Macquarie Mexico Real Estate Management SA de CV

OTC:DBMBF

Earnings Call Transcript 2023-Q2

[Operator]

Good morning. and welcome to FIBRA Macquarie's Second Quarter 2023 Earnings Call and Webcast. My name is Camilla and I will be your operator for this call. [Operator Instructions] I would now like to turn the conference over to Nikki Sacks. Nikki, please go ahead.

[Nikki Sacks]

Thank you, and thank you for joining FIBRA Macquarie's Second Quarter 2023 Earnings Conference Call and Webcast. Today's call will be led by Simon Hanna, our Chief Executive Officer; and Andrew McDonald-Hughes, our CFO. Before I turn the call over to Simon, I'd like to remind everyone that this presentation is proprietary and all rights are reserved. The presentation has been prepared solely for information purposes and is not a solicitation of an offer to buy or sell any securities.

Forward-looking statements in this presentation are subject to a number of risks and uncertainties. Actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. These forward-looking statements are made as of the date of this presentation. We undertake no obligation to publicly update or revise any forward-looking statements after the completion of this presentation, whether as a result of new information, future events or otherwise, except as required by law.

Additionally, on this conference call, we may refer to certain non-IFRS measures as well as to U.S. dollars, which are U.S. dollar equivalent amounts, unless otherwise specified.

As usual, we've prepared supplementary materials that we may refer to during the call as well. If you have not already done so, I would encourage you to visit our website at fibramacquarie.com and download these materials. A link to the materials can be found under the Investors Events and Presentations tab. And with that, it is my pleasure to hand the call over to FIBRA Macquarie's Chief Executive Officer, Simon Hanna. Simon?

[Simon Hanna, executive]

Thank you, Nikki. Good morning, and thank you for joining us. On today's call, we will discuss our second quarter 2023 results and our growth initiatives. Andrew will also provide an update on our balance sheet, robust capital position and our outlook for the remainder of 2023. I am pleased to report that we have delivered another strong quarter of results, reflecting the continued execution of our strategy which combines the delivery of reliable organic growth from our in-place portfolio as well as contributions from our accretive development program.

The true earnings momentum of our portfolio is demonstrated by our results in U.S. dollars, which mainly strips out the FX volatility. In the second quarter, we saw NOI per certificate increased by 15.5% in U.S. dollar compared to the prior year period, reflecting continued increases in occupancy and rental rates.

These results as well as our continued investment program are supported by ongoing favorable nearshoring tailwinds and the demand for well-located, high-quality industrial properties. With 80% of our industrial ABR generated in [ border ] and Northern markets, FIBRA Macquarie remains in a prime position to capture this demand and growth opportunity.

Since we embarked on our industrial growth CapEx strategy, we have leased approximately 1.3 million square feet of development GLA with an average yield on cost of 11.4% and development profits of approximately 60%. We are proud of our development platform, which has already created meaningful value and has additional runway. As of quarter end, we had 7 industrial buildings under stabilization or development comprising 2 million square feet of future GLA representing a 6% increase in our industrial footprint.

This includes 1 new construction start in our Apodaca Industrial Park of 200,000 square feet, which we anticipate to be completed in the first half of 2024. Key to our strategy is a focus on capturing nearshoring opportunities and the demand for logistics space in key consumption markets.

We have already demonstrated a successful development track record and we are optimistic about our ability to grow both GLA and per certificate earnings through the ongoing execution of our strategy. In addition to expanding our scale and leveraging the FIBRA Macquarie platform, we have diversified our customer base and deepened our relationship with existing tenants.

An example of this is the lease-up of our 0.5 million square foot industrial facility in the strategic logistics corridor of [indiscernible] that we closed in the second quarter. The building will be occupied by a leading e-commerce retailer for fulfillment operations and has a projected year 1 NOI of approximately $4.4 million. This represents an 11.8% development yield on cost, which is a meaningful spread to the 30 June independent appraisal -- that implies a cap rate of 6.5%.

We are also continuing the development of our multi-building complex in Juárez with the first building on track to be delivered by year-end. Additionally, in Tijuana, we are working to complete the first phase of a multi-building project, with the initial 400,000 square foot building scheduled for completion in the first half of 2024. With the largest industrial development pipeline amongst our FIBRA peers, we continue to demonstrate our ability to harvest and execute on industrial opportunities that are driven by the growing levels of demand for high-quality space supported by the broader regional elevation and nearshoring themes.

We have a strategically timed pipeline of construction deliveries in markets with high demand and low vacancy which will contribute to per certificate earnings growth in the coming quarters. While these existing land reserves and industrial parks contemplate varying time frames and phased multiyear deliveries, combined, they represent a total potential GLA contribution of 5 million square feet, which will increase FIBRA Macquarie's industrial footprint by 16%.

Additionally, for all of our new construction, we remain committed to our sustainable building practices. We seek to deliver attractive returns whilst making a positive impact in our local communities as well as designing and constructing buildings that are built to superior environmental standards. This aligns with our commitment to build to a minimum gold level certification standard in accordance with the U.S. Green Building Council's LEED program as well as to execute leases in accordance with FIBRA Macquarie's Green leasing standards.

With regards to our operating portfolio, as at 30 June 2023 Green Building certification coverage on FIBRA Macquarie consolidated portfolio increased to 34.8% of GLA. In addition to our development growth initiatives, we continue to see rental growth play an important role in the contribution to NOI with both our industrial and retail average rental rates increasing by more than 7% year-over-year.

This, coupled with record consolidated occupancy of 97.5%, driven by industrial occupancy of 98.4%, represents a favorable dynamic for our business. With essentially full occupancy in our key markets, we believe we will continue to achieve rent growth over time. The resiliency of our portfolio was also demonstrated by a record quarter of low move-outs and the execution of 13 lease renewals comprising 900,000 square feet, driving an all-time record quarterly retention rate of 97%.

To help better communicate our lease construct and projected earnings, we continue to provide enhanced disclosure in our supplemental information, which includes details on our re-leasing spreads, rental rate increases and escalators. This shows how we benefit from a mix of index-linked escalators and commercial negotiations which provides for a balance of stable increases and upside opportunity in this favorable market.

In particular, for our operating portfolio, we benefit from rental rate increases from contractual escalators 61% of which are linked to CPI, up 240 basis points over the last 12 months as we have been implementing additional enhancements through our leases upon renewal, including increasing the proportion of uncapped CPI-linked escalators.

With regards to our Retail portfolio. NOI increased 21% with cash collections and trade receivables further improved. During the quarter, we signed 62 new and renewal leases totaling 40,000 square meters of GLA. Leasing highlights included the new lease for a Smart Fit gym and record renewal activity, including 2 grocery-anchored tenants. We are pleased with the continued strong performance of our portfolio, and I want to thank the entire FIBRA Macquarie team for their valued contributions.

As we look ahead, we anticipate sustained solid performance through the combination of organic rental rate growth and the leasing of our upcoming development completions, all supported by a solid balance sheet position, which Andrew will discuss. Andrew?

[Andrew McDonald-Hughes, executive]

Thank you, Simon. For the second quarter, we delivered AFFO per certificate of MXN 0.6519 or [ USD 3.68 ] which represents a 10% increase on the dollar basis from the prior year. As Simon noted, our balance sheet remains well positioned with prudent leverage metrics and strong liquidity to support our growth strategy.

As of 30 June 2023, our real estate net LTV was 33%, and our net debt-to-EBITDA multiple was 5.1x. Taking into account committed undrawn credit lines and surplus cash, FIBRA Macquarie has available liquidity in excess of USD 315 million. As you may have seen from our prior announcement, we completed a $250 million refinancing, which includes 2 new unsecured credit facilities, which were used to prepay our highest priced U.S. dollar debt that was maturing this year.

These new facilities meaningfully extend maturities and incorporate a green building certification goal while significantly increasing the sustainability and green financing linked portion of drawn debt to 58.2%. Alongside these financings, we entered into new interest rate swaps, and our proportion of fixed freight debt is now 95.7%.

FIBRA Macquarie's annual cost of funding has been reduced to 5.5%, and we have increased our maturities to an average of 4.6 years. Importantly, our published cost of debt also includes all withholding taxes where applicable and is not subject to scheduled extension fees or margin step-ups during the term of our facilities.

Our results incorporate an updated independent appraisal, which drove NAV a certificate growth of 3% sequentially to MXN 41.1. This reflects a valuation uplift of USD 260 million from the end of 2022. These valuations imply an in-place capitalization rate of 7.8% for the industrial portfolio and 9.6% for the retail portfolio. This higher valuation contributed to an improvement in our real estate net LTV, which was down 176 basis points sequentially, further enhancing our financial flexibility.

In line with the release of our quarterly results, we declared a second quarter distribution of MXN 0.5250 per certificate in line with guidance. In addition, we are reaffirming our full year distribution per certificate guidance of MXN 2.1, which is a 24% increase year-over-year in underlying USD terms as we continue to deliver earnings growth and execute on our organic and growth CapEx strategy.

Finally, we are updating our AFFO guidance for the year to a range of MXN 2.53 to MXN 2.58 per certificate from the prior range of MXN 2.6 to MXN 2.65. This updated expectation is driven entirely by the appreciation of the Mexican peso against the U.S. dollar, which impacts our financial results on a peso basis due to our highly dollarized cash flows.

Our expectations for full year AFFO on a U.S. dollar basis remained consistent with our prior guidance. With ongoing growth in natural currency cash flows, a well-positioned balance sheet and a robust development pipeline, we are well positioned to continue executing on opportunities to deliver value to our investors.

I want to thank all of our stakeholders for your ongoing support. With that, I will ask that our operator open the phone lines for your questions.

[Operator]

[Operator Instructions] Our first question comes from Rodolfo Ramos with Bradesco BBI.

[Rodolfo Ramos, analyst]

Congratulations on the results. I have a couple, if I may. My first one is when you look at your GLA in the land bank. I mean, a big part of it is in some markets that are considered to be sold out or have vacancies very close to 0. I mean -- do you have any limitations, you would say or bottlenecks, let's say, that would impact the time line for you to develop this or negatively impacted in any way?

And then secondly, from perhaps your conversations with clients, I mean how are you seeing these double-digit rent lease adjustments that we saw for the industrial portfolio and mid-single digits for the retail portfolio. How do you see those perhaps in the next 12 months?

[Simon Hanna, executive]

Yes. Thanks, Rodolfo. Addressing those questions in turn. I think in terms of the build-out of our land reserves, as you rightly note, they're really in the core markets that we want to be increasing our footprint. And so that's something we feel really good about in terms of our additional GLA coming into really strong markets in the coming years.

As we think about that in terms of bottleneck, et cetera, I think from a -- I guess, a technical energy infrastructure type perspective, nothing really from our perspective that, that concerns us in terms of not having any line of sight on feasibility or electricity, et cetera. So I think we feel good in terms of the actual physical real estate development. I think where we sort of look more in terms of cadence is obviously just managing our capital management strategy at a prudent level.

So we have that target of 1 million to 1.5 million square feet of GLA per annum. That's around $100 million of growth CapEx that we're putting out the door every year to get that GLA. So I think that's -- that's really the cadence that we're managing the rollout of that GLA addition, if you like, to make sure we're matching our capital management strategy and putting in the buildings into markets that continue to have those strong dynamics.

So that's the way we're looking at that. With regards to rental rates and re-leasing spreads, very happy again with what we saw in Q2 as you say, sort of a -- sort of around about a 10% print on industrial and also seeing a nice uptick there on retail. So -- we think that's a continuation again of what we've been seeing for a number of quarters now. So definitely, both portfolios, retail and industrial, benefiting from pretty sustained momentum. Bounce back more so in retail, but definitely very strong nearshoring driven fundamentals in industrial, we believe are helping those type markets accommodate those type of re-leasing spreads.

As we think about it going forward, we're always cautious in terms of overpromising. But we do think that when it comes to industrial, again, I think the -- given the tight markets and the rollover that we have mainly in those sold-out markets, we do believe there's potential to keep on a similar dynamic in the second half of the year and beyond. So long as there's no fundamental change in market conditions, and there's nothing to suggest that there will be, we do think that there's good tailwind to continue that type of momentum in retail. It's a little bit more patchy you could say, but certainly, the increase has been there this quarter.

And we do think that what we've been seeing in the last few quarters, which is a sustained gradual recovery. We do think that, that set up again to be there in the second half of the year and into 2024, particularly given the strength of the Mexican retail consumer. So hopefully, that will help carry along a similar type of trajectory to what we've seen in the last quarter or 2.

[Rodolfo Ramos, analyst]

I don't know if I may squeeze a third one here. Do you see the Mexican peso, I mean, thinking about your commercial activities on new projects, et cetera, do you see the strength of the Mexican peso being a headwind or a part of -- or even part of the conversation?

[Simon Hanna, executive]

Yes. I guess in general, we -- there's some positives and some negatives to it. Certainly, when we think about the more immediate impact potentially at the manufacturing for export customer level, it's not necessarily a good thing in terms of competitiveness. But then again, this is a 7-year high.

And certainly when we think about what FX was like even before then or since then. Mexico manufacturers have proved to be competitive. So we do think that a little bit of a deterioration in competitiveness, but not enough to really alter the overall level of activity and the competitiveness relative to other locations to really sort of put that off [indiscernible].

So nothing there that necessarily concerns us. I guess with regards to retail, again, I think we're seeing strong remittances. We're seeing other factors that are driving that peso appreciation. But again, we don't really think that's necessarily going to be a driver on overall retail demand supply.

[Andrew McDonald-Hughes, executive]

I think maybe to complement, Simon, from my perspective, the addition here is that from our specific business model and our strategy, we're naturally hedged with a significant component of our incoming dollars. We have a small component of expenses in pesos. And so really, the underlying transposition to our results is really just a matter of translation, if you like, or FX impacting from a presentation standpoint. We see no impact in terms of how that may transition through to impacting our overall ability to execute on our strategy.

[Operator]

And our next question comes from Hugo Grassi with Citibank.

[Hugo Grassi B. Soares, analyst]

Congratulations on the results. So your yield on costs have continued to be particularly high almost at 12% and the market seems to be leasing new supply at great speed now. So given this backdrop, how do you see the trade-off of accelerating the development speed but potentially having to decrease payouts a bit. So if we could put it another way, another way of saying would be our reinvestments more accretive than distributions at the moment.

[Simon Hanna, executive]

Yes. Thanks, Hugo. I think that's the right type of questions to be asking, how do we maximize the opportunity in front of us. So for us, we've always had that vision to have a sensible AFFO payout ratio, which provides a good balance of distributions to investors, but also allows us to retain an element of our operating cash flow to reinvest into those accretive opportunities. So when we think about how we maximize the opportunity on development, certainly, we want to get that balance right, keep that retained AFFO where we're putting them into accretive investments, 9% to 11% yield on cost and hopefully a bit higher now and then, as you say, that, along with the ability, with a strong balance sheet, strong liquidity to also complement the retained AFFO, maintaining that 35% LTV is where we want to be.

So as I say, we more or less get to our strategy of $100 million per annum, that 1 to 1.5 million square feet of GLA between that combination of retained AFFO and that drawdown, and we do get the benefit of increasing assets, particularly on using the development profits, which have been very impactful for us as we've realized those gains for investors to help moderate the LTV outcome at that 35% level.

Today, we're at 33%. So very happy with the capability and the flexibility that we have to continue with our strategy.

[Operator]

And our next question is from Gordon Lee with BTG.

[Gordon Lee, analyst]

Just a couple of questions. The first I've noticed there's been a little bit of slippage in terms of delivery dates for some of the properties under development. I was wondering whether there's sort of any common thread there? Or are there more sort of ad hoc specific issues in each of those properties.

And the second question is thinking about the potential for extraordinary dividends again, just given what's happening with the FX. Other fee would have discussed or sort of said that they may consider paying distributions in kind and CBFIs for that amount in excess of the cash distribution that would come from sort of normal net income. I was wondering what your views are on that.

[Simon Hanna, executive]

Yes. Thanks, Gordon. I'll take the first one, and then Andrew, I guess, can also consider the extraordinary distribution. I think overall, we've been actually very happy with the rollout of our development program. We have seen a little bit of slippage there in the Mexico City development properties and actually really, that's very much reflective of the fact that we did actually lease up the e-commerce tenant quite a meaningful move in 0.5 million square feet, but also that does come also with an amount of tenant works in there.

So that's spent that we're just in the process really of completing that, which is more of a sort of a third quarter type delivery date. So through to the second half of the year, we will see that probably being out of into GLA, but it's really just reflective of the fact that we've had a great leasing outcome. And then we're sort of taking into account the tenant requests there to have a full and complete delivery just a little bit later than expected.

But from an ultimate leasing and NOI contribution point of view, it's actually exactly where we want to be from an underwriting point of view. And as we've done that, given that we also have our second property adjacent to the 0.5 million square feet, we have a second -- a 200,000 square foot building under construction. We're really just prioritize resources to accommodate the full fit out of the 0.5 million square foot property.

And again, I think the marketing and delivery of the second property, a little bit later than expected as a result, but actually nothing that will fundamentally change our lease-up profile.

[Andrew McDonald-Hughes, executive]

Perhaps jumping to the second point on the extraordinary distribution. I think as you rightly point out, the appreciation of the peso has had a meaningful impact and will have a meaningful impact to a number of issuers across the sector. In our case, we maintain ample liquidity to be able to fund that extraordinary distribution should that arise based on year-end FX. We're still a fair way out from that point in time to be able to determine the actual magnitude of what that might look like. As you may recall, in March of this year, we did pay out the full distribution or extraordinary with respect to FY '22 in cash.

We're cognizant of some of the conversations with the authorities and varying strategies that some of our peers are considering equally. We're also sort of considering and understanding those fundamental importance obviously, is to continue to maintain our FIBRA status and be able to comply with the regulatory obligation, but we'll certainly consider those options as we get closer and as we're able to better quantify the ultimate impact and what that might look like for a full year '23.

[Operator]

And our next question is from Francisco Suarez with Scotiabank.

[Francisco Suarez, analyst]

Congrats on the wonderful results. The question that I have for you is that I saw a little bit of pressure on margins. Can you elaborate a little bit on what drove the pressure on same-store NOI margins and you can also explain a little bit on how you're seeing the market at this moment in the sense that if building additional TIs is part of the conversation that allows you to have better rent growth going forward and the economics behind that?

[Andrew McDonald-Hughes, executive]

Thank, Paco. Thanks for the question. I'll take your question on the margins and then pass over to Simon to comment on the rental rate and TI question. With respect to margin, I think we've got 2 factors really at play here. One is that we've seen a little bit of catch-up in some of the repairs and maintenance expense that's coming through. And so there was a sort of a softer deployment versus the prior period.

And so we've seen a little bit of a catch-up there. We also -- I think bad debt expense is another area to take a look at where we have very strong recoveries, particularly in the prior year, which was a very positive impact in margins and actually was -- has a positive expense, if you like, for lack of a better description. So I think we're fairly comfortable. I think that the slippage is marginal in our mind and explainable. But we certainly think that the territory that we're tracking in at the moment between the first quarter and the second quarter is sustainable and the right area that we'll be going forward.

[Simon Hanna, executive]

Yes. Thanks, Andrew. And I guess just picking up the TI question, Paco. As you're familiar, our portfolio is heavily oriented in the northern part of Mexico, which is essentially a manufacturing for export market. And so that typically comes with tenants who want or need a little bit more TI, than perhaps, if you like, logistics type tenants. And that's something where we're used to, something where we're comfortable with and something that I guess we use tactically as part of the lease negotiation.

So in that respect, TI is something in general that we like that generally amortized through the term of the lease, we tend to get a nice return on the TI. And also, it just means that from a, I guess, a retention point of view, it's a stickier type tenant where there's been a bit more investment really all around, whether it's with us and with the tenant themselves. They've got investment in the buildings and it just makes it for a, I guess, a stickier tenant. We're seeing retention rates remain strong.

And as markets continue to tighten, it becomes an even more difficult thing to contemplate a move out once you've got that investment in the building, let alone whether you can find another one. So overall, we -- yes, we do use TIs, I guess, as I say, tactically, but something that we're very comfortable with for the reasons I just mentioned.

[Operator]

[Operator Instructions] Our next question is from Juan Macedo with GBM.

[Juan Pablo Macedo Carrillo, analyst]

Congrats on the results. My question is regarding the Retail segment. We saw a strong quarter. We were wondering if you could give us some color on what dynamics are you seeing here today, continue in the coming quarters? Or what are you seeing?

[Simon Hanna, executive]

Yes. Thanks, Juan. Yes, really happy with the 20-plus percent NOI year-over-year. I think it's representative of what we've seen in the last couple of quarters, in fact. So I'd say, in general, what we're seeing is good solid performance. We have a resilient portfolio that's based in the main consumption markets of Mexico with necessity-based type tenants as the anchors and the key tenants.

So that provides for a very stable operating platform to begin with. We do believe that the mix in the retail centers has also proven to be the right mix today and going forward. So apart from the supermarkets, we've got the format of cinemas, gyms, restaurants and other stores, which together makes for a great combination where more and more so these are sort of lifestyle experience orientated centers to complement the necessity-based elements.

So that's a really good balance that we have today and that we think we'll be working for the long run. I guess in terms of what we're seeing sort of across the segments, I think we're being particularly pleased with, I guess, gyms bouncing back. We've done a lot of renewals and new leasing there. So it feels like gyms sort of have come back being one of the more heavily impacted components from COVID.

Cinemas, I think it's still a little bit dependent on the releases coming through quarter-on-quarter. So still seeing, I would say, room to improve compared to pre-COVID numbers, whether it's on attendance or sales. But hopefully, Barbie and a couple of other releases will help you get along in the second half of the year.

Otherwise, I think in the main supermarkets tend to be doing very well based on where we're seeing their sales and the restaurants and other small shops. So again, I think we're in a much healthier position than where we were going through COVID. So definitely through the rent discounting phase and what we've actually seen is a good uptick, I should say, in cash collections. Provisioning for doubtful debt has really been in the last few quarters, which I think is a good indication of where we're at with tenant health. And the other one is on renewal spreads, where we've seen again, positive motion there, complementing the full pass-through on our annual Mexican CPI uptick in the escalators and I'm not really having to do any negotiation on that for any material amount.

So that's a general sign to us that there's a good level of health in the customer base, and we've also benefited as a result from some of that variable income, where there's been an important increase in both car parking income and sales-related income, that's come along at a really healthy double-digit rate alongside the base rent income.

So from our point of view, very happy with the gradual recovery in the last couple of quarters. And looking ahead, we'd like to think that there remains upside opportunity overall between occupancy, rental income, NOI as we continue to recover in a fairly healthy market backdrop.

[Juan Pablo Macedo Carrillo, analyst]

That's great detail. And just a quick follow-up. Have you ever considered doing a spin of the retail portfolio or maybe any M&A activity in the segment?

[Simon Hanna, executive]

Yes. Thanks for that, and I think in general, it's not something that we're looking at. For now, we like what we own. We're enjoying the bounce back on NOI and occupancy. And that's really where our focus is on maximizing that operational performance. Looking down the track, there may be an opportunity there where we continue to see valuations and operational performance maximized. And maybe there's an opportunity down the track to think about something. But for now, our sole focus is really just to maximize operational performance and enjoy the benefits of what we're seeing in terms of NOI contribution.

[Operator]

And our next question is from Alan Macias with Bank of America.

[Alan Macias, analyst]

Just a quick question on building requirements from potential new tenants. Has this changed? Or has -- have you seen new requirements regarding buildings or infrastructure? And any change in requirements of these contracts?

[Simon Hanna, executive]

Thanks, Alan. I'll say a couple of points there. In the main, no real change in terms of tenant requirements for a move-in or renewal. I think it's the typical thing that you'd be expecting to make sure there's the electricity of the infrastructure and making sure we have the right amount of air changes, et cetera, et cetera. So I would say nothing new that we're seeing as a trend on the core requirements.

I would say, though, that from an ESG point of view, we've got a strong focus on LEED in the development and Edge as well as a certification in the existing industrial and more and more, I think, once tenants are realizing that we're building to lead gold or above, it does become something which provides an additional incentive and way to attract the premier class of tenants who really want to be in those buildings for their own purposes as well.

So that's something, I think, which is becoming, I think, a requirement more than a nice to have is to make sure you have your best-in-class screen buildings there, ready to deliver to the most institutional type of tenants who value that most, and that's going to be an ongoing focus for us for sure.

[Operator]

Thank you. There are no further questions at this time. I'd like to turn the floor back over to CEO, Simon Hanna, for closing comments.

[Simon Hanna, executive]

Thank you, Camilla, and thank you for everyone in participating in today's call. We look forward to speaking with many of you over the coming days and weeks as well as updating you again soon at the end of the third quarter. Thank you.

[Operator]

Thank you. This conference has now concluded. Thank you for joining our presentation today. You may now disconnect.