世邦魏理仕集團 (CBRE) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2005 earnings teleconference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions given at that time. [OPERATOR INSTRUCTIONS] As a reminder, this teleconference is being recorded.

I would now like to turn the teleconference over to Ms. Shelley Young. Please go ahead, ma’am.

Thank you, and good morning, everyone. Welcome to CB Richard Ellis’ first quarter 2005 conference call. Last night, we issued a press release announcing our first-quarter earnings, which you should have received by now. If not, it’s available on our website at www.cbre.com.

This conference call is being webcast live and is available on the investor relations section of our website. As in prior quarters, we are providing slides of the presentation that you can use to follow along with the commentary. A PDF version of the presentation is available in the link marked supporting material. An archive of the webcast, as well as a transcript of the call will be available on the investor relations section of the website for 3 months.

We have several members of our senior management team here today to discuss our results with you. These include -- Brett White, our President; Ken Key, our Senior Executive Vice President and Chief Financial Officer; and Cal Frese, President of the Americas.

Before we begin, I’d like to remind you that our presentation today contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements should be considered as estimates only and actual results may ultimately differ from these estimates. Except to the extent required by applicable securities laws, CB Richard Ellis undertakes no obligation to update or publicly revise any of the forward-looking statements that you may hear today.

Please refer to our annual report on Form 10K and our quarterly report on Form 10Q, which are filed with the SEC and available at the SEC’s website at www.sec.gov, for a full discussion of the risks and other factors that may impact our estimates that you hear today.

We may make certain statements during the course of this presentation which include references to non-GAAP financial measures, as defined by SEC regulations. As required by these regulations, we have provided reconciliations of these measures to what we believe are the most directly-comparable GAAP measures, which are in the appendix of today’s presentation. With that, let me turn the call over to Brett White, our President.

Thank you, Shelley, and good morning. As you have seen in our press release from last week and again yesterday, we recorded a very strong first quarter. Importantly, this record performance was driven by a broad-base contribution from all 3 of our global geographic divisions and all of our major business lines.

A few performance highlights before I turn the call over to Ken to cover our financials in detail.

First, we achieved 22 percent top-line revenue growth, marking the tenth straight quarter of double-digit year-over-year organic revenue gains. Excluding onetime items, net income for the first quarter of 2005 was $19.1 million, as compared to a net loss of $2.6 million for the same quarter last year.

EPS, adjusted for onetime items was 25 cents. This constitutes an increase of 28 cents, as compared to the prior year adjusted loss of 3 cents per share.

EBITDA, excluding onetime Insignia-related costs totaled $52.7 million for 2005, as compared to 25.3 million in 2004, an improvement of 108 percent.

And with that, I’d like to turn the call over to Ken Kay to cover our financials. Ken.

Thanks, Brett. Please turn to slide number 5.

This slide reflects the Company’s operating results for the first quarter as compared to the prior year. Revenue increased $97.3 million, or 22 percent from last year. All revenue categories have improved, with the most significant increases being generated by stronger investment property sales globally, combined with increased appraisal and mortgage banking fees in the Americas. Leasing also reflected an expected increase due to modest improvement in rental rates.

The increase in cost of services is essentially consistent with the increase in our transaction revenues, as commission expense increased commensurate with higher revenues generated.

The increase in operating and administrative expense is primarily due to higher bonus accruals and business promotion costs as a result of improved performance. Additionally, facilities costs in EMEA were higher due to some additional reserves taken for vacated facilities and costs also increased due to the impact of the relative strength of the U.S. dollar versus foreign currencies.

The increase in our equity income is primarily the result of improved performance in our joint venture operations in Boston and Pittsburgh.

The merger-related costs reflected for 2004 represent costs associated with the Insignia acquisition. There were no residual merger costs incurred in 2005.

Excluding onetime items related to the Insignia acquisition, EBITDA increased by $27.3 million, or 107 percent. This improvement reflects the positive impact of our increased revenue, coupled with the operating leverage inherent in the Company’s business model.

Please turn to slide number 6.

For the first quarter of 2005, our sales and leasing activity represented approximately 72 percent of our revenue. Property and facilities management accounted for 9 percent, while appraisal and valuation comprised 8 percent. Commercial mortgage brokerage accounted for 6 percent and investment management contributed 4 percent.

All revenue types are reflecting increases over the same period last year. Sales transaction revenue increased by $43.4 million, or 31 percent for the quarter. This was largely the result of increased investment property sales worldwide.

Leasing increased $13.3 million, or 7 percent, due to improved leasing fundamentals, while property and facilities management increased $6.8 million, or 16 percent for the quarter. Appraisal and valuation increased to $10.3 million, or 33 percent for the quarter. The majority of this growth was generated in the Americas, due to a strong CMDS market.

Our mortgage brokerage revenues were extremely strong, with fees up $15.9 million, or 105 percent, from last year. Mortgage brokerage fees have remained robust, as borrowers continue to take advantage of low long-term interest rates.

Investment management increased 25 percent for the quarter, as a result of higher fees in Asia.

Please turn to slide number 7.

Our trailing 12-month EBITDA margin improved significantly in the first quarter of 2005. Excluding onetime charges related the Insignia acquisition, EBITDA margin for the last 12 months was 13.3 percent, as compared to 10.6 percent in 2004. This is a 25 percent improvement, which is primarily due to increased revenue, management’s continued focus on cost containment, and operating efficiencies.

Please turn to slide number 8.

Our first quarter 2005 GAAP for reported earnings per share of 19 cents includes onetime charges related to the Insignia acquisition and repurchase of debt. This slide provides a bridge to get from the reported EPS to an adjusted EPS of 25 cents. These onetime charges include integration costs of $2.5 million, or 2 cents per share, and loss on extinguishment of debt related to our purchases of the 11-1/4 senior subordinated notes in the open market of $4.9 million, or 4 cents per share. Excluding these onetime charges, our adjusted earnings per share is 25 cents per share for the first quarter of 2005.

We’ve also provided the comparable bridge for the first quarter of 2004, to provide the visual framework for how strong our first quarter of 2005 really was.

Please turn to slide number 9. The cash balance at March 31, 2005, up $157.8 million, was $99.1 million lower than at December 31, 2004. This decrease was normal, as the majority of our 2004 bonuses were paid in the first quarter of 2005. The remaining bonuses, which are mostly related to employees in our foreign subsidiaries will be paid in the second quarter of 2005.

The decrease in net receivables is reflective of the fact that transaction-based revenue is seasonally lower in the first quarter when compared to our peak revenue production that occurs in the fourth quarter of each year. The warehouse receivable represents loans held for resale by our mortgage brokerage business. The balance will fluctuate in tandem with the line of credit liability reflected on the next slide, based on the number of loans held at any point in time.

Property and equipment net was lower by approximately $3.1 million. This decrease was primarily due to normal depreciation expense, partially offset by capital expenditures.

The increase in deferred compensation assets is related to increased funding of the plan and participant contributions during the quarter. The increase in other assets is primarily attributable to an increase in our co-investment activities.

Please turn to slide number 10.

Current liabilities, excluding debt, decreased by approximately $163.6 million. This decline was due to the payment of 2004 bonuses and the reduction in commissions payable to producers during the first quarter, consistent with seasonally lower transaction revenue. The decrease in the senior secured term loan Tranch B reflects the $3 million required quarterly amortization.

The 11-1/4 percent senior subordinated notes reflects $26 million of open-market purchases in January and February of 2005. In April, we purchased an additional $10.1 million of these notes in the open market using operating cash flow. The current outstanding balance of the notes is approximately $169 million.

The increase in other debt is primarily due to non-recourse debt related to a co-investment in Europe. The reduction in other long-term liabilities is mainly due to the net decrease in lease reserves in the United States and in the United Kingdom.

Stockholders equity rose primarily as a result of the additional net income from the current year.

Please turn to slide number 11.

As you can see, total debt has declined by approximately $30 million during the first quarter for the reasons we discussed previously. Our net-debt-to-EBITDA multiple at March 31, 2005 was 1.5 times as compared to 1.3 times at the end of December 31, 2004. The slight increase was due to a seasonally lower cash balance at March 31, 2005. At March 31, 2004, the net-debt-to-EBITDA multiple was 3.2 times. So you can see we’ve come a long way since then.

On a covenant basis, our trailing 12-month interest coverage ratio was 6.3 times. Our average weighted cost of debt was approximately 7.8 percent at March 31, 2005.

On April 11 of this year, Moody’s Investor Services raised our debt ratings with a positive outlook. Our senior secured bank credit facility and our senior unsecured debt were raised from B1 to BA3 and our senior subordinated debt rating was raised from B3 to B1.

Please turn to slide number 12. Internal cash flow is defined as normalized net income, adjusted for depreciation, amortization and capital expenditures. The trailing 12-month internal cash flow was $158 million for the first quarter of 2005.

There is a close correlation between net income and internal cash flow, because of the limited capital expenditure and working capital needs of the Company on an annual basis. Capital expenditures net were $30 million for the 12-month period ending March 31, 2005. And we expect our capital expenditures in 2005 to be approximately $30 million as well.

One of our stated objectives is to use our operating cash flow to reduce debt by $50 million annually. To date, during 2005, we have already paid down our debt by approximately $39.4 million, which will generate approximately $4 million in annualized interest expense savings. Additionally, as we’ve noted on previous occasions, we anticipate using a portion of our operating cash flow for co-investment activities and infill acquisitions that may arise.

Please turn to slide number 13.

The strong first quarter financial performance was a result of a broad-based improvement in results from across all of our lines of business and geographies. The performance for the remainder of the year will depend on sustainable, favorable economic conditions, although we feel confident that the increases seen in the first quarter will be additive to our full-year results. Consequently, we are increasing our full-year 2005 guidance to reflect the following.

We anticipate our full-year 2005 revenues to be approximately $2.6 billion. Net income, as adjusted, is expected to be in the range of $160 to $168 million. We also expect diluted earnings per share, as adjusted, for the year to be in the range of $2.10 to $2.20 per share, excluding the residual onetime integration costs related to the Insignia acquisition and charges associated with the debt buyback program of approximately $15 million pretax.

I’ll now turn the call over to Cal Frese, President of the Americas, to discuss segment performance.

Thanks, Ken. If we can move to the next slide, 14. We’ll start with the Americas.

For the first quarter, revenue increased 20 percent to $381.1 million, compared to $318.6 million for the same period of 2004. Higher revenue was driven by increased sales activity as a result of the investment market continuing to attract significant capital, despite measured increases in short-term interest rates.

Additionally, mortgage brokerage and the appraisal business had exceptional performance in the first quarter. Excluding the impact of onetime items, EBITDA was $45.3 million for the first quarter, an increase of $20.2 million, or 80 percent, as compared to the first quarter of last year. Higher EBITDA was primarily the result of growth in revenues.

In EMEA, revenue increased 28 percent, to $102.1 million for the first quarter of 2005, compared with $79.8 million for the same quarter last year. EBITDA, excluding onetime charges, was $2.9 million, which represents an increase of $5 million as compared to the first quarter last year.

Early indications in 2005 are that investment in the European real estate markets is continuing to accelerate. After a record year in 2004, with $135 billion transacted in the EU 15 countries alone, major markets, such as central London, had strong first quarters and the outlook for 2005 remains positive.

Other major locations for both local and foreign investment, such as Paris, Stockholm and Milan, have witnessed strong investment, in line with recent trends. The recovery in European leasing markets remains mixed and there is improving demand in portions of London, Madrid, Dublin and Frankfort.

A number of other office markets can be expected to see some rental growth over the next 6 to 12 months, due to reduced available supply. Both the retail and industrial leasing markets in the region appear to have stable long-term outlooks.

In Asia, property markets started 2005 on an upbeat note, with high levels of investment and leasing activities, carrying forward positive momentum from the second half of 2004. Revenue totaled $33.9 million for the first quarter of 2005, an increase of 32 percent from $25.6 million for the first quarter of 2004.

Asia-based REITs are a key driver of investment activity. For example, in Tokyo, REITs accounted for nearly half of the real estate transactions carried out by Tokyo Stock Exchange-listed companies.

Elsewhere in the region, Singaporean investors displayed a strong appetite for cross-border property acquisitions, making acquisitions in Japan and China.

The Beijing and Shanghai investment markets turned unusually active in the first quarter of 2005. Some foreign investors may be shifting investment capital to commercial property, due to growing concerns that the residential sector is becoming overheated.

Investment activity tempered a bit in the Australia and New Zealand property markets. However, leasing activity remained strong. Business confidence and profitability continued to be relatively high.

The global investment management business also continues to show strong growth. Revenue totaled $21.2 million for the first quarter of 2005, an increase of 25 percent from $17 million for the same period in 2004.

EBITDA was $2.4 million for the quarter, compared to $1.7 million for the same period of last year. The increase in the first quarter was mainly attributable to management fees earned in Japan.

In the first quarter, we acted as advisor to California State Teachers’ Retirement System in the pension fund’s joint venture with First Industrial Realty Trust. The joint venture will have a total investment capacity of $950 million.

Please move to the next slide.

Here are some of our major achievements during the first quarter. In the Americas, Dow Chemical Company tapped CBRE for an expanded facilities management assignment. They entrusted us with an additional 4.1 million square feet of manufacturing space in the U.S. and Europe, bringing our total portfolio for this client to 5.3 million square feet.

Ford has expanded its relationship with us, adding 2 new services to our existing U.S. transaction management contract. We will provide project management services for Ford’s headquarters campus in Dearborn, Michigan for 7 million square feet and facilities management for 11 Ford parts distribution centers, totaling 3 million square feet.

We represented the Target Corporation in the acquisition of 2 parcels for the development of 2 new Super Target stores, a 1.7 million-square-foot Gulf Coast Town Center development in Fort Myers and a freestanding 175,000-square-foot big box facility in North Tampa.

The State of California selected us as a preferred provider of commercial real estate services. We’ll assist the state with space acquisition, disposition and planning work in the San Francisco Bay Area and Southern California.

In EMEA, Abbey National, a U.K. institution, has retained CB Richard Ellis to conduct a strategic review of real estate investments held by its life insurance companies, with an eye toward disposing of some or all of its holdings. The bank owns some $2.3 billion of property. The amount to be disposed has not been determined. The sales process will commence next month.

We represented Matsushita Investment and Development in the disposition of Mid City Place, a 350,000-square-foot office building in London. The building was bought by Delancey, a property developer, for $407 million.

We also arranged a sale-leaseback of the ING headquarters building. The 750,000-square-foot property was purchased by a German open-end fund for $219 million. We also have been appointed to manage the property.

In Asia-Pacific, we’ve been retained by e-Serve, a division of Citigroup to conduct location analysis and site selection for the voice and data communication company’s expansion throughout Asia.

Finally, CB Richard Ellis was appointed as exclusive managing agent for 2 new office properties in Shanghai, totaling 789,000 square feet. I’ll now have--

Thank you--I’m sorry. Go ahead, Cal.

I was just going to say, I was going to pass the presentation back to Brett White to discuss market trends.

Thanks, Cal and thanks, Ken.

The macro trends driving the U.S. real estate market in 2004 have continued into 2005, namely a robust investment market and steadily-improving leasing market. In fact, the pace of recovery in the leasing market has picked up somewhat and we have seen rents turn up modestly for the first time in several years, which is a great sign.

In the leasing market, as expected, the expansion of the national economy has translated into improving fundamentals in the office market. We are seeing increased levels of net absorption in many markets across the country. On a national basis, net absorption totaled nearly 15 million square feet, compared with negative net absorption of 730,000 square feet in last year’s first quarter.

Markets that were particularly hard hit in the downturn are rebounding. Prime examples include the Dallas Metro area and the greater San Francisco Bay area, which recorded first-quarter absorption of 3.4 million square feet and 1.4 million square feet respectively.

Other markets that are showing notable increases in activity include -- Orange County, California; Las Vegas; Seattle; and Northern Virginia.

Nationally, new construction remains relatively subdued and, in certain markets, marginal office properties are being converted to residential usage. These trends and the expansion of office tenants have dropped the national vacancy rate to 15.4 percent, from 16.8 percent a year ago. As yet, we have not seen material increases in rental rates. However, rents appear to have reached an inflection point in the first quarter. According to our econometric forecasting unit, Torto Wheaton Research, effective rents rose 8/10 of a percent in the first quarter. Torto Wheaton is expecting improved rent growth going forward in 2005.

Recovery of industrial markets is lagging the pace of office markets. Vacancy, while down from peak levels, remains relatively high, due to continued delivery of new construction. Port markets, or those with rail access, have been performing very well.

Los Angeles continues to be the best-performing industrial market in the country, capitalizing on increased trade with Asia. According to Torto Wheaton, industrial rents have not yet reached an inflexion point. However, Torto Wheaton does foresee rental growth beginning later this year.

Total U.S. investment sales rose over 20 percent from a year ago, to $45 billion in the first quarter of 2005, according to Real Capital Analytics. CB Richard Ellis captured 14.7 percent of all investment sales nationwide, once again, the number 1 position.

Significantly, we widened our advantage compared with the nearest competitor. For all of 2004, our market share was 6.9 percentage points more than the number 2 firm. In the first quarter, our lead was 8.6 percentage points.

Our transaction pipeline remains very strong, as equity capital flows in real estate continued at high levels. Investor appetite is strong across all property types. Multi-housing is the most preferred asset class at the moment, reflecting improving near-term fundamentals and long-term demographic trends. Hotels are also in strong demand, as occupancy rates continue to rebound from their post-9/11 lows.

The prospect of higher interest rates has not adversely impacted the marketplace and market fundamentals have improved. We continue to see new capital sources allocated to real estate investment, particularly from overseas.

All indicators, transaction pipeline, number of bidders, and the issuance of new RFPs, point to continued healthy investment market outlook over a 6-month time horizon.

CB Richard Ellis brand continues to strengthen. We are experiencing very low attrition rates for our key producers. At the same time, we have increased our hiring from our major competitors. These combined factors have resulted in significant market share gains in most business lines and geographies and major assignment wins globally, as Cal mentioned a moment ago.

Please turn to slide 17.

In summary, we’ve had record performance here in the first quarter, strong revenue, EBITDA, net income and earnings per share, as a result of strong improvement in the businesses across all geographies and all primary business lines.

Our outlook remains positive. The global economic expansion continues. A global leasing recovery is underway. Strong capital flows continue to real estate.

Finally, on a personal note, I would like to advise you that, over the next few months, I intend to utilize a selling program to dispose of approximately 25 percent of my total CBRE holdings. These reasons for this are twofold. First, to retire personal debt incurred in our management buyout of the Company in 2001. And second, provide myself with a modest level of portfolio diversification.

With that, operator, I’d like to turn the call over to you to open up for Q&A.

[OPERATOR INSTRUCTIONS]

Josh Rosen.

Thank you. It’s Josh Rosen with Credit Suisse First Boston.

Just first, if you could review for us just how seasonality affects your various business lines. Obviously, you have a relatively week seasonal first quarter relative to the rest of the year, but just curious, as we look at your segment results, both geographically and then also by business line, where are the most dramatic seasonal effects felt?

Sure. Well, Josh, let me give you, at a macro level, what seasonality in our business typically looks like. In a typical year, Q1 would represent -- 20 percent of revenue, 10 percent of EBITDA; Q2, 25 percent of revenue, 20 percent of EBITDA; Q3, 25 percent of revenue, 25 percent of EBITDA; and Q4, 30 percent of revenue and 45 percent of EBITDA.

Among the businesses, certainly our transaction businesses are the ones that are most responsible for the seasonality of the business and that is why you see the numbers spread the way they do.

Ken, anything like you’d like to add to that?

Yeah. I think the first quarter, probably from a seasonal standpoint, it contributed a little bit more from an EBITDA perspective than traditionally what we saw. I think for the first quarter, revenues were at about 20.7 percent, approximately 21 percent, something along those lines. And so it was a little bit higher. And as a result of the way our fixed costs were, we’d expect probably the first-quarter EBITDA to be in the range of 14 to 15 percent, something along those lines.

Okay. Thank you. And then the other question that I had just relates back to leasing trends. We’ve had frequent reference to improvements on the leasing side of the equation in terms of the business fundamentals. And on the quarter, it looked like leasing was up 7 percent year-over-year. It doesn’t look like there’s been much translation into acceleration, at least in the first quarter in your results.

Just some general commentary along what we might look for as we look through the remainder of the year in specifically?

Sure, Josh. Well, first of all, we are a bit over last year, which is good because last year, of course, you remember was up in the high single digits over 2003. So the recovery that we’ve seen in leasing revenues continues.

Anecdotally, Josh, what we’re seeing in the marketplace is that the vacancy rate for office stock globally is trending down and in many markets, we’re now beginning to see rental rates actually moving up. So you may recall on the last call, we mentioned midtown Manhattan, west end of London as 2 markets where we’re seeing, in 2004, some rental appreciation. We’re now beginning to see that spread to a more broad-based group of markets globally.

So these are the trends we look at for predicting leasing revenues on a global basis and the trends that we talked about in the last quarter remain true today.

Okay. Thank you very much.

Jeff Kessler.

Excuse me. Thank you. Could you elaborate a little bit -- I realize it’s not the largest part of your business, but if you could elaborate a little bit on the industrial trends side that you’re seeing, both in terms of the slow improvement in vacancy and in rental. And if you could just talk about, in terms of both industrial and the major office markets, where are you in the process of what we’ll call the inflexion point?

Sure. Well, let me give you a board answer and then I’ll turn it to Cal to give you some -- Cal, if you could give him some anecdotal evidence from around the country, that might be helpful.

But broadly speaking, the office markets, we believe, passed through an inflexion point last year or early this year. So we’re now seeing more markets in recovery than in decline. And all the measures that we would look to to predict recovery are pretty much in place for the office market, both in the United States and elsewhere. The leasing market is certainly a spottier improvement than we saw in the sales market 2 years ago, but is improving nonetheless.

On the industrial marketplace, you have a marketplace that’s coming from, first, a bit of more of an overbuilding situation than did the office markets. There’s a lot of product and it was brought to market in the industrial market the last few years and there was a lot of product to move through. But nonetheless, that market is improving as well.

Torto Wheaton, whose data we rely on to forecast vacancy rate and rental rates, is telling us that they believe the inflexion point in the industrial market will occur late this year. So that is on track with our projections late last year and earlier this year.

But Cal, any anecdotal evidence around the country on the relative health or not of the industrial and office markets?

Well, I think, as you’ve heard before, clearly leasing for office has stabilized and is improving, particularly in the major markets, D.C., New York, San Francisco and L.A., particularly.

On the industrial side, there is strong demand in shipping and there’s been stabilization in the manufacturing sectors. And in Southern California, the L.A. ports are particularly noticing strong demand and that is one of the best industrial markets in the country.

So there are pockets of good activity and certainly, we see industrial stabilizing. It is a good-size business for us though around the country.

Okay. At your investor day, you talked about the investment portion of your business becoming a smaller and smaller part of the Company as these other -- because it had been such a big part last year. Could you -- do you have any -- I realize we’re talking 3 weeks later, but can you update us on where you are with regard to your investment portfolio beyond just the row of stats that you gave us and how you feel that’s going to fit into this business, by size, this year and next year?

Well, Jeff, like you said, it’s 3 weeks later so nothing’s changed, but corey (ph), we talk about it that day for callers who weren’t there. Is that what you’ve seen the last 3 years is the Company’s financials benefiting from a very robust investment sale market while the global leasing market was, for all intents and purposes, moribund. So really, very little help from the global leasing business and lots of help from the global investment property and mortgage refinance business.

What you would expect to see over the long-term is a more normal marketplace, one we’ve experienced in most years where the leasing business is the largest business and pulling much more weight in the improvement in the Company’s financials. And as we said at the investor day, we absolutely expect that to be the case, although nothing’s changed from 3 weeks ago.

So the leasing business today is improving and we expect it to continue to improve and we do expect that, as that larger business continues to improve, the percentage contribution to the global revenues and leasing will improve a bit, while perhaps the percentage contributions of the investment business would then perhaps decline a bit. But we’re, again, talking here not about large percentage swings. We’re talking about movement a bit at the margin.

But Ken, anything you’d like to add to that?

No, I think that’s right. I think what we talked about at the business review day was really kind of the full-year look on it. And so what you’re looking at right now is really a snapshot in terms of what happened in the first quarter and the trends we saw in the first quarter. But I think what we said in business review day still holds.

Okay. Thank you. And thank you for a very well-timed pre-announcement.

Thank you.

You’re welcome, Jeff.

[OPERATOR INSTRUCTIONS]

Jennifer Pinnick.

Good morning.

Hi, Jennifer.

Within your prior guidance, you had advised us that you expected advisory sales for the year to be up about 1 to 2 percent. And I was wondering if there was any update on that guidance.

And also, if you could expand on your commercial mortgage business. It was very strong for the quarter. Perhaps a little more detail regarding the forces behind the strength.

Sure. Jennifer, I believe you’re referring to, on the sale piece, that we talked about on previous calls, that our projections for 2005 are that the investment sale business would improve marginally from 2004 levels at the low-single-digit level. And certainly, as you can intuit from these financials, we were pleasantly surprised by a stronger performance of investment property sales in the first quarter. And as we mentioned in the script a bit earlier, the pipelines in that business remain quite robust and frankly, we don’t see anything on the near-term horizon that would damage those pipelines. So we’ve been pleasantly surprised about that, hence, the upward revision to our full-year guidance and we feel good about that business.

The mortgage brokerage business is being impacted by similar factors. And it is interesting to see that even though now the Fed has been steadily raising interest rates now for a year, the mortgage business actually is increasing its pace of business and growing at a very rapid pace. So what we’re seeing in the marketplace, the borrowers are undaunted by the current level of mortgage rates, but that is consistent with what we’ve talked about in the past. And what we have said in the past is that until commercial mortgages, mortgage rates get in that 8, 8.5 percent range, we don’t believe that borrowers are going to be particularly bothered by this modestly-rising interest rate environment.

So as we sit here today, Jennifer, both those businesses, the mortgage business and the investment sale business, are doing very well and we see nothing on the near-term horizon, as I mentioned, that we think is going to be particularly hurtful to those businesses.

Thank you.

Pat Burton.

Hi. Congratulations on the great operating results. My question has to do with the opening of some international markets, specifically India and the opportunity for growth over there. I know -- I think you were over there in March, Brett, for some changes in the government regulations. And strategically, how are you guys looking at that market in terms of pairing up with maybe some of the banks in India? Thanks.

Sure. It’s a good question. We have been operating in India for many, many years. We have currently 7 offices operating throughout India. And our business in India has been historically working with multi-nationals coming to India to occupy space. Now, as you know, in the past, multi-nationals could not own real estate. U.S. developers or multi-national developers could not build and own real estate on their own. It was all done through Indian nationals. That has changed. Foreign investment laws have been broadly opened as of last, really 2 months ago. And we believe that this will continue to help the Indian market attract foreign investment, both in terms of corporations seeking to occupy space for outsourcing and, perhaps, owners coming into the market to build and own buildings for these types of occupiers. So we’re bullish on India. We’re a significant player in India.

Our work with banks in India has been not particularly meaningful. We haven’t done a lot of work for, that I’m aware of, for Indian banks. It really has been more directed towards U.S. and European firms, some Asian firms, seeking to do business in India.

Okay. And how about, as long as we’re on the subject, longer-term China, the opportunity there for you guys as well? Thanks.

Sure. Well, China, it’s an interesting marketplace, as you all know. And we’re seeing in Southeast Asia and in China, there’s really a bifurcation of outsourcing to the 2 markets. India is tending to attract more of the white-collar intellectual capital-type outsourcing. So you’re seeing some of the U.S. banks using India for numbers work. You’re seeing a lot of outsourcing to India of packaging and these sorts of things. You’re seeing China pick up really the blue-collar routinized manufacturing outsourcing. And so you’re seeing very different types of customers move to these marketplaces.

Like India, we’ve been a player in China for some time. We have over 1,000 employees on the ground in Mainland China. We have major operations in Shanghai, Guangzhou, Beijing, just to name a few. And that marketplace, while rapidly developing on the property side, is still very immature in the provision of commercial real estate services. We are there, we are doing good business in China, but it’s really slow going in terms of what I would call making a meaningful impact on our top or bottom lines. But nonetheless, very important marketplace for us and one we think will play an ever-bigger role in our business. We’re very bullish on both Mainland Chain and India.

Thank you.

[OPERATOR INSTRUCTIONS]

And we have nobody queuing up on the phone lines. Please continue with your presentation.

Thank you, operator. Well, thank you, everyone, for your time this morning. We look forward to talking to you in the quarter. And operator, I believe you’ll now give the replay information.

Ladies and gentlemen, this teleconference will be available for replay beginning today at 11:00 a.m. and running through May 12. You may access the AT&T Executive playback service at any time by dialing (800) 475-6701. International participants may dial (320) 365-3844. And your access code for this call is 779672.

That does conclude your teleconference for today. Thank you for your participation and for using the AT&T Executive teleconference. You may now disconnect.