世邦魏理仕集團 (CBRE) 2006 Q1 法說會逐字稿

Good morning, good afternoon, everyone. Welcome to the CB Richard Ellis first quarter 2006 earnings conference call. At this point, we do have all of your phone lines muted or in a listen-only mode. However, after the executive team's presentation today, there will be opportunities for your questions. [OPERATOR INSTRUCTIONS]. And as a reminder, today's call is being recorded for replay purposes. That information will be announced at the conclusion of our call. So with that being said, let's get right to this first quarter agenda. Here with our opening remarks is CB Richard Ellis' Director of Investor Relations, Ms. Shelley Young. Good morning, ma'am, and please go ahead.

Thank you and good morning, everyone. Welcome to CB Richard Ellis' first quarter 2006 conference call. Lasts night we issued a press release announcing our first quarter earnings, a stock split, and ratings agency upgrade which you should have received by now. If not, it's available on our Web site at www.cbre.com.

This conference call is being webcast live and is available on the Investor Relations section of our Web site. As in prior quarters, we are providing slides of the presentation that you can use to follow along with the commentary. The PDF version of the presentation is available in the link marked Supporting Materials. An archive of the webcast will be available on the Investor Relations section of the Web site for three months. A transcript of the call will also be available on our Web site.

We have several members of our senior management team here today to discuss our results with you. These include Brett White, our President and Chief Executive Officer; Ken Kay, our Senior Executive Vice President and Chief Financial Officer; and Brian Stoffers, President of Capital Markets.

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, including statements regarding our growth momentum in 2006, future operations, and future financial performance. These statements should be considered as estimates only and actual results may ultimately differ from these estimates. These forward-looking statements speak only as of the date of this conference call and except to the extent required by applicable securities laws, CB Richard Ellis Group, Inc. undertakes no obligation to update or publicly revise any of the forward-looking statements that you may hear today. For a more detailed discussion of these forward-looking statements and the risks and other factors that could cause results to differ, please refer to our first quarter earnings press release dated May 2nd, 2006, and filed on Form 8(K) and our most recent annual report on Form 10(K) both of which are filed with the SEC and available at the SEC's Web site at www.sec.gov. 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 and CEO.

Thank you, Shelley, and good morning, everyone.

The favorable momentum evident in our business in 2005 continued into the first quarter of 2006, resulting in very strong top and bottom line growth. Worldwide macro business trends remained favorable. Most leasing markets are performing well, fueled by expanding economies and growing employment levels. Investment markets remain healthy as commercial real estate continues to be a favored asset class for institutional investors and continues to attract cross-border capital flows. As the world's largest commercial real estate services company with the broadest geographic region service offerings and most recognized brand, we are benefiting significantly from these trends. We continue to expand our client base and build market share in major business centers across the globe.

Please turn to slide four. As you can see, we achieved 26% top line revenue growth for the first quarter of 2006, marking the 14th straight quarter of double-digit, year-over-year organic revenue gains. Net income for the first quarter of 2006 was $36.9 million as compared to $14.6 million for the same quarter last year. Excluding one-time items, adjusted EPS was $0.52. This constitutes an increase of $0.27 or 108% as compared to the prior year earnings of $0.25 per share. Operating income was $59.6 million which was $22.9 million or 63% better than last year. And finally EBITDA was $82.7 million which increased $32.4 million or 65% from the same quarter last year.

With that, I'd like to ask Ken Kay, our CFO, to take us through the financial debt. Ken?

Thanks, Brett.

Please turn to slide number five. This slide reflects the Company's operating results for the first quarter as compared to the prior year. As you can see, revenue increased by $141.8 million or 26% from last year. Nearly all revenue categories have improved with the most significant increases being generated by stronger investment sales and leasing, combined with increased appraisal, investment management fees, and carried interest revenue. Of the 26% [token] increase in revenue, approximately 18% reflects organic growth with the balance coming from acquisitions. Cost of services as a percentage of revenue was relatively flat at approximately 50% for both the current and prior year quarter. The increase in operating and administrative expense is primarily due to increased headcount related to acquisitions, and expansion, as well as higher bonus accruals and marketing costs resulting from improved performance. Additionally, incentive compensation expense associated with carried interest revenue also contributed to the increase. On a percentage of revenue basis, operating expenses have been reduced to 39% versus 41% in the same quarter last year. Equity income increased by $4.5 million or 114%, primarily due to improved performance in the global investment management segment, resulting from gains realized from the disposition of investment assets and higher equity income recognized from the ownership of affiliated companies which have continued to benefit from improved industry conditions. Excluding one-time costs, EBITDA for the quarter improved by $31.3 million or 59%. This improvement reflects the positive impact of our increased revenue, coupled with the operating leverage inherent in our business model.

Please turn to slide number six. For the first quarter of 2006, our sales and leasing activity represented approximately 73% of our total revenue. Property and facilities management accounted for 9%, while appraisal and valuation comprised 8%. Investment management accounted for 5%, and commercial mortgage brokerage contributed 4%. Sales transaction revenue increased by $47.4 million or 26% for the quarter. This was predominantly from organic growth and largely the result of continued strength in investment property sales within the U.S. and Europe. Leasing revenue increased $59.9 million or 29% with approximately 50% of this growth being organic resulting from the continued recovery of leasing markets globally, and the other half coming from recent acquisitions of CBRE Gunne in Ireland and IKOMA in Japan. Property and facilities management increased $9.2 million or 18% for the quarter, a third of which was due to new accounts added in 2005 and two-thirds of which was from acquisitions. Appraisal and valuation increased $13.7 million or 33% for the quarter resulting from increased worldwide activities. Approximately two-thirds of the growth was organic. Investment management increased by $10.6 million or 50% for the quarter, all organic, mostly the result of the recognition of carried interest revenue on two U.S.-based funds and higher performance in management fees in the United Kingdom. Our mortgage brokerage revenues were essentially flat when compared with last year's first quarter. We expect the mortgage brokerage business to outperform 2005 in terms of both revenue and EBITDA on a full year basis. As you can see, the key driver of revenue growth for the quarter was organic revenue gains with the initial beneficial impact of acquisitions providing the balance. Over two-thirds of overall revenue growth came from leasing, appraisal services, and management fees.

Please turn to slide number seven. Our first quarter 2006 EBITDA margin improved significantly. Excluding integration charges related to the acquisitions, EBITDA margin for the first quarter of 2006 was 12.4% as compared to 9.8% for 2005. This was a 27% increase. On a trailing twelve-month basis, EBITDA margin was 16.1% as compared to 13.3% last year, which is primarily due to the strong revenue growth coupled with operating expense controls. Please turn to slide number eight. Our first quarter 2006 GAAP or reported earnings per share of $0.48 includes one-time charges. Excluding these one-time charges, our adjusted earnings per share is $0.52 for the first quarter of 2006. These one-time charges include integration costs related to our recent acquisition of $1.3 million or $0.01 per share, and $3.2 million or $0.03 per share of amortization expense related to net revenue backlog acquired in acquisitions. We've also provided a comparable bridge for the first quarter of 2005 for your reference.

Please turn to slide number nine. The cash balance at March 31, 2006, of $253.1 million was $196.2 million lower than at December 31, 2005. This seasonal decrease was normal, as the majority of our 2005 bonuses were paid in the first quarter of 2006. 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. As reflected on the next slide, the balance will fluctuate in tandem with the line of credit liability based on the number of loans held at any point in time. The increase in property and equipment net was primarily due to capital expenditures during the quarter. Goodwill and other intangibles increased primarily as a result of infill acquisitions. The increase in deferred compensation assets is due to the funding of current participant differentials and gains on investments during the first quarter. The increase in other assets is primarily attributable to an increased lease deposit, partially offset by a reduction in letters of credit, acquired asset balances, and prepayment on contracts.

Please turn to slide number ten. Current liabilities, excluding debt, decreased by approximately $252 million. This decline was due to the payment of 2005 bonuses and reduced commissions payable to producers during the first quarter, consistent with seasonally lower transaction revenue. The decrease in the senior secured term loan tranche fee reflects the $3 million of acquired quarterly amortization. The increase in other debt was primarily due to the debt assumed in IKOMA acquisition. The increase in other long-term liabilities was due to liabilities assumed in the IKOMA acquisition and the long-term incentive plan accruals. Stockholders equity rose by $51.1 million, primarily as a result of the additional net income from the current year.

Please turn to slide number 11. Total debt has increased by approximately $8.3 million in the first quarter of 2006 for the reasons discussed previously. Our net debt to EBITDA multiple at March 31st, 2006, was 0.79 times as compared to 0.35 times at the end of December 31st, 2005. The slight increase was due to the seasonally lower cash balance at March 31st, 2006. At March 31st, 2005, the net debt to EBITDA multiple was 1.5 times. Our trailing twelve-month interest coverage ratio was 9.9 times. Weighted average cost of debt was approximately 8.4% at March 31st, 2006. On April 3rd, 2006, Moody's Investors Services issued a double rating upgrade on our senior debt and senior subordinated debt to Ba1 and Ba2, respectively. Moody's also said its rating outlook for the Company is stable. Just recently on May 1st, 2006, Standard & Poor's Rating Services also issued a double rating upgrade on the Company's senior debt and senior subordinated debt to BB+ and BB-, respectively. S&P also said the rating outlook for the Company is stable. Last month we gave notice to our bondholders of the 11.25 senior subordinated notes that the Company will redeem all outstanding notes at a redemption price of 105.625 on June 15th, 2006. This redemption will result in an annual interest expense savings of $18.5 million, with approximately one-half of that amount realized in 2006.

Please turn to slide number 12. Internal cash flow is defined as normalized net income adjusted for depreciation, amortization, and capital expenditures. The first quarter 2006 trailing twelve-month internal cash flow was $257 million, $99 million, or 63% improved from the prior year. There's 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 $41 million for the trailing twelve-month period. We anticipate full year 2006 capital expenditures to be approximately $44 million, $10 million higher than 2005, due to the added amounts required for acquisitions. Additionally, as we've noted on previous occasions, we plan to use a portion of our operating cash flow for infill acquisitions that may arise. In the next slide we have listed our acquisitions already consummated in 2006.

Please turn to slide number 13. To date, in 2006, we've completed several infill acquisitions for approximately $36 million. We discussed the acquisition of our affiliate in Japan, IKOMA CB Richard Ellis KK, at our fourth quarter 2005 earnings call, and thus we'll focus our discussion on the acquisitions that have not been previously mentioned. In the United States, we purchased Project Advantage, which provides corporate relocation services for Fortune 1000 companies. This acquisition is a natural line extension and complements the small scale relocation service provided by our facilities management business. We've also acquired Advocate Consulting Group in the New York tri-state region. Advocate provides real estate construction and project management consulting services to tenants and owner developers. This acquisition enhances our position in the tri-state region as the premiere full service firm. In Canada, we purchased Groupe Axival, the third largest appraisal firm in the Quebec marketplace. Axival offers single asset and portfolio appraisals and machinery and equipment valuation. As a result, CBRE gained an instant valuation and advisory presence in one of the largest real estate markets in Canada. We acquired IDG, the second largest retail real estate specialist in Belgium. IDG has a strong reputation for serving the needs of property owners and retailers. The acquisition of IDG is an integral part of our strategy to expand our retail services capabilities throughout Europe. In the United Kingdom, we purchased Austin Adams, Ltd., one of the leading commercial property consultants in the central south in England. It offers a full range of services including valuation, development consultancy, and property management. This strategic acquisition will significantly strengthen our regional presence as we further expand our geographic region throughout the United Kingdom. In Russia, we purchased a 51% ownership interest in Noble Gibbons, a full-service real estate advisory business in central Moscow. We plan to purchase the remaining outstanding shares of Noble Gibbons, subject to certain conditions, at a later date. It provides a full range of real estate services including property management, office, retail and industrial agency, consultancy and valuation, project management, and asset investment brokerage. This is an opportune time to expand our presence in Russia as the market is primed for further growth. This acquisition enhances our central and Eastern European platform to service our pan-European and corporate clients. In Australia, we acquired McCann Property and Planning, a valuation and advisory business based in the capital city of Canberra. McCann offers appraisal, town planning, and consulting services. It also has a strong client base which enhances CBRE's cross-selling opportunities. The associated annual revenue related to these acquisitions is estimated to be approximately $128 million. The EBITDA margins are expected to be consistent with CBRE margins upon full integration of the acquired businesses, excluding the minority interest impact relative to the IKOMA and Noble Gibbons transactions.

Please turn to slide 14. Our Board of Directors has approved a three-for-one split of the Company's common stock. Each shareholder of record at the close of business on May 15th, 2006, will receive two additional shares for every outstanding share held. The effective date of the split will be on or about June 1st, 2006.

And now I'd like to turn the call over to Brian to talk about the operations.

Thank you, Ken.

In the Americas, the first quarter revenue increased 19% to $453.8 million compared with $381.1 million for the same period in 2005. Higher revenue is mainly attributable to improved leasing activity, higher property and facility management fees, increased appraisal and valuation activities, as well as from strong sales of investment properties. Excluding the impact of one-time items, EBITDA was $55.4 million for the first quarter, an increase of $10.1 million or 22% as compared to the first quarter last year. Higher EBITDA was primarily the result of the improvement in bottom line performance from these businesses.

Our U.S. licensing business showed solid growth during the quarter. Leasing activity in markets across the country are steadily picking up as new jobs continue to be created and occupancy levels increase. Our performance has also begun to benefit from higher rental rates, particularly in markets where available supply is constrained. The valuation and appraisal business also continues to perform well due to both organic growth and the expansion of our platform. We have recruited a number of new professionals, who have extended our geographic reach and moved our services into certain specialty niches such as hospitality and healthcare properties. Asset services was awarded more than 46 million square feet of new assignments in the quarter as our broad, integrated national platform continues to prove attractive to investors with multi-market property portfolios.

Our investment sales business continued to perform very well in the first quarter, both on an absolute basis and relative to the overall market. Our sales transaction volume rose 46% compared with the first quarter of 2005 to $9.7 billion. This compared very favorably to the 23% growth for the market as a whole. We achieved notable gains in the multi-housing and office segments where CBRE recorded overall volume improvement of 126% and 32%, respectively.

In EMEA, revenue increased 32% to $135.2 million for the first quarter of 2006 compared with $102.1 million for the same quarter last year. EBITDA, excluding one-time charges, was $19.9 million which represents an increase of $17 million or 586% as compared to the first quarter of last year. These improvements were primarily driven by a continued strong investment sales environment as well as from infill acquisitions completed in the latter half of 2005. The record levels of investment activity seen cross Europe last year continued into the first quarter of 2006 with investors still competing aggressively for good quality buildings. Investors are focused on well-leased properties that provide secure, long term income streams. Although Euro denominated borrowing costs have increased, the cost of money remains significantly below the prime yield in almost every market. Consequently, debt finance purchasers are still prominent in the marketplace. Capital values have continued to rise, with especially strong demand for retail and office assets. Although the highest capital value increases have occurred in the cities where rental growth is evident, demand from investors is so strong that property prices have risen even in locations where the leasing market is still slower to recover. The office leasing picture is improving and a widespread recovery is now evident across much of Europe.

Until recently, the growth in office absorption has been limited to a relatively smaller number of cities, but many more locations have seen stronger leasing activity in the first few months of 2006. French and Spanish markets were particularly strong, with the Paris region seeing quarterly leasing activity at a high level. Both Madrid and Barcelona continue to benefit from the strength of the Spanish economy and the Netherlands and Sweden have seen increased demand as well. With the European economy strengthening, the outlook is more positive than it has been. The remain, in some markets the recovery has yet to become as apparent, notably in Italy and Germany, where the economic outlook is still mixed. However, many European investors are identifying Germany as a good market in which to buy, primarily due to the availability of investment product and longer term recovery expectations. Central and Eastern Europe continue to see the most dramatic movement in yields. In cities such as Warsaw and Prague, certain transactions in Q1 2006 suggest prime office yields have moved lower. These markets are now being priced on par with many of the secondary western European markets, which reflects higher investor interest in those markets.

In Asia-Pacific, revenue totaled $60.7 million for the first quarter of 2006, an increase of 79% from $33.9 million for the first quarter of 2005. The increase in revenue was primarily driven by the increase of our investment in IKOMA to 51% in early January, 2006, which led to the consolidation of IKOMA's results. EBITDA totaled 2.1 million for both the current and prior year quarter. EBITDA remained flat as a result of lower margins from the IKOMA acquisition, which we expect will rise upon full integration of IKOMA's operations. Asian office markets continued to exhibit strength in the first quarter of 2006, carrying forward positive momentum from 2005. Pent-up demand for office space remains quite strong, prompting a solid rise in class A office trends, most notably in Hong Kong, Singapore, and Japan, where market conditions are especially tight. Tokyo has seen a surge in rental rates due to the lack of available inventory, and tenants seeking to lease sizeable premises in new office buildings often have to precommit as much as 24 months ahead of construction completion. Meanwhile, rental rates in Beijing, Shanghai, and [Wong Zho] have continued to grow modestly despite a continuing wave of office construction, reflecting keen demand for office space in China. Strong corporate profits and an export-led economic recovery have benefited the office and industrial sectors in Australia. Real estate markets in western Australia, and Queensland in particular, are extremely strong buoyed by a boom in commodity exports. In New Zealand, overall office vacancy is still tight by historical standards, despite a rise in vacant space over the past six months. As a result, rental rates have continued to rise even though economic growth has eased. In Australia and New Zealand, investment activity has been strong across all property types, especially office and industrial.

Investment activity across Asia remains healthy. The improving leasing market fundamental support increased investor activity, especially foreign institutions, private funds, and REITs. For example, Singapore is highly active with total investment sales activity of $3.5 billion during the first quarter. Office and industrial properties in Hong Kong continue to draw significant interests from foreign institutions and Asian REITs. J-REITS and income-oriented domestic equity funds have largely supplanted opportunistic investors as the main driver of the Japanese investment market. Meanwhile, offshore capital flows continue to grow vigorously into China and India fueled by robust domestic economic growth. The increased foreign investment is focused on both existing properties as well as new development projects. Some overseas institutional investors have entered into long-term cooperative agreements with major Chinese and Indian developers.

The global investment management business also continues to show growth. Revenue totaled $30.4 million for the first quarter of 2006, an increase of 43% compared with $21.2 million in the first quarter of 2005. This increase was mainly due to the revenue earned in the U.S. as a result of the liquidation of certain funds which have referred to as carried interest revenue and higher management and performance fees in the U.K. EBITDA was $6.6 million for the quarter which represents an increase of 4.2% compared to $2.4 million for the same period last year.

Here are some of our major achievements during the first quarter related to business wins. In the Americas, Merck has appointed CBRE to market for sale three manufacturing facilities, one in Riverside, Pennsylvania, one in Albany, Georgia, and one outside London, England. IKON Office Solutions has tapped CBRE to provide transaction management services for its 1.5 million square foot portfolio in the U.S. This assignment brings our total portfolio for IKON to 4 million square feet. CBRE arranged one of the largest multi-family portfolio sales ever in Washington, D.C. region. We represented the Mark Winkler Company in the sale of 12 apartment communities totaling more than 5,000 units for $900 million. The properties were purchased by three separate buyers. Teachers Insurance and Annuity Association awarded CBRE the management of 1.8 million square feet of industrial properties in the Washington, D.C. area. Our management portfolio for Teachers now totals approximately 20 million square feet.

In EMEA, CBRE represented State Street Corporation in the acquisition of its new 365,000 square foot European headquarters at Canary Wharf. CBRE led the negotiations for State Street to purchase the new building from Canary Wharf Group and arranged $350 million of equity financing from the Prudential Income Retirement Fund to fund the acquisition. CBRE also a acted on behalf of Rotch and London as well as Regional Properties in the sale of a portfolio of 180 gas stations across the U.K. at a value of $810 million. CBRE, representing the seller DB Real Estate, arranged one of the largest investment sales ever in Paris. Testa, a Spanish property company, acquired Tour Adria in the La Défénse district of Paris, a 581,270 square foot office building for $680 million. In Asia Pacific, CBRE advised Deutsche Bank in the largest lease for office space ever consummated in Singapore. Deutsche Bank will occupy 280,000 square feet in One Raffles Quay, that country's most successful new develop project. The 1.3 million square foot high-rise is now more than 90% leased to tenants including Barclay's Capital, UBS, Société Générale, and Ernst & Young. CBRE is the leasing agent. CBRE has also been appointed exclusive leasing agent for the latest showcase retail property in Tokyo's the Ginza district. The property, Veloqx Marronnier Dori, will be completed in 2007 with 33,000 square feet of space for high-end stores and restaurants. An international marketing campaign will be run in conjunction with CBRE offices in London and New York.

And now I'll turn the call over to Ken.

Thanks, Brian.

Please turn to slide number 17. As discussed in prior quarters, CBRE investors as general partner of several real estate investment funds, had the opportunity to earn an additional share of profits, referred to as carried interest once the performance of the funds meet certain financial hurdles. Dedicated fund team leaders and executives in our investment management company have been granted a right to participate in the carried interest with participation rights vesting over time. As a result of the incentive compensation program associated with such revenue, the Company must accrue for this projected expense in anticipation of future payouts. Unfortunately, in the initial phases of the program, incentive compensation expense exceed revenue recognition. For the first quarter of 2006, the Company recognized $5 million of carried interest revenue and recorded $9.3 million of carried interest incentive compensation expense. Excluding the incentive compensation expense pertaining to future periods of $9 million, EBITDA for the first quarter of 2006 would have been $15.6 million as compared to $7.4 million for the first quarter of 2005; an improvement of $8.2 million or 111%. Notably, the first quarter pro forma normalized segment EBITDA margin was 51% as compared to 35% for the same period in the prior year. We expect to recognize carried interest revenue from funds liquidating in 2006 and future years that will more than offset the $9 million of additional incentive compensation expense accrued in the first quarter of 2006. As of March 31st of 2006, the Company maintained a cumulative remaining accrual of such compensation expense of approximately $27 million which pertains to anticipated future carried interest revenue.

Let me turn the call back over to Brett to wrap up.

Thanks, Ken.

Our outlook for the property sales and leasing markets remains positive. Moving first to the investment market, strong capital flows and improving leasing fundamentals continue to underpin a strong environment for investment sales. As anticipated, the rate of growth has moderated somewhat from last year's exceptional pace, but nonetheless remains solid. Approximately $55 billion of U.S. commercial real estate changed hands in the first quarter of 2006 according to Real Capital Analytics. This represents an increase of 23% from a year earlier. We continued to achieve market share gains with CBRE responsible for 17.4% of total market activity, up from 14.7% in the first quarter of 2005. Our lead over the number two firm increased to 10.2 points from 8.6 points in the first quarter of 2005. We once again held the number one position across all property types.

Real estate investors have adjusted to the anticipated rise in long-term interest rates. Properties are being purchased with more equity capital, lower leverage, and higher cash yield expectations. Overall liquidity remains exceptionally strong, fueled by pension funds and other institutions that have increased our allocations to real estate as well as increased capital coming into the U.S. market from foreign sources. And finally, moving to the leasing market, the U.S. economic expansion, as you know, continues at a very solid pace. Regionally, real estate markets dominated by trade linkages, tourism, technology, and banking showed the strongest pace of improvement. Moreover, gains were disproportionately enjoyed by sun belt and western locations with 22 of the top 23 improving markets located in the southern U.S. or west of the Rockies. [Rank roads] reflect these variations with southeast metros garnering the strongest improvements. Also, locations with significant supply constraint such as New York, San Francisco, and Honolulu experienced greater than average rent gains. Nationally, in the U.S., first quarter office rent increased by 5.1% compared with a year earlier according to Torto Wheaton's preliminary estimates. Overall, Torto Wheaton expects strong net absorption of U.S. commercial real estate to continue. With business inventories lean, ongoing job growth remaining solid, corporate profits strong, household wealth at an all time high, and capital markets still favorable, the outlook, as I mentioned before, remains positive.

And with that, operator, I'd like to turn the call over to our Q&A session.

[OPERATOR INSTRUCTIONS]. Michael Fox, J.P. Morgan.

Thanks. Good morning, guys, and congratulations on a phenomenal quarter.

Thanks, Michael.

It sounds like the momentum in both the sales and leasing is pretty strong going into the second quarter. I was wondering if you could talk about whether or not you have any visibility on the second half in both of those businesses and how it's shaping up if you do have any visibility at this point?

Well, Michael, as you know and we've discussed in the past, we have relatively decent visibility into the leasing business because we are tracking projects we're engaged on currently, as well as ongoing vouchers that are closing in the business on a daily basis. On the sales side as well we track engagements where we are currently in the marketplace at work selling properties. I would tell you that as we sit here in early May, the dynamics behind both the capital markets business, which is our investment property sales, investment advisory business, mortgage brokerage business and the dynamics underpinning the leasing business remain favorable. I would note in particular that if you notice I'm sure in our first quarter results, as we've been talking about for quiet sometime, while the rate of growth in the capital markets business has moderated somewhat it still remains quite strong. But quiet importantly, the leasing businesses globally have come in with a very strong performance in the first quarter of 2006. So I would say that generally the trends that we've been talking about for the last few quarters remain extant in the business, with the only modification being that as we predicted, capital markets growth rate is beginning to moderate just a bit.

Okay. Great. And then I noticed in the press release you didn't give any guidance. I was wondering if you can comment on that, and give us any type of guidance that you might have for the rest of this year.

Sure. I would tell you that here at the end of the first quarter, we are confident that the guidance provided on our last conference call is good for the year. At this point it's just too early in the year to do anything other with that guidance and you can stay tuned. At the second quarter, we may at that point do something else.

Okay. And then one final one on the investment management business, do you expect the margin expansion to accelerate as we move through the year as some of the timing on the revenue and expenses get more in line?

Ken, do you want to take that?

Yes. I mean, in the first quarter we've obviously continued to accrue incentive compensation expense associated with carried interest. As we talked about, I think, on our last conference call, we expect that the margin for the global investment management business would probably normalized this year as we anticipate recognizing additional carried interest during the balance of the year. So yes. To answer your question, we would expect to be at a more normalized margin for this business without the add backs.

Okay. Great. Thanks a lot and congratulations again.

Thanks, Michael.

Pat Burton, Citigroup.

Hi. Good morning, and congratulations as well on the quarter. My question is for Brett, and that is, you gave us the metrics on industry demand in the United States for both the commercial real estate changing hands as well as your market share gains. How do those numbers look just roughly on a rest-of-the-world basis?

Sure. I would tell you that as is probably fairly evident to you in the EMEA figures, we are capturing significant share in EMEA and we believe have been doing so for at least the past year. The first quarter of this year was no exception. There are published statistics on our specific shares in the city of London and those have been moving up over the past year. And I would tell you generally speaking across Europe, we're doing well. Asia-Pacific is much the same story. Our primary competition in Asia-Pacific is Jones Lang LaSalle. They're a terrific competitor and a very good firm. Good competition to us. And obviously we're both -- I'm actually in Asia right now. I'd say we're both doing a good job over here. Depending on which market you want to look at, I would say one or other is in the lead in any given market.

And then just, Brett, as a follow up, at least talking to some people in the industry, it seems that some countries and their businesses are running balance of trade surpluses. Those dollars are being reinvested or perhaps Euros are being reinvested globally more in real estate now in the sense of recycling of petro dollars if you have it. Are you -- are you seeing that as one of the drivers in terms of worldwide demand for real estate?

Let me -- let me let Brian Stoffers take that question. As I think we mentioned at the beginning of the call, Brian runs our capital markets businesses here in the states and our [margin] business globally so he's in a great position to talk to us about cross-border capital flows. So, Brian, the question is, how much of the growth in the U.S. capital markets business would you attribute to cross-border capital flow as opposed to domestic?

Yes. We're seeing terrific capital flows internationally, not only from the Middle East from oil revenues but also from other countries, Australia, Ireland, and western European countries. And it's become a global platform with capital moving in fairly large quantities cross border, and we've got several examples of those transactions taking place. Saudi specifically, or Middle East, I should say, investors there invested over $1 billion in a class B and C multi-family product in the Southwest here, for instance. So there are lots of capital flows taking place today as a result of that.

Thank you very much.

Jeff Kessler, Lehman Brothers.

Hi. This is [Ashley Monner] for Jeff Kessler. Congrats on a good quarter, guys. A couple of quick questions. First in the Americas region, obviously the -- you had a healthy growth rate in revenues. Just from your perspective I just want to hear a bit about -- do you see the overall growth rate in the Americas region sort of stay at the same level or slow down, or sort of what's your outlook for the rest of the year for the Americas?

Sure. Well, we've -- we've talked about in our fourth quarter 2005 call that our guidance in 2006 was based on an expectation that top line growth globally for the Company would be high single-digit, low double-digit. We remain convinced that that is where we'll end up. So what that would tell is that the 23 or we'll say plus high teen growth rate we're seeing in the Americas right now we will moderate. This is the -- it's the first quarter of the year, and currently we don't expect to see this growth rate through all four quarters. So our guidance that is out there right now is based on a -- what I describe as fairly significantly lower growth rate than we actually experienced in the fourth quarter -- first quarter, I'm sorry.

Okay. And just another question specific to Tokyo international operations, obviously IKOMA and Noble Gibbons in Russia are giving you guys a good boost in the revenues, granted it's off a low base right now. Do you anticipate making, I guess, more acquisitions of this sort and how much can we anticipate sort of like the IKOMA acquisitions that are ramping up too?

Okay. Well, let's take that in pieces. First, in terms of our acquisition strategy, as we mentioned last quarter we believe that given our geographic footprint and the scalability of our business that infill acquisitions are a core source of growth for the Company. And so we expect, or hope to make, between 100 and $150 million worth of infill acquisitions on an annual basis. We've talked before that those acquisitions are usually made at something between a 5 and 7 EBITDA multiple, and therefore you can do the math and figure out kind of what type of run rate EBITDA that would contribute to the Company. But that would be our kind of long-term expectation out of acquisitions. As it pertains to IKOMA, we believe it will take a couple years to get the IKOMA business to our operating margins. And we're on that project as we speak.

All right. Thanks a lot, guys.

Jennifer Pinnick, Morgan Stanley.

Good morning. You saw some significant -- good morning. You saw some significant operating leverage in Europe in Q4 and Q1. On about 5% year-over-year increase in operating and administrative expenses, and I was wondering if I can extrapolate that trend going forward?

Ken?

In terms of the operating expense increases?

Yes.

Well, I think in terms of our base business that's a pretty consistent growth rate you'd expect. The one thing that would modulate that, obviously, would be infill acquisitions where we're adding in other businesses and obviously now incorporating their operating expenses in the mix. But in terms of kind of just year-over-year growth, I mean, expect in the 4.5 to 5% growth on OpEx. The difference, obviously, from that that you're seeing is predominantly as a result of acquisitions.

Okay. And also within Asia-Pacific can you talk about the organic growth and perhaps quantify the revenues from IKOMA?

Within Asia, the biggest piece of growth in the first quarter was coming from acquisitions. With, I would say, relatively modest in mid single-digit growth coming from organic revenue growth. That's pretty much the mix. I think as the year progresses, you'll see a bigger portion coming from organic. But in the first quarter, it is seasonally the slowest quarter for us, the biggest [inaudible] percentage of the increase was from the IKOMA transaction.

Okay. And within Investment Management can you discuss the funds that will be unwinding this year and next?

We don't really talk specifically about funds for that business, but the ones predominantly that will have an impact for this year are predominantly based in the U.S.

Thanks.

Jay Habermann, Goldman Sachs.

Good morning, guys. Actually it's [Sloane Bohen] here with Jay. With regards to your investment sales pipeline, particularly in the United States, have you guys seen any change in the composition of what kind of assets are being sold, whether it's more portfolio sales or whether it's one off type sales?

I'll take a stab at that, and then I'll let Brian add some color. I would say that the answer is yes. In our business -- I'm not sure this is indicative of the market as a whole, but in our business we seem to be winning a very high percentage of very large portfolio sales. That's very good business for us, for lots of obvious reasons. And I would sat that that is a -- that's a noticeable change in the characteristics of the types of properties we're taking to market. But, Brian, do you want to add some color to that?

Sure. I share that thought that there are a lot of large portfolio transactions that seem to be coming to the forefront. But I also would add that the equity -- all equity buyers, the pension funds and institutional types have become more active and are winning more bids with the rising interest rates. The private buyers are less competitive. Relatively speaking, they're still very active, but relatively speaking they're less active in the way of winning the bids than perhaps the institutional advisor types.

All right. Thanks a lot.

It's interesting. I'll just -- I'll add a little bit of color to that as well. When we looked at our first quarter numbers, the velocity of transactions on the sales side was up fairly significantly while valuations as you might expect were up -- they were up. They certainly weren't flat or down, but it is interesting, and Brian mentioned this in his comments earlier, that the velocity of trades in investment property world continues to be very, very strong.

[OPERATOR INSTRUCTIONS]. David Chamberlain, Pimco.

Hi. Yes, a couple questions. Curious, just on the leasing and you obviously saw a pick up in the first quarter, what -- the kind of year-over-year comparison, is there any reason to think that wouldn't -- or that would moderate throughout the year? Or I would think you'd probably see pretty good comps given the rental rate increases or am I thinking about that the wrong way?

No, it's -- I think you're thinking about it generally the right way. Remember that for us, leasing revenues are driven by a number of factors one is rental rates. One is certainly the number of transactions. One is the length of transactions that tenants are taking, and finally the square feet that they actually lease. All that adds up to total number of transactions in consideration of the transaction. Right now, where we are in the economic cycle, and we've been talking about this now for a couple of years, as the global economies continue to improve, what we're seeing is tenants in the marketplace take a bit longer term lease, they're paying a bit higher rent because we've mentioned office rent in the U.S. were up 5.1% in the first quarter, taking a bit more space because they're a bit more bullish about their business, and so all those factors combined are underpinning a strong leasing recovery right now. Now, what would hurt that going forward would be a slow down in the U.S. economy or a significant slow down in the European or Asian economy. So your bet is as good as mine as to whether or not that might occur.

But would you say that -- obviously, it kind of sounded there was an inflection point that was reached in kind of supply-demand equilibrium such that the first quarter, you really -- we really saw rental rates accelerate at least that part of the equation. In your kind of past experience is there a reason -- would that -- I would naturally assume that would somewhat moderate, like if in the first quarter rents were in New York City were up 5% year-over-year would it be fair to say that you'd see some moderation in that, or how do you think that'll play out, but just say the economy stays at its current strength level.

Sure. Well, if you look up Torto Wheaton's projections for an example for U.S. office rental rate growth this year through 2010, what you'll see is they're forecasting a high 4% compounded growth rate for U.S. office rents. So what does that say to me? It says that the year-over-year pick up in the first quarter is about where they predict it to be over the next three to four years on an average basis. Well, we'll do a bit better than that, I think, in some years. We might do a bit worse in others. But, no. I don't think the first quarter was particularly unusual. It's frankly, right in line with what Torto Wheaton's been predicting now for close to a year.

Got it. Are you -- and just secondly when you look at the liquidation of the funds in Investment Management and let's just say the 9 million of carrier interest expense instead of expense. What's the -- given that you've kind of said that there's an unrealized gain there that you'll eventually realize in revenue, what's the window there? Is it a six- to twelve-month window or how variable is that?

Well, I wish it were that simple. It isn't. Because what we -- what you're seeing in our -- come through our P&L on accruals compensation expense is compensation against -- expense against a series of funds. Each of those funds has a finite life, and we could be taking in any quarter compensation expense against a fund that might liquidate in a quarter, and we might at the same -- in the same quarter take additional compensation expense against a fund that might not liquidate for four years. But each quarter, we have to true up what we believe the ultimate realization will be and then apply a compensation expense against the dedicated teams participation in the carried interest. I know it's -- it's a bit obtuse, but that's as simple as I can make it.

But is it fair to say -- I mean, you say it's varied but is it -- I mean, maybe I'm wrong in saying this, but wouldn't there be -- wouldn't the distribution be somewhat bell-shaped in the sense that like there is a median of kind of a 2, 2.5 years where -- or is that -- is that the rig and the wrong way to think about it because the funds are so variable in size?

Remember that you've got -- you have a couple of variables to think about. One is, yes, the funds are all different sizes. They also have different carried interest programs, and we're manufacturing new funds every year which as the funds come in those funds have compensation expense that has to get applied against those carried interest as well. So, Ken, is there any other color you want to add to that?

Yes. I think, David, I think your question is just kind of the approximate timeframe within which you'd start to see that revenue that's covering that expense, and I would say it's probably in the 18- to 24-month timeframe. But it's not necessarily ratable over that period of time, which is the point I think Brett was trying to get across. It might come in sooner than that, it might come in towards the end of it, depending on which specific fund you're talking about.

Got it. Great. Thanks, guys.

And thank you very much, Mr. Chamberlain. Well, with that, Mr. White, Mr. Kay, and our hosts, now I'll turn the call back to you. There are no further questions.

Thank you, and we look forward to talking to everyone at the end of the second quarter. Have a good day.

Ladies and gentlemen, your host is making today's conference available for digitized replay for 10 full days starting at 2 pm Eastern Daylight time May the 3rd, all the way through 11:59 pm May the 13th. To access AT&T's Executive Replay Service, please dial (800)475-6701. At the voice prompt, enters today's conference ID of 827041. Internationally please dial (320)365-3844, again with the conference ID of 827041. And that does conclude our earnings call for this first quarter. Thank you very much for your participation as well as for using AT&T's Executive Teleconference Service. You may now disconnect.