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Edited Transcript of BEI.UN.TO earnings conference call or presentation 15-Nov-19 4:00pm GMT

Q3 2019 Boardwalk Real Estate Investment Trust Earnings Call

Calgary Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Boardwalk Real Estate Investment Trust earnings conference call or presentation Friday, November 15, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Elizabeth A. Russell

Boardwalk Real Estate Investment Trust - SVP of Acquisitions & Corporate Development

* James Ha

Boardwalk Real Estate Investment Trust - VP of Finance & IR

* Roberto A. Geremia

Boardwalk Real Estate Investment Trust - President

* Sam Kolias

Boardwalk Real Estate Investment Trust - Chairman & CEO

* William Wong

Boardwalk Real Estate Investment Trust - CFO

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Conference Call Participants

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* Brendon Abrams

Canaccord Genuity Corp., Research Division - Analyst of Real Estate

* Jonathan Kelcher

TD Securities Equity Research - Analyst

* Mario Saric

Scotiabank Global Banking and Markets, Research Division - Analyst

* Matt Kornack

National Bank Financial, Inc., Research Division - Analyst

* Michael Markidis

Desjardins Securities Inc., Research Division - Real Estate Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust third quarter results conference call. (Operator Instructions) This call is being recorded on Friday, November 15, 2019.

And I would now like to turn the conference over to James Ha. Please go ahead.

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James Ha, Boardwalk Real Estate Investment Trust - VP of Finance & IR [2]

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Thank you, Joanna, and welcome again to the Boardwalk REIT 2019 Third Quarter Results Conference Call. With me here today is Sam Kolias, Chief Executive Officer; Rob Geremia, President; William Wong, Chief Financial Officer; Lisa Russell, Senior Vice President of Corporate Development; and Lisa Smandych, Chief Accounting Officer. Note that this call is being broadly disseminated by way of webcast. If you've not done so already, please visit bwalk.com/investors, where you will find a link to today's presentation as well as PDF files of the Trust's financial statements, MD&A as well as supplemental information package.

Turning on Slide 2. We'd like to remind our listeners that certain statements in this call and presentation may be considered forward-looking statements. Although the expectations set forth in such statements are based on reasonable assumptions, Boardwalk's future operation and its actual performance may differ materially from those in any forward-looking statements. Additional information that could cause actual results to differ materially from these statements are detailed in Boardwalk's publicly filed documents. At the conclusion of today's presentation, we will be opening up the phone lines for questions.

I'd like to now turn the call over to Sam Kolias.

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Sam Kolias, Boardwalk Real Estate Investment Trust - Chairman & CEO [3]

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Thank you, James, and thank you, everyone, for joining us this morning. Starting on Slide 3. We are pleased to report our sixth consecutive quarter of growth in FFO per unit, delivering 18.6% growth in FFO per trust unit for the third quarter. Rental market fundamentals in our core Alberta markets continue to improve, and our team continues to deliver exceptional service, product quality and experience.

Moving on to Slide 4, displaying more great news. Our AFFO per unit growth for the third quarter grew 23.4%. And for the 9 months, our FFO per unit and AFFO per unit grew 16.2% and 19.5%, respectively. Looking into our same-property portfolio performance. Our NOI grew by 10.7% for the quarter with 4.6% revenue growth and a drop in expenses of 3.3%.. For the 9 months, our NOI grew 7.1% with our revenue growing by 4% and our expenses relatively flat, increasing by 0.2%.

Moving on to Slide 5. We illustrate current rental market fundamentals for each of the markets where we operate. Boardwalk strives to create value through all stages of the rental market cycle. Approximately 60% of Boardwalk's portfolio is in Alberta, where rental market fundamentals continue to improve and balance. Major refining and upgrading and oil transportation investments were made earlier in the year along with the continued construction work on the Trans Mountain pipeline in the recent quarter, offset by some court appeals, with 2 appeals recently being dropped.

The Alberta economy continues to diversify along with increased international migration continuing to increase the population and demand of housing. As per Stats Canada website, Alberta's population growth year-over-year of 1.7% is above the national Canadian average and below Ontario at 2%.

Grande Prairie is already seeing benefits from an improved economy and continues to move into a strong rental market, almost fully occupied with the strong demand for rentals. Fort McMurray remains in a soft rental market. Red Deer continues to see significant improvement as a result of our successful value-add investment in this region. For the third quarter, Edmonton rental market fundamentals continued to improve and NOI growth jumped ahead of Calgary and is slightly less for the 9 months.

Our focus on a carrying peak performance culture along with significant value-add capital investment continues to deliver significant gains in NOI. Our value-add lessons learned in our Calgary market are helping us better allocate value-add investments into our other markets, in particular, in our larger Edmonton market.

Our Saskatchewan region continues to remain in a softer rental market with green shoots of higher occupancy, revenue and recent quarter NOI increased particularly in Saskatoon. We continue to focus in on gaining market share with targeted value-add capital improvements and increasing our operating efficiencies, which should continue to provide a positive NOI growth into the foreseeable future.

Ontario and Québec represent over 25% of Boardwalk's portfolio with both provinces showing strong performance. Ontario continues to deliver solid results with market rents increasing and vacancies decreasing. We have increased our value-add investment in our portfolio here to further enhance returns with strong demand in London and Kitchener and to better position and compete with any new future supply. Québec rental market fundamentals have improved. Boardwalk's Nun's Island portfolio in Montreal is nearly fully occupied and is reflected in our sequential revenue for the last quarter, which has increased 1%.

Moving on to Slide 6. Alberta continues to see high population growth, reflecting a world-class standard of living and multi-decade high affordability. Calgary was, in fact, ranked the world's fifth most livable city by the Economist Intelligence Unit, ranking almost a perfect score in stability, health care, culture and environment, education and infrastructure.

Job growth continues to reflect the diversifying economy with one of the highest average weekly earnings in Canada. CMHC forecasts improving rental market fundamentals. Our recently elected government is working hard to attract top talent to our province by offering more accessible visas for foreign students, targeting top U.S. university graduates as well as creating an attractive tax environment for biotech and start-up firms.

Moving on to Slide 7. Boardwalk offers an exceptional combination of growth in FFO per unit, revenue, NOI and value. Current IFRS net asset value of $65.15 is significantly higher than our current unit trading price, presenting an exceptional opportunity for our investors.

Boardwalk's high quality overall portfolio equates to approximately $153,000 per apartment door at current unit price. Recent transactions in Calgary and Edmonton have averaged over $200,000 a door. Further, replacement costs are significantly higher than these apartment trading prices. Our exceptional value provides for a unique opportunity for our partners and stakeholders as we continue to focus in on delivering solid growth.

Slide 8 shows our strategy of reengineering our corporate culture and team of compassionate peak performers to deliver the best product, service and experience, building on our brand. Our 3 sources of growth are organic, value-add brand diversification, expansion, recycling, high grading and geographically diversified, building upon our solid financial foundation further, which in turn produces optimal unitholder value.

I'd like to now turn the call over to Lisa Russell, Lisa?

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Elizabeth A. Russell, Boardwalk Real Estate Investment Trust - SVP of Acquisitions & Corporate Development [4]

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Thank you, Sam. Slide 9 provides a brief update on our current development projects. All 3 developments continue to progress well. Brio and Calgary remains on time and on budget with interior finishing underway. Delivery of these 162 units is expected in the optimal period of Q2 2020. 45 Railroad, which is located in Brampton, Ontario is well underway with shoring and excavation complete. Structure including foundation, slabs and columns are currently under construction. Estimated completion of this 2-tower, 365-unit development remains planned for 2022 and 2023, respectively.

Continuing with our strategic partnership with RioCan, Sandalwood Square in Mississauga, Ontario is our second development project in the GTA. Planning for our 16- and 25-story mixed-use development, totaling an estimated 470 residential units is in progress. Zoning approval for this development is anticipated in early 2020.

The timing of Boardwalk's current development projects are well staggered to best balance our resources. Our planned development from the Peel Region provide an attractive entry into the GTA, where market fundamentals remain strong allowing Boardwalk to enter high growth, undersupplied markets providing continued progress towards our long-term strategic plan.

Further information on each of these developments as well as our previously announced sale and closing of Chancellor Gate, a noncore asset in Saskatoon, which was sold at a premium to the Trust's fair value can be found in our appendix of this presentation.

I would now like to turn the call over to William Wong.

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William Wong, Boardwalk Real Estate Investment Trust - CFO [5]

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Thank you, Lisa. Slide 10 highlights Boardwalk's liquidity position at the end of the third quarter, defined here as cash on hand, committed up financing subsequent to the quarter end, plus the Trust's line of credit.

Boardwalk's liquidity of approximately $270 million represents 9% of the Trust's total debt. Debt net of cash was 47% of September 30 reported asset value. Boardwalk's interest service coverage based on a rolling 4-quarter basis improved to 2.74x compared to 2.7x at the end of Q2 and 2.68x at the same period last year.

The next slide, Slide 11, shows Boardwalk's mortgage summary since the start of the 2019 year. As the slide shows, the Trust has renewed or forward locked approximately $453 million or 87% of mature or maturing mortgages for the year at a weighted average interest rate of 3.08%, while extending the term maturity to 8 years. Included is a November 2019 single mortgage on the Trust's 3,100-unit Nun's Island portfolio at a new rate of 3.27% for an 8-year term.

Boardwalk has also added close to $111 million of new financing at rates ranging from 2.2% to 2.9%.. Current 5- and 10-year CMHC interest rates are approximately 2.45% and 2.5%, respectively.

The next slide shows Boardwalk's announced distribution for the next 3 months. Continuing with its strategy of capital allocation optimization, for November, December and January record dates, Boardwalk is maintaining its distribution of $0.834 per trust unit, which equates to an annualized basis of $1 per trust unit.

I would now like to turn the presentation over to Rob Geremia. Rob?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [6]

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Thanks, William. Boardwalk continues to target its value-add investment program to enhance the overall experience offered to our resident members. As we continue to selectively invest back in our communities, we are constantly exploring for ways to deliver these programs in more efficient and cost effective ways.

Slide 13 highlights one of the more recent value-added projects. Radisson Village is a [366] apartment comp community located in Calgary, Alberta. At this community, we've upgraded the leasing office with an investment of approximately $78,400. Upon completion of this project, the rents were adjusted upward by $10 per apartment per month. Based on our past experience with this type of investment, we are anticipating our stabilized return well into the double digits.

Slide 14 is another example of a modest renovation to one of our Living brand buildings located in Spruce Grove, Alberta just outside of Edmonton. This investment is in the upgraded leasing office, resulting in an increase of $10 per month to all 160 units. And once again, we anticipate to stabilize returns to be well into the double digits.

Currently, we estimate that about 10% to 20% -- we are about 10% to 20% complete of this type of renovation program. Each of our communities are unique and will require a different level of renovation. However, we are confident that we will be able to continue to deliver similar returns on these type of investments.

Moving on to Slide 15. Boardwalk's rental and renewals continue to show strong growth. Overall, Boardwalk's lease renewals and new leases increases continue to be in line with our overall annual target range of 4% to 8%.

The listeners should note 4% to 8% -- the 4% to 8% range is focused on all new leases and renewals on nonrent control markets. Although we do target above guideline increases in the renewals of these rent control markets, these are not included in our target. As the left side of the slide shows, Alberta continues to achieve increases in our target range even in the seasonally slower demand season.

Slide 16 shows Boardwalk's quarterly sequential revenue growth. Current quarter's results continue the overall trend of posting growth in excess of 1%. Q3 reported growth of 1.1% as compared to the previous quarter.

Slide 17 highlights key revenue metrics. Q3 2019 marks the eighth consecutive quarter of rental revenue growth for the Trust. Boardwalk's total rental revenue for Q3 2019 rose to over $111 million with occupancy levels above 96% as occupied rents continue to climb. Q3 vacancy loss was lower than as compared to the prior quarter, while incentives continue to see a decrease.

Slide 18 shows more detail on Boardwalk's stabilized portfolio. For Q3 2019, the Trust's stabilized portfolio posted NOI growth in excess of 10%, on revenue growth of 4.6% and costs being reduced by 3.3%. Boardwalk's Alberta portfolio NOI growth of over 16% led all regions. Also of note, Saskatchewan posted over 8% NOI growth for the current quarter. On a year-to-date basis, our stabilized portfolio reported revenue growth of 4% and NOI growth in excess of 7%.

Slide 19 shows a review of the Trust's 2019 financial guidance. As we have in the past, it's our policy of the Trust to review and update its financial guidance on a quarterly basis and where necessary, make any revisions.

Based on our review of the key input variables and taking into account the actual results, we are revising our reported 2019 financial guidance to an FFO and AFFO range of $2.50 to $2.55 and $2.03 to $2.08, respectively. The revision represents a tightening of the lower end of the recorded FFO range of $2.45 and an increase in the top end of the range from $2.52, both of which were revised in Q2 2019.

In addition, we have adjusted our stabilized building NOI growth range to be between 6% to 8% from the original 4% to 9%. The Trust will continue its property improvement program, investing between $95 million to $122 million on existing projects depending on anticipated returns.

In addition, we anticipate our new development investment to be consistent with the amounts shown. This concludes the presentation part of the conference call.

We'd like to open it up for questions now. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Jonathan Kelcher from TD Securities.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [2]

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First question, just on the mark-to-market -- the $70 mark-to-market. It looks like Ontario and Québec are really driving that. Are those -- the market rents there, is that you're getting those on turnover?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [3]

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Jonathan, it's Rob. Yes, we are, actually. The strength of the Ontario market and Québec continues to be very strong. We are getting those physical market rents on the actual turnovers. The challenge to us is the renewals because in the rent control market, we're not able to get those.

But on the positive side there, we recently just won a bunch of above-guideline increases in Ontario. So the court has awarded us to spread those increases over 2 years. So we're going to see some good renewal growth on top of the average as well for the next couple of years from those properties that we did win those on.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [4]

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Okay. Are you spending much CapEx on the turnover?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [5]

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Not particularly a lot. We are upgrading -- we are finding that an upgraded product does get even a more premium rent value and better returns. So yes, we are spending some. But by no means are we going to the highest level of renovation partials. And where appropriate, some full renovations is what we're doing, which range from $15,000 to $30,000, $35,000 at the high end.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [6]

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Okay. And then similar -- like on the same topic, the cap in Edmonton is pretty small right now. Do you still think you're going to get the 4% as average growth there?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [7]

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Yes, we do. And particularly on our renewal side, we are seeing a very strong renewal side in the Edmonton, which is a big part of the portfolio. So we are actually able to unwind faster than we anticipated in the Edmonton market on that.

So yes, we still are targeting the 4% to 8% range when we are achieving it. The current quarter -- particularly in the fourth quarter, it does seasonally slow down. But when I look at our Alberta numbers in isolation, like they are in that slide -- sorry forgot the number on it right now, it does show that even in these periods, we're getting the lower end of the range, but we still are getting that range in those areas.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [8]

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Okay. So is the seasonality on that slide typical of what you'd see for a balanced market?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [9]

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Yes. We always have had -- in the winter months, it's always been a slower market. Even in high demand periods, it's just a slower level of demand. So we are doing -- we're actually altering our strategy a little bit too and try to increase the number of amount of turnover in the summer months, which we do have and renewals in summer months. And we actually do have higher demand, so we're actually getting stronger renewals in those time periods.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [10]

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Okay. And then do you have a dollar value or a number of suites or something to sort of quantify the amount of AGIs you have in Ontario?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [11]

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Off the top of my head, no. I know we've got about 3 or 4 different properties in the process right now. We just actually achieved 1 out of Kitchener. We did -- but I know we have 3 or 4 still in the hopper waiting to get approval.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [12]

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Okay. And in Kitchener, I wonder you -- did you get the full 9%?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [13]

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We got 7%, but you have to allocate it over a number of years because it will only go over the 3% range. But we were very -- we got what we asked for.

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Operator [14]

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(Operator Instructions) Your next question is from Matt Kornack from National Bank.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [15]

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Just on the expense side, another good quarter of cost constraints. I wonder can you provide in terms of operating expenses, is the $24.5 million a good run rate? Or were there any onetime items in that figure?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [16]

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It's actually quite a good run rate on the operational expense side for Q4, particularly. Our focus on cost reduction and staffing levels, as you'll notice on Slide 49, really is paying off as well. But in general, I think it's a good run rate for operating expenses for Q4 and moving forward. We're very, very proud of our team how they're able to take a look at the whole thing. And -- but we are very, very proud of it. There has been material reductions. And I can -- again, just focus on Slide 49, you'll see the actual headcount reductions are quite high.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [17]

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Sure. I know you've saved quite a bit. And then, I guess, property taxes, there's a general trend higher and that would be expected to continue, although I think you've done better than expected there as well. And then for G&A, $10 million or so as well is a good run rate?

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William Wong, Boardwalk Real Estate Investment Trust - CFO [18]

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Yes. It's William. Yes. Property taxes is going up. That's the municipalities looking to maintain their services and all that. And in the min, $10 million is a good run rate. The difference between just a slight increase between Q3 and Q2 is really related to our bonus and profit sharing accrual.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [19]

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Okay. And just to add on to Jonathan's question with regards to Edmonton. And you mentioned that you're getting good renewals there. Is that, that you're seeing the incentives fall off? Or are you still offering some incentive in that market?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [20]

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We continue to offer some incentives. However, the unwinding is still giving us 4% to 8% revenue growth.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [21]

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Okay. So you're getting 0.4% on mark-to-market, but then there's 10% or so upside potential to get you to market if incentives were to go away?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [22]

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Yes. And we believe it's more of a when than if.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [23]

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Okay. Fair enough. And then any concern about the provincial government -- I don't know if austerity is the word, but it sounds like they're going to be a little bit more cost conscious and Edmonton is a government town. Any feeling that things could potentially get worse there in the government employment side?

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Sam Kolias, Boardwalk Real Estate Investment Trust - Chairman & CEO [24]

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A really good question, Matt. It's Sam. And we really have to stress the news is missing. The big changes our Premier is making is lowering our taxation over the next 3 years to the lowest taxes in the country. And we can't stress how this has helped Québec in the past and it's helped other jurisdictions like Texas and Florida. And so our Premier is particularly allowing 0 taxes in some municipalities, similar to what Texas has done in the past as well.

And so our Premier is being extremely competitive and strategic with respect to reducing taxes. And that's one big, big miss in the press and media is the huge in-migration that's going to take place with respect to companies moving in, and we're already seeing companies move in because of the affordability and the taxing that will be significantly dropped going forward over the next 3 years.

The jobs, we want to stress is approximately in the provincial government's news, approximately 1,500 jobs over the next several years. So it's a meaningful amount of jobs, but it's a lot less than what the perception is, and it will absolutely be overshadowed by the new jobs that will be created with businesses coming in because of the affordability and the lower taxation base.

So we're very pleased and happy with our new Premier. He's very experienced, and he's doing a lot more than he's getting credit for in media. And so we just want to stress how amazing job our Premier is doing and what a big difference our Premier is making already.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [25]

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Fair enough. And hopefully, we can get a pipeline built. So we don't need a passport to come and visit you guys.

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Sam Kolias, Boardwalk Real Estate Investment Trust - Chairman & CEO [26]

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We're very clear our Premier -- and we are Canadian, first and foremost. And it's really important for all Canadians to realize it's our pipeline, it's our resources. And it's essential for our entire Canadian economy that we continue supporting our producers that produce approximately $185 billion of our GDP. The largest contribution to our GDP is our resources. And so they're Canadian resources. We're proud Canadians. And it's a matter of educating all Canadians about the importance of our essential industry and how essential -- energy is everything. And the more education and facts that all Canadians see, the more everybody is going to support our producers that are Canadian and Canadian jobs and Canadian economy. It's all about supporting Canada right now.

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Operator [27]

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Your next question is from Mike Markidis from Desjardins.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [28]

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With the -- just curious on the development pipeline. Now that you've got your stable staggered deliveries set up, is there anything -- do you feel that you've got a good sort of runway here? Or are you continuing to focus on expanding that in a material fashion?

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Elizabeth A. Russell, Boardwalk Real Estate Investment Trust - SVP of Acquisitions & Corporate Development [29]

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We continue to look at even again our core internal pipeline and deals that are constantly coming across our plate. Again, it's going to be very measured, and we have -- we're very excited to be continuing our relationship with RioCan. And again, just looking out into the future, definitely, we will be continuing to develop and -- in all accounts. It's going to be across Canada. And in under supplied markets, we will continue to focus. So as the opportunities come up, we will be updating you.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [30]

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Okay. And in terms of diversifying out of Alberta, is development still -- I mean, you've been doing it through development thus far. Just curious if that would be the primary fashion going forward? Or do you actually think that acquisitions might be an avenue of growth in the relative near term?

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Elizabeth A. Russell, Boardwalk Real Estate Investment Trust - SVP of Acquisitions & Corporate Development [31]

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Yes. It's all of the above. Again, it's going to be on opportunities that come -- that present ourselves. And again, just based on our -- the capital allocation and the development pipeline that we currently have, but we will be developing and diversifying and we will be acquiring and diversifying.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [32]

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Okay. Last one for me before I turn it back. Just on the AGIs. Just trying to get an understanding of, is this a step change per se where you haven't really been focused on trying to pursue AGIs over the last little while? Or is it a continuation of something you've always been doing in that -- in those...

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [33]

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It's a continuation. But over the last couple of years, we've stepped up our investment in those properties in Ontario. So as a result of that, you have to prove you've spent the money to get the AGI. So we've done a much more focused, and we've increased our expenditures in Ontario quite substantially over the last couple of years. So that's driving the AGIs.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [34]

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Okay. And I guess, you said in 1 property, you got 7%. Would that a similar amount be the target for the 3 or 4 others that you have in the hopper?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [35]

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Yes. That's what we're targeting. We're hopefully -- again, this one, we were very successful on. We're anticipating that will continue, but we are finding there's a massive backlog in the system right now. So we are comfortable we're going to get it. We still don't know when now.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [36]

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Okay. Excellent. Great quarter.

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [37]

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Thank you.

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Operator [38]

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The next question is from Mario Saric from Scotiabank.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [39]

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Maybe just turning back to Slide 15 of the presentation. I know it's not disclosed in the chart, but it might be helpful or it would be helpful on my end to get a sense for what the percentages looked like last year from a comparability perspective. So for example, last year in Alberta, did you also see kind of a trending lower rent increase as the year progressed from April onwards?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [40]

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Yes. Yes. We did. Mario, it's Rob, we saw a very similar trend. And actually, if I go back and look at the annual numbers to date on a year-over-year basis, where actually 2019 is beating 2018 both -- in renewal percentages by about 50 basis points on both sides. So we are seeing -- there will be some monthly seasonality. We understand that. But we are seeing a consistent improvement in both areas.

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Sam Kolias, Boardwalk Real Estate Investment Trust - Chairman & CEO [41]

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Mario, last year our sequential revenue in Q3 was 0.3%. This year, it was over 1%. So we beat it by quite a margin.

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James Ha, Boardwalk Real Estate Investment Trust - VP of Finance & IR [42]

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Just to add to that, Mario. It's James. Our vacancy has improved versus last year as well. So we are better positioned going to these winter months than we were even last year. But to answer your question, that trend that we've seen or that you're seeing for 2019 is very similar to what we would have seen in 2018.

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Sam Kolias, Boardwalk Real Estate Investment Trust - Chairman & CEO [43]

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We got a big high five for our design and value-add repositioning teams, in-house capital, our trades and our operations. It's firing on all cylinders. So we really have to commend our entire team for an extraordinary performance. And it's all about people. And our performance is proof and testimony on how amazing our team is doing. Big high five to all our team for doing such a remarkable and an amazing job where we're seeing incredible reviews on our Net Promoter Scores. We're seeing the best scores we've ever seen, the best NOI growth we've ever seen. Our team has to have all the credit here.

The market is very competitive, and the economy is still a very challenging one. It's growing, but albeit at a slower pace. So we are absolutely gaining market share, and it's a result and complete credit to our entire team for being innovative, creative and completely committed to our resident member service product quality and experience. And again, we just -- words can't express how amazing our team is. They're remarkable and we're so grateful.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [44]

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Great. And I think a lot of us saw that during your July property tour this years as well.

Rob, just to clarify, the 50 basis point comment year-to-date, is that both on renewal and new leasing?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [45]

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A little stronger on renewals, than it is on new leasing. But I probably see 0.75 on renewals and about -- on about new leases, again, paying this time of the year is always tough on new leases, but it's around 0.75, yes.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [46]

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Okay. Presumably, like going from 3 months free rent to 2 is kind of easier than going from 2 months free rent to 1, which may be easier going from 1 month free rent to 0, all else equal, notwithstanding in the improving economy. But it doesn't seem like that's necessarily what you're experiencing, given these...

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [47]

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We are seeing constant increase in demand. As James mentioned, our occupancy levels are higher. And what drives a lot of the ability to increase the renewals and the new leases, and the fact how much vacancy you have to be able to do that. So it is getting better. We're seeing new supply come in the market, but it's being staggered. It's looking quite nicely. Demand is increasing. We're still seeing net new migration to Alberta.

So it's starting to line up nicely. It'll -- I just -- I know it's a small market, but when you look at Grande Prairie, it went from 3 months free to 0 literally overnight. So demand took over. So demand is better than it was last year. So we are not expecting a lot of pushback on the 3 to 2 and 2 to 1, particularly, as Sam mentioned, as we're investing back in the properties and the customer sees the value that we're putting in.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [48]

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Great. Okay. And then just on the expense side, I think Matt asked a question on that side as well. But just within the apartment space, we do tend to see variability in kind of the same-property expense numbers quarter-over-quarter. So in your example, this quarter, Edmonton, I think, was down almost [1%]. Last quarter, it was up 1% year-over-year same-property expense. Looking forward for a portfolio. What do you think is just generally like a good expense growth number to think about? Like is it inflationary type cost increases from this point forward?

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [49]

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Yes. I think Q3, on the operating expense line is a good go-forward because in the last year, we've been focusing on getting better at operations, streamlining our teams, focusing internally on doing a better job. Off side of that, obviously, is going to be utilities going into Q4 and property taxes, as William mentioned as well too. But Q3 is a good run rate. The Saskatchewan posted some good numbers. Unfortunately, they had a couple of large expenses in Q1 and Q2 of this year that pushed their numbers into negative. But Q3 was a clean quarter for them and they posted 8% NOI growth.

So it's really moving forward, a good run rate to look. There always will be some choppiness. No ifs and buts about it. So we do want to focus on the year-to-date numbers, but I put a heavier weighting on Q3 than I would on Q1.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [50]

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Understood. Okay. And then you've also highlighted the effective streamlining to date in terms of the employee count and whatnot. Is this a pretty good kind of go-forward level for you as the economy in Alberta gets better and demand gets better in terms of...

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Roberto A. Geremia, Boardwalk Real Estate Investment Trust - President [51]

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I think we're even looking it to become better, to be honest with you. I think there's more efficiencies that we can strive on. We're very proud of our team that are doing the same amount of work, if not more than they did 12 months ago with 10% less human resources. But we do think there's more efficiency that we can drive, and we're always looking for it.

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Sam Kolias, Boardwalk Real Estate Investment Trust - Chairman & CEO [52]

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Mario, we're seeing big success in combining positions. And an example is a Resident Manager that's also a cleaner and does some landscaping roles as well. So where we used to have 3 individuals, we've got 1. So there's a perfect example. And the 1 individual is a Manager, and we've increased the pay of that individual and offering them a much better remuneration and share in the savings of the other 2 positions that we no longer need and use. So that's a perfect example, and we're rolling that out across our entire portfolio because it's been very successful to date and working really, really well. And managers come with more flexibility, and that's another big discovery is flexibility. We have to be where and when our resident members want us to be. There's no use having somebody sit in an office when there's nobody or any need for that person to just sit in that office. And so we're seeing a lot better service levels as a result of the flexibility of our team being where our resident members and when our resident members need our team to be.

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Operator [53]

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Your next question is from Brendon Abrams from Canaccord Genuity.

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Brendon Abrams, Canaccord Genuity Corp., Research Division - Analyst of Real Estate [54]

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Most of my questions have been asked. But maybe just following up on Mario's question with respect to cost control. Obviously, down quite significantly this quarter, year-over-year. Maybe you can just provide maybe 1 or 2 examples of how you're able -- you're managing the portfolio with a headcount that looks to be about 10% down. You talked about maybe combining positons. But maybe just 1 or 2 examples there.

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Sam Kolias, Boardwalk Real Estate Investment Trust - Chairman & CEO [55]

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Let's say, Skygate, one of our communities here. We've got an amazing new manager, Frankie. He's helping with the cleaning, the landscaping. He's very flexible in his time. That is a perfect example of a combination. We've got Breton Manor in Edmonton is another example where we've got an amazing new associate that is doing a number of roles. And we can go on and on in these examples.

The one big, big change that we've made, Brendon, is we've graphed and used data analytics and graphs and pictures and colors, as we discussed before, to show our entire team. So we've got everybody's eyeballs on our expenses. And when everybody is focused in on our expenses, it's a whole lot more efficient than having leaders only look at our budgets and our expenses. So the magnifying glass is on our expenses. Everybody is looking and asking one another how we can do more with less. A good example, the other day one of our painters called us up and said, "We're using all these green garbage bags to preserve our paint rollers and painting brushes for the next day, so we don't have to waste water and wash them." And a good example was we could replace all these garbage bags we're using and throwing away with Tupperware.

And one of our -- Lawrence from Red Deer called us up the other day and shared his savings -- idea on savings on all these garbage bags we're throwing away by buying Tupperwares to enclose our rollers and our paint brushes overnight. And he says they even last over an entire weekend. These Tupperwares are so airtight that Monday, we come into work and we use the same rollers and brushes without the expensing of these garbage bags. Same thing with our cleaning supplies, where -- it's just -- it's all nickels and pennies and dimes, to be honest. It's -- our eyedropper, where we walk around with an eyedropper that we use to spend our capital with.

And so everybody's really got to get all the credit for all these savings because everybody is coming up with amazing ideas. And again, we can't give enough credit to our entire team. We can stress that, but we're still never going to be able to give enough credit to our entire team, who's more cost conscious than we've ever, ever been.

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Brendon Abrams, Canaccord Genuity Corp., Research Division - Analyst of Real Estate [56]

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And maybe on just this topic of employee engagement and whatnot. As the economy recovers, is there a risk that this put pressure on staffing in terms of turnover or wage inflation and you could see costs related to that reverse?

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Sam Kolias, Boardwalk Real Estate Investment Trust - Chairman & CEO [57]

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Well, when the economy -- again, there's always a hedge that offsets a stronger economy with stronger occupancies and reduced incentives. Incentives are still the biggest line item in our revenue and profit and loss statements in our entire financials. And so that's a big, big line item that can offset wage and cost pressure when the economy does turn around and the job market tightens and improves. So we do have a natural offset, Brendon.

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Brendon Abrams, Canaccord Genuity Corp., Research Division - Analyst of Real Estate [58]

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Maybe just on the topic of buybacks. Clearly, fundamentals continue to improve in your core markets. And I'm just taking a look at Slide 50. So you're highlighting the value. Even with the stock up today, there's still about 30% discount to your IFRS NAV. You have liquidity, clearly believe in the long-term prospects of Alberta. Not necessarily doubling down, but why not make buybacks, at least a partial mix of your capital allocation strategy going forward? Maybe you could just provide some color on this.

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Sam Kolias, Boardwalk Real Estate Investment Trust - Chairman & CEO [59]

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Well, the slides we shared with respect to the repositioning and our improvements in our community are double-digit returns that quickly provide exceptional performance and delivery on that investment. And so our investment with respect to our value-add program is exceptional. There is no better return than our value-add investment at this point in time.

The other positive is it improves our community and the value proposition to our residents. And a buyback will not improve the level of service, it won't improve our experience and it won't improve our common areas like our value-add program will.

And so we believe providing the most exceptional product quality and investing in our residents' homes is by far the best investment. And our results really reflect that, Brendon. Our growth in FFO per unit is really a very strong reflection of the success of our value-add and repositioning efforts that our entire team is working tirelessly on delivering. And so it really makes a difference. It's timeless, provide the best product quality, service and experience. And our residents will reward us and continue to. And that's really the biggest reason we continue to focus in on our value add and improvement in our communities more than anything else.

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Operator [60]

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Thank you. There are no further questions at this time. I will now turn it back over for closing comments.

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Sam Kolias, Boardwalk Real Estate Investment Trust - Chairman & CEO [61]

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Thank you, operator. We would like to end this call by thanking again our amazing team, loyal residents and to all our stakeholders. We are pleased with the improving rental market fundamentals, the exceptional value we continue to provide our residents and investors and for the continued great service of our entire team. Thank you, again, for joining us this morning. We hope you have a great day and God bless.

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Operator [62]

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Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.