Choice Properties Real Estate Investment Trust

Good morning and welcome to the Choice Properties Real Estate Investment Trust third quarter 2023 earnings conference call. Today's call is being recorded. After the speaker's remarks, there will be a question and answer session. I would now like to hand the conference over to your first speaker today, Erin Johnson, Vice President of Finance. Please go ahead.

Thank you. Good morning and welcome to Choice Properties Q3 2023 conference call. I'm joined here this morning by Rail Diamond, President and Chief Executive Officer, Mario Barifato, Chief Financial Officer, and Anna Radek, Chief Operating Officer. Rail will start the call today by providing a brief recap of our third quarter performance and provide an update on our transaction and development activity in the quarter. Anna will discuss our operational results, followed by Mario, who will conclude the call with a review of our financial results before we open the lines for Q&A. Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding choice properties objectives, strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook, and similar statements concerning anticipated future events, results, circumstances, performance, or exceptions that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements. Additional information on the material risks that can impact our financial results and estimates and the assumptions that were made in applying and making these statements can be found in the recently filed Q3 2023 financial statements and MD&A, which are available on our website and on CDAR. And with that, I'll turn the call over to Raoul.

Thank you, Erin. Hello, everyone. Thank you for being here today. We are happy to report that performance in the third quarter was strong. Our ability to deliver stable and consistent cash flow was reflected in our results. As we remained near full occupancy, we delivered strong same-asset cash-in-a-while growth and year-over-year FFO growth. Our core business, backed by a strong balance sheet, is generating stable cash flows. This stability is a testament to the quality of our retail properties, which are anchored by grocery stores and cater to essential needs, as well as strong demand for our well-located generic industrial assets. Despite the economic uncertainty and ongoing market volatility, business fundamentals across our three strategic asset classes remains exceptionally strong. Our necessity-based retail tenants remain resilient with robust leasing demand. Many retailers are actively seeking to expand their presence, especially in non-urban markets. we're experiencing robust tenant demand and significant increases in rents upon lease renewals. This will drive further future cash flow growth as these leases roll over. And in our mixed use and residential portfolio, the lack of supply continues to support rental rate growth in our residential assets. As we address the impact of high interest rates on our business, our disciplined approach to financial management and industry-leading balance sheet continue to be exceptionally valuable. This is reflected through the quality of our credit. We demonstrated once again in the quarter our ability to mitigate interest rate risk and maintain a balanced tenure ladder at attractive all-in rates. Our property valuations also reflect a conservative financial approach. We've always had a policy of evaluating the impact of macroeconomic conditions on our values, and we were deliberate and thoughtful in adjusting our portfolio cap rates in response to the higher rate environment that began in the second quarter of 2022. We are confident in our current valuations. In the current elevated rate environment, we consistently trade at a narrower discount to our IFRS NAV as compared to how our peers trade to theirs. And beyond that, we have a compelling growth story and a tremendous opportunity to drive higher NAV through our income property portfolio and our development pipeline. Rising interest rates have impacted the transaction market, which continues to be challenging. Despite this, our team continues to demonstrate their ability to execute on our capital recycling program, finding the right private buyers to execute on deals at reasonable pricing. We remain focused on having a balanced program and on track to find our 2023 acquisitions with dispositions. Our 2023 dispositions have been focused on completing our exit from office as an asset class and continuing to dispose of other assets that are considered non-strategic to our portfolio. Acquisitions primarily relate to high-quality assets from large loans. With minimal transaction activity in the quarter, we completed two smaller transactions, including acquisition of a retail property with a Shoppers Drug Mart and a Life Mart in Hamilton. Subsequent to the quarter, we completed $93 million of dispositions, including one retail asset, two industrial assets, and one office property. The retail asset was a 360,000-square-foot secondary market power center with a standalone Love Law Superstore located in Munson, New Brunswick. This asset sold for $61.6 million and included a $10 million BTB at an interest rate of 6.5%, maturing one year post-closing. The two industrial properties located in Dartmouth, Nova Scotia were sold for $11.6 million. Consistent with our retail portfolio, we continually review our industrial portfolio and determine that these assets did not align with our strategy of holding high-quality, generic properties in key markets. Finally, we completed the disposition of our last office asset in Calgary, Alberta for 20 million. This transaction marks our successful exit from office as an asset class. This is a significant milestone for our team as it was completed in a very challenging transactions environment for office assets. Turning to our developments, we completed three commercial projects in the quarter, two retail intensifications, and an approximately 300,000 square foot industrial development in Edmonton. This industrial transfer represents the final phase of our six-building project at Horizon Business Park. So, after Prince of the Quarter, we also achieved several other significant development milestones. In our residential project in Ottawa, Ontario, which is named the Element, partial occupancy permits have been issued with initial occupancy commencing on October 15th. The remaining occupancy Permits are anticipated before the end of the year, and the building is currently 40% leased. At a residential project in Brampton, Ontario, condo owners began taking possession in October. We anticipate that two-thirds of condo purchases will take possession in the fourth quarter, with a remainder in the first quarter of 2024. For the rental portion of the project, the schedule has been delayed slightly, with initial occupancy expected in the first quarter of 2024. We transferred our 253,000 square foot industrial building in Surrey, B.C. to income producing with a tenant-taking occupancy on November 1st. The yield on this development was approximately 10.5%, a significant premium to a high-quality industrial wood trade in the Greater Vancouver market. At Choice Caledon Business Park, we signed a lease for an additional 625,000 square feet with the leading logistics provider. The building is being designed to be carbon zero ready and will be a generic 40 foot clear height distribution facility that is functional for a wide range of users. Construction is expected to commence once site servicing is complete near the end of 2024. We continue to drive cash flow and NAV growth through our development program. While our development team continues to work on zoning entitlements for future residential projects, given the current environment, we are prioritizing capital allocation to our commercial development projects as they continue to provide attractive returns even in the current environment. With that, I'd like to hand it over to Anna to provide more color on our operational results. Anna?

Thank you, Rayl, and good morning, everyone. Our portfolio continues to perform exceptionally well. Leasing activity is strong. and our tenants continue to demonstrate their resilience. Demand for space has never been stronger. A growing population, coupled with a reinvigorated appetite for in-person shopping, continue to drive rental rate growth and strong occupancy for our necessity-based retail assets. The industrial sector continues to outperform all other asset classes. Low supply and consistent demand continues to be a tailwind for rental rate growth, particularly in major markets, where approximately 85% of our portfolio is located. We are also seeing a similar trend in our mixed-use and residential assets, with higher occupancy and leasing spreads compared to last quarter. Our portfolio remains at near full occupancy at 97.7%, up 30 basis points compared to last quarter, with strong rental rate growth across our three strategic asset classes. During the quarter, we had approximately 4.1 million square feet of leases expire. We had tenant retention of 98%, renewing 4.1 million square feet at an average spread of 7.5%. and we completed 259,000 square feet of new leasing that commenced in the quarter. We experienced positive absorption of 173,000 square feet, which was driven by two industrial leases that I will speak to shortly. In our approximately 44 million square foot necessity-based retail portfolio, occupancy remained unchanged at 97.7%. We completed 3.7 million square feet of retail renewals in the quarter, resulting in tenant retention of 98.5%. Long-term renewals were completed at rents 7.3% above expiring. 3.1 million square feet of these renewals were with Loblaw banners, completed at an average rent of 6.8% above the expiring rent. Excluding Loblaw, our other renewals were completed at rents 10.1% above expiry, with strong rental rate growth seen across all property types. In the quarter, we also completed 59,000 square feet of new leasing. In addition to our leasing activity in the quarter, we generated $6.2 million in lease surrender revenue. we continue to work to accommodate retailers' growth plans by relocating and right-sizing existing tenants at our centers, enabling us to increase rents, drive asset value, as well as enhance the tenant mix at our centers with minimal downtime on our space. The lease surrender income earned is an example of this work. In the third quarter, We earned $4.8 million from the termination of an approximately 99,000 square foot third-party tenant lease in Calgary, Alberta. The tenant had previously ceased operations and after securing replacement tenants, we proactively negotiated an early lease surrender, enabling us to reposition the space into three separate units, achieve higher rents, and increase traffic to the shopping center. We also earned $1.4 million related to a partial surrender of space at a Mississauga, Ontario Loblaw grocery store. The grocery store underwent a size optimization and the surrendered space was backfilled by a new tenant at a higher rent. This is an example of how our team is and will continue to collaborate with Loblaw moving forward. Turning to our industrial portfolio, Occupancy increased by 100 basis points quarter over quarter, primarily due to the backfill of 122,000 square feet in the GTA, which I discussed on last quarter's call. We chose not to renew the existing tenant in the second quarter in order to accommodate the neighboring tenant's expansion requirements. They took occupancy of the space this quarter at an average rent that was 170% greater than the previous expiring rent. The balance of the positive absorption was primarily related to 35,000 square feet of new leasing in Calgary. We had 381,000 square feet of industrial leases in Alberta and Atlantic Canada expire in the quarter. No new leases in Ontario expire this quarter. We renewed 364,000 square feet at rents 11% above expiry and achieved tenant retention of 95.5%. We continue to see strong demand across our entire industrial portfolio, with occupancy in Atlantic Canada at 97% and 96% in Alberta, enabling us to grow rental revenue in all industrial markets. not just Ontario. The industrial asset class continues to experience elevated demand and tight supply in key markets, such as Toronto, where the availability rate is sub 2% versus the national average of 2.5%, providing good support for continued rental rate growth. We have significant embedded value in our industrial portfolio as our current national average in-place industrial rent is $8.67 per square foot, and our average in-place rent in the GTA is $8.53 per square foot. We continue to transact at rents well above current in-place rents and believe that well-located new generation distribution space will continue its upward trajectory. I'll now pass the call over to Mario to discuss our financial performance.

Thank you, Anna. Good morning, everyone. We're pleased with our financial results for the third quarter. We delivered solid and consistent operating performance despite the impact higher interest rates continue to have on our earnings. We also continue to demonstrate our commitment to prudent financial management through our financial activity. Starting with funds from operations, our reported FFO for the third quarter was $181 million for 25 cents per unit. Included in FFO for the quarter were lease surrender income of $6.2 million, which Anna discussed, and a $1.8 million charge related to severance and other one-time employee compensation expenses. On a per-unit diluted basis, our second quarter FFO of $0.25 per unit reflects an increase of approximately 4.6% from the third quarter of 2022. Strong stay massive NOI and lease surrender income were offset by higher interest expense driven by an elevated rate environment and higher G&A expenses driven by business growth and a competitive talent market. On a normalized basis, when adjusting for lease surrender income and severance costs, FFO increased by 2.1%. Occupancy remained strong at 97.7% and was up 30 basis points from last quarter, which contributed to our strong operating results. Same asset cash in and want to increase by 10 million or 4.4% compared to the third quarter of 2022. By asset class, retail same asset cash in Hawaii increased by 6.3 million, or 3.4%. The increase was primarily driven by leasing-related activity, including contractual rent steps and higher base rents on renewals and new leases, plus higher capital and operating costs for companies. We expect retail same asset cash in Hawaii trend down over time to the range of 2, 2.5% as we start to lap the impact of higher occupancy, rental rate growth, and interest on capital recoveries. Industrial same asset cash NOI increased by approximately 3.3 million or 9.1%. This increase was primarily due to higher rental rates for both renewals and new leases completed, as well as higher recoveries. Mixed-use residential same asset cash NOI increased by approximately $500,000 or 6.8%. This increase was driven by improved residential occupancy and other revenues. Now, turning to our balance sheet, our IFRS NAB increased to $13.69 per unit, an increase of $25 million over the last quarter. NAB growth was driven by earnings growth of $44 million and fair value gains of $26 million on investment properties. This was partially offset by a fair value adjustment on our investment and allied properties units required under IFRS to mark the market disinvestment to its trading price as of September 30th. As a team, we've always focused on taking a conservative approach to valuations and are continually assessing the impact of a higher for longer interest rate environment on our valuations. As Raoul mentioned, we made an approximately 40 basis point adjustment to our overall cap rate in the second quarter of 2022, and we continue to assess our cap rates and make adjustments accordingly. In the quarter quarter, our fair value gains in the quarter were modest and mainly reflect the impact of rental rate growth. We recorded gains in our retail asset class primarily related to contractual rent steps, renewals, and updated market leasing assumptions. In our industrial asset class, fair value gains from rent steps and updated market leasing assumptions were offset by cap rate expansion on certain industrial assets with limited rental rate growth and longer weighted average lease terms. In our mixed use and residential portfolio, we recorded a loss in the quarter driven by the sale of Altia Centre, our final office property sold subsequent to the quarter, and general cap rate expansion on our remaining office properties. We completed several financing transactions in the quarter with strong demand from lenders, translating into relatively low credit spreads We're able to fund our remaining capital requirements in 2023 at a reasonable cost by issuing a 10.5-year senior unsecured debenture of $350 million at an interest rate just under 5.7%. As mentioned last quarter, we repaid the $200 million Series B unsecured debenture upon maturity on July 5th using proceeds drawn on our credit facility and this debenture at an interest rate of 4.9%. We continue to be conservative with our balance sheet management and discipline in maintaining our balanced 10-year ladder. In the last 16 months, we have issued $1.4 billion of 10-year unsecured debentures at an average rate of 5.6%, demonstrating the quality of our credit and the opportunity to both take advantage of a flat long-term yield curve and create flexibility at the shorter end of our debt ladder, with room now at 3, 7, and 10 years for our 2024 refinancing. Also in the quarter, we obtained for our Brixen and East Liberty residential properties. And proceeds were used to repay the construction loans on these assets. So we end the quarter in a solid financial position, strong debt metrics, and ample liquidity. Our debt to inventory ratio is 7.4 times. We have 1.5 billion of available credit. It's also supported by approximately $12 billion of unencumbered properties. As we look ahead to 2024, we have 200 million of unsecured debentures coming due in February. and 550 million in September. With repayment of our allied VTV at the end of this year, plus our cash balances, we have sufficient proceeds to take care of our February maturity and therefore don't expect the need to go to the unsecured market until the third quarter of 2024. So overall, this is once again a very solid quarter. We continue to see the stability of our retail portfolio, the growth potential from strong industrial fundamentals reflected in our results, more than offsetting the impact from higher interest rates. We also continue to actively manage our portfolio throughout the year and opportunistically capitalize on vacant tenant space and store downsizing. As a result, based on our year-to-date operating and financial performance, including certain non-recurring items, we've updated our 2023 outlook. and we expect to deliver 4% to 5% year-over-year growth in state-listed NOI. An annual FFO per unit is expected to be between $0.99 and $1, reflecting a 3% to 4% year-over-year growth. Our revised outlook does not contemplate any potential impact of the special distribution recently communicated by allied properties. With that, Rayl, Aaron, and I would be glad to answer your questions.

Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. Our first question is from Himanshu Gupta with Scotiabank. Your line is open.

Thank you, and good morning. So just on the retail lease expiries next year, so having almost 1.2 million square feet coming due, so what are your expectations in terms of rental spreads? And looks like, you know, you've been achieving almost 10% in the last couple of quarters, so in that context.

Hi, Himanshu. Yeah, we expect the spreads next year to be consistent with what we've achieved this quarter in that sort of 8% to 12% range with respect to the expiries. And that would be inclusive of LABLA.

Got it. And, Anna, are you expecting any occupancy slippage at all? I mean, occupancy is, you know, as Al mentioned, is almost like effectively full occupancy right now in the portfolio. Any slippage expected?

We don't expect any material slippage. Demand's very strong, and tenants are looking to add new stores, but they actually can't find space. They're actually feeling quite squeezed in the market, and there's very little new development. We do have one space that we have in Alberta that we referenced. It's about 100,000 square feet, the space that we received, the $4.6 million termination penalty. So we've received that revenue up front, and so we are demising that space. So we will have a little bit of downtime as we, you know, demise the space and then the new tenants fixture. So that'll be a momentary drop in our occupancy that you'll see next quarter.

Go ahead. And then... I mean, on the same-store NOI growth, again, you know, within the video segment, so if you do 10% spread and if, you know, occupancy remains flat, would the NOI, you know, same-store NOI shake up something like 2% to 2.5% or, like, a bit higher than that, Mario?

Yeah, so, again, laughing a really strong ear here. We're going to give our outlook, our formal outlook next quarter, but yeah, between 2% to 3% is a good way to look at it.

Okay. And my last question is that obviously, you know, FFO growth was pretty good, you know, better than what you were initially expecting. Any thoughts on, you know, maybe distribution increase next year? I mean, is that something you consider as a part of your capital allocation plan in terms of distribution?

Himesh, as you know, the distribution policy is set by the board, but what we've said historically is as we have growth, we hope to share that with unit holders, and it's something we will communicate at the appropriate time.

Fair enough. Thank you, Rose, and I'll turn it back.

Again, please press star then 1 on your telephone keypad if you'd like to ask a question. The next question is from Tumaya Syed with CIBC. Your line is open.

Thanks. Good morning. I wanted to go over your industrial segment and see if you're seeing any differences in absorption and demand for large bay versus mid or small bay and how ranch growth is trending for each format.

Hi. We're still seeing very, very strong demand. You know, the market, you know, I guess I'd describe it as ceasing to be a hypermarket, but there's still very, very strong demand, especially for well-located facilities. And I would say location is just as important for industrial users as base sizes. And given our portfolio is predominantly, you know, in mature, well-serviced locations from a highway and transportation access perspective, we're not really seeing, you know, a slowdown, and we're seeing, you know, very high retention rates as well.

Okay. And I wanted to ask about your thoughts on how you're approaching your development program. Certain of your peers are, you know, pulling back to various degrees, and how should we think about your development activity maybe in the near to midterm?

Mike, thanks for your question. Look, I think choice is unique in that, as we've said historically, we can develop across the three different asset classes. And we have lots of retail intensifications on the go. We have a very significant industrial development pipeline, which we are under construction of about 2.5 million feet. We're completing two residential projects, and the team continues to advance future projects through the zoning. But hopefully, we will be in a position to announce construction of another project likely only late next year. We do feel we need the interest rate environment to stabilize a little bit.

Okay. Makes sense. And lastly, in your opening comment, Cheryl, you mentioned tenant-seeking expansions in non-urban markets. Is this a notable shift from before as opposed to your, I guess, typical expansion activity? And if you can just give some color on the markets and what you see as a major driver.

Yeah, I don't think it's a major, I don't think it's a shift at all. It's something that we've been saying consistently for numerous years that, you know, grocery and consent is perform very well with population where people live. And people live definitely in all areas, including the major markets, secondary markets, and tertiary markets. And we've been seeing, Anna and her team have been seeing very strong leasing demand from tenants on those centers, regardless of the area. And we are seeing more activity in secondary markets at the moment. you know, just given, I would say, maybe lack of available space in the urban markets, but we think it's one of our big competitive advantages having that national portfolio.

And I do think some of it also is attributable to that sort of demographic shift as populations kind of move out of the urban core. We have population growth in general, which is good for all retail. And then we have that growth also kind of extending out to markets further outside of the central business districts of the major cities. And retailers want to be where their customers are, and they're looking to increase store count and market share. And so many are looking to be in smaller markets than they historically have been. TJX is a great example. They're looking to be in... in some of our more tertiary markets.

Okay, so supportive for future rent growth as well. Thanks for the call. I'll turn it back.

As a reminder, if you would like to ask a question, a star then one on your telephone keypad. Our next question is from Sam Damiani with TD Cowen. Your line is open.

Thank you. Good morning, everyone. And congratulations on the great quarter and guidance raise. Seems like everything is firing in all cylinders and good progress in virtually every strategic goal. So that's a great quarter for choice. First question for me would be a little bit of follow-on to, I think, Samaya's question, just on the development side. With the economics of commercial development a little bit more appealing today, are you seeing – a justification perhaps to build out the retail on the existing lands that are currently earmarked for residential intensification. Basically, switching back to retail, sacrificing future residential growth.

Look, Sam, one of the things where we believe we're unique is we really take a long-term focus to running our business. And we have you know, many, many retail sites for intensification. We have over 150, you know, gross record sites just for retail intensification. And we're not going to pervert and make a short-term decision and encumber the land where we could make, you know, a long-term investment on a very stable asset class.

Okay, that's helpful. And I guess you mentioned, you know, potential construction start late next year if interest rates stabilize. I wonder if you could be a little more specific there. Like what else do you need to see to have the stars align for a rental residential project to commence construction for choice late next year?

Look, again, I think we're unique. We have a very low land cost base, very strong balance sheets. I think our biggest issue is that we don't have all the, you know, appropriate approvals and entitlements 100% buttoned up. So what we're doing is getting ready with, you know, site plan applications, working with construction, you know, companies to make sure we can, you know, understand and lock in as much pricing as possible, and then we'll be in a position to go. And we will only go if the interest rate environment is stable. And I think if we had visibility, if it was, you know, today's environment, but we had visibility that was stable, we would go. But as I said, the biggest thing holding us back is probably, you know, just, you know, as I said, we need a bit more planning work to happen and working with construction managers to finalize pricing, etc.,

Okay, and that project that could start late next year, is that Golden Mile?

So the two that would likely, we hope to be in a position to start, we feel the nearest to being in a position to start are Golden Mile and Granville Grosvenor, and likely would announce it, you know, late next year, but construction likely wouldn't only, you know, significant construction wouldn't start until quarter two, item 25. That assumes everything goes according to plan.

Okay. Last question for me, just on that Loblaw, I guess, downsizing and immediate backfilling in Mississauga, that was interesting, great to see. One of you had specified the square footage of the old store and the new store, and do you see lots of more opportunities to do similar deals with Loblaw going forward?

Hi, Sam. I don't know if I got it 100% correct, but the store footprint was just over 100,000 square feet, and then they surrendered about 38,000, 35,000 square feet. So I'll let you do the math on what the new store size is.

And do you see lots more opportunities for those, Anna, in the portfolio?

You know, there is demand from tenants, and they come to us, And we will continue to work with Loblaw as these opportunities present themselves. And, you know, I think that's, you know, a benefit of the relationship we have and the uniqueness of our portfolio that we're able to capitalize on these opportunities pretty quickly. So, you know, I imagine there will be others in the future.

Thank you. I'll turn it back.

The next question is from Tommy Burr with RBC Capital Markets. Your line is open.

Thanks. Good morning. Just regarding the 93 million of assets sold post after Q3, can you just comment maybe on the types of buyers there and maybe where pricing came in from a cap rate standpoint or even a range, if you can share that? And then I'm also just curious if there's any call that you can provide on the Altius center sale.

Sure. So I don't have the blended cap rate handy, but on the Altair Spencer sale, you know, the buyer is a private buyer. They actually are going to use part of the space. Our understanding is they have some interest in some oil businesses, so they would move some of those oil businesses into the space. But Calgary office is a very, very challenging space. environment. I did in my opening remarks, and you probably, I thought you missed it just given the issues we're having with the call, but I did speak to the three assets we sold. We sold Wheeler Park Power Center, Altius, were the two significant ones that we sold, and then some smaller industrial. There were two significant ones were Wheeler and Altius. You know, just off memory, the cap rates ranged from you know, six to Altius as far as call it a mid nine, but Altius is more sold on a price per foot basis. And the larger retail asset was probably mid sevens.

Mid sevens for the retail. Okay, that's helpful. Thanks for that. And then just really one last one for me on the Loblaw lease renewals that, and I think you mentioned in a quarter at a seven and a half percent spread. Would those leases also incorporate 1.5% annual steps going forward? And if you can just comment on the extension term as well.

Okay. So just to clarify, I think I – so in the quarter, the 2003, the leases expired in 2003. And so we reported that we did that renewal last year. And so that had an average – the five-year term, it had an average in place increase of 6.8%. And then the 2024 renewals that we just disclosed last quarter, the increase there is 7.5%. And the increase, though, that's the increase that is flat over the term of the five-year extension.

Okay. Okay. Got it. That's it for me. Thanks very much.

It appears that we have no further questions. And, again, I would just like to apologize for the technical issues on our webcast this morning. However, a complete recording of the event will be posted on Choice Properties' website later today. And with that, I'll turn it back to the presenters for any closing remarks.

Thank you, Chris. To summarize, we're very pleased with our third quarter operating performance. And really in a volatile economic environment with lots of pressure on the industry, we are really well positioned to execute on our strategic priorities and deliver strong and consistent operating performance. Thank you for your interest today, your investment in choice, and for joining us today. Enjoy the rest of your day. Thank you.

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