BRP Group, Inc.
Q1 2015 Earnings Call Transcript

Published: 3 May 2015

[Operator:]

Thank you for standing by. This is the Chorus Call Conference operator. And welcome to the Brookfield Residential Properties 2015 First Quarter Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. [Operator Instructions] At this time, I’d like to turn the conference over to Mr. Alan Norris, President and Chief Executive Officer. Please go ahead, Mr. Norris.

[Alan Norris:]

Thanks, Joe. Good morning, everyone, thank you for joining Thomas, Craig and myself for Brookfield Residential Properties 2015 first quarter conference call. This call is intended for current holders and beneficial owners of Brookfield Residential’s debt securities as well as prospective investors, securities analyst, market makers and other interested parties. I would, at this time, remind you that in responding to questions and in talking about new initiatives and our financial and operating performance, we will make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and US securities laws. These statements reflect predictions of future events and trends and do not relate to historical events and subject to known and unknown risks and future events may differ materially from such statements. For more information on these risks and their potential impact on our company, please see our historical filings with securities regulators in Canada and the U.S. and the information available on our website. In March 2015 Brookfield Asset Management completed the privatization of our company, acquiring the 30.6% of our shares it did already own. And pleased to report of the going private transaction went very smoothly and however we are no longer a public company little else has changed in which we operate. We remain focused on opportunistically generating volume from our sizable aligned portfolio. Our U.S. operations enjoyed a strong start to the year with housing orders up more 58% compared to the same period last year. The amendments to mortgage rules and the reduction in FHA premiums are starting to have a positive impact on our markets. These results reflect a continued recovery in the U.S. housing market and our success in building innovative and relevant housing options to buyers in each of our markets. Sales in Canada were generally stable year-over-year with solid demand in the Edmonton and Toronto markets while lower oil prices resulted in a reduction activity in Calgary’s energy driven market home prices remained healthy across most of our Canadian operations, particularly in the affordable sub-sector of the market that target in Alberta. As we move forward we are encouraged by the strong spring selling season and the overall level of demand we are seeing this is particular the case in the U.S. market where we see favorable long-term macroeconomic factors such as constraint supply, continued job growth, and barrier to entry. In Canada we expect the combination of low interest rates in loans supply constraints in the major urban areas such as Toronto will continue to support current pricing. With 105,000 lots controlled approximately half of which already entitled we are well positioned to respond to these positive market fundamentals. Our intention is to reduce our land inventory to eight to ten years supply overtime and we’ll use the additional cash flow generated by this strategy to service debt and other initiatives including the expansion of our home building operations. In February 2015 we announced the acquisition of Grand Haven homes and established homebuilder in Austin, Texas. This acquisition allows us to increase our presence in the Austin market where we are bringing two existing communities to the market. We expect open a net eight new communities during 2015 with much of the financial impact of these openings to be reflected in 2016 and beyond. Adjusting for communities projected to sellout in 2015 we expect to end 2015 with approximately 69 communities in active selling phases including our unconsolidated entities. Assuming market conditions continue our outlook for 2015 is positive and we are laying the ground work for continued improvement in the future. I will now pass the call to Craig to speak to our financial results.

[Craig J. Laurie:]

Thank you, Alan. Brookfield Residential had strong operating results in the first quarter of 2015. The decrease of $38 million in net income attributable to Brookfield Residential for the three months ended March 31, 2015 compared to the same period in 2014 was primarily the result of $24 million of share based compensation cost and $2 million of legal, professional cost incurred with a privatization transaction now occurred in the first quarter of 2015 as well as the decrease in the gain on commercial asset sale $33 million in 2014 when these two items are excluded income before income taxes on a pro forma basis would have been approximately $18 million for the first quarter of 2015 versus $2 million for the same period in 2014. With this increase driven primarily by a $15 million increase in gross margin as a result of higher land and housing margins. In terms of our housing operation revenue and gross margin increased to $214 million and $51 million respectively for the first three months of 2015. This compares to $164 million and $38 million for the same period in 2014. The year-over-year improvement reflects a 27% increase in home closings with increased closings across all operating segments as well as a 3% increase in the average home selling price when compared to the same period in 2014. In Canada the first quarter housing revenue increased $6 million when compared to the same period in 2014. This resulted of 47 additional home closings partially offset by 10% decrease in average home selling prices in the current period. The decrease in the average home selling prices attributable to primarily the product mix with higher proportion of home closings coming from the Edmonton market. As a result of increased closings in the lower average selling price gross margin remain consistent for the three months ended March 31, 2015 when compared to the same period in 2014. Our California segment had housing revenue of $96 million for the three months ended March 31, 2015 an increase of $28 million when compared to the same period in 2014. The increase in revenue is due to a 22% increase in the average home selling price and 12 additional home closings for the three months ended March 31, 2015 compared to the same period in 2014. Gross margin increased $11 million when compared to the same period in 2014 as a result of the increase in the average home selling price which was primarily driven by product mix where a large proportion of homes closed in 2015 were higher priced homes with selling prices over $1 million in our Southern California community. Turning to the Central and Eastern U.S. segment housing revenue increase$16 million for the three months ended March 31, 2015 when compared to the same period in 2014 as a result of increased activity and the acquisition of grant – homes which led to 33 additional home closings. Our Austin, Texas market had 23 home closings compared to no home closings in the same period in 2014. Gross margin increased $2 million when compared to the same period in 2014 due to higher home closings as well as higher average selling price. The increase in the average home selling prices due to product mix of the homes closed of different communities across the operating segment when compared to 2014. As at March 31, 2015 the backlog of housing units including our share of unconsolidated entities increased 10% to 1,370 units while backlog value increased 3% to $644 million when compared to March 31, 2014. Land revenue increased to $63 million for the three months ended March 31, 2015, up $19 million from the same period in 2014. Land gross margin increased $2 million to [indiscernible]. The year-over-year improvement in land revenue and gross margin was due to 111 additional single family lot closings and 16 additional multifamily industrial and commercial closings in the first quarter of 2015, compared to the same period in 2014. This was partially offset by a slight decrease in the average lot selling price for the single family lot sale. The change in average lot selling prices reflects product mix between operating segments with proportionally fewer single family lot sales in Canada during the first quarter of 2015. Our land revenue may vary significantly from period to period due to nature and timing of land sale. Revenues are also affected by local product mix and market conditions which have an impact on selling price per lot. Looking at results by operating segment first quarter 2015 land revenue from our Canadian operation was $22 million, a decrease of $16 million from the period in 2014. The decrease reflects the mix of land sold with 109 fewer single family lot sales in 2015 when compared to the same period in 2014 partially offset by 16 additional multifamily industrial and commercial party sales. Gross margin decreased $4 million to $16 million year-over-year this was primarily the result of fewer single family lot closings and lower average single family lot selling prices as well as lower per acre selling prices for multifamily industrial and commercial – sales. Lower average selling prices for single-family lot reflects a higher proportion of lot sales from the Edmonton market which have lower average selling prices in Calgary. In California first quarter land revenue increased by $33 million when compared to the same period in 2014. This was primarily the result of a bulk sale of $178 single-family lots in 2015 compared to land sales in California in the same period in 2014. Turning to the Central and Eastern US segment land revenue increased by $2 million gross margin remain consistent. The higher land sales reflected increase of 42 additional single-family lot sales across the segment partially offset by a 10% decrease in average lot selling prices when compared to the same period in 2014. The decrease in average selling prices were due to product mix with a higher proportion of lots closed in Austin, Texas which has lower selling prices relative to other markets within the segment. Moving to our balance sheet our assets as at March 31, 2015 totaled $3.3 billion, Our land and housing inventory and investments in unconsolidated entities are most significant assets with the combined book value of $2.8 billion approximately 86% of our total assets. Land and housing assets increased when compared to December 31, 2014, due to Grand Haven purchase acquisitions of $80 million of land assets, development activity and stronger backlog, partially offset by sales activity. That wraps up of review of the financial results for the first quarter. Thank you for joining us in the quarter and conference call. I will now turn the call back to the operator who will moderate question.

[Operator:]

Thank you. [Operator Instructions]. The first question today comes from Samuel McGovern with Credit Suisse. Please go ahead.

[Samuel McGovern:]

Hi guys, thanks for taking my questions. I was hoping you guys can give a little bit of an update in terms of what you are seeing in your end markets and specifically into the Calgary Edmonton market. I know last time you guys talked a little bit about the pickup in listings you guys were seeing there for homes and existing inventory, have you guys seen any slowdown there or are things still relative…

[Alan Norris:]

Yeah Sam it’s Alan. Yeah I would say that there was definitely a pickup in listings at the end of the year and going into 2015. That’s has moderated somewhat since then. Obviously we haven’t had any of the spikes but listings are still reasonably high. I mean obviously with all pricing there has been a bit of impact on consumer confidence. It’s probably more impactful in Calgary than it has been in Edmonton. So far we seem to be on track in Edmonton for the most part just down slightly Calgary is down a little bit more we are seeing products in Calgary below $400,000 still going very active, which for our own housing operation is the price point that we are in for the most part. The biggest impact is probably more on lot sales where we are selling lots that are going more to the midmarket, anything sort of 450 to 750. So I would say that product is being hurt a little bit more from a confidence point of view at this point and some of the builders are working through their existing inventory so there is less desire to buy more lots as we speak. But we do think we see things somewhat stabilizing at this moment. most of the -- I am not saying the worry is out of the market by any stretch but I mean there was definitely a bit of shock with -- come from October-November to the first quarter. I think a lot of the [indiscernible] from the oil prices is being recognized and we’ll see what happens to oil prices as we go forward but obviously been a bit more response but it’s too to tell where that volatility has gone forward.

[Samuel McGovern:]

Great that was helpful. And then in your commentary for the quarterly report you guys talked about the buildout of the home builder side of the business and I was hoping you could talk a little bit about where you see that going overtime, how much of it will organic versus acquisition, how much it will be focus in the U.S. versus Canada and over what timeframe?

[Alan Norris:]

Yeah, I think the builder of the housing business and I think we’re trying to do is we believe it was a lot of assets that we currently own, we can get to roughly 5,000 homes a year and also 5,000 lots a year from a point of view of generation of activity. Some of it will -- I would say a lot of the assets that are already in place with respect to accomplishing that and it’s sure is just gearing up housing operations and the initiatives that we took to buy Grand Haven Homes this year really just accelerates an initiative that we were going to take place in Austin already which will startup our housing operation and get ourselves up to roughly 500 units a year. On a simplistic basis we would like to think we can do roughly 500 units a year in all 11 markets. Some will be up from that number some will be a little bit down, so the 5,000 is a bit somewhat generic in that regard. But we can do 500 a year in most of our markets with the existing assets we have but other than we just have to in two markets we have to actually startup our housing operations which would be Phoenix and Sacramental if we were going to do that. But generally speaking we can -- we have the assets in which we can easily do without volume as opposed to selling all of the lots to other parties but we can increase absorptions, still sell to third parties as well as build a home building business ourselves.

[Samuel McGovern:]

Got it, and post the going private transaction leverage has ticked up how do you guys think about leverage on a go forward basis? Are you guys looking at de-leverage [ph] or you guys comfortable where you are at or would you even increase leverage beyond this?

[Craig J. Laurie:]

Hey Sam, it’s Craig. I think if you were to look back, when we first came out after the merger we were at about 58% debt-to-cap. We brought it down to about 42% debt to cap, 43% was probably on the low end for us. Currently the target would be certainly that we would like to get below 55% debt-to-capitalization, that’s gross debt to capitalization but it would be our intention obviously our business has the ability to produce a lot of cash and we would like to bring down the debt levels to some extent. At the same time we talked about before, the way we think about debt is we don’t want to have any debt against our land held for development even if it’s on a notional basis since obviously we use corporate and secured notes.

[Alan Norris:]

I mean I think as the asset mix might change it might fluctuate a little bit Sam but with the mix right now I think we would looking to go from down a little bit just now as we get more into housing it might fluctuate a little bit because that’s more short-term assets but generally speaking we are that in 45% to 55% range based on where we are at today but overtime we should it will fluctuate a little bit but not too much that will happen in my opinion.

[Samuel McGovern:]

Perfect. And then as part of the going private transaction the proxy form you guys filed in January and the forecast you guys provided there when you look at how the last quarter or last three months have progressed and you look at the 2015 estimate you guys provided, how are you guys tracking along your initial expectations, has it been sort on track and how does it sort of look going forward?

[Craig J. Laurie:]

I would say that if we look at our U.S. markets we are tracking, if not slightly ahead in some cases, in our Toronto markets we are probably tracking and slightly ahead, Alberta is probably the one, I mean Edmonton is pretty close to what we predicted, slightly down and I would say that the biggest impact is Calgary. We had one sale that we were planning to sell a particular asset which opportunistically a land sale. We thought it was a right time to sell with the decrease in oil prices that the interest in that asset sort of diminished. So we took it off the market. So that was something that we had built into our projections we’ve now taken off the market. The only other impact I would say with respect to those projections Sam is that our margins have been squeezed a little bit in Calgary. We are not quite sure on the lots sales at this. We’ll see whether that picks up in the latter half of the year and then the only other comment I would make is FX Canadian to U.S. we built those projections around the $0.90, $1 we are now sitting $0.82, $0.83. So was a bit of an FX impact but not an operational thing obviously.

[Samuel McGovern:]

Got it, perfect. I will pass it along, thank you.

[Operator:]

The next question is from Susan Berliner with JPMorgan. Please go ahead.

[Susan Berliner:]

Hi good afternoon.

[Alan Norris:]

Good afternoon.

[Susan Berliner:]

I want to start I guess just going back to Canada and Calgary and Edmonton I was wondering if you could talk about any cancellation you had on the housing side and frankly what your deposits are typically in those markets? And then also on the land sale side if you can just walk us through is it a typical percentage down as well?

[Alan Norris:]

First of all on the cancellation side, I don’t have a split between Alberta and Toronto but we are 1% on the Calgary [ph] from a Canadian point of view. Our cancellation in Canada typically is not that much. I mean in many cases what we’ve got is that in some cases it was only 5% down to some of our borrowers will put up [ph] they will get mortgage insurance et cetera and so it’s cancellation rate has not been that significant even through the last down turn that we had many years ago. It was not a significant issue with respect to that. Your second point was on lot sales.

[Susan Berliner:]

Yeah.

[Alan Norris:]

Yeah I think in the Calgary market specifically the builders I would say are typically would buy, try and buy so they have got some visibility they might have anywhere up to six months of inventory in their hands at any point in time. With the slowdown their view would be right now is that they might have nine months to 12 months of supply if that’s what they if they think the market is slowing down. So the first quarter was really just a bit of a hesitation on their front while we observe some of their existing lot supply that they had already purchased. And so I think things will balance out and we are predicting that obviously we will pick-up through the balance of the year as we adjust to what we think the reality is for 2015. So again I am not too -- not at this point. We’ve seen some price adjustments but mostly through the housing side and we will just have to see how that translates into the lot side as the year progresses but nothing at this point in time.

[Susan Berliner:]

And then I guess just in terms of what you provided in the proxy in terms of your future growth I guess one question, a few on that but one would be when do you plan on starting your home building operations in Phoenix and Sacramental is that a ‘15 event?

[Alan Norris:]

No, I mean Phoenix Canada, we’ve been looking at a number of opportunities in Phoenix. We haven’t found anything that fits our crystal. The Sacramental thing may or may not happen but it could also be an opposite [ph] from our Bay Area business where we use a back office in the bay area and then we just we get more efficient by building in both cities. That decision not been made yet but that’s just an opportunity that we might examine. We’re still waiting for final entitlements in our Sacramental asset. So it would be premature we don’t have we have got some land there but we would like to have a bit more land fully entitled before we would startup anything from a housing perspective. And again using that rule of thumb on the 500 in each market, it’s not a slam-dunk that we would do in Sacramental. It’s a possibility we would still get obviously 5,000 units in all the other markets in other ways without even doing something in Sacramental.

[Susan Berliner:]

Okay great. And then just with regard to your average sales price which you show going down, is that primarily due to California, where I know you have talked about affordability issues there and your price point is extraordinarily high or what’s the projection there?

[Alan Norris:]

Yeah, I think we are not predicting anything from a price decline on an apples-to-apples product. We are trying to get more affordable in many of our markets. I mean obviously California would be a prime example with respect to that. So we continue to try and innovate in products in some of the other areas to get ourselves into a little bit more product, whether it be mixed use products which typically lend itself to slightly I am not saying lower price point but smaller product. So I think that’s a conscious decision on our part as we go forward.

[Susan Berliner:]

Great, thank you very much.

[Alan Norris:]

Thank you.

[Operator:]

The next question is from Alan Danzig with Lord Abbett. Please go ahead.

[Alan Danzig:]

Hey, thank you for taking my questions. Just a couple, first on the financing cash flow side, so I noticed in the quarter there was a bit of share based compensation awards. It look like a share repurchase and dividend. Could you talk about the mechanics behind that and any motivations for future type dividends or payouts to shareholders?

[Craig J. Laurie:]

Sure so in terms of the $59 million repurchase that was just part of the privatization, shareholders were offered the opportunity to either tender their shares to Brookfield Asset Management or tender them back to us. And so there is $59 million worth of tenders directly to book for Residential. Post the privatization there was a distribution back to Brookfield Asset Management of approximately $177 million. In terms of future distributions I would say two things. Obviously that’s really a decision that’s made by the Board of Directors and that’s something that they would look at so I can’t speak to it specifically. But the other thing is obviously under the indenture of our corporate notes. There is certainly a limitation on distributions it’s a formula as you know.

[Alan Danzig:]

Okay and given the increase in the borrowings on the bank facilities what are your plans for that? Do you want to keep that balance there or you are going to pay with cash on hand or you are looking to turn that up?

[Alan Norris:]

I think just generally speaking we still see opportunities in the marketplace I mean obviously just building up our housing business as we touched from that 2,500 to 3,000 units a year to 5,000 requires further investment and we still see some opportunities in many of our markets. So I think we’re just trying to be prudent with respect to maintaining optionality.

[Alan Danzig:]

And given the new ownership just want you to further clarify is there any change in the leadership or the influence of the new owners on the way you are operating and plans to grow the business?

[Alan Norris:]

At this point we are aware of any change in leadership but no, there is no change with respect to our operating philosophy. We are going to still run the business prudently and from a long-term point of view in which we will continue generate substantial cash over the long haul. So it’s business, as usual with respect to that and again from a new ownership point of view obviously we have been affiliated with the Brookfield Asset Management Group for many, many years and so it’s our philosophies are very much aligned.

[Alan Danzig:]

And apology I made for on the Board side...

[Alan Norris:]

Yeah that’s okay, it was somewhat [indiscernible].

[Alan Danzig:]

Okay, thank you very much.

[Operator:]

The next question is from Alex Avery with CIBC. Please go ahead.

[Alex Avery:]

Thank you. Alan you talked about I guess a piece of land that you are looking at marketing in Calgary. You pulled it off the market. Can you talk about what potential opportunities you might see on the horizon in terms of adding to your position in the Alberta markets and perhaps what the competitors look like from a capitalization perspective and if you expect any distress?

[Alan Norris:]

Yeah good morning, Alex. We haven’t seen anything at this point. It’s obviously very early days with respect to that and many of the companies here most of them are fairly well capitalized and but we haven’t anything from potential distress and the reality it’s still a very much constrained supply market in the Calgary area. So I mean all of the things that we have talking about in past conference calls while we were public, talked that constraint supply situation. That situation still exists albeit I mean with the market slows down a little bit it mitigate it somewhat but we’re still actively working on a progress which we have been successful in getting and it would still be, if there is entitled ones yes it could be opportunities to do that but there is a process we will follow and we’ve got very good land position and we think just getting the [indiscernible] for where we are positioned just now is the best value add that we can do. I don’t see the distress being a better buy opportunity than what we have already by getting an entitled that’s the difference I would say.

[Alex Avery:]

So for Brookfield Residential and potentially for peers having some work in progress in terms of new homes under construction that shouldn’t materialize as a problem you think that anyone who has got capital invested in that probably find buyers for that and maybe slowdown on new starts?

[Alan Norris:]

Sorry, just clarify that out. I wasn’t quite sure I thought you are originally talking about raw land originally…

[Alex Avery:]

I was sort of looking at do you think that there is potential for anyone to perhaps having over invested in construction of new homes and that becoming a problem like our balance sheet stretched or…

[Alan Norris:]

I see I don’t think so I mean most of the builders here are fairly well capitalized. I don’t see that, nobody is really stretched out and gone too far. I mean as you know the marketplace there was only a set number of the top 10 developers in city controls 70% of the market. So nobody over the last little while has been out there loading up people with lots or anything like it there has been very much sales to try and link in with the underlying absorption. So I don’t think too many people get too far ahead.

[Alex Avery:]

And then from the -- you talked a little bit earlier about the city and planning department sort of being relatively stingy on granting new approvals has there been any formal change or informal change in the approach of the planning?

[Alan Norris:]

I think there has been greater, a better relationship of the city and understanding the different of aspects of where the city is what supplies required to maintain good balance in the marketplace. So I think the relationship between the industry and city has improved significantly such that there is much more dialog as to what is required to meet the market demand.

[Alex Avery:]

What do you think is behind that?

[Alan Norris:]

We have a new city manager who is a very practical individual and he has been working both Calgary and out in Eastern Canada, has the good experience and brings a good practical common sense approach to it, not that we don’t agree with that the thing that we have a good dialog that’s the whole point.

[Alex Avery:]

Okay that’s great, thank you very much and I guess this is last call.

[Alan Norris:]

No, no we’ll still have bond calls every quarter.

[Alex Avery:]

That’s right, alright that’s great.

[Operator:]

The next question is Lee Brating [ph]with Well Fargo. Please go ahead.

[Unidentified Analyst:]

Hi guys.

[Alan Norris:]

Good afternoon.

[Unidentified Analyst:]

Hey I want to follow up on discussion of about reducing your land supply, how should we think of you guys going forward on from a free cash flow standpoint or cash flow, maybe I guess outside of buying the others in certain market but should we think of you guys as generating cash over the next couple of years?

[Craig J. Laurie:]

Hey Lee, hi, this is Craig. Certainly as we talked about before we do produce some material amount of cash each and every year and certainly we have the ability to do so in the future and that there would be an expectation that that cash flow will grow with the increased activity and higher overall revenue that is forecast in the future assuming market conditions persist. As we talked about in the past previous years that number is $600 to $700 million a year. We reinvested it either through land development or acquisitions, roughly equal parts each and every year but certainly there would be an expectations going forward that a portion of that cash flow would be redirected to lower the debt to cap ratio that I did talk about. Certainly the other part would be to grow the business that was also talked about and then there could be some just retention on the overall balance sheet.

[Unidentified Analyst:]

Yeah and clarification – I guess on the debt to cap was your target range was it initially 35 to 55 it seems like a pretty broad range I wasn’t sure if you – 55?

[Craig J. Laurie:]

I said sorry I said 45 to 55 depending on the mix assets that were on our balance sheet.

[Unidentified Analyst:]

Okay but in the near-term I guess which I probably look at you guys kind of the 50% area I think near-term target sounds like but getting them to 55 and being in that 50% area?

[Craig J. Laurie:]

Yeah I think we certainly targeted only be to get below 55% debt to capitalization and then as Alan said it depend on the overall mix of assets.

[Alan Norris:]

And right now we are building up some of our housing as we touched on. So we’ll see the benefits of that probably coming through in 2016 and that will obviously then translate into from an earnings point of view and therefore obviously other impact on the debt to cap ratio.

[Unidentified Analyst:]

On the community count this year I don’t know if you said anything I might have missed it how do you seem that growing I know that your spend grown in California and Central and Eastern US.

[Alan Norris:]

Yeah I mentioned it earlier on it was we expect to end the year this year with approximately 69 communities we expect open a net new 8 communities during the year so there is obviously a number of closing and a number of opening but we are going to be up eight over the course of 2015.

[Unidentified Analyst:]

Got you sorry about that. And then in Canada market more specifically I think I talk to you before about this but if you seem unemployment side what do you see in that regard I know at some point your backlog as you mentioned can rate only 1%. So pretty steady holding very well there and it’s a long backlog right it’s not on near-term delivery so are you seeing an opportunity on the margin front in terms of layoffs and picking up the employees on the cheaper labor on the cheaper side and we will margins going forward?

[Alan Norris:]

I mean the longest backlog is really out of our Toronto region and so it’s not really in Alberta the backlog in Alberta tends to be much shorter in duration. With respect to the savings from a cost point of view I would say there is a chance that we could see some improvement in Alberta on the labor pricing as things slow down and we get some people exiting the oil and gas the energy market some of those trade base is do overlap between energy and construction the one thing I would say is that would also impacted on the housing direct cost on the supplier side some of our a reasonable amount of our product comes from the U.S. so we get damage somewhat on the foreign currency exchange that anything we might pickup on the labor side we might loss a little bit on the FX but it’s very early days with respect to that in many cases we’ve locked in contracts from before that take us through the end of April through the end of June things like that. So we will see as we renegotiate some of the contracts that we see some significant benefit coming through over the next quite a while.

[Unidentified Analyst:]

Got you. And on the incentive front have you much change there?

[Alan Norris:]

Incentives in Alberta we’d probably yes… I am sorry.

[Unidentified Analyst:]

Broadly sorry that was a broad question on incentives if you could just talk about it by market if you had to do much?

[Alan Norris:]

I would say we have definitely increased the incentive somewhat in Alberta I would say on a multi-family product it’s been fairly low on the incentives on the single-family we probably moved it up $10,000-$12,000 home on a single-family Edmonton not too much there are still some incentives being driven a little bit in the DC market minimal in Toronto not too much in Southern California and generally Denver is pretty steady so we are no I mean I would say probably little bit Calgary and DC it’s where we are going to be increased the incentive somewhat obviously related to Calgary it’s energy driven and DC it’s a bit of fragmental market and the job numbers are up significantly in DC I think there is some of nationals are just driving the price a little bit and so we are seeing a few more incentives than we were anticipating but nothing material I would say but definitely seeing a little bit higher than we have before.

[Unidentified Analyst:]

Got you, great. Thank you very much.

[Operator:]

There are no more questions at this time I will hand the call back over to Mr. Norris for closing comments.

[Alan Norris:]

Hey thanks very much for joining us today again this call was for existing bond holders I know it’s related on the credit side subsequent to going private but really appreciate the dialog and we will continue to inform you on a quarterly basis what has happen with the company so you can stay informed on your bond investment and this company. So thank you.

[Operator:]

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.