BRP Group, Inc.
Q3 2014 Earnings Call Transcript

Published: 5 Nov 2014

[Operator:]

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Brookfield Residential Properties conference call and webcast to present the company's 2014 Third Quarter Results to shareholders. As a reminder, all participants are in a listen only mode and the conference is being recorded. (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:]

Thank you. Good morning, ladies and gentlemen, and thank you for joining us today for Brookfield Residential's 2014 Third Quarter Conference Call. With me today is Craig Laurie, our Chief Financial Officer. 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 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 filings with securities regulators in Canada and the US and information available on our website. Also as many on the call would have read about the time, on October 23, 2014, Brookfield Asset Management announced that it had made a proposal to the company to acquire the approximately 30% of the common shared of Brookfield Residential that it is not already owned for $23 cash per share. The Board of Directors of Brookfield Residential has established a special committee of independent directors to review and consider the proposal and the company will provide an update at the appropriate time. As a result, I do ask everyone to respect this process and understand as a result we will not be commenting on the process or views on volumes today. We’re going to switch up the orbit today and I’m now going to pass it on to Craig, who will review the financials then I’ll provide an update on the market and our strategy before opening the call to questions.

[Craig J. Laurie:]

Thank you, Alan and good morning everyone. Building on our progress from the first six months of 2014, we continue to achieve positive results in the third quarter of 2014. Net income attributable to Brookfield Residential for the three months ended September 30, 2014 was $86 million or $0.73 per diluted share, compared with $35 million or $0.29 per diluted share in the third quarter of 2013. Including the net income was the partial release of the evaluation allowance on our US differed tax asset, which resulted in a benefit for income taxes of $45 million for the third quarter of 2014. We expect that the remaining evaluation allowance pertaining to our US operation will be released against income before income taxes in the last quarter of 2014. Income before income taxes increased to $48 million from $45 million in the third quarter of 2013. Third quarter revenue increased 7% to $355 million and the average home selling price increased 19% to $515,000 in the third quarter, compared $432,000 during the same period in 2013. This was partially offset by higher general and administrative expense of $2 million, an increase in interest expense of $2, a decrease in other income of $2 million and a decrease in the fair value of the equities drop of $5 million. Land revenues totaled $54 million for the three months ended September 30, 2014, a decrease of $7 million when compared to the same period of 2013, while gross margin decreased $5 million to $36 million over the same period in 2013. The decrease in land revenue is primarily due to 111 fewer lot closings, partially offset by higher average lot selling prices when compared to the same period in 2013. The decrease in gross margin for the three months ended September 30, 2014, was due to the mix of lands sold where there were fewer lot sales and a decrease in the average selling price for multi-family, commercial and industrial acres, partially offset by a higher single-family average lot selling prices when compared to the same period. When we look at our operating segments for the three months ended September 30, 2014, land revenue in Canada was $58 million, a decrease of $4 million when compared to the same period in 2013. The decrease was primarily the result of the decrease in the average selling price for multi-family, industrial and commercial acres due to the mix of parcels sold that were with higher proportion of the acres sold in the empty market, which typically have a lower average selling price and gross margin. Single-family land revenue was consistent as a result of 46 additional of log closing, partially offset by a decrease in the selling price due to the mix of lot sold as our emerging operations had higher proportions of lot sold when compared with the same period of 2013. Gross margin decreased $5 million to $35 million when compared to 2013, as a result of lower average single-family lot selling prices and the lower average multi-family, industrial and commercial acre selling prices primarily due to product. There were no land sales in California for the three months ended September 30, 2014. Land revenue in the Central and Eastern US segment decreased by $3 million. And gross margin remained flat for the three months ended September 30, 2014. The decrease in revenue was due to a decrease of 141 single-family lots sold, primarily as a result of a bulk sale of a 128 lots in our Denver market in 2013. There has been no such sales to date in 2014. This was partially offset by an increase in the average lot selling price related to the mix of lot sold at the DC market had a higher proportion of sale. In terms of our housing operation, housing revenue was $291 million for the three months ended September 30, compared to $262 million for the same period of 2013. The increase was a result of increased average home selling prices partially offset by fewer home closing. Gross margin increased $13 million as a result of 19% increase in the average selling price when compared to the same period in 2013, partially offset by a 7% decrease in home closing. In Canada, housing revenue for the three months ended September 30, 2014, decreased $8 million when compared to the same period in 2013. Total home closing decreased 3% for the three months ended September 30, 2014, compared to the same period in 2013 due to decreased closing in Alberta as a result of timing. The average home selling price decreased slightly due to product mix, particularly due to a higher proportionate share of the total home closing from Edmonton where we have a high because slightly lower average prices. As a result of lower average selling price in closing, gross margin decreased by $3 million for the three months ended September 30, 2014, when compared to the same period of 2013. In California, we had housing revenue of $141 million for the three months ended September 30, 2014, an increase of $15 million when compared to the same period in 2013. The increased in revenue was due to a 62% increase in the average home selling price for the three months ended September 30, 2014, compared to the same period in 2013, partially offset by five fewer home closings. Gross margin increased $17 million as a result of the increase in the average home selling price, when compared to the same period of 2013, which is primarily driven by product mix of higher priced home closed, the average home selling price of one million and has gotten some of our San Francisco Bay Area and Southern California communities for the three months ended September 30, 2014. The Central and Eastern US housing revenue decreased $13 million for the three months ended September 30, 2014, when compared to the same period of 2013, as a result of 25 fewer home closing and a decrease in the average home selling price. The decrease in home closing was primarily the result of fewer closings in the Washington DC market. Gross margin decreased by 1 million when compared to the same period in 2013, due to the decreased home closings combined with the lower average selling prices. The decrease in the average home selling price is due to product mix of homes closed in different communities across the segment when compared to 2013. Our backlog continues to be strong with a 3% increase in backlog unit and a 10% increase in backlog value when compared to the same quarter of 2013. Moving to our balance sheet, as of September 30, 2014, our assets sold of $3.3 billion. Our land and housing inventory and investments in unconsolidated entities are most significant asset with a combined book value of $2.8 billion or approximately 84% of our total assets. In the third quarter, the increase in our land and housing asset is attributable to acquisitions of 168 million, development activity and a stronger backlog partially offset by sales activity. I’ll now pass the call back to Alan.

[Alan Norris:]

Thanks, Craig. Beginning with the market overview, I mean I think we’ve touched on this in the past that in our opinion the significant price appreciation that we experienced in most US housing markets in 2012 and 2013 was reflective of a limited supply of housing being taken up by both investors and consumers. We also believe that the trajectory of the price increase is up about period of time was unsustainable and prices have since generally reverted back to a more normal close. We believe several other factors have given rise to the current products in the market place, slower household formation, lack of mortgage availability, weakness in the overall quality of job been created and the degree of trepidation on the part of the first time home product, which in our view are all contributing to the current state of the market. We also believe that it generally takes longer than one expect to achieve an economic recovery and the sector which has undergone significant things. The positive sight of the current state of the market as a result in pent-up demand that continues to build as families double up or see an accommodations long after the no longer meeting their growing families needs. It is our belief that this represents substantial untold demand, which is expected as rents rise and the job situation improves, home ownership will again become much more attractive. Specific to our Canadian markets our concerns persist regarding the high rise market in Vancouver and Toronto, a general concern for bubble in the Canadian housing center seems to have subsided, with collective efforts by the Canadian government to address household debt showing positive signs. Our Alberta markets have continued to show strength, while prices to both oil and natural gas have based down with pressure, technology advantage and other initiatives have somewhat offset some of these pressures to drive those industries forward. We also continue to believe that North America’s energy needs can be served from North America and if this will ultimately be positive for Alberta in particular. Calgary, Alberta has experienced strong demand this year, which combined with limited supply has resulted in price escalation. We’ve made great strides in three of our longer term land projects at Bearspaw, Livingston and South Seton on the approval front and to ensure appropriate continuity we are maintaining a discipline release of loss and until of our new projects are received. Over the last several years, our strategy has focused on bringing lots in both the US and Canadian markets from a low state through the approval and entitlement process. As a result of our efforts, we have a strong overall land inventory with almost half the lots entitled. This is a key competitive advantage given the constrain supply of development lots in many of the US and Canadian markets and one that gives us flexibility to bring product to market at the right time. We also continue to focus on the pace of monetization of our lot portfolio, which is the current pace would represent over a 15 year supply. Assuming the ongoing recovery in the US, we expect to reduce our land supply over the next number of years targeting an eight to ten years supply of land. This will be achieved by advancing the volume of land and in some cases strategically selling once entitlement is achieved. One example of this includes the monetization of a significant portion of one of our joint ventures, which we entered into in the first quarter of 2013 in the community of Tegavah located in Phoenix, Arizona. In the past year, the land was entitled and reengineered and subsequent to the third quarter of 2014, were sold for a gain with our share totaling approximately $10 million. Another key focus going forward is to increase of housing business across the board, but we will be selling still a majority of a lots of third party builders, we intend to get all the 11 of our business groups to 400 to 500 home closings per year. This includes Denver, where we just started our housing operation a year ago; Austin, where we are currently starting up a new housing operation; and Phoenix, where we don't yet have a housing operation. While we believe there will be continued demand for Greenfield development, we have made moves to reposition a portion of our portfolio to infill and brown field developments to better respond to the growing segment of the market seeking these locations and lifestyle. Projects such as our Playa Vista development in Los Angeles, California and Midtown in Denver, Colorado are great examples of success in these types of projects. Our outlook for the year remains positive. As has occurred in many past years, we anticipate that our income before taxes for the 2014 fiscal year will be somewhat back-end loaded. Based on current forecasts, and subject to timing risk, and FX in the form of currency, we project fourth quarter income before income taxes will be at levels equal to or approaching the income before taxes for the entire first nine months of this year, resulting in the 2014 fiscal year results being significantly higher than 2013. We welcome you to join us on November 18 and 19 for our first Investor Day in Playa Vista in Los Angeles. Details on this event can be found on our website. As noted above, we ask everyone respect and understand we will accommodate any under proposal from Brookfield Asset Management at this time. I’d like to thank you for joining us in this conference call. I’ll turn it back to the operator who will moderate the questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question today is from Will Randow of Citi. Please go ahead.

[Scott Schrier:]

Hi, good morning. This is Scott Schrier in for Will today. I wanted to talk about both your community count growth your use of incentives and I saw that you have very limited incentives outside of the Eastern and Central United States at 8% and taking into account a lower absorption rate, I just wanted to see how are you looking using incentives going forward versus the current rate that you have?

[Alan Norris:]

Was that specific to the Eastern region?

[Scott Schrier:]

Yeah. I saw it was 8% in the Eastern region and I don’t think you used any or barely in Canada and California?

[Alan Norris:]

Yeah, I mean, that’s not – it was a very few with respect to -- in Canada were sort eking out, the product is matching up with in the Calgary marketplace we’re matching it out with entitles are coming through for our future projects. So there is no need with respect to incentives there. Very little in the way in Toronto and California, I mean there may be some – I’m just talking off the top here with respect to where that’s taking place. But there may be some in line to Empire sort of things but really not too much. I apologize for not given a more straightforward answer. I’m just – it hasn’t really been a big topic with respect to from a business point of view.

[Scott Schrier:]

Sure that’s helpful. And then on the gross margin side of things, given that the mix has changed to lower ASP kind of housing, is there any impact to gross margin? Or is the gross margin in the quarter that something that’s somewhat sustainable?

[Craig J. Laurie:]

Yeah, this is Craig. Are you referring to Alberta where we are seeing more homes are closing.

[Scott Schrier:]

Yeah, but just look at the ASP and backlog as a whole.

[Craig J. Laurie:]

Yes, I think, Canada -- almost segment-by-segment, so I’ll see the average ASP within California was up clearly that was product mix and gross margin has been up there. In Toronto, I would say, the average ASP is consistent. So then we have talked about a higher proportion of the total closings, home closings in Alberta coming from Edmonton and that is a lower average ASP. We probably does have a slightly lower gross margin but it’s not as – it’s not as defined as the difference in gross margin between lot sales between Calgary and Alberta.

[Scott Schrier:]

Okay, great. Thanks for taking my question.

[Operator:]

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

[Alex Avery:]

Thank you. Alan, in your opening remarks, you mentioned that you’re focused on the monetization and that your existing land inventory would represent about 15 years of supply at your current pace. Can you just -- I guess, I just want to be clear about how you are measuring that? Is that the number of home closings and lot closings, or home closings or lot closings?

[Alan Norris:]

Yeah, it would be a combination, Alex. I mean in Alberta, we may be doing 20%, 25% of housing on our own and selling the balance in other markets and maybe closer to 46 those types of things, but that the absorption that we’re talking to get into that eight to 10-year supply, would be for the underlying land whether we build on ourselves with others.

[Alex Avery:]

So when you say that you’re targeting getting down to about eight or 10 years of supply, that still could take several years from now?

[Alan Norris:]

Yeah, we think we can probably get it over the next several years. I mean, as an example, we’ve listed a property in Calgary that we think that will have – that has added some value and so there was other one, the Phoenix example was one where we achieved some value through re-entitlement and reengineering and we exited – I feel bit a of a joint venture in October of this year. So that was another example of just clearing the value then monetizing at the appropriate time. So there will be a number of those across the portfolio at some point over the next several years.

[Alex Avery:]

Okay, so I’m just – I guess, I’m trying to get a sense of the pace of the monetization. Is it accelerating, has it accelerated? Or are you planning to accelerate it like?

[Alan Norris:]

Yeah, it will be – I mean, from our own -- as I touched on through the remarks as well, I mean, we intend to – from a housing point of view, we would anticipate to be north of 5,000 homes a year because we will be building most of our communities that will take several years to get to that point and we would anticipate that we would be probably 5,000 to 6,000 homes a year I’ve been -- that same timeframe. So that would be getting up to north of 10,000 units a year that we will be monetizing and one that we – that we’re housing it to lots.

[Alex Avery:]

Okay, so the homebuilding wouldn’t heed into your lot sale numbers that would be in addition to?

[Alan Norris:]

That’s what we believe, yeah, that’s correct.

[Alex Avery:]

Okay, okay, that’s very helpful. And then just in terms of, I guess, the strategy of bringing your inventory down to eight to 10 years, that would bring you – it seemed to bring you more in line with some of your US homebuilder peers. You talked about when you can do that and the fact that you have that objective. Can you talk about why that’s an objective?

[Alan Norris:]

Well, I think – I think there is a couple of points. One, I think, we would be looking to monetize some assets when we’ve created a value but we will redeploy some of that money back into other projects. We may have a project which has for instance 2,000 units in a Greenfield area as an example we create value, we may monetize that position, but we may reinvest that money from that project as an example into 500 units and then infill or brownfield situation. So we may be investing the same amount of capital but just in different product types and the unit count in fact be less because of location and pricing. So we are not reducing the size of the business, and it’s just a refocus on some of the other areas at the same time. So it’s – that example would obviously to go down but the business would remain strong.

[Alex Avery:]

Okay. And then Craig just on the tax recovery or reversal of the, I guess, the tax valuation in Q4, what is the amount roughly that you are expecting there?

[Craig J. Laurie:]

We expect the remainder, which is approximately $25 million be counted in Q4.

[Alex Avery:]

Okay. And then just lastly not getting into any of the details but on the proposal from BAM, just to be clear, there hasn’t been a formal proposal, there is no written details. At this point is it expected that you’ll see something from Brookfield? Or is the ball in the special committee’s court to assess a proposed proposal, is that clear?

[Alan Norris:]

On October, as we said in the original press release, as we to see the letter from Brookfield Asset Management and we’re also creating a special committee of the board to review the proposal and taking appropriate steps.

[Craig J. Laurie:]

But there has been nothing more substantial than the letter delivered at this point.

[Alan Norris:]

Yeah, I mean, everything would be dealt with by the special committee.

[Alex Avery:]

Yeah, okay, and then just roughly speaking, you never nail down but should investors expect anything in 2014? Or is this going to take more than the next 45 days?

[Alan Norris:]

Craig, any thoughts on that?

[Craig J. Laurie:]

I think certainly the special committee is working actively through the process. I think – I don’t think you’ll see a completion of the process necessarily within ’14 and I see there is lot to it but I think we continue to see the special committee be quite active working through it with in force.

[Alex Avery:]

Okay, that’s great, thank for the color.

[Alan Norris:]

Thanks, Alex.

[Operator:]

The next question is from Bob Wetenhall with RBC Capital Markets. Please go ahead.

[Robert Wetenhall:]

Hey guys, good morning.

[Alan Norris:]

Good morning, Bob.

[Robert Wetenhall:]

I was just curious, what are your thoughts on average selling prices in the markets where you operate and is – really the trajectory of ASP that’s influencing your decision just shorten your land supply or how do we think about the mode of because if does sound a little like you and Craig are changing or providing from a strategic standpoint being long land, you got a great asset base, you are shortening it up, what’s the right rational to think about that?

[Alan Norris:]

Yeah, I mean I don’t, I mean it’s – we’re just taking a view with respect to and if we have an asset that we think is outside of maybe somewhat it will be little bit longer than other, Bob. I mean somewhere we will be little bit shocked, so that eight to 10 is maybe just a generic average I would suggest. But as I touched on the earlier comment, I mean we’re just looking to shift some of our emphasis not nationally, just on the next Greenfield piece which has been very successful for us. We will continue to be the dominant part of our business without question. But we will refocus some other areas to look where we think the consumer is going, which would be some other closer implication many of those are higher value assets, assets mixed used Brownfield and those types of things. So what it does is allows to reposition ourselves while not in any way from damaging the trademark of what we are which is long land and then continue to monetize through housing and they are probably lot sales. So I don’t wanted to be taken as anything other than that allows us to do other things as well and not damage the existing business that we currently have.

[Craig J. Laurie:]

So Bob, let’s add to what Alan said, we started reiterating the point that he made in his initial comment, the sort of straightforward math is we absorbed between homes and lots 5,000 to 6,000 units currently, let’s say roughly half of that in housing. In our minds, an efficient level of housing for each one of our lot of business groups would be 300 to 500. But really the straightforward math just on that I mean that’s obviously that can be 4,000 to 5,000 homes that from roughly 2,500. So and then the same time on the lot, if you just increase it by 1,000 or 2,000 you also increase that’s a 5,000. So instead of absorbing 5,000 to 6,000 units, you are absorbing ten which again this mathematically it’s a lot count, count did not change at all, dividing by 10,000 unit bring down to ten years. So as Alan said, I mean I don’t think it’s a material change I think to some extend it’s just reaching an efficient level of homebuilding and you need to the markets that way or either currently operating and/or looking to do homebuilding.

[Robert Wetenhall:]

So it sounds like based on Alan’s comments, it’s really just complementary initiative through extend on the core land business, would that be your fair assessment?

[Craig J. Laurie:]

Yeah, I think that’s fair.

[Alan Norris:]

Absolutely, we’re the changing our stripes.

[Robert Wetenhall:]

Okay, you got a really good balance sheet. I just trying to get a view on from a gross standpoint because you’re going to shrinking the balance sheet, but you don’t have, your leverage is fine, your cash is strong. Is there anything you want to buy and what do you think about M&A opportunities today?

[Alan Norris:]

Yeah, I mean I’m not sure what’s shrinking the balance sheet. I mean as I said we are redeploying some of that into other built forms are potential. So I don’t those are shrinking there, I mean our balance sheet as you I said Bob is in excellent shape, I mean it gives us and we’re sitting with that with a bit of billion dollars of dry powder from a liquidity point of view, at the end of September which has been consistent for the last number quarter. So I mean if we saw something that made some – look everybody on the call is aware that we did at look couple of opportunities in the past then we then go forward and other bought them so. I mean if the right opportunity comes along and we think it’s an additive. I mean we are looking to moving into housing and something of the other markets where we don’t have housing but those are not big potential and all with start from the ground up or look at some operations in those particular markets are in hands what we have that nothing on a major skill on this point.

[Robert Wetenhall:]

Got it. So you just going to be selectively opportunistic. My comment was that if you go having a 15 or 20 year land position in current absorption and then you want to get down to a 10, doesn’t matter your carried inventory because is again smaller?

[Alan Norris:]

But again as Craig touched on, I mean we’re increasing our volume at the same time. So instead of taking it from 5,000-6,000 absorptions a year between land and housing then we gradually get up to 10 plus. I mean we can move it from a 100 and 10,000 those are 100 or 90 or whatever. I mean a combination of coming down a little bit as well as the absorption is going up, get to that steady state and the deployment of the cash into some of these other high value asset opportunities sort of rebalancing that portfolio. So I think it’s a combination some of those factors and I mean our business grow, there is no question in my mind.

[Robert Wetenhall:]

I see what you are doing and that make sense. Final question, any developments on specific parcels heading into the fourth quarter weather it’s something you applied. Thanks and good luck.

[Alan Norris:]

Thank, Bob. Yeah I mean we have a number of typical as we said earlier on a lot of stuff is back and loaded with the spec to people, some builders buying lots at the end of the year, ready for next year spring season, we’ve got a few things happening in Q4 as we touched the four, some will happen in Q4, some will happen in first quarter of 2015. I think we’re maintaining, we believe most of the stuff that we said is going to happen, should be happening and such that maybe we done a little bit on unit home but we see higher margins in both the land side and housing side. So we’re still maintaining that, the last quarter will be close to what we had achieved for the first nine months in total. So all in all we’re in – we’re quite comfortable where we are at.

[Operator:]

The next question is from Sam McGovern with Credit Suisse. Please go ahead.

[Sam McGovern:]

Hey guys for taking my questions.

[Alan Norris:]

Hi Sam.

[Sam McGovern:]

I was wondering you guys could talk a little bit about what you are seeing in terms of demand, just in the last month or two with energy prices coming off and some of region that you guys operate?

[Alan Norris:]

Yeah Sam, it’s Alan. I mean I’ll talk about it from Calgary unit, which in point of view which is obviously centric. We have – as we touched on in the past, very much are constrained, supply situation is best on Calgary marketplace. So much is – I mean we’ve seen significant price escalation going on in that market, so it’s difficult to tell anything effecting from an energy point of view in the last month or so, there is probably more issue with price escalation going on, this is probably a little stick a shock in the Calgary marketplace as to consumers sale. Anyway that – I look before and it’s now up $25,000 since I looked six months ago, those types of things. It’s too early to tell on the overall energy side as it affects our boarder. I mean obviously we’re just stopping the stock price for oil and many of the foods except of north have got significant some cost into the major projects. And on an incremental on the marginal dollar going in even the semi set of dollars is now significant, have picked up for all the companies, I mean new projects yes I mean but nothing is going to said in that regard. And I think realistically for most of the other market – going to end up positive from an overall consumer point of view. So I am not too concerned about it at this point based what will happen, I haven’t had anything from oil and gas just to and the major projects that put on hold. And as I touched on before it’s just the incremental dollars once some cost for those mega projects is just – still also going on a marginal dollar basis.

[Sam McGovern:]

Great. Thanks so much, I’ll pass on.

[Alan Norris:]

Thanks.

[Operator:]

Next question is from Adam Rudiger of Wells Fargo. Please go ahead.

[Adam Rudiger:]

Hi thank you. I wanted just ask about lot sales expected in the fourth quarter relative to previous guidance, early in the year given unit count and it’s, if so A, can you comment on where you are relative to that and then B, talk about what you think the margin impact will be on the land sales because I guess that, that guidance to point to a very, very sharp acceleration in US land sales.

[Craig J. Laurie:]

Adam, this is Craig. So as you mentioned we do not have practice to updating the unit count guidance, at same time I certainly comment. I think so the overall unit count expectation for ’14 will be less than where we originally anticipated, but I think that being offset obviously be a higher gross margin than we had anticipated. Specific to the lot count, I think, the Canadian lots are going to be marginally down for all the reasons we’ve talked about but certainly that gross margin percent is up. If you went to California, I think, the lot count is expected to be again marginally down and same with Central and Eastern. The one where I believe we will be roughly consistent, if not outperformance, probably the expectation for the joint ventures with the say that we announce that with a subsequent event.

[Adam Rudiger:]

Okay. I guess, I was trying to triangulate is what should we -- can you comment at all what the combined company land gross margin should be in the fourth quarter directionally?

[Alan Norris:]

I could at this time, I mean, I think in terms of housing, we would expect that gross margin for the fourth quarter to be consistent with the third quarter. In terms of lots, as you said, it depends on our ultimate mix I think it would be in totality, it should be less than the third quarter just because of the lot sales in the US generally have a lower gross margin than we do in Alberta and we didn’t have any lot sales in California in the third quarter. We had fewer lot closings in Central and Eastern. So we are expecting some lot closings from both California and Central during the fourth quarter. So in totality, the combined gross margin for lots should be down.

[Adam Rudiger:]

Got it, thank you. And then the second question was related to the BAM proposal. I don’t know If I’m referring to one or two areas you don’t want to ask or not but obviously there is lots of reasons why a company would or would not want to be acquired, one of them is evaluation. I understand you don’t want to talk about that. My question was, though, as the committee evaluates the proposal, are there other – what are the other considerations aside from evaluation that might discuss? And, Alan, specifically are there – is there a significant benefit to your operations to being a publicly listed company as opposed to being under their umbrella that would play to the decision.

[Alan Norris:]

Yeah, with respect to – we’re not going to comment with respect to how it’s going to look, what types of evaluations at them and that would be obviously under the review of the special committee and their advisors et cetera. As to public versus private, as to operations, I mean, the business is the business, where all shareholders are one shareholder. I mean, our business is developing communities and building houses and making money. And so obviously it takes one additional – it does go ahead and it takes one extra level of works I would but dealing with, for instance, this type of call but we still have a building one capital market on the bond side, so we shouldn’t lose sight of that, but again it’s all under the special committee, so they will continue the process.

[Adam Rudiger:]

So is the special committee’s effort mostly focused on what the appropriate value is when they’re determining that? Or is that what they are determined?

[Alan Norris:]

They are following the process with respect to the proposal has been made.

[Adam Rudiger:]

Okay. Thank you.

[Operator:]

The next question is from Chris Keller with Columbia Management. Please go ahead.

[Chris Keller:]

Yeah, good morning guys and thanks for taking the question. I just had a couple. So we are taking of continuation of trends in some of your markets regarding absorptions being lower year-over-year. But in particular I wanted to ask about what specifically you’re seeing going on in kind of your Canadian home building operation? Does it look like orders there were kind of down 16% year-over-year I realize that kind of tough comp? Or has there anything changed in that market? Or is there anything that I’m missing there?

[Alan Norris:]

Yeah, Chris, this is Alan. I mean, I think touching on a little bit of my earlier comment, I mean, I think combination of things as we are continuing to get entitlements into our Calgary marketplace, we have been very disciplined and we’re losing lots and housing into the marketplace to try and match up with when we think the entitlements for the future projects will be coming on and we will be on so we have that good continuity from one segue from one to another. So we have been eking out the lots to try and match up that absorption and it’s a constraint supply market and so the idea would – the eking out to a home building operation is low because candidly by selling a lot of lots one-time and then escalating price environment we are just passing on that potential profit to others. So we’ve been trying to match that up as best we can and ease out. And as I touched on earlier, I think we have -- the prices have gone up quite substantially and I think the consumer is looking and it takes them a little bit of time to adjust to the new pricing realities. So we’ve seen a little bit of that taking place but nothing that is concerning us but it’s just – we’ve been trying to slow things down a little bit just to match up with entitlements but all in a positive way.

[Chris Keller:]

Okay. And then, I guess, just to maybe clarify then, so if this level of absorption kind of maybe how long do you think it’s going to take, I guess, for you to kind of get from a supply demand dynamic where you want or I guess, how many quarters should we think about this level of absorption being kind of run rate?

[Alan Norris:]

Yeah, well, that’s an excellent point. The only market where we’re really experiencing that constraint supply situation as it affects, that is Calgary. I mean, Edmonton is continuing to increase volumes et cetera. I would say in the Calgary situation we are hopeful that one of the projects I mentioned this morning would be available, would be bringing on some burden in next year to 18 months. First of all, the longer term projects will be coming on and then we will be going sequentially for some of those other new projects shorter get after. So it’s only over that sort of period of time.

[Chris Keller:]

Okay. And then, I guess, in California, I’m just kind of curious from a home building perspective, how you guys view the kind of pace activity this year relative to your expectation has been and then how should we also think about kind of the ASP to this market going forward and what – because I mean, they’ve seen a significant jump year-over-year, it’s from like 686,000 or like a 1.1 million, what’s realistic kind of going forward?

[Craig J. Laurie:]

This is Craig. You’re exactly right. It’s really -- a big part of that would have been the additional contribution from the bay area as you said, I mean, averages sales price is up well over $1 million and that’s certainly driving it. The other portion of it is in Southern California within projects like Playa Vista that also has been driving that average sales price. As we go forward, I think, sort of there are two things. I mean, to some extent we will still have those homes that is going over $1 million but at the same time, still we are always mindful of that affordability and intentionally we want to have a mix of product, not just $1 million we want to have homes within the more portable range as well. So I think in Calgary you will eventually see that average sales price or – volumes will then go up at the same time.

[Chris Keller:]

Okay. And then just general commentary on US land markets, have you guys seen any change in appetite from the builders, just overall thought there?

[Alan Norris:]

Yeah, I mean, I think it’s a good point. We have a number of projects where we have builders who have committed to buy lots. Some will take place this quarter, some will take place in early 2015. I think for the most part, builders are still wanting to tie up lots and good areas and then good communities, then may well be a degree of, I think if they previously and may be going to be tying up, say, 200 lots, they might try and say we only want to pick up a 120 or so but we would like to some of optionality on the other 80. I’m just getting a generic example that if they feel absorption is going to be similar or almost slightly better in ’15 then they might still want to maybe structure the deal a little bit so over the longer period of time as opposed to all cash on the takedown. But the one thing I would say is I still believe the pent-up demand is in over the next several years, I think there is a good story on the upside as we go forward and I think we are well-positioned to take advantage of that with the different communities that we have such that we have ready-to-go at the absorptions to improve over where builders are expecting.

[Chris Keller:]

Okay, thanks, and then, I guess, just one last one for me to follow-up on that comment. Any other – any geography then what you guys operate that are better or I guess materially better or worse from your perspective, any areas of strength or weakness that you would like to highlight?

[Alan Norris:]

Yeah, I mean, Canada is still doing extremely well. I mean, I think we’ve talked about the Phoenix market somewhat volatile. It was the deepest hit during the recession and probably very sharp for the company and it’s definitely be somewhat flat since then but I mean, again as we touched on it, I mean, we executed an excellent transaction with respect to that Tegavah joint venture that we touched on earlier on the call in October. I think the DC markets have been somewhat choppy and not just for us but for many others as well. But other than that, I mean, our Houston market is doing extremely well and we’re launching new communities there and there’s a great job creation. So, it’s I am saying a mix tag but it’s definitely the strength of the US market, right, and that is obviously much coastal, as well as where the jobs are being created without question and that includes sort of the Texas markets and coastal California and, as I said, DC has been choppy at this point.

[Chris Keller:]

Okay, thank you very much, guys.

[Alan Norris:]

Thank you.

[Operator:]

There are no more questions at this time. I will turn the conference back over to Mr. Norris.

[Alan Norris:]

Thanks very much. I really appreciate that. Thank you very much everyone for joining us today. Again, apologies we can’t talk on anything else with respect to the process that’s obvious we are. We still plan to host the Investor Day but obviously we will be respectful of that same position at the Investor Day but – and we’ll be participating in a couple of weeks of time. With respect to that, we will look forward to seeing you and look forward to chatting with you in the New Year. Thanks very much.

[Operator:]

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