世邦魏理仕集團 (CBRE) 2004 Q3 法說會逐字稿

Welcome to Trammell Crow Company's Third Quarter 2004 Financial Results Conference Call. All participants will be able to listen-only until the question-and-answer session of the call. This conference is being recorded. If you have any objections you may disconnect at this time.

I would like to introduce your conference leader, Miss Barbara Bower of Trammell Crow Company. Miss Bower, you may begin.

Good morning and thank you for joining us for Trammell Crow Company's third quarter 2004 earnings release conference call.

This morning we issued a press release announcing our results. If anyone needs a copy of that release, please call 214-863-3350 and we’ll fax you one immediately. This call is being webcast live. It will be archived and available through November 9. The call may be accessed from the Investor Relations section of our website at trammellcrow.com. In just a moment, Trammell Crow Company’s management will provide commentary on its earnings and then we will open up the line for Q&A.

First, I would like to remind you that comments made during this call may include certain forward-looking statements. Actual results and the timing of certain events could differ materially from those projected and or contemplated by the forward-looking statements. Due to a number of factors including those set forth in the Company's Form 10-K as filed with the Securities and Exchange Commission. With that I'll turn things over to Bob Sulentic, our Chairman and CEO.

Thank you Barbara and thanks everyone for joining us today. With us from management are Derek McClain, the Company's Chief Financial Officer, Owen McCurry (phonetic), our Chief Accounting Officer, Michael Lafitte, President of our Global Services business, and Matt Khourie, one of the Co-Presidents of our Development and Investment Business and for those who might not have been on the phone last time when we introduced Matt, he is a 25 year veteran of our Company and he joins John Stirek and Chris Roth as Co-Presidents of our Development business so that three of them carry the banner. First, Derek will take turns presenting on this call's maps up to date for the first time. With that I am going to turn it over to Derek for financial results.

Thanks Bob. Earnings per share for the quarter were up nicely, 15 cents versus 5 cents in the third quarter of 2003. That finishes right in the middle of our most recent guidance for the quarter targeting earnings per share of 10 cents to 20 cents. For the year-to-date our earnings per share are 30 cents versus 16 cents for the first nine months of 2003.

Looking first at revenues for the quarter; we had some very revenue growth, consolidated revenues were up 13% versus the third quarter of last year. By segment Global Services revenues were up 11% and Development and Investment revenues were up 46%.

When Mike speaks here on the bit he will have some color for you on the individual Global Services business lines for the quarter and the year-to-date. But I'll just mention a few of them here for the quarter. Our brokerage lines were up nicely. Corporate Advisory services was up 10% and the brokerage we do for our investor customers, those revenues were up 26% with the majority of the increase coming from the investment sales component of this line item.

Our other user customer revenue lines, facilities management was up 5%. We returned to quarter-over-quarter revenue growth on that line item and project management was up 44% due to both expansions with existing customers and the addition of new customers. And as I indicated, Mike will have more color for those for you.

Looking at expenses, salaries, wages and benefits were up almost $10 million for the quarter but 80% of that is reimbursed, largely due to staffing ads and facilities management and corporate project management. Our commissions were up, of course, driven by the increase in brokerage revenues.

General administrative expenses were up about $4.9 million but again, about half of that is reimbursed G&A associated with reimbursed personnel. Looking at the earnings contribution by segment, Global Services, income before income taxes for this segment was up 37% year-to-date with encouraging pre-tax income margin improvement from 2.8% for the first nine months of last year versus 3.6% for the first nine months of this year. On the Development and Investment side, we had modest income before income taxes through the first nine months versus a pre-tax loss in this segment through the first nine months last year and again, consistent with our historical patterns, substantially all of what we make in the Development and Investment segment will come in the fourth quarter.

Our balance sheet remains strong. We had cash of $95 million at September 30, versus $79 million at June 30. Our line of credit borrowings at quarter end was zero and I have report to you that's still the case after the completion of our stock buyback subsequent to quarter-end. In the buyback we bought back approximately 2.4 million shares for $37 million.

Our real estate balances and related debt are up through the third quarter consistent with the increase in activity we are seeing and available credit under our line was approximately $105 million at quarter-end.

Turning last to the guidance, as we noted in our release we've increased our full year earnings guidance to reflect the increasingly strong indications we are receiving with regard to the timing and potential profit contribution of significant development and investment transactions. We now believe that, the most likely outcomes for full-year diluted EPS range from 70 cents to 90 cents and that's up from, but overlapping with the guidance that we've most recently given. Now this is admittedly a very wide range particularly so late in the year, but there is still timing and profit contribution uncertainty with respect to many of these deals. As we noted in our release if we are to achieve an outcome towards the top-end of the range, it would likely be to the detriment of 2005 EPS. As we get there by taking advantage of opportunities to sell projects earlier than we would have anticipated diluting the pool of projects potentially contributing to earnings in 2005. As is our custom we will be giving guidance on next year in February, when we report on this year's results. Bob?

Thanks Derek. I'll make a few comments on our operations and my overall perspective on our business before I turn it over to Mike and Matt to give more detailed insights into the two segments of the business.

In general, I am extremely pleased with our results year-to-date and with where we are positioned for the balance of the year and that comment applies to both the whole Company and to the respective components of the Company, our Global Services business and on our Development and Investment business individually.

Notably, our customer satisfaction is strong. Our surveys have shown that in the mechanism we used to monitor our relationships with our customers indicate that very important strategic element of our business, we watch it closely and independent of all of the good numbers we are reporting here that's something that is very encouraging for our Company. We had solid growth in revenue on both sides of our business and we look for to that to continue.

With regard to the four major growth initiatives that we've talked about all year; good activity and good lending in new business in all of these areas and our corporate outsourcing business, start with, we've had roughly 25 and in fact an excess 25 new assignments or significant expansions with our existing customers most of that activity will result in future revenue and profits for the Company because of the nature of those businesses -- those accounts growing as you have [remaining] contributing in the future.

Our development programs are very active and our starts for this year are strong and very substantially ahead of where they were a year ago. One of our big initiatives was to grow our brokerage headcount and at a time when all of our competitors are trying to do the same thing and we are trying to grow out of the same poll of brokers; our headcount is up almost 8% this year, year-to-date and we've made significant progress in this regard in several key markets.

Our fourth growth initiative healthcare has gone very well this year. Revenues are up significantly and we've had a great year as it relates to new business and again this new business will contribute both this year but in future years. So all four of our growth initiatives have gone very well year-to-date and we look for that to continue. Obviously, Derek's commented on our balance sheet and our cash position even after having repurchased our shares were in very, very strong position there. The Company is growing well. Our growth initiatives are in good shape. The operations of the Company are very, very solid. So I feel great about where we are as of right now and I feel great about our prospects for the remainder of this year and into next year. Mike you want to comment on Global Services business?

Yeah, thank you Bob. This morning my comments will focus around the results of Global Services along with comments about our various lines of business and highlights from the quarter and just walking through statement, starting just with revenues, total revenues were up 11% for the quarter for Global Services and 6% year-to-date. Revenues for both sides of our business; user customers and investor customers were up. And as we've expected and as we've discussed the growth rate at which our user customers are growing is exceeding that which our investor customers are growing, but we are pleased to see both segments growing.

On the user side, the revenue is up 13% for quarter and 7% year-to-date, with our year-to-date numbers now exceeding 300 million through the three quarters. Our user revenues now make up approximately 62% of overall Global Services revenues and we continue to believe that percentage of our business with our user customers will increase given the market conditions.

On the Facilities Management side, revenue is up 5% for the quarter, comparison yet down 1% year-to-date. We feel that those are square footage numbers in that business bottomed out really at the end last year. Square footage is up year-to-date. We have added 22 million square feet to our FM portfolio through the third quarter. During this past quarter we announced a significant renewal and expansion with Untied Health Group, a full service assignment which includes facilities management.

On the CAS side of our business, our Corporate Advisory Services business, revenue was up 10% for the quarter and up 8.6% year-to-date. Our brokerage headcount continues to increase in the United States, reporting 618 producers at the end of the third quarter; up 8% year-to-date for our headcount. We continue to see this trend happening and would predict that we will continue to focus on this through the rest of this year as well as in the next year.

We announced CAS transactions closed in this last quarter in Dallas, New York City, Stanford, Connecticut and Illinois during the past quarter. Our production for broker also continues to increase showing evidence of our increased activities as well as the addition of higher producing brokers been added to our firm.

Our net work with JJ Barnicke in Canada and Savills throughout U.K., Europe and Asia are progressing well with increasing deal volume. Our Corporate Project Management business saw revenues up 44% for the quarter and 31% year-to-date. In this past quarter we announced wins in this segment of our business with Morgan Stanley and [inaudible] Philips and we continue to see this line of business with a very, very strong pipeline of new opportunities.

Looking at the Investor side of our business, we saw revenues up 6.5% for the quarter and 5% year-to-date with revenues totaling $187 million through the first three quarters of the year.

Property Management revenues were down 5% for the quarter and 5% year-to-date, we certainly have expected and talked about the dynamics going on in the marketplace in this segment of our business, it continues to be influenced by turnover of the inventory due to sales activity long with continued pressure on market fundamentals in many of our markets. I would say though that we have continued to win new customers and remain on offense in this segment. Our focus has been on winning new office buildings along with larger industrial portfolios with our investor clients both large institutional clients as well as smaller regional investor clients. This past quarter we announced new office wings in Chicago, Dallas, Washington DC, Houston, CBD, and Tampa. We also won two large industrial assignments in Southern California and one in New Jersey along with new retail portfolio in Denver.

Overall, for our property management and project leasing business, our square footage was up actually for the third quarter compared to our second quarter of the year. So we hope that the growth there picks up.

On the investor brokerage side, which includes both project leasing and investment sales, revenue was up 26% for the quarter and 24% year-to-date. Again, it continues to be led by strong increases in investment sales area given the market conditions in that side of our business up 56% for the quarter and 62% year-to-date; significant growth in our investment sales business. We announced completed transactions with our investment sales group this past quarter in Atlanta, Orlando, Boston, Southern California, Washington DC, and Texas. So our network is extremely active all over the place. Our project leasing also showed slight improvement; actually up 7% for the quarter and 1% year-to-date. So, we are starting to see a little bit of rebound there in increased activity but also a result of our headcount increase.

On the profitability side of the services side of our business, income before taxes, as Derek mentioned, were up 53% for the quarter and 37% year-to-date. We're pleased with that. We also are pleased with the increase in our margins of income before taxes over revenue increasing for the quarter 3.7% in 2003 to 5.1% in '04 and a similar increase for year-to-date going from 2.8 to 3.6. And these margins are impacted really by three things. Number one, discipline around pricing new business. Secondly, just continued focus on our costs. And third, upside brokerages as the revenues increase there is a lot of leverage in that -- in the margins in that business for us.

Final comments I would make just would include our outsourcing business and our user segment has grown faster than our investor customers this year as we have expected. We believe this trend will continue especially with the opportunities with both corporate and healthcare customers. Regarding our international business, it is growing in terms of both customers as well as our network and our people. We are making good ads outside of the United States.

As to our brokerage platform, we continue to track strong talent from the industry. Our platform is proving to be attractive to strong producers as our customers consolidate providers and look for full service offering. Domestically, we are committed to growth in Chicago and New York and we are making games in both talent and customers wins in these markets.

Finally, we remained focused on customer service and growth and feel great about the services sector and pleased with the results and look forward to finishing the year strong.

Thanks Mike. Matt.

We are also pleased with our third quarter development and investment results. We recorded over $900 million of acquisition in development starts in the first three quarters of 2004 including slightly over $200 million and starts for just the third quarter of '04. And when looking back on last year that compares favorably to the 339 million of starts for the first three quarters of 2003 and it also significantly exceeds the annual total for 2003 of 419 million. We expect, as we think both Bob and Derek mentioned, our fourth quarter development and investment results to be strong as they have been historically; as the capital market continue to pay top dollar for quality developments. This demand by buyers to purchase some of our properties may actually move some of the anticipated 2005 closings to the fourth quarter 2004 due to that strong appetite by capital.

Overall, our development and investment business continues to gain momentum driven by several macroeconomic factors, one being job growth in some of our key major markets that’s helping to drive the prospect and profitability of new developments. We are starting to see positive absorption of our all products types in many of these same key markets and it's helping to accelerate our lease up in some of our development projects. We’re seeing certain corporate users turning more optimistic given the economic backdrop and starting to commit to new space needs which certainly helps our business. And then as I mentioned earlier, real estate capital sources are aggressively bidding on all types of stabilized properties, which is helping drive increased profitability on our property sells.

On previous calls, we have talked about a number of our development and investment initiatives and these are gaining some excellent traction. I want to just to note some of these initiatives that we have been working on and some of the progress made in the third quarter. Healthcare was mentioned earlier by Bob. We have got a full pipeline of healthcare projects both on the new development front and the acquisition front. An example of this is in the third quarter we were awarded the fee development assignment by Memorial firm and healthcare system of Huston on a $65 million heart hospital and that should start construction in the first half of 2005. We also have started an ambulatory surgery center for United Surgical Partners in Garland, Texas during the third quarter. And we are currently reviewing a number of medical office building acquisition candidates in select major markets around the country that we are very excited about. And as we mentioned on our last quarter's call, we are continuing to progress on a venture with one of our institutional customers to purchase and develop medical office buildings. So, we are very excited about the healthcare initiatives.

In our urban residential/mixed initiatives we are continuing to see our pipeline grow here as well. In the third quarter, we commenced construction on Shirlington Village Condominiums, which is a 159 unit project in Arlington, Virginia, which also includes a retail component and a public library and a live performance theater.

On the acquisitions front, which again is another major initiative we have got. We are primarily using our Fund V Investment vehicle and through the first three quarters of 2004 we completed eight acquisitions totaling over a $100 million. Coupled highlight of that acquisitions are the Turtle Creek in Regency office building in Dallas that were totaling 29 million and then we bought a retail center in Denver, and bought a marketplace.

On the higher education front, we started construction on a large student housing facility for Oklahoma Christian University, and our industrial developments progress continues to be good. We closed on a 83 acre track of land in Southern California through our fund grow industrial fund with ING Clarion and we trying to build a significant industrial part there as well. So as you can see our initiatives are really staring to pay dividends and we are very excited about that carrying us in to 2005 and 2006.

In addition to those initiatives, we have also seen significant profitability this year in our shopping center business. As reported on a previous call this year, we sold the portfolio shopping centers which we call PSK. And we anticipate another significant retail sale in Texas in the upcoming months of the grocery-anchored center we've developed. So both of those are good and generate significant profitability.

So, in summary, we have seen the benefits of momentum from our initiatives. The improvement in the national economic environment has been very helpful and our strong corporate balance sheet has helped drive improved results in our development and investment business. Bob.

Thanks Matt. Why don't we go ahead and open it up for questions.

At this time, we are ready to begin the question-and-session of the conference. If you would like to ask a question, please press "*" "1" on your touchtone phone. You will be announced by name, and company, name prior to asking your question. To withdraw your question, you may press "*" "2". Again to ask a question, please press "*" "1"; one moment please. Bill Marks of JMP Securities, you may ask your question.

Great, thanks. Good morning everyone.

Hi.

I had a question; I guess the first just to clarify so the upside in the fourth quarter would be in the line on gain on disposition of real estate for the most part?

There is income from subs, right?

Yeah, there are -- in the income from sub, okay.

Correct, I mean, we -- most of the variability that we see in our full year and hence our fourth quarter bottom line as a result of these significant individual development investment transactions we mentioned and yeah, those sales would show up in one of those two places on the income statement.

Okay, great. Few other questions on facility management, you mentioned that this group for the first time, you can see the moral up, what is -- what is the outlook there? Should we expect further quarter-over-quarter growth going forward?

I would say that we are certainly expecting growth in our facilities line of business going forward. We are winning new business and there is a bit of a lag in terms of when we win that piece of business in terms of when it and then the lag -- when it will start showing up in terms of revenue and a bottom-line profit. When we take on an FM assignment, we may win it today and transition that account over the next 60, 90 days and then really see the benefit in 2005, if we won a deal today. So, yeah up, I mean, we expect that line to grow.

Yeah. And we had signaled this when we reported on our second quarter results that -- we thought that would be the last quarter we would be reporting on for the near-term with an adverse comparison. And then in fact, we would be turning that around. So this is confirmation of that task and we'd look for the same in the fourth quarter. And then with regard to 2005, we'll report on that in February, but certainly the trend Mike (phonetic) [siding] is there.

Okay on the brokerage side transactions the sales and releasing it seems like the sales activities what has been really strong not so much the leasing activity, is this first of all correct me if I am wrong there and then going forward does this mean that given all the capital markets -- given the capital markets environments this makes the tough comp in '05?

Well, I'd just say a couple of things; first of all, we still see probably a pretty healthy market and capital markets in '05 for our investments sales business. We are -- the headcount additions that we are making a lot of our uptick is certainly the market conditions, but another pretty good part of it is just significant ads and new hires that our team led by Jack Minter and Bob Subiliack (phonetic) our new brokerage leaders that we brought into the Company last year were having an impact on. So that’s the first comment I would make. The other thing I'd say about leasing is there is really two parts of leasing; there is our corporate -- our CAS side and that is for the most part leasing representing the user and then there is project leasing. The project leasing side has been side for us that has been flat or down slightly over the last 12 to 18 months given the market conditions what's been going on there to fix that line more than it's affected our CAS. Most of our growth in headcount again has been more on the CAS side. So that's why you are seeing that line increase. So project leasing we don't think is down forever. I mean it's -- these markets are starting to recover; vacancies are decreasing. And so that project leasing line I think it has got a pretty good trend line ahead of it as well as the CAS line.

Okay, great and what is the breakdown generally of the leasing and sales?

They have -- within that investor business, it's our investment sale businesses is now bigger than our project leasing business. It's probably 60/40 something close to that.

And that is something has occurred in the last year.

Definitely.

That is past to 50/50 mark.

Right. Okay. And one another question, I guess, more general, it looks like year-to-date Globe Services revenues have grown 6% but EBITDA is actually negative. And I'd like to look at that positively that means your debt side for next year but maybe you can comment on that?

Yeah, I mean, we are not making any comment with regard to next year’s, you know, EBITDA at this point again. But I think you are right, we have got an opportunity, but that means you can see by simply looking at the EBITDA calculations there at the end of income statement how we get there and looking at it as well on the segment table. But we benefited clearing from reduced D&A associated with replacing IT assets at less cost. We have certainly benefited from less interest cost as well producing -- that’s produce real earnings for us.

But, why I guess -- the question is why it has been -- why is the EBITDA not growing with the revenue growth?

I don’t have -- I guess, I don’t have an answer for you. I mean it's just for the calculation, I mean we would expect it.

Then just like a lot of that was in the quarter, first quarter, so I mean I guess the last -- in the last few quarters maybe you have had quarter-over-quarter growth and just the first quarter was negative on the Global Services EBITDA.

Right, I mean you are right. I mean if you look at third quarter, you see it up. But again, not up as much as income because you can see, we benefited there from again, from D&A and the interest.

Okay.

But certainly, I mean we will look for increases in EBITDA going forward as we --you know grow this revenue line.

Also thinking impact on it was the brokerage hiring we've done well over the last year has had some upfront cost in terms of bonuses and so on and so forth that will result in the depressing impact on EBITDA in the short run and positive impact in the long run.

Yeah, I mean there is been very calculated edge to our national initiative within the Global Services sector, certainly, whether its perused around our corporate teams or functional lines of business that we've made, that, you know, we may have a full year impact this year, but that we will leverage and be able to grow from here with that. So I mean -- those investments have been made very calculated.

Right; that makes sense. Thank you.

Matt Ostrower of Morgan Stanley, you may ask your question.

Hi, good morning guys. I guess-- I have got a question for Derek and a question for Bob. Derek and you may have given the number that I can back into it, but if that's the case I can't tell. You said that the majority of brokerage was driven by investment sales and then somebody else in call said that investments sales actually -- the profits in that increased 56 -- or revenues in that increased 56% for the quarter. When I look at your brokerage line items they are not up nearly that much. So I mean -- I guess my question for you Derek is can you sort of tell out a little more clearly how much of the increase in overall brokerage revenues really was investment sales; are we talking about not just the majority but the vast majority? And the question for Bob is it seems to me that your fundamentals are changing -- that the fundamentals here been affected not just by a normal cyclical rebound but this is -- a lot of this is about this whole, you know, robust assets in the market. If one is in the camp that assets sales might come down if interest rates go up even if fundamentals are to get a little bit better, interest rates go up and assets sales go down to what degree are you comfortable with for sustainability of this recovering your numbers?

Okay, Matt, I will go first. First of all, I mean as you are aware -- I mean we've got two separate brokerage lines on our income statement, Corporate Advisory Services, the [tenant] rev brokerage and then the brokerage we do for investor customers, which consist of the two components; project leasing and investment sales that might identify and -- so, when he went through the stats or increases in those components of the investor customer brokerage aligned and they were as follows: the investment sales piece, the investment sales commissions portion of the Investor Customer brokerage is up 62% year-to-date and the project with leasing piece up 1% year-to-date.

Okay.

Those numbers for the quarter, the investment sales piece was up 56%, project leases piece was up 7% and for the quarter that brought that line item combined up 26%.

Okay.

And, I can --

Okay, no, that answers my question really well. I sorry, I didn't get that when they went first went thorough it. I guess that leaves my question for Bob, is this -- it just seems to me for those who else who serve in a camp that were in a very strong asset market, but a very weak fundamental. Is it not possible that, you know, as you want to call an '05 number specifically, but if '05 has a strong economy but no significantly rising rates and the property market slow down, is it not possible that we wouldn't see Trammell's results, sort of slow down as well?

Yeah, Matt, I will try to address that and I think that there is a lot of concern in our industry that asset values are not going to be able to sustain either their rate of increase or even maybe stay where they are and then you asked a question, what impact does that have on the various participants in the industry. The first thing I would say to you is, you asked a question, will you be able to sustain your growth if that happens. The first thing I would say to you is, remember last year, we grew 27% bottomline.

This year Derek reported a number of the high-end of, which would suggest 58% growth bottomline. The answer is, of course, we are not going to sustain that rate of growth long-term. I would say to you though, in general, and by the way, that's the high end of our range for this year, but the low end of our range now is very, very healthy as you know. I would say to you, in general, we are coming out of the bottom of an economic cycle and going into a period were we are now seeing job growth etcetera, etcetera and there's a few things going on in our business that I would point to, that will cause growth in our business that don't rely on asset values. Number one, our development starts year-to-date or 2.5 times what they were year-to-date last year. A lot of that activity is the activity for hospitals and others, very profitable business that doesn't depend on asset value. So, that's up 2.5 times relative to last year, which was the bottom of the cycle for us and that isn't driven by asset values.

Secondly, brokerage, in general not focusing specifically on investment sales; brokerage production per broker for us in the industry in general is still not got in backup to where it was at its peak -- at it's peak levels in the last cycle and some of that's investments sales, some of that's brokerage representing users at space, some of it's representing owners of space and so on and so forth, you got a mix and there is some push pull there, but number one, we expect revenue per broker to continue to grow as the cycle as we go deeper into a positive cycle and secondly, as we talked about today our brokerage headcount is up 8%. So Mike already comment on the fact we are growing two ways, yes our investment sales brokerage are experiencing very good success and that's going on all over our sector, but we are also adding brokerage and we are also seeing revenue per broker go up in general. And then in general, we have a diversified business; were 30% roughly give or take of our business is brokerage, it's not 70 or 80%. We've got a big development business, a big project management business, those revenues have gone up dramatically that's not depended on asset values. So there are things in there growing in our business that don't directly relate to asset value and yes, if assets values come down; it's going to have a dampening affect on our business, but our whole business is now been driven as this point by the growth in asset values and certainly things like our healthcare initiative, which is very strong, our hardware initiatives so on so forth really [aren't] driven at all by asset values and that's one of the reasons we've made the move we've made in that direction with our business such it won't be cyclical and I would argue that the growth we've had in our corporate outsourcing business and I mentioned 25, roughly 25 significant new pieces of business or expansion this year that's not tied to asset values, that's tied to the growth in the economy generally, the addition of jobs etc, etc, so there is whole lot of things going on our business that are been driven by asset values.

Bob, this is Matt, let me add one other item to that. As I mentioned, as I checked through the initiatives, one of our major initiatives is acquisitions and those are difficult in environments where you have rising asset values, but if there is some rest in that or if the asset value momentum slows down it could provide added opportunity for some of the acquisition side.

I guess it's a last question Bob where you sits today looking at where you see fundamentals, obviously, this is a question about can your other fundamentals. can your other initiatives and then just frankly, in a normal sort of in your [tenant rev] type business can that, how quickly can that overcome a potential slow down in the investment sales business? You know where you sit today how comfortable are you with the timing of those two things or might there not be a year sort of [shoulder] period where your earnings might actually be flat or go down?

Well, we are not -- again that we don’t want to -- we don’t want to comment on next year's earnings yet because we are still as -- and that's been our habit in the last few years to be very careful by commenting on that because the business is so transactionally [run] that what happens between now and year-end not in terms of the market, but just in terms of the timing of individual transactions will have a big impact on this year's numbers and then a corresponding impact on next year's numbers. For instance, we may close a transaction this year, at the end of the year, that grows our earnings this year by $0.03 or $0.04, a large transaction and correspondingly, because it didn't happen in January; causes January earnings to be down $0.03 or $0.04, so -- or next year's earnings, so that's a big piece of it and I don't want to get into it. I will say this; we believe that we are on a consistent growth trajectory in our business. We get back to that EBITDA question; we made millions of dollars of investments this year and last year in our marketing efforts on the corporate outsourcing side and in our marketing efforts on the healthcare side. Those teams we put in place to [land] that business that I described and by the way, combined probably something between 55 and 60 pieces in new business that are having very little impact on our revenue stream and our income statement this year. Those will come in next year, but the millions of dollars that we are incurring on that; we are incurring this year and we incurred in the later part last year. So I expect our business to be able to continue to grow, but it clearly benefits on both sides; from a strong investments sales market and from a strong asset value market.

Matt this is Jim Grochem (phonetic), Chief Investment Officer, one another comment, that I add to yours is, as you look at over the next few years the recovery in the real estate fundamentals, rental rates, vacancy rates are just beginning and we will start -- we will just now start to have a positive impact, particularly on development business but, also frankly, on most of the institutional side of the business. But the property management and project leasing and as you look at over the years, that’s likely to improve modestly in the next couple of years and then begin to spike as, you know, your supply and demand becomes more balanced. So, as you look at few years out, I think over time the recovery, which does take time but the recovery in the core fundamentals that rental rates, vacancy rates are likely to have a bigger impact on business than some interim kind of starts and stops perhaps on the cap rates or capital market demand side.

Let me just add, this is Mike Lafitte, let me just say from Global Services perspective, we clearly plan on growing our brokerage lines of business period. Investment sales today makes up 30% of our total brokerage business today, we still have markets where we don't have that kind of coverage and the depth in our investment sales platform and producers that we are adding. So we are certainly used to the cyclical nature of that business and we are certainly benefiting right now from where we are in that cycle. But the beauty of our diversified business in the Global Services business is not just brokerage representing 30% of our revenues within that segment, is that all these things don't totally move together that while in the investor business has been down, the outsourcing business has been tremendous in terms of the pipeline and the opportunities. We will start to see those things paid off. So I would tell you our intentions are we are going to continue to grow brokerage both in the U.S. as well as globally; and you know we think that we got the market opportunity to do that in spite of the cycles certainly -- aware of the cycles in that business with our eyes wide open to what can happen in that segment but we still feel good about our future there.

Thank you.

David Gold of Sidoti and Company, you may ask your question.

Sure, good morning. A couple of questions. One, Derek in commenting a little bit on sort of a wide range of 17 cents and 90 cents; it sounded like I guess, your comments is that you are thinking it is generally the bulk of the sensitivity there is going to be on the developmental side projects closing either sooner than expected So let's just say you are pretty comfortable with the way things are on the services side and it really is, you know, just developmental project closes will that be in that range?

Certainly the -- you are interpreting correctly the comment about the wide range and what's driving it been, you know, variability and the development and the investment results. In terms of -- you are asking if we are comfortable with the services business, well we are. I mean, very nice performance year-to-date and our outlook for the remainder of the year holding up, [inaudible]. So, but I don’t find anything --

I meant you are not looking for a lot of variability there. Variability for the most part is going to be on the development side of things?

Yeah, for Q4.

Right,

I believe that's right, I mean, you know at this point, we are into November, we are having a pretty good view as to what the services business looks like for the remainder of the year. It's the development transactions that are -- can produce the big swings that causes to have such a wide range this late in the year. I mean, there's still the potential for some variability in brokerage transaction revenues late in the year depending upon what comes in but it's not -- it pales in comparison with the variability there on the development side.

Okay and then looking to a little bit of the different direction. With the combination of the strength that you've seen on the development side, [inaudible] world and the business that presumably is put forward for the next year. And then add that to the extra cash; say that you are willing to spend for the repurchase on Dutch Auction and feeling quite [get] out there. Have we increased dramatically plans for investment there let's say replace there, if you will, some of the business that presumably has been put forward?

We are seeing a lot -- as we indicated in the release and I think you've got the flavor from Matt's comments. We are seeing lots of investment opportunities particularly on the development and investment side of the business. I will tell you that we were disappointed that we didn't get fully subscribed in our Dutch Auction tender, we'd like to buyback all the stock and I don’t think you are correct there.

Yeah, e having just one more line of -- clearly you have more cash around than say growth?

Yes, David this is Bob. I will tell you the simple way to look at that are we doing things to replace the opportunities that are being accelerated. The best indicator of that is the amount of new development and investment activity that we call starts. That’s the new opportunities that we secured and put into the actual pipeline, not pipeline of prospective business but pipeline of business underway that harvest overtime. We put, as Matt indicated, -- we've put about 2.5 times the dollar volume of new opportunities in place this year that we put in place last year. Those new opportunities that we put in place in any given year generally don't harvest in the year you put them in place.

Sure.

Either in terms of the fees associated with or in terms of the incentives associated with them or in terms of the ownership returns associated with them all of those elements of those opportunities generally harvest in future years given the life cycles on this businesses. So I would say to you that the fact that started up so significantly this year over last year indicates that while we are harvesting a lot, we are certainly backfilling those opportunities with new opportunities.

Okay.

David, the balance sheet will vary that out, I mean, if you look at our equity and real estate at September 30, it's almost $20 million from the end of the prior quarter.

Sure, I was just looking more for a sense of, let's say, how much the plan has sort of increased or how much of this was tend to plan before -- before I think it started to strengthen, but certainly help, I guess, just one last one. I think there was a comment on therefore on the brokerage side there was a number 618, I am not - I didn’t catch what that was if I was -- I guess brokerage headcount at the end of the quarter we had?

We do a rollup quarterly we have been reporting on just a number of producers. That’s not support staff and research and other things that are around brokerage but just if you license brokers in our USA's network 618 professionals in that group. That represents that growth for year-to-date. So, as we have been kind of -- three years ago we were 500 something like that. So that’s what that number is.

Okay and just Mike if you can give us a little bit of sense for where let's say the brokerage adds were during the quarter? Where are you looking to build out?

In terms of just geography?

Yes.

Obviously, we've talked a lot of about Chicago and New York and we have made more gains in Chicago in terms of actual hires that have hit our doors and joined the Company than in New York. But I would tell you we are still very focused on New York; and those two markets in particular I have stated on the last call, I believe, it will -- it takes several years to build our platform there. So it's not going to happen overnight, but those two in particular we've made significant gains in Southern California this year that we probably added the net adds or the highest in Southern California, Atlanta, Florida, Southern Florida in particular it's really every major market, you can name one, I mean, it is Houston, Dallas. So it’s really all over the map. It's very broad based and it's really more around finding the right people, the right cultural fit. So one of the footnote I would say on that 618 number just kind of -- to clarify in the releases, we have been talking about, will you see a number of 564 that was as part of the release?

Right. 618 is the reason you are best confusing is in addition to the licensed kind of brokerage professionals, there is also transaction managers that we now -- that are in that 618. That are for -- for the most part full time dedicated producers that sit on a corporate account. That’s the confusion between the -- if there is confusion between the 564 and 618. The balance of that is full time producers that are dedicated, so if that answers that.

Yeah. No, it certainly does, that where I lost. Okay perfect. Thanks so much.

Bill Marks of JMP Securities, you may ask your question.

Yeah, I just had a couple quick follow ups and may have missed this and last couple of questions, did the 37 million of cash for the -- or the 37 million that you are spending on share repurchase back has not been taken into account yet, right that was post-September 30?

Correct. It's not reflected on this balance sheet that is I indicated in our remarks, you know we had nothing borrowed under the line on September 30 and that continues to be the case today post buyback.

Okay, and then on that -- what to expect from the year-end balance sheet. I understand that, you were at this 37 million. Do you expect to be taking on -- investing more in real estate in the next few months?

Yes, but also this is a period of great harvesting as you can tell from the comments, I mean we are looking for substantial pre-tax income from the development segment for the full year and it's, just ahead of breakeven for the first 9 months, so we will be harvesting substantially in this quarter, I mean also looking to make new investments as well, but big -- this is the year end and year out the quarter of most harvesting.

Okay, I have just one final question to you on, the [positives] on this as well of a tax rate for just to expect for fourth quarter probably depends a lot on the asset sales but, any comment there?

Well to start on, I think full year will be close to the numbers reflected year-to-date which is 41% plus or minus in the current year-to-date numbers, so I think it will stay very close to that range.

And should we look at that for '05 as well?

Yeah, I would say that that’s the best benchmark to use right now.

Okay, that's all. Thanks a lot guys.

Thanks Bill.

Once again, if you would like to ask a question, please press "*" "1" on your touchtone phone.

Okay, if that's all the questions we will wrap it up and look forward to talking to everybody again with our year-end numbers. Thanks.