2024.
Pennsylvania is exploring adult-use cannabis legalization.
through legislation.
And earlier this month, Governor Shapiro's 2025-26 budget
proposes the legalization of adult-use cannabis.
Effective July 1st, 2025 with sales beginning January 1, 2026.
Speaker Change: In Florida, the Smart and Safe Florida campaign was relaunched in January to put adult-use cannabis back on the ballot for the 2026 election, after the recent measure received majority support from voters but failed to receive the requisite 60% needed.
Speaker Change: These two states combined generated approximately $3.8 billion in sales in 2024.
Speaker Change: and are projected to be two of the largest cannabis markets in the U.S. by 2028 according to BDSA. In Minnesota, while regulations for adult use cannabis have yet to be finalized, the OCM began accepting applications for cannabis businesses earlier this month.
Speaker Change: Additionally, the public comment period for the regulatory framework concluded earlier this month, and the OCM is expected to publish the final rules by the end of Q1-25.
Speaker Change: BDSA is projecting cannabis sales to increase approximately 10% in 2025, after an estimated 9.8% growth in 2024, with total U.S. cannabis sales of $32.4 billion.
Speaker Change: Recent data shows that cannabis consumption is also strong, with volumes up 15% in 2024, according to Hoodie Analytics.
Speaker Change: Additionally, studies have highlighted daily marijuana use surpassed daily alcohol consumption in 2022. These trends reflect the growing acceptance and integration of cannabis, which positions the industry for continued expansion.
Speaker Change: However, challenges persist, particularly from illicit and gray markets that undermine the regulated industry.
Speaker Change: While states like California and New York have made incremental progress in enforcement, the illicit market is estimated to be more than two and a half times the size of the regulated market. Addressing this issue requires further efforts at both the state and federal levels.
Speaker Change: At the state level, we are encouraged by the continued expansion of the New York and Ohio cannabis markets.
Speaker Change: As of December, New York's adult-use cannabis sales surpassed $1 billion since launching in December of 2022 and, according to BDSA, is projected to reach $2.4 billion of annual sales by 2028.
Speaker Change: In Ohio, adult UCLs exceeded 300 million within the first six months following their launch in August of 2024.
Speaker Change: and are projected to grow to over $2 billion of annual sales by 2028. I'd like to now turn the call over to Ben to discuss our investment and leasing activity. Ben?
Ben Regin: Thanks, Paul. In 2024, we deployed over $70 million across five properties, and in 2025, we have one asset under contract for $7.8 million, with closing expected this quarter, subject to diligence and closing conditions.
Ben Regin: Also in 2024, we executed leases totaling approximately 530,000 square feet, including a new lease executed in the fourth quarter with Tri-Mountain Pure for 160,000 square feet of our Pittsburgh asset, bringing the property to 100% occupancy.
Ben Regin: Trimountain Pure is led by the prior founder of Pure Pen, one of the early Pennsylvania grower processors that sold to TruLeaf in November of 2020.
Ben Regin: Additionally, in Q4 of 24 and the first quarter of this year, we executed two leases totaling 11,000 square feet to non-cannabis tenants in Palm Springs.
Ben Regin: Our 2024 leasing efforts brought our operating portfolio to over 98% leased as of year-end.
Ben Regin: Our three properties under development consist of one pre-leased asset in California, a 192,000 square foot property in San Bernardino, and a 12-acre parcel of land in San Marcos, Texas.
Ben Regin: With total available liquidity exceeding $235 million, we are well positioned to pursue strategic investments and capitalize on our pipeline.
With that, I'll hand it over to David. David?
David: Thank you, Ben. For the year ended 2024, we generated total revenues of $308.5 million compared to $309.5 million for the same period in 2023.
David: The less than 1% decrease in our cash revenues collected was primarily due to certain properties we recaptured or sold since 2023, adjustments to rent for certain properties through lease amendments, and partial payment of rent by certain tenants where we fully utilized our security deposits.
David: Our comparability year-over-year was also impacted, as we have previously disclosed since the first quarter, by two leases that, when amended, changed their lease classification from operating leases to sales-type leases starting in January 2024.
David: The decrease was partially offset by the $3.9 million Disposition Contingent Lease Termination Fee that was received in connection with the sale of our property in Los Angeles, California in the second quarter.
David: amendments to leases for additional improvement allowances at existing properties that resulted in adjustments to rent, revenue from the two new properties we acquired in 2024, and contractual rent escalations on our other existing properties.
David: As we noted in our press release yesterday, the fourth quarter's results also include $5.7 million of security deposits applied for contractually due rent on properties leased to five tenants, of which $4.3 million related to PharmaCan.
David: AFFO for the fourth quarter was $63.4 million, or $2.22 per share, a 3% decrease compared to the fourth quarter of 2023, and a 1% decrease versus the third quarter of 2024, with both decreases driven by reduced rent collections for certain tenants.
David: In addition, as it relates to the Pharmacan amendments we announced in January, it results in approximately $0.16 negative quarterly impact to rent going forward, which could improve with any re-tenanting activities at the Michigan and Massachusetts properties.
David: Our balance sheet remained strong during the quarter with $2.6 billion in total gross assets and our only debt consisting of $300 million in fixed rate unsecured bonds maturing in May 2026.
Thank you for watching.
David: Furthermore, we continue to maintain REIT industry-leading credit metrics, with a net debt-to-EBITDA of less than one times, debt-to-gross-assets ratio of 11%, and a debt-to-service coverage ratio of nearly 17 times.
David: In the fourth quarter, we added two banks to our revolving credit facility, bringing it to four in total, and expanded capacity on that facility by another $37.5 million.
David: Our total capacity on our revolver now stands at 87.5 million, all of which remains undrawn as of today.
David: With this increased liquidity, we finished the fourth quarter with over $235 million of total liquidity, comprised of cash, short-term investments, and availability under a revolving credit facility.
David: Our dialogue continues with additional banks about increasing our overall credit capacity.
David: We continue to be well positioned with a conservative balance sheet, strong liquidity, and continue to progress on expanding our banking relationships to increase the size of our credit facility.
With that, I will turn it back to Alan. Alan?
Alan Gold: Thanks, David. I'm proud of what our team accomplished in 2024. We continue to be laser-focused on maximizing the value of each property in our portfolio for the benefit of our stockholders.
Alan Gold: And I see our company as exceptionally well positioned to continue to execute on the business while navigating through the regulated cannabis industry headwinds.
Alan Gold: As long-term owners of our company, thank you, as always, for your continued support.
Alan Gold: With that, I'd like to open it up for questions. Operator, can you please open the call up for questions?
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2.
Tom Catherwood: Our first question comes from Tom Catherwood with BTIG. Please go ahead Thank you, and good morning everybody
Tom Catherwood: So, first off, kudos on the SWIFT resolution with Pharmacan. That was huge and I know a very big lift. But if we step back and think more broadly about tenant risks, in the three cases where you've had to work through issues, and this includes Parallel and Greenpeak,
Tom Catherwood: facing issues with their lenders. How are you thinking about risk for your tenant base over the course of the next year given that 2026 is an outsized year for debt maturities across the cannabis industry?
Tom Catherwood: Well, thanks. Thanks, Tom. I think that, you know, first of all, you're talking about something that's going to occur in 2026, and we're
I think.
This is still February 2025.
Tom Catherwood: and perform better, and we believe that the broader markets should be in a much better position to be able to deal with the 2026 maturities.
Tom Catherwood: that many of these tenants, many of these tenants do have.
Tom Catherwood: But with that, we do acknowledge that the earlier the maturity of debt that occurs with our tenants, the more stress that they are seeing, and that is an issue that we are following and watching very closely.
Speaker Change: I appreciate that, Alan, and maybe if I take the flip side to that, could there also exist a scenario where IIT plays a role in helping some of those tenants or operators work through their debt issues, whether it's, you know, sale leasebacks, taking down more real estate, you know, effectively injecting fresh capital through your sale leaseback process?
Well, we're always looking at opportunities and as you know,
Speaker Change: Ben will talk about, you know, we continue to review opportunities, and we will do that. And we have the privilege of having a very strong balance sheet with less than, with around 11 percent debt to total gross assets, and giving us the
Speaker Change: and over $200 million of liquidity, giving us the flexibility to...
Speaker Change: to play and to work with tenants that do have interesting opportunities for us, and we will look at that, but that's not what we believe. We believe the broader industry needs to continue to perform better.
Speaker Change: and which, as Paul described, there are several green shoots occurring and we believe that the broader debt industry needs to be there for the industry in general.
Speaker Change: Appreciate that, Alan. Last one for me. Paul, maybe going back to your comments on rescheduling.
Speaker Change: Do you have a sense of what the next checkpoints are in restarting the hearings that got you know postponed or delayed and you know at what point in time do we get a better sense of how the DEA may be approaching a rescheduling?
Paul Smithers: Yeah, I mean, you know, that's a question, Tom. I think the whole industry is waiting to find out, you know It's we're we're in the court system to get the
scheduling process back on track. There was really no...
Paul Smithers: timeline as to when the administrative judge may make a ruling on what the DEA did or didn't do. It's kind of guesswork on that timeline. It could be stalled indefinitely or it could be as soon as maybe three to six months.
Tom Catherwood: But I think really all eyes are on the White House at this point, Tom, because, you know, with the appointments of Terence Cole as DEA, with Pam Bondi as HE, with RFK Jr. as HHS, we don't have a lot of guidance at those meetings.
Tom Catherwood: hearings where they testified as to what their position will be. We can only look historically at what they said. But I think.
Tom Catherwood: I think the DEA and HHS will fall in line, I think, and we'll get that process back on. So I think the smart money is to see what happens from the White House and when that might happen.
Understood. I appreciate all the answers. Thanks everyone.
Speaker Change: And the next question comes from Aaron Gray with Alliance Global Partners. Please go ahead.
Thank you.
Speaker Change: Hi, good afternoon. Thank you very much for the questions here.
So first question for me
Thank you.
Speaker Change: Thanks for the increment of color in terms of the security deposits, so it looks like 4.3 of that, 5.7 from Pharmacam, so regarding the other 1.3 and 4 tenants, I know you had mentioned, I believe, 3 of them in the prior call, so be relating to those and one more, just anything that you're doing in terms of, you know, working through that for the partial or non-payments and just, you know, how we should anticipate the security deposits either going forward with that.
Speaker Change: is being resolved, there might be incremental issues there. So just a broader tenant portfolio on the security deposit that's being applied there. Thanks.
Speaker Change: And so that's I think the best we can deal, we can say with regards to the actual tenants given how the majority of our tenants are private.
Speaker Change: And so we have to be very careful with what we say, but we are working very closely with those.
Speaker Change: And then, Ben, do you have anything further to add? I think that's right, Alan, and I think really when we think about tenant health, we're really talking about the health of the industry overall and the green shoots that we're seeing in the cannabis industry that Paul described.
Tom Catherwood: As Alan mentioned, we have a lot of private tenants, but we are, of course, watching each of our tenants and working with them very closely.
Tom Catherwood: Appreciate that color there. Second one for me, just could you provide some color on the pipeline for 2025? You have healthy liquidity, so curious to how you're currently viewing the pipeline translating to committee capital for the year in the current environment that we stand in today, and then also how much that could change either via potential state legalization or federal reform.
Yeah, Aaron, this is Ben.
Tom Catherwood: As we have for the last year or two, we are continuing to be very opportunistic and very disciplined as it relates to the pipeline. We're seeing a wide variety of opportunities. I believe we have a very strong balance sheet.
Tom Catherwood: a very strong liquidity position, around $235 million to capitalize on which of those opportunities we think are best.
Speaker Change: Okay, great. Thanks, Jacobo. Then I'll jump back into the queue.
Thank you.
Speaker Change: And the next question comes from Bill Kirk with Roth Capital Partners. Please go ahead.
Bill, your line might be on mute.
Speaker Change: We're moving on to Eric DeLaurier with Craig Hallam Capital Group. Please go ahead.
Great, thank you for taking my questions.
Speaker Change: First one, just a bit of follow-up on Aaron's question there. So you mentioned strategic investments a couple times on the call. Just for clarification, should we be thinking of these as your typical acquisitions and investments that you've been making or are you perhaps looking at perhaps other non-cannabis or other types of investments?
Speaker Change: I think that we have broadened our investment opportunities, but we are primarily focused on the cannabis industry.
generating real estate related income.
Speaker Change: And so we're looking at a variety of ways to enhance the revenue-producing aspect of the company using our balance sheet, our very strong balance sheet, and our available liquidity.
Speaker Change: I appreciate that and could you elaborate on some of the green shoots that you've been referring to in the industry and I guess
Speaker Change: You know overall level of competition in cannabis markets, you know, they've obviously been challenging for some time here wondering if you're seeing a plateauing of sorts or sort of continuing to
Speaker Change: get perhaps increasingly challenging, but just overall kind of elaboration on the green shoots that you're seeing.
Speaker Change: Hey, this is Paul. You know, I think, you know, we gave some specifics in our prepared remarks, but, you know, we start with the projection of a 10 percent growth for 25, which is not insignificant. Then we look at some of the, you know, state by state analysis.
you know, for example, Tennessee.
Speaker Change: just introduced bills for both medical and rec. And that's Tennessee, we haven't seen that.
We just saw a recent
Speaker Change: in Florida, if the wreck boat was held today, it would get 67% support, which of course is over the 60% threshold, so that would pass if today it was held.
Thank you. Thank you. Thank you.
Speaker Change: We look at other things, you know, we look at with more border enforcement, you know, do we see the possibility of, with enforcement, we have a decrease in...
Speaker Change: illegal supply crossing the border? Do we see a decrease in aliens working in the black market perhaps on the grows? So.
Speaker Change: That may be in effect, you know, then again state by state we look at
Speaker Change: That was very impressive. We see New York hit the $1 billion mark. So, you know, these are all very state-specific.
Speaker Change: When viewed in the aggregate, it supports what we think is still a pretty...
Robust.
Speaker Change: industry, and along with the 10% growth, we're pretty optimistic that this industry will continue to grow. It's going to have some headwinds, as we discussed, primarily
Speaker Change: you know, the black market in some of the larger states.
And you talked about competition, you know, we are seeing
the states, and the larger states certainly.
We're seeing some of the less successful growers drop out.
Speaker Change: and that's market dynamics that we've always talked about for years, that we do believe there will be a consolidation in these larger states.
Speaker Change: And that's coming to pass. So, you know, we've always... Well, we've tried to put our dollars with the MSOs that we see as the larger growers in these states and the ones that we support.
They will continue to do well as the markets grow.
I appreciate that color. And then last one for me.
Regarding the Pharmacan resolution, which I'll also echo my
Speaker Change: Congratulations on a swift resolution there. So, you know, part of that did come with a certainly modest reduction in rents. I'm just wondering if you're...
Speaker Change: getting calls from existing tenants to sort of follow on with that. I would imagine some of them are looking to do so and just, if so, how are you handling those discussions? Is that something that we should perhaps be on the lookout for of some of this?
minor or modest rent reductions to other tenants.
You know, it's...
Thank you.
Speaker Change: It's an interesting question and it's a very difficult one for us to answer because if we were receiving calls, we wouldn't want to talk about that. But we have said that we are monitoring all of our tenants, and we are monitoring all of our tenants.
Speaker Change: And, but the thing that we want to make very, very clear is that this company
Speaker Change: relies on our leases, that we do what we say we're going to do, and we expect our tenants to live to their agreements. And that's what we should be focused on.
Speaker Change: policy changes and some financial commitments by their investors, of course, the note that we take, and other commitments you know, such as not taking any more debts. So, you know, the fact that
There's a fair question, you know, are other...
All right.
Tenants going to try and get a rent reduction, but
Speaker Change: proceeding to eviction, and if there is a way to work something out, we will get something to compensate us for the loss of rent. So that's an important point that needs to be stressed, I think, and to have any potential
Speaker Change: tenants to realize that we're not open for business just to cut rents. If there is a rent reduction, there will be something on the back end.
That's very helpful. Thank you for the call.
Bill Kirk: And the next question comes from Bill Kirk with Roth Capital Partners. Please go ahead.
Bill Kirk: Hey, good afternoon everyone. Sorry for my my tech difficulties earlier. I kind of have like a two-part, you know question here
The portfolio today is primarily cultivation properties.
Speaker Change: How do you see the mix of forward opportunities between cultivation and retail assets?
Bill Kirk: And then related, the kind of the second part is, in most of the business today, is multi-state operators. How do you see kind of the opportunities with the multi-state operators going forward versus maybe some smaller single-state operators?
percentage of our portfolio, again, the cultivation assets.
Bill Kirk: And then, I mean, your second part of your question had to do with, I'm sorry, what?
Multistate versus single-state. Yeah, we've made a
Bill Kirk: Our underwriting criteria has continued to be one of looking at the best, whether they're multi-state or single-state, but highly focused on the multi-state operators, and we're going to continue to do that.
Thank you.
Speaker Change: And the next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning out there.
Alexander Goldfarb: And Paul, I appreciate your warning to other tenants trying to pull a pharma can, so I'd like to public address.
Alexander Goldfarb: Two questions here. First, you commented on the growth of the industry and certainly in your slide deck you talk about 9% CAGR and yet investment since 2020 has declined despite 20-plus
Speaker Change: Dave's, you know legalizing some sort of medical or recreational etc. So I How much over? Capacity do you think is out there? Like when do you think that this growth?
Speaker Change: translates to commensurate renewed interest in investment such that, you know, we'd see like 9% investment growth in this space. So when do you think this turns?
You know, I think that
Speaker Change: I think that the industry still has headwinds as we've described.
Speaker Change: whether through, you know, border enforcement or other types of enforcement.
continue the capital growth within the industry.
Speaker Change: more comfortable in providing capital to the industry. And that's something that's been talked about and something that everybody's been looking for for a long period of time.
Speaker Change: You know, do we see that in the short term? Not particularly, but we do believe that it is coming, and it will be something very important for the industry.
Speaker Change: Okay, and then the second question is, again, you guys have always been very vocal about MCO exposure and, you know, the credit improvement that that provides.
Speaker Change: Yet, obviously, Pharmacan was an MCO that had issues. Kingsgarden was another. So, my question is...
Speaker Change: Is MCO really a good metric of credit or are there other things as the business has evolved that you guys are starting to look more towards that provide greater comfort to you on the credit side that the operator is money good?
Thank you.
Speaker Change: That is an aspect, which is why we have single state operators that we're very excited about.
Speaker Change: But it is, it does show the ability for a company to raise significant amount of capital and to be able to operate in multiple states.
Speaker Change: have the experience and expertise to grow product and sell product in a very challenging environment, and that's what we're looking for.
Speaker Change: So have you had any reassessments of credit of tenants that before you would have ranked highly and now you're looking at them going, geez, you know, they're current and they're fine but, you know, we may want to reduce exposure going forward?
Speaker Change: I think we're, as I said, we're watching all of our tenants. We're doing deep dives into every single one of our tenants, including the strongest ones and the single-state operators.
Okay, thank you very much.
Thanks, Alan.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Alan Gold for any closing remarks.
Speaker Change: Thank you. And once again, thank you all for joining us today. I really want to say thank you to the team for all the hard, smart work we've done over the last year and this last quarter. And with that, we conclude.
Alan Gold: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.