Choice Properties Real Estate Investment Trust

Welcome to the Choice Properties Real Estate Investment Trust Third Quarter 2021 Earnings Conference Call. Please be advised that today's conference is being recorded. I will now hand the conference over to your first speaker today, Doris Bond, Senior Vice President, General Counsel, and Secretary. Please go ahead.

Thank you. Good morning and welcome to Choice Properties Q3 2021 Conference Call. I'm joined here this morning by Rail Diamond, President and Chief Executive Officer, Mario Garifato, Chief Financial Officer, and Anna Raddick, Executive Vice President, Leasing and Operations. Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding choice parties' objectives, strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook, and similar statements concerning anticipated future events, results, circumstances, performance, or exceptions that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual facts to differ material from the conclusions in these forward-looking statements. Additional information on the material risks that can impact our financial statements and estimates and the assumptions that were made by applying and making these statements can be found in the recently filed Q3 2021 financial statements and management discussion and analysis, which are available on our website and on CDAR. I will now turn the call over to Ralph.

Thank you, Doris, and good morning, everyone. Thank you for taking the time to join our Q3 conference call. We're pleased with our strong financial and operating results. Our business model and our necessity-based portfolio has proven resilient over the course of the pandemic. In addition to our strong results, we're advancing our development program and executing on strategic transactions, both with a focus on improving the overall quality of our portfolio and driving meaningful net asset value appreciation. All of this is underpinned by an industry-leading balance sheet that affords us the financial flexibility to execute on these initiatives. Joining me on today's call is Anna Raddick, who will first provide an update on our operational results, and then Mary Berrafada, who will provide an update on our financial results. I will then provide an update on our transaction activity and our development program. Anna, over to you.

Thank you, Rail, and good morning, everyone. As Rail mentioned, we are pleased with our operational results for the quarter. We continue to see positive signs of renewed activity across the portfolio as COVID-related restrictions are being lifted and our tenants get back to business. Our period and occupancy remain strong, increasing slightly to 97% compared to 96.9% last quarter. We had approximately 1 million square feet of leases expiring in the quarter. We renewed 813,000 square feet resulting in a retention ratio of 81% and leasing spreads on renewals of 6%. We completed 204,000 square feet of new leasing resulting in overall positive absorption of 17,000 square feet for the quarter. Our 45 million square foot retail portfolio consisting of open-air centers with necessity-based tenants continues to deliver stable, reliable results. Retail occupancy was consistent with the prior quarter with tenant retention of 89% and leasing spreads on renewals of 4.5% for the quarter, excluding two anchors with fixed-rate auctions. Retailers have looked at foot traffic to drive leasing decisions. In our portfolio of neighbourhood centres anchored by essential shops, a few steps from shoppers' homes are seeing the strongest level of interest. New leasing activity has been strong. Across the portfolio, we are seeing interest from mid-box value and necessity-based retailers looking to increase their store network as well as relocate from enclosed shopping centres. Also driving demand is the entry of new QSR concepts and existing food operators, expanding their footprint. The desire for tenants to locate at our grocery-anchored sites is evident by our high retention rates and consistently high occupancy. We expect that as restrictions ease further, we will continue to benefit from the positive momentum we are seeing. Our industrial segment has been our strongest performing asset class over the past two years, with fundamentals continuing to strengthen. The national industrial availability rate dropped below 2%. The demand for distribution and logistics warehouses remains at an all-time high, and the supply-demand imbalance in most markets is driving rental rates to record highs. Leasing activity was strong across our entire national industrial portfolio, resulting in an occupancy increase of 40 basis points to 97.6% in Q3, with occupancy in our 6.6 million square foot Ontario portfolio sitting at 100%. We also retained 80% of expiring tenants and grew rents by 16.6% over expiring rents in the quarter. Offices faced the most headwinds over the past few quarters, with many tenants putting large space decisions on hold until they sort through their return-to-workplace strategy. Vacancy rates have ticked upward this quarter in most markets, but in downtown Toronto, where our largest assets are located, vacancy actually dropped 10 basis points to 9.9%, and sublease availability dropped even further. We are encouraged by this and by an increase in touring activity, especially on smaller units. New leasing activity for the quarter was slow as occupancy in our 3.6 million square foot office portfolio declined from 90% to 88.7%. Of note is the fact that some of the space vacated consisted of retail tenancies as downtown and urban core retail continues to struggle compared to suburban grocery-anchored retail. That said, we did see a lift in renewal spreads of approximately 3% on the deals that were completed. We have used this time with fewer people in our buildings to its full advantage. We have completed improvements that reduced the energy and water consumed in our buildings to make them more efficient and cost-effective. We have upgraded common areas and created new tenant amenities, as well as built improved move-in-ready office suites so we are able to leave space more quickly. Overall, we are pleased with the operational performance of our portfolio and we expect to continue to deliver strong results looking ahead. I'll now pass the call over to Mario to discuss our financial performance.

Thank you, Anna, and good morning, everyone. This was a strong quarter operationally with solid third-quarter financial performance. The strength and stability of our necessity-based portfolio has proven resilient over the last 18 months, and that is reflected in our AR collection rates, which increased to 99% in the quarter We also reported bad debt expense of $1 million, our lowest provision during COVID. And as COVID restrictions continue to lift across the country and the Canadian economy looks fully reopened, we are well positioned to benefit from momentum. Our reported punch from operations for the third quarter was $172.7 million. This was a relatively clean quarter apart from the $1 million bad debt expense I referred to earlier. When compared to the third quarter of 2020, FFO increased by $3.5 million, due primarily to a decline in bad debt expense of $3.8 million and contributions from development transfers and acquisitions of $1.7 million. This was partially offset by a decline in straight-line rent. On a per-unit diluted basis, our Q3 FFO was $0.239 per unit, consistent to the 23.8% reported in the third quarter of 2020. Total state asset cash NOI increased by 2% compared to the third quarter of 2020. And by asset class, retail state asset cash NOI increased by 2.5%, while industrial increased by 3.5%. This reflects a combination of declining bad debt expense, contractual rent steps, and higher renewal rates in occupancy gains in industrial. office same asset cash NOI decreased 6.4%, primarily due to the reduction in occupancy and lower parking revenues. When excluding bad debts, total same asset cash NOI was relatively flat, increasing by 0.3%. So overall, we're pleased we've been able to maintain stable occupancy and consistent same asset performance over the last four quarters. Turning to the balance sheet, for the fifth consecutive quarter, we reported an increase to our net asset value, This quarter reflects a total increase to NAV of $89 million, or 1%, including an increase to the fair value of our investment properties of $51 million. The increases were primarily related to the advancement of our residential development projects and gains from capital recycling of retail assets in secondary and tertiary markets. Market demand for grocery-anchored retail in these markets is robust, with significant liquidity in demand from all types of investors. We had very little new financing activity in the quarter. However, we continue to maintain a strong balance sheet in terms of leverage and liquidity. Our leverage ratio was consistent with prior quarter with our debt to EBITDA remaining low at 7.4 times. From a liquidity perspective, we have approximately $50 million in cash and cash equivalents, $1.3 billion of available credit on our line, and $12.8 billion pool of unencumbered properties. So overall, we're pleased with our third quarter performance, delivering strong operating results and driving net asset value through development and capital recycling while maintaining a conservative and flexible balance sheet. I'll now turn the call over to Rail to address our development and investment activities.

Thank you, Mario. It's been another active quarter making progress on both our development program and our transaction activities. In terms of transactions for the quarter, we acquired a retail property at 325 Moore Avenue, Toronto for $31.6 million. The property includes a Rexall drugstore and a TD Bank and is directly adjacent to one of our existing local anchored sites. The acquisition is strategic because the existing tenants are necessity-based, and this allows us to control the entire site, providing flexibility in terms of any releasing efforts or longer-term redevelopment opportunities. Taken together, the site forms a 2.5-acre parcel that is exceptionally well-located. During the quarter, we also advanced a $41.6 million mezzanine loan to our development partner, Rice Commercial Group. The loan is well secured by 154 acres of future industrial development land in East Gwillimbury, Ontario, just north of Newmarket. The land is currently zoned agriculture. However, it has been designated as employment use in the secondary plan and is undergoing a rezoning process. In advancing the mezzanine loan, we obtained an equity conversion right into 75% of the land. This option provides the flexibility to acquire an industrial site in the GTA at a very attractive cost basis of $370,000 an acre. We're excited about this mezzanine loan and the possibility of adding to a significant pipeline of industrial development opportunities. On the development front, we continue to deliver exceptional assets to our portfolio and are making steady progress on the rezoning of our longer-term pipeline. For the quarter, we completed and transferred two development projects for a total development cost of $52 million. The assets transferred this quarter include a new shop at Drumrock Pad for 17,000 square feet and a retail site in Guelph, Ontario. and the second of three buildings at our rental residential development, The Brixton, located in the Queen West neighborhood of Toronto. The second building includes 93 units at our ownership share. The leasing program at The Brixton is well underway, and activity has picked up considerably in the last few months as COVID restrictions have continued to lift. Of the 165 units that have been transferred to date, 55% are leased. We expect to transfer the last building later this year. Construction is also wrapping up at Liberty House in Liberty Village with an extensive completion in the fourth quarter. We had originally anticipated first occupancy early next year, but based on the leasing activity and the status of construction, the first tenants began taking occupancy earlier this week. So we will transfer this asset to income producing in Q4. In addition to our active residential projects, we continue to find opportunities to intensify our existing retail properties. We commence development on eight new retail intensification projects across the country. On completion, these projects will add an additional 55,000 square feet of necessity-based GLA, including three new Shoppers Drug Mart locations and two new band paths. Looking forward, we're making considerable progress on advancing our longer-term planning projects for our mixed-use developments. In the quarter, we submitted applications on two residential and mixed-use projects here in Toronto. The first application is for mixed-use development on a three-acre parcel of land located at the southwest corner of Danforth Avenue and Broadview Avenue in Toronto. And the second application is for the residential development at our existing residential property via 123 located at Don Mills Road and Shepherd Avenue in Toronto. Both sites are exceptionally well located within close proximity to a TTC subway station. Taking collectively, with our ongoing planning projects, we have over 10 million square feet of GLA either zoning approved or with zoning applications underway. With more projects ongoing and more submissions expected, we believe we have one of the best development pipelines in the REIT space, and that will drive significant long-term net asset value appreciation. With that, I would like to now turn the call back to the operator for questions.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from Sam Damani with TD Securities.

Thanks and good morning everyone. Maybe just the first question is on the East Gwillimbury land. I wonder if there's a little bit more colour you can provide on, I guess, the visibility on the rezoning of that parcel and is the primary plan to co-develop it with rice or what is the sort of plan, I guess, over the medium term exactly?

Yes, thanks for the question. Our development partner had their pre-construction meeting with the town in September this year. They've assembled a consulting team to prepare all the material to submit a zoning by-law amendment. and um you know they're targeting um the first submission in january of 22. um it would be our intention to to convert we just want to see some progress on the zoning side but but i'll say overall we're very bullish on the site um you know just to put it in perspective you know it's not a traditional industrial zone or node, there have been cannons moving to the area. And, you know, the drive is about 25 minutes to the 401. So if you just compare that to other sites east to west, it's exceptionally well located.

Yeah, no, that seems like an opportunity in terms of location for expansion for the market for sure. Maybe just flipping over to same property, NOI growth, and it certainly is evident that the office sector is holding the rest of the portfolio back. Any sense on, I guess, a turning point with occupancy in the near term? I'm also just wondering if there was much NOI contribution in this quarter from the space that was most recently vacated that brought occupancy down to 88% and change.

Hi, Sam. I guess I'll answer your first question. You might have to explain the second question to me. I'm sorry. As to a turnaround, we're starting to see a little bit more activity, particularly, and this is deal activity, particularly with smaller tenants. So, subsequent to the quarter end, we completed, you know, 14 new deals. They totaled about 40,000 square feet in the office portfolio, and that was like across the country from Calgary, Montreal, Vancouver. So, those tenants are So that will help. And then, you know, the larger ones, you know, those that I think is going to take a little bit longer. And then what was your second question, if you don't mind repeating it?

Sure. I mean, the NOI, the same property NOI year over year was down 6% and change in the office sector, but sequentially it was pretty stable. And so I'm just wondering, you know, with the occupancy down at quarter end, should we expect another sort of step down in NOI in Q4 versus Q3?

If so, it would be very modest. you know, a few smaller tenants we know are not renewing, but we have minimal lease rollover exposure. And so, yeah, the variance that you saw or the drop relative to Q2 was primarily a result of the larger vacancies that we spoke about, you know, earlier at 175 Bloor being the largest one.

Yeah, and Sam, I think the one thing with office right now is There's not a lot of visibility. There's no real big trend back yet. We're seeing people trickle in, so there's been some good news, but I think right now there's not a lot of longer-term visibility.

Okay, last one for me on the retail side. Occupancy is steady. The momentum is there. The activity is picking up. We're still not back to 98% occupancy pre-pandemic. What's your expectation, I guess, for 2022 to get there? And I guess what categories might still cause some headaches in terms of headwinds for occupancy going forward?

Sam, I'll just talk about maybe the forecast, and Anna can get into the detail. I think by the end of next year, we'll be stronger, but I think in the interim, like on an average basis, there's going to be some turnover of tenancies, and with that, it'll come from downtime. So I don't see you'll see, so we're kind of still projecting that 1% to 2% NOI growth, and depending on the timing, it could be closer to the 1%, so we still have some things to work on. But as far as retail, so I don't think, like I think at year end we might be closer to that 98%, but during the year we'll be lighter than that. And as far as retail goes, I think Anna talked about there is some, you know, with the open air centers, there is some traction to the retail. I think as the economy opens, we'll see a bit of activity. So we are very bullish, but just on timing, we may see it towards the end of the year, not the early part.

That's great. I'll turn it back. Thank you.

Your next question comes from the line of Mark Rothschild with Ken Accord. Your line is open.

Thanks, Anne. Good morning, everyone. Ray, you gave an update on the development pipeline, and it's quite extensive now. Is there any – should I infer from that or read into that that you're being a little more aggressive in picking up the pace or trying to take on more projects now, or is this all just generally what's been in the plan?

I would say we were slightly behind others on advancing our zoning and we made significant strides in advancing the zoning. We want to be in a position where we can get more sites zoned and then in a position to commence construction and then obviously commence construction when the market dynamics are right. So if we just look forward over the next 12 months as an example, we have two buildings you know, transferring to income producing properties this year, and we would expect to commence construction on two more projects in 2022. And then maybe again in 2023, again, we'll commence construction. So it's really trying to position ourselves that we have this pipeline of wonderful opportunities on the residential side. I think the other thing to note on the industrial side, that it will come quicker just given the lead time for development is quicker. And I think if you look overall at our pipeline, you know, with the land we acquired earlier this year and with the option with East Gwillimbury, you know, we probably have... you know, 450 acres of potential development land, which, you know, could add about 67 million square feet of best-in-class industrial, which, you know, it's all in the GTA, which will probably grow our industrial portfolio by about 40%. So it's very, very meaningful. And once that land gets zoned, we'll come on quicker.

Would the idea be for an industrial to do that all year?

It's overalls. Sorry, I didn't mean to interrupt you. I think overall, the way we view it is we have a great mix of residential opportunities, industrial opportunities, and then we spoke about the pickup in retail activities. So overall, we're very bullish with our development activities.

I know with some of the mixed use in residential in particular, you're looking to do with partners for the industrial. Would you look to do that all yourself?

Well, the two big industrial opportunities, we have a partner, Ross Commercial Group, very good partner. And one of them we would own 85%. One of them we would own 75%. They are primarily responsible for the development. Our team works closely with them. But then we would take over leasing and property management on completion.

OK, thanks. And maybe just one more, maybe for Mario. Over the past year, you have issued stock to the vendors, which obviously is related party for buying properties, it's somewhat dilutive or it takes away some of the accretion because you are using more equity. Are you comfortable where the balance sheet is now? And is that something that you will look to do more of in the future?

Hi, Mark. Thanks. So the first question you have, I mean, we're very comfortable with the balance sheet. You know, there's two elements that we've been focusing on. One is, you know, getting our leverage down and pushing out our debt maturities and maintain liquidity. And I think we've come out of COVID, you know, very strong. And then we've been improving our asset quality. which, again, devers the portfolio, which means less pressure on the balance sheet. I think as far as equity goes, I think we would use it if it's very strategic. And in some cases, you know, there's some tax benefits to the vendor, which gives us, you know, an advantage. And so if we can get access to good properties or use it strategically, we would do that again.

Okay, great. Thanks.

And your next question comes from the line of Himanshu Gupta with Scotiabank. Your line is open.

Thank you, and good morning. So just on 2022 lease expiries, a fair bit of industrial is coming due, I think around 1.6 million square feet. So what kind of rental spreads are you expecting, given how strong the market is? And is it Ontario or is it Alberta? What's the mix of the expiries coming to you?

Hi. Sorry. Just to answer your question on the expiry, we have a few large expiries that are coming due in Q3, sorry, in 2022. And it's kind of spread out across the country, so it's not heavily weighted in Alberta. So we have a large log-log distribution facility in Montreal on Francis Hughes that is rolling as well as a large facility in Ontario and then another one in Alberta. And then another half million square feet that spread out as well across all those markets in Halifax as well. In terms of, you know, what we're projecting for industrial. I mean, we expect to see, you know, on a long-term basis, real growth, rental rate growth, and, you know, net asset value appreciation in those assets. But in the short term, we do have some temporary vacancies that will be evident in our results next year. And it's the three that I spoke of in Montreal, Ontario, and Alberta. But we have released the largest one in Montreal, which is half a million square feet that has been released to Amazon. It'll be a large distribution facility, actually their largest in the province. So we're really excited about that and we'll see a huge lift in rents relative to the current in-place rent. but there will be a period of downtime while they invest in the facility and get it up and running. So, you know, that will have an impact in 2022. And similarly, in Ontario and Alberta, we have tenants that are also relocating to larger facilities, but we have significant interest in both of those sites. So we anticipate releasing them, you know, very, very quickly. And again, at rents in excess of expiring. Sorry, again.

That's very helpful, Anna. And maybe, you know, on the same lines, on the retail side, and I know you already mentioned about the occupancy trends and using environment improving. My question is, how is the market rents trending for, you know, grocery and open area properties? Like, we keep hearing about the cap is compressing or more investor interest, but is anything happening on the market rent side?

Yeah, we are seeing lift in rent. Like in our grocery-incurred centers this quarter, you know, we saw a lift of, you know, about 6%, as I mentioned in my calls. And, you know, we expect that to continue as we have, you know, ample demand.

Well, that's okay. Thank you. I think you mentioned the, it's not just the rent, so I think when you talk about the cap rate compression, where there's lease term, especially with a lot of latency, it's a really valuable commodity.

Absolutely. Thank you. And maybe my next question is on the mixed-use developments. And I know, you know, more zoning application was filed this quarter. And there you mentioned like more submissions expected. So how long the list can get in terms of zoning application size?

Yeah, I don't have the exact list on what's in the pipeline handy, but if you actually look in our investor material, we have maps of the major cities, and we pretty much have more dots on the map than most, so we're just bullish on the long-term pipeline, and we're working collaboratively with our major tenants and saying where it makes sense to file those applications.

Got it. And maybe, you know, will you look, you know, in the near future to probably quantify, you know, what the medium-term or long-term development pipeline could look like? I know it's pretty massive looking at each other, and I'm looking at the chart right now.

Yeah, look, we've quantified that there's 10 million in planning applications, and, you know, as we get more clarity on timing, we'll look to quantify more.

And we try to be very transparent in our disclosures. And I think a lot of investors have told us the long-term really is not as valuable. So we're trying to show the potential, but the quantification right now is not as relevant as maybe the near to mid-term. So we're trying to be very transparent on what is active and what is in the pipeline. And so you'll get those disclosures from us on a regular basis now.

So thank you and we'll be coming back.

Thank you.

Your next question comes from the line of Sumaya Saeed with CIBC. Your line is open.

Thanks, good morning. Just wanted to confirm that on the Brixton and transferring it to income producing did show up in the fair value gains this quarter.

A little bit. It's been showing up in the last few quarters, so yes. And also, as each liberty advances and we're getting closer to cost complete, we're getting certainty on the remaining costs, and we're having a better view of rent, that all impacts the fair value as well. So they're both there. But it's not one big hit. It's been coming in as the project advances over time.

Okay, and then I guess on if liberty, just curious what rents you're seeing there and when do you expect it to be stabilized?

You know, we're seeing rents around 390 a fort and we expect it to be stabilized in about 12 months from now.

And then I'll get your thoughts on what you're seeing in the market in terms of buyer demand for more secondary, tertiary market retail. And if you can comment on any spreads you're seeing in capric compression versus more, I guess, co-located product.

Look, we've spoken about the last few quarters. We continue to see lots of liquidity for the right type of retail. And the right type of retail is, you know, necessity-based retail. And there are lots of different investor types looking for that product. So, you know... I wouldn't say we've seen a meaningful compression in cap rates because it's deal-specific, but obviously we've been very active on the capital recycling program, selling assets that we feel are non-strategic and may have lower growth.

Okay. Thank you. I'll turn it back.

And again, that is Star's line to ask a question. Your next question comes from the line of Tal Woolley with National Bank Finance. Your line is open.

Hi, good morning, everybody. Hey, Tal. Just to start with on the, you know, you made earlier comments that, you know, you've spent a lot of time and capital this year sort of building up this future industrial, this bank of industrial land. When we're thinking about it from our side, uh should we be thinking um is this all third party or does love law figure into occupying some of this as well yeah we purchased the land um for for third parties but obviously given the relationship with novel we will always show it to them first

um and and we would be thrilled if they would um consider um leasing there but that's generally going to be um third parties and you know current focus is really on the rezoning right now so the push to acquire these lands is not it's not a like a sort of blah blah

imperative for their strategy. It's not them driving these decisions, those are you. You guys are making the choice to make these acquisitions.

Yeah, it came through our development partner, Rice Commercial. We have a strong relationship with them and they've shown it to us, you know, first and, you know, we're very fortunate to foster these long-term relationships.

Okay. And I guess, like, maybe just a bit bigger picture, you know, like, we're a few years out from the Crete deal and you guys taking over as the management team, done a lot of work cleaning up the portfolio. You know, from my years, it certainly sounds like you're talking a little bit more about playing a bit more offense now, you know, talking up near-term development, things like that. You know, are you trying, like, how do you want to position choice, like, for the future in terms of where you want the split between the asset classes going forward?

You hit on it. I'll tell you, over the last three years, our focus really was first on integration and getting the right people in place. Second was fixing the balance sheet or putting the balance sheet in a better place so it never gets in the way of running the business or in the way of taking advantage of acquisition opportunities. And the way we think about the entity today is we have this wonderful portfolio of stable, growing cash flow from necessity-based retail, industrial, office and now residential, we have truly, we believe, the best development pipeline in the REIT space. We have a balance sheet that allows us to take advantage of those opportunities, and we're phenomenal people. So we actually think we are exceptionally well-positioned. As far as specific mixes on asset, we're more focused on asset quality. If you even think about capital recycling initiatives, we focus on selling assets that we think have preservation risk or may have lower growth. We're not selling our best assets. In fact, we'd rather buy more of our best assets. So we're less focused on specific mixes. We're more focused on quantity.

Okay, that's helpful. And then just lastly, again, now that you're sort of at this new kind of stage for the company, You know, prior to the Creek deal, you'd sort of seen annual distribution hikes over a year. Is there any thought to sort of maybe restarting that going forward?

Hey, Cal, you know, We haven't talked about it recently, but I think just the way to look at it is, you know, we've had growth and we've had to make some trade-offs. And so, as Raelle said, we took some of our growth and, you know, put it towards the deleveraging. And that kind of took a few cents. And then the asset quality, you get a bit of inherent dilution when you trade kind of higher cap rate assets for lower cap rate assets. But again, we're generating value. And then investing some of the proceeds into this development pipeline. So I think there will be a time. We haven't talked to the board yet about it. But at some point, some of our growth will be diverted back to you and Folgers. But I think it has to be a time when we're ready that we can consider it long term.

Okay. That's great. Thanks, gentlemen.

I'm showing no further questions at this time. I will now turn the call over to Rail Diamond.

Thank you, Judy. We want to thank everyone for joining us on today's call. Please continue to do all you can to stay healthy and safe. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.