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Brookfield Residential Properties Inc. (NYSE:BRP)

Q1 2014 Earnings Conference Call

May 2, 2014 11:00 AM ET

Executives

Alan Norris – President and Chief Executive Officer

Craig J. Laurie – Chief Financial Officer and Executive Vice President

Analysts

Dan M. Oppenheim – Credit Suisse Securities

Will Randow – Citigroup Global Markets Inc.

Collin Verron – RBC Capital Markets

Rick Murray – Midwest Advisors

Alex D. Avery – CIBC World Markets, Inc.

Operator

Welcome to the Brookfield Residential Properties Inc conference call and webcast to present the Company’s 2014 first quarter results to shareholders. (Operator Instructions) The conference is being recorded. (Operator Instructions) At this time I would like to turn the conference over to Mr. Alan Norris, President and Chief Executive Officer. Please go ahead.

Alan Norris

Thank you very much. Good morning, ladies and gentlemen, and thank you for joining us today for Brookfield Residential’s 2014 First 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. These statements are subject to known and unknown risks and future results may differ materially. For more information on our company, please also visit our website.

Our results for the first quarter improved over the same period last year as we benefited from increased home closings and higher averaged house prices, as well as gains on the sale of commercial assets and our mixed-use developments in Playa Vista, California, and Seton in Calgary, Alberta.

For the three ended March 31, 2014 our net income increased substantially to $25 million or $0.21 per diluted share from $4 million or $0.04 per diluted share in the same period in 2013.

Our Canadian markets of Alberta and Ontario continue to perform well. Our results reflect the measured sales pace with a higher margin for our land sales combined with the continued growth in our housing operations. We have a strong market share within the energy focused Alberta market, and in Ontario we are well-positioned in the low rise market outside of the downtown Toronto core.

As we report our overall results in U.S. dollars, at times we do encounter some variability in our results from our Canadian operations through the translation process and the movement in the relative currency rates over the comparative periods.

In the U.S. the recovery of the market continues, albeit at a slower pace than 2013. We continue to have an environment of constrained work supply which is resulted in home and land price appreciation in many of our markets. Overall in the homebuilding industry many areas of the U.S. have experienced some slowdown in the early spring selling season in comparison to a very strong 2013.

While we have seen year-over-year home order growth in – within Canada, and while our U.S. orders are down we believe we are still tracking for the year based on our new communities recently added are about to come on stream, a normal absorption assumptions going forward.

Other highlights of the quarter included the successful opening of Playa Vista with all three single family builders opening. We also monetized the 22700 square foot commercial retail asset in this mixed-use development for a small gain.

In Austin, Texas, we gained final approval to begin construction in our second master-planned community Addison, and preliminary approval for the first phase of Easton Park, our third master-planned community in this market.

We expect to realize lot sales in Addison of Easton Park later this year and in early 2015. In Canada, we opened the community called the Arbors in Aurora just North of Toronto, Ontario on February 13 achieving approximately 100 signed sales contracts in the first six weeks of sales.

In Calgary, Alberta we completed the sale of the Phase 1 retail project in our Seton mixed-use development generating a gain of $32 million. Our land revenue may vary significantly from period to period due to the nature and timing of land sales. Revenues are also affected by local product mix and market conditions which have an impact on the selling price per lot.

Based on current market conditions we still anticipate that income before income taxes for 2014 will be measurably higher than in 2013. Also yesterday, we announced a normal course issuer bid or share buyback program, as others may refer to it as, for up to 2 million common shares.

We will fund the purchases through our available cash and believe that these purchases are a prudent investment at times when the market price of our common shares may not fully reflect the underline value of our business, and our future business prospects.

I’m going to pass it over to Craig, who will review the financials.

Craig J. Laurie

Thank you, Alan and good morning everyone. Our results in the first quarter improved over the same period last year. For the three months ended March 31, 2014 net income attributable to Brookfield Residential was $25 million or $0.21 per share compared to $4 million or $0.04 per share for the same period in 2013.

The increase of $21 million was a result of an $8 million increase in gross margin primarily from higher home closings combined with a $33 million pretax gain on commercial assets held for sale and a $1 million increase in equity earnings from unconsolidated entities.

This was partially offset by higher sales and marketing costs of $1 million, higher, general and administrative expense of $5 million, change in the fair value of equity swap contracts and share based compensation expense of $3 million, an increase in interest expense of $5 million, and an increase in non-controlling interest and other interests in consolidated subsidiaries of $2 million and an increasing in income tax expense of $5 million. Total land revenue was $44 million for the three months ended March 31, 2014, a decrease of $8 million when compared to the same period in 2013.

Land gross margin was $21 million, a $7 million decrease compared to the three months ended March 31, 2013. This was due to 30 fewer loss single-family lot sales partially offset by an increase in multi-family industrial and commercial acre sales and raw and partially finished acre sales.

When we look at our operating segments in the first three months, land revenue in Canada was $38 million, a decrease of $10 million when compared to the same period in prior year. This decrease was a result of the mix of land sales were 87 fewer single-family lots were sold but were partially offset by 4 additional multi-family industrial and commercial acre parcel sales and two additional raw and partially finished parcel sales.

Land gross margin decreased $9 million when compared to 2013 as a result of the lower single-family lot sales in 2014, partially offset by the higher average lot selling price in a mix of land sold.

In the Central and Eastern U.S. we have experienced continued increased activity as revenue and gross margin increased by $2 million respectively. This was due to an increase of 57 single-family lot sold primarily in our Denver market, partially offset by a decrease in average lot selling price relating to the mix of lot sold.

In California there were no lots – land sales or – for the three months ended March 31 2014 or in the same period in 2013. In terms of our housing operation, housing revenue was a $164 million for the three months ended March 31, 2014 compared to $199 million for the same period in 2013.

Gross margin increased $15 million as a result of an 18% increase in housing closings, and a 17% increase in the average selling price when compared to the same period in 2013. Gross margin percentage increased to 23% for the three months ended March 31, 2014 compared to 19% when compared to the same period of 2013.

Looking at our operating segments, the Canadian market has shown a steady increase in sales with its backlog units up 8% year-over-year. Housing revenue in Canada for the three months ended March 31, 2014 increased $17 million and gross margin increased $6 million when compared to the same period of 2013. This resulted from a 22% increase in housing closings and 4% increase in the average home selling price for the three months ended March 31, 2014 compared to the same period in 2013.

The increase in the average home selling price was attributable to product mix particularly due to Ontario having a higher proportionate share of the increase, and total home closings as our homes in Ontario have a slightly higher average selling price.

In California, net new homeowners decreased by 44 units, however, we saw 13% increase in home closings during the three months ended March 31 2014, when compared to the same period in 2013. Overall, our California segment had the largest improvement in housing revenue was $68 million in the first quarter, an increase of $26 million when compared to the same period in 2013.

This is due to non-additional home closings and a 42% increase in average home selling price compared to the prior year period. Gross margin increased $9 million as a result of the increase in the average home selling price, which was driven by product mix of higher priced home closed in our some of our San Francisco Bay Area and Southern California communities.

In the Central and Eastern U.S. markets, housing revenue increased $2 million as a result of three additional home closings, and an increase in the average home selling price. In Denver, we had 13 home closings for the three months ended March 31, 2014 compared to no closings in the same period in 2013. In Washington, due to increment weather we saw a decrease in activity. Housing gross margin remained flat when compared to the same period in 2013 due to product mix.

Moving to our balance sheet as at March 31, 2014 our assets totaled $3.2 billion. Our land and housing inventory and investments in unconsolidated entities are our most significant assets, with a combined book value of $2.7 billion or approximately 83% of our total assets. Our land and housing assets includes land on our development and land held for development, finished lots ready for construction, homes completed and under construction in model homes. In the first quarter, the increase in our land and housing assets is attributable to acquisitions of $84 million, development activity and stronger backlog.

In terms of upcoming investor events this month we will be at the following conferences in New York. The Wells Fargo 2014 Industrial and Construction Conference, the JPMorgan Home Building and Building Products Conference, and the Credit Suisse 2014 Regional Real Estate and Building Products Conference. We are also planning our first Investor Day in Playa Vista California on November 19.

We’d like to thank you for joining us in the quarter and conference call. I’ll now turn the call back to the operator, who will moderate questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question is from Dan Oppenheim of Credit Suisse. Please go ahead.

Dan M. Oppenheim – Credit Suisse Securities

Thank very much. We’re just wondering if you want to talk in terms of just what you’re seeing, given your involvement with the land development side, and homebuilding, how are you now seeing the overall environment in terms of demand from the other builders, when you look at sort of the land sales during the quarter, which at this level, and then thinking about over the course of this year, what you’re seeing in terms of demand from builders for lots in the communities, and what your expectation would be as we sort of work through the year in terms of just – regionally in terms of land sales touch?

Alan Norris

Yeah, good morning, Dan. It’s Alan here. I think a bid is a little bit by region. I mean, I think we have, as you know we have number of communities that we are entering into opening up this year into southern California.

We feel fairly strong interest than we have come – we’re in the process of negotiating sort of final agreements with most of the builders, and all we have to do is produce the lot sometime by the end of the year.

So we had good interest from a number of builders in our communities in Southern Cal. Northern Cal is still obviously, is going to be pretty solid. Debt, there has been some softening in the Phoenix market without question. And some builders are doing well in that market and others are struggling a bit.

So I would say that market is definitely softened. In Calgary, in the Canadian market, we have no real issues at all. The biggest issue obviously is just some constrain on supply we’re seeing from builders. We’d actually – when the price is up quite significantly in the Calagary market for instance because of the constraints of environment, and so we’ve got a long laundry list of people wanting to buy lots to be quite honest because of that situation.

So all-in-all, I think we’re generally tracking. No question, some of the areas of the U.S. it’s slightly more sluggish spring selling seasons. We’ll see if it is jobs numbers, it’s sort of revitalizing all of it, and gives a bit more optimism to the market place, and kicks people out of the – kicks the kids out of the basement. But those types of things, I think we’re generally, feeling, okay, albeit. It’s more tapered than last year, but last year you got to remember it was very, very strong first quarter.

Dan M. Oppenheim – Credit Suisse Securities

Great. Thanks very much.

Craig J. Laurie

Thanks.

Operator

The next question is from Adam Rudiger of Wells Fargo Securities. Please go ahead?

Adam Rudiger – Wells Fargo Securities

Hi, good morning. Alan, I think last quarter you talked about your decisive opportunity for the U.S. operations, you were still talking about a potentially matching Canada in 2015, and you had said at that time, 2014 should be a linear progression to 2015. I was wondering if that kind of guidance or thought was still intact, and if not what the current status of those expectations is.

Alan Norris

Yes, Adam. Yeah, I think we’re still on track. I don’t – the mix might be a little bit different this year, as I say this, because – we are experience some of the markets slightly higher margins, and we might as I say in the Calgary context slow down the lot sales just a touch, just because we are dealing with a constrained supply situation, because we are experiencing much higher margin. So we still think that we are – we might be off a little bit on some of the unit stuff, but still make it up on the margin and the income side.

So we believe we’re still on track on that linear progression between 2013 going into 2014 on the mid point, and then 2015 on equal basis through Canada and the U.S. So it’s early days of the year, but generally speaking we think we – nobody is going to believe we’re not on track.

Adam Rudiger – Wells Fargo Securities

Okay, when the U.S. growth, as you think about that income growing to match Canada in 2015, how much of is it, or should we expect significant or more community openings from the housing side or were most of that income generation be from land sales, I’m just trying to get a sense of what your expectations for the size of the U.S. homebuilding operations, can or maybe?

Alan Norris

Yeah. I mean I think we’re gradually trying to get to more home sales in each of the different regions. But I mean we’re not going to be anywhere close to what we think our normalized level should be even by the end of 2015. To be quite honest, we think we could be doing 400, 500 in each of the regions where we do homebuilding operations.

But it’s really just an ongoing progression of our normal business to be quite honest. I don’t see us getting to a full potential in 2015 by any stretch, but we do believe we’ll be getting, we should be hopeful we’re getting equal to where Canada has been over the last several years.

Adam Rudiger – Wells Fargo Securities

Okay. And then just one question on the buyback. How much of that was a function of maybe reduced or slower demand on the land side, so looking for more kind of balanced capital approach to mute the cyclicality or how much of it was just because you like to think the shares were undervalued. I’m just…

Alan Norris

No. That’s a great question. I mean, I think, we still see some opportunities out there. Don’t get me wrong. The market is dried up on the land side, but to be quite honest looking at our share price which is as little as two days ago, we’re setting just below $20. I mean buying back some shares offers a tremendous return on investment in our opinion. Buying our own land at such a discount.

So it was really just a balanced capital approach with respect to – still looking at the appropriate type of deals that they meet our return criteria, but this one in our opinion is, management was a very easy one, because of our knowledge of the assets we own and the pricing that the market has placed on our assets.

Adam Rudiger – Wells Fargo Securities

Okay. Thanks for taking my questions.

Alan Norris

Thank you.

Operator

The next question is from Will Randow of Citigroup. Please go ahead.

Will Randow – Citigroup Global Markets Inc.

Hey, good morning. And thanks for taking my question.

Alan Norris

Good morning, Will.

Will Randow – Citigroup Global Markets Inc.

Alan, could you provide some – you did provide some incremental color on the central segment, I was just kind of curious, where you’re at from a community count perspective, and when those margins really start to inflect?

Alan Norris

Well, I can speak to Austin. And I mean Austin on a – well we’ve got two new communities coming on this year. And that will just get us up to three. And as you know we don’t have anything, that’s just on the land side for Austin at this point. And we are looking to enter the housing market as we’ve stated in past calls.

With respect to the rest of community count, I don’t have the number, Craig has got it right here I think.

Craig J. Laurie

I’ll have five region, but we obviously have guided that we would expect including JVs to go to 57, we’re currently at the 53. So that’s the net for. I have the specifics, but sort of going to memory, I think it was the one or two that Alan mentioned in Central and Eastern. And then, I think the remainder were really in California. I’m not sure of the (indiscernible) in Canada.

Will Randow – Citigroup Global Markets Inc.

And just as a part of that, when do you think that margins would really start to pick up there, and what drives it?

Alan Norris

On the land side or the housing side, Will?

Will Randow – Citigroup Global Markets Inc.

Kind of both. I’m just kind of curious from the overall margin perspective?

Alan Norris

Yeah, I mean. I think if you notice where we are through, I mean on the housing side for Q1, we’re at 23% on the gross overall, which is up four points from last year. From 19% shall we say to 23%. When we’re looking at our backlog, we’re fairly comfortable that we can be sort of reasonably consistent through the balance of the year.

Obviously, we know the inherent lead on the land side, we know that house prices are moving up just not nearly as rapidly as last year, but we still think even as you and I had talked about, I mean even that 3% increase in housing could end up being a 10% increase from a lot perspective as long as all the other costs remains the same.

So I think your guidance with respect to lot margins would be north of 50% in Calgary and north of 40% to 50% in Edmonton, and we are still maintaining 25% to 35%, we believe on average between Eastern and Central and also in California. So we do have that variable throughout the regions. Some of the ones that we open this year might be a little bit higher, but on an average we would still expect them to be in that sort of range.

Will Randow – Citigroup Global Markets Inc.

And then just one follow up on the normal course bid. I guess in terms of – your buying that stock in the open market, but is a block with Brookfield Asset Management out of the question given how thin the float already is?

Alan Norris

It’s well correct. So obviously we would engage a broker and they would be buying a normal course through the market. We wouldn’t know who the sellers are, we could not do we wouldn’t have to do a direct purchase with them. But we should say, we’ve obviously there is a number of rules and laws surrounding on course issuer bid as outlined. It’s related, in both cases it’s really limited to the 25% of the volume – the average volume. So in our case, based on current volumes, that you sort of limited to – you’re around 30,000 shares per day.

Craig J. Laurie

Will, just to add one more thing with respect to from a float point of view, I mean almost as sort of the indirect question you’re asking, I mean we’re well aware, I mean obviously stated in past calls that we want to try and enhance the public float and enhance the liquidity for all shareholders.

We just felt that we needed to staff up just based on my earlier comment that from an actual return point of view, so that is such an oversized return just for buying our own land back, shall we say, albeit we’re not try to, I mean 2 million is a sort of – a tip to, just to put sure that support and that belief in our sales and our stock as opposed to having too much of a negative impact on the public float.

Will Randow – Citigroup Global Markets Inc.

Yeah. I fairly understand. Congrats on the quarter, and thanks for the time guys.

Alan Norris

Thank, Will.

Operator

(Operator Instructions) Next question is from Michael Goldberg of Desjardins Securities. Please go ahead.

Michael Goldberg – Desjardins Securities, Inc.

Thank you. Good morning. First of all, how much do you figure that the difference in your common equity would be if you are reporting under IFRS rather than U.S. GAAP?

Craig J. Laurie

Hi, Michael. This is Craig. So in terms of comparison between IFRS and U.S GAAP housing and land is considered inventory in both cases. So there is no mark-to-market. So, on a material basis, there wouldn’t be a big difference.

Michael Goldberg – Desjardins Securities, Inc.

Okay, all right. A separate topic, well a benchmark U.S. mortgage rate has increased significantly over the past year. The increase in monthly carry for the same dollar amount and mortgage has been more modest, yet the increase in mortgage rate is said to have held back the U.S. residential market. Do you think the impact has been largely limited to mortgage REIT buy activity or have higher mortgage rates and carry also affected new housing activity and lending?

Alan Norris

It’s Alan here, Michael. I think there’s been probably more impact on some of the FHA, mortgage qualification, the reduction in the levels region-by-region. So I think it’s taken a bit of a – it had a slight impact with respect to that and the markets that improved saw quickly last year are the ones that have taken more of a breather right now, the ones that are a little bit more slow and steady are not having a slower spring selling season. And also the other side of it is the areas where we are still getting great underlying support of those where the job creation has been the highest. Obviously the Bay Area and Austin are two prime examples of that. And so I think it’s just a bit of a breathing what people adjust to the new reality on some of the qualifying mortgage ratio levels.

Michael Goldberg – Desjardins Securities, Inc.

Okay. And my last question, how do you think higher interest rates may affect residential lot prices over time?

Craig J. Laurie

No question. Peoples buying – the ability to buy as we go forward will be impacted. I mean we are still very, very affordable at this point. I’ve stated in the past that I do believe that as rates get to – I hate to say normalized, I don’t know what normalized is anymore, but getting – if we start to move up a little bit, I think people will be making choices with respect to the housing product that they are looking for. And so, their choices previously might have been a certain size house for a certain price and it may well be that same price or slightly lower price and slightly smaller house ends up being the reality.

We just need to get a housing continuum we established in the U.S. where we are moving people through from rental into first time buying and into the housing ladder as we typically would look at it, and we still have a number of people still doubling up and we just have to re-establish that housing continuum, move people through the process. And when things become a bit more normalized after the jobs are created, we had some good numbers this morning as early as that. I think we’ll start to see that reestablishment. So I’m comfortable that people will still make those choices, but they’ll be doing it for shelter reasons not for any other reason.

Michael Goldberg – Desjardins Securities, Inc.

So looking at the overall components, if given monthly payment as borrowing costs go up, you have servicing cost, building cost, taxes etc all being relatively fixed. Does that mean that land becomes the biggest potential outlet for the impact of higher rates to be felt?

Alan Norris

Land typically is the residual in most cases market-by-market without question. I mean construction costs in most markets are somewhat similar and other things like that, but I’m not as concerned. I mean land is where you make a lot of money in those things, but you can also build as I say smaller product which addresses that and you can still residual on you. And just the key thing is the mixture that you’re developing land and lots to fit what that market is, that’s the art of our business. And so I’m not too concerned with respect to that albeit we’ll become more challenge. I mean bear in mind rental cost in most of the markets in the U.S. right now are the same as that rolled up homeownership cost is that you were just referring to.

Michael Goldberg – Desjardins Securities, Inc.

Great. Thanks very much.

Alan Norris

Thank you.

Operator

The next question is from Robert Wetenhall of RBC Capital Markets. Please go ahead.

Collin Verron – RBC Capital Markets

Good morning. This is Collin filling in for Bob. Thanks for taking my question. How should we think about the pace of community count development and expectations for ASP performance in the U.S. and Canada?

Alan Norris

Which one, sorry – I’m sorry, Colin, repeat that again, I just missed it.

Collin Verron – RBC Capital Markets

So how should we think about the pace of community count development and expectations for ASP performance in the U.S. and Canada?

Craig J. Laurie

Yeah. This is Craig. I mean in terms of community count as I mentioned we would expect to see sort of a net four come on by the end of the year. That was our original guidance. So we go from the 53 we are at now to the 57. In terms of average sales price, as you said, it obviously is going to depend on the overall mix. Certainly we have seen an increase in our average sales price particularly if you look at our backlog you’d have seen that value have gone up fairly materially. A lot of that certainly driven by – you’re seeing it in both Canada and the U.S. In the U.S. a lot of it is certainly you are seeing in California particularly in the North and that’s a combination of increased margin but also higher average sales price in those markets.

Alan Norris

Giving a quick example in, some of the homes that we sold for instance Collin in Playa Vista when we just launched in February there, the average pricing of the housing that we just released it was $1.09 million. So obviously that takes the average up substantially and lot of our product up in Northern California is obviously not million-dollar plus range as well. So the average ASP has gone up, most of it on product mix. It’s tough to go apples-to-apples, year-to-year but for some of the lands that we have, that will be a appropriate product to build on it. We do try and go across the spectrum for different types of housing, but those lines are such good locations, but it depicts that type of house product.

Collin Verron – RBC Capital Markets

Great. Thank you.

Alan Norris

Thank you.

Operator

The next question is from Rick Murray of Midwest Advisors. Please go ahead.

Rick Murray – Midwest Advisors

Hi, good morning, gentlemen.

Alan Norris

Good morning.

Rick Murray – Midwest Advisors

A couple of quick questions and I apologize if you’ve already covered this, but ex the big commercial gain in the quarter, it looks like the results were about breakeven and down a bit from last year. I was just curious what – was this in line with your expectations and if not what drove that? And then the second question I had was, what was the driver of the big decline in margins on the land sales versus last year? Thanks.

Alan Norris

I’ll do with the first part Rick. Year-over-year we had – couple of small things, we had some game recognitions on some jobs that closed in first part of last year which – first quarter is always a slower quarter, so things have tend to be magnified somewhat and are not representative of the balance of the year in any years that we’ve been doing this. But the other thing Canadian dollar moved down a bit over the course when you compare with the previous year. So we do have some FX currency slide. With respect to that, we moved into probably $0.90, $0.91 through that quarter versus close to $1.00 and I think it was in the prior year quarter. So there is some fluctuation with respect to that.

And so the second point was?

Craig J. Laurie

Yeah, this is Craig. In terms of the land gross margin, the percentage wasn’t that material obviously when overall we went from 54% to 48%. That was a pretty meaningful increase in Central Eastern and read off of page 30 of the corporate profile if you have in front of you. Canada went from 60% down to 53% and that was really a combination of volume and some mix. As we talked about before, there is a slightly lower margin on our sales of lots in Edmonton. I think Alan talked about the sort of each of the lots.

Alan Norris

I think when you look at – I mean because of the variability on the different margins, because I touched on earlier in the call is north of 50% in Calgary north, 48% and 50% in Edmonton and then most of the other regions are between 25% to 35%. So obviously that – the blended weighted average comes out depending on where the lots have been sold in a particular quarter. I’m comfortable that those levels I’m referring to are still consistent if not actually increasing in some of the areas and so really it just depends where we sell the lots in that particular quarter.

Craig J. Laurie

Okay. Thank you.

Alan Norris

Thank you.

Operator

The next question is from Will Randow of Citigroup. Please go ahead.

Will Randow – Citigroup Global Markets Inc.

Hi, thanks for taking my follow-up. I was just curious when I was looking into your corporate profile, I haven’t seen necessarily done this kind of cash flow update. What does that stand as it moved at all in the last year or so?

Craig J. Laurie

Well, this is Craig. As you know, we don’t update that on a quarterly basis. We only update it annually. We did update it at the end of last year during our February call and it was at $5.5 billion.

Will Randow – Citigroup Global Markets Inc.

Got it. Okay. So I was just curious because I didn’t see there, maybe I missed it. Thanks again guys.

Alan Norris

Thanks, Will.

Operator

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

Alex D. Avery – CIBC World Markets, Inc.

Thank you. Alan, earlier in the call you mentioned I guess in the context of the U.S. operations reaching a level equal to Canada by 2015. You also mentioned the idea of normalized level of business in the U.S. So just wondering if you could put some parameters around that?

Alan Norris

Yeah, morning, Alex. Yeah, I think I was just trying to give the context that even once we get to the level in 2015 where we think the U.S. operations will equal where we’ve been in Canada up to this point was that not to think that, that was at full operating capacity. I still think we’ve got room to grow just even within our existing stuff without really doing a whole bunch more. So it was – say if we thought we’re going to be doing say 500 homes in most of our areas in the U.S. at a normalized level for each of the regions what I am suggesting is we’re not going to be at those levels by the end of 2015 yet we will still be at Canadian levels approximating the Canadian profitability. That’s all I was trying to say.

Alex D. Avery – CIBC World Markets, Inc.

Okay. That’s great. Thank you.

Alan Norris

Thanks, Alex.

Operator

There are no more questions at this time. I’ll now hand the call back over to Alan Norris for closing comments.

Alan Norris

Thanks so much, operator. Really appreciate everybody’s interest and support on the call, and we’ll chat with many of you at the various conferences that Craig referred to earlier on and obviously on our next quarterly call. Thanks very much.

Operator

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

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