世邦魏理仕集團 (CBRE) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the CB Richard Ellis first-quarter 2007 earnings conference call.

At this time, all lines are in a listen-only mode. Later. there will be a question-and-answer session, and instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, today's call is being recorded.

At this time then, I would like to turn this conference over to the Director of Investor Relations, [Michelle] Young. Please go ahead.

Thank you and good morning, everyone. Welcome to CB Richard Ellis first-quarter 2007 earnings conference call. Last night, we issued a press release announcing our financial results for the first quarter of 2007.

This release is available on the homepage of 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. Also available on our Web site is an earnings presentation deck which can use to follow along with our prepared remarks. A PDF version of the presentation will be available in the link marked "Supporting Materials" after the call ends. 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 the Web site.

In a minute, I will turn the call over to our senior management team. These include Brett White, our President and Chief Executive Officer, and Ken Kay, our Senior Executive Vice President and Chief Financial Officer. We have a new member of our senior management team on the call today. I'm happy to introduce Diane Paddison, President, Global Corporate Services-Client Accounts.

But first, I've been asked 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 2007, future operations, the impacts of acquisitions, 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. Except to the extent required by applicable Securities laws, CB Richard Ellis Group undertakes no obligation to update or publicly revise any of the forward-looking statements that we may make here 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 release dated May 1, 2007 and filed on Form 8-K, and our current annual report on Form 10-K, both of which are filed with the SEC and available at the SEC 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.

For a number of years, CB Richard Ellis has been the acknowledged market leader in most major business centers worldwide. This dominant geographic footprint, coupled with the industry's most extensive offering of client services and business lines, has allowed us to leverage a favorable global marketplace into strong financial growth. The first quarter of 2007 was no exception to this long-term trend. In addition, we are just now beginning to experience the revenue synergy of the Trammell Crow integration, which is translating into the acquisition of significant new corporate services clientele.

Our first-quarter results were bolstered by strong growth in EMEA, Asia-Pacific, and the growth in timing of our global investment management revenues.

If you would, please turn to Slide 4. As you can see, we achieved 62% revenue growth for the first quarter of 2007, marking the 18th straight quarter of double-digit year-over-year organic revenue gains. Excluding one-time items, net income for the first quarter of 2007 was $65 million, as compared to $40.1 million for the same quarter last year. Adjusted EPS was $0.27. This constitutes an increase of $0.10 or 59% as compared to the prior-year earnings of $0.17 per share. Normalized EBITDA was $161.9 million, which increased $77.9 million or 93% from the same quarter last year.

Now, I will turn the call over to Ken to cover the financial deck. Ken?

Thanks, Brett. Please turn to Slide number 5. This slide reflects a Company's operating results for the first quarter. The second and third columns from the left represent the 2006 first-quarter reported results for CBRE and the resulting variance when comparing the quarter-over-quarter performance. As you can see, we've also added our 2006 results, including Trammell Crow Company's operations prior to the December 28, 2006 acquisition date, and the resulting variance in the remaining two columns. We believe comparing our current-quarter results against 2006, including Trammell Crow Company, is a more meaningful way to view our improved performance. Thus, on a pro forma basis, revenue increased by $246.9 million or 26% last year. Continued strength in investment sales, as well as increased revenue in the appraisal, valuation, mortgage brokerage, and property and facilities management operations, along with strong leasing activity overseas, have fueled our double-digit revenue growth. In addition, global investment-management operations showed a robust revenue increase and continued growth in Assets Under Management.

Cost of services as a percent of revenue decreased from 56% for the first quarter of 2006 to 53.5% for the current-year quarter, primarily attributable to the mix of revenues with a higher composition of revenue being non-commissionable, primarily from the global Investment Management and Development Services segments.

The increase in operating and administrative expense is primarily due to increased costs related to the Trammell Crow integration, higher carried interest incentive-compensation accruals, as well as higher bonus accruals resulting from improved performance. Excluding the integration costs associated with the Trammell Crow Company acquisition, operating expense would have increased 14%.

Equity income decreased by $4.9 million or 54%, primarily due to higher dispositions within selected funds in our Global Investment Management segment in 2006. Minority interest expense has increased by $1.5 million, primarily due to minority interest activity with IKOMA in Japan. Other loss of $37.5 million was primarily related to the sale of Trammell Crow Company's approximately 19% ownership interest in Savills, a real estate provider in the United Kingdom, in January of 2007. This sale resulted in a non-cash, pre-tax loss of $34.9 million, which was largely driven by stock-price depreciation at the date of sale from December 31, 2006, when the investment was mark-to-market. Excluding one-time costs, EBITDA for the quarter improved by $73.2 million or 83%. This improvement reflects the positive impact of increased revenue and operating leverage inherent in our business model, as well as the initial benefits of the combination of CBRE with the Trammell Crow Company.

The integration of the two companies is proceeding quite well, and we are ahead of schedule as to timing and synergy savings achievement. The actions required to obtain the previously stated target of $65 million of full-year run-rate net synergy savings have been taken, and we are assured of those savings. Next quarter, we will provide you our view at the level of an over-achievement we anticipate.

Please turn to Slide number 6. As previously mentioned, we have included our 2006 results, including the operations of Trammell Crow Company, prior to the December 20, 2006 acquisition date, as we believe it's a more meaningful way to view our improved performance. For the first quarter of 2007, sales transaction revenue increased by $85.1 million or 34% for the quarter, primarily due to continued strength in the U.S., Europe and Asia. Leasing revenue increased $18.7 million or 6%, resulting from increased activities across Europe.

Property and facilities management increased $39.8 million, or 15% for the quarter, with the majority of the growth derived from business expansion. Investment management increased by $56.2 million or 177% for the quarter, substantially due to carried interest revenue as well as higher asset management fees in the United States and the United Kingdom.

Appraisal and valuation increased by $25.2 million or 46% for the quarter, resulting from increased worldwide activities. Our mortgage brokerage revenues increased by $9.9 million, or 32% for the quarter, as a result of an increase in loan originations. Development services revenue increased by $7.8 million or 115% for the quarter, primarily due to higher development fees and rental income.

For the first quarter of 2007, transaction revenue, which includes sales and leasing, accounted for 55% of total revenue, down from 66% in the prior-year quarter, while outsourcing revenues increased to 26% of total revenue, up from 17% from the same period last year, showing the initial success of our revenue diversification efforts.

Please turn to Slide number 7. Our first-quarter 2007 EBITDA margin improved significantly. Excluding merger-related charges, integration costs related to acquisitions, and loss on sale of the trading securities acquired in the TCC acquisition, EBITDA margin for the first quarter of 2007 was 13.3% as compared to 11.2% for the first quarter of 2006, representing a 19% increase. On a trailing 12-month basis, EBITDA margin was 16.3% as compared to 14.8% for the same period last year, which is primarily due to our strong revenue growth, coupled with operating expense control.

Please turn to Slide number 8. Our first-quarter 2007 GAAP or reported EPS of $0.05 per share includes one-time charges. Excluding these one-time charges, our adjusted earnings per share was $0.27. These one-time charges include amortization expense of $10.7 million or $0.03 per share, integration costs related to our recent acquisitions of $12.1 million or $0.03 per share, loss on sale of trading securities acquired in the Trammell Crow Company acquisition of $33.7 million or $0.08 per share, and merger-related charges due to the Trammell Crow acquisition of $31.8 million or $0.08 per share.

Please turn to Slide number 9. The cash balance at March 31, 2007 of $346.3 million was $101.8 million higher than at December 31, 2006. The increase was primarily attributable to the sale of the Savills investment, partially offset by the majority of our 2006 bonuses paid in the first quarter of 2007. The decrease in restricted cash was primarily due to the payout on outstanding shares of Trammell Crow Company common stock that were tendered during the current-year quarter. 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 warehouse line of credit liability, based on the number of loans held at any point in time. The decrease in trading securities was primarily due to the sale of the investment in Savills. Real estate assets are primarily related to the Development Services segment, which includes real estate and other assets held for sale, real estate under development, and real estate held for investment.

Goodwill increased by $12.5 million, primarily as a result of acquisitions, partially offset by a decrease in intangibles of $11.4 million. The increase in deferred compensation assets is due to the funding of current participant deferrals and gains on investment during the first three months of 2007. The increase in other assets is primarily attributable to an increase in deferred tax assets, primarily as a result of the adoption of FIN 48.

Please turn to Slide number 10. Current liability, excluding debt, decreased by approximately $502.3 million. This fluctuation is mostly due to a seasonal net decrease in accrued bonuses and profit-sharing, as well as the payment of remaining purchase considerations for Trammell Crow Company common stock. The outstanding balance on the multi-currency revolving credit facility was $41 million at March 31, 2007, reflective of the borrowings from several of our foreign operations. The decrease in the senior secured term loan tranche B reflects the $3 million of required quarterly amortization.

The Development Services business finances its projects with third-party financing sources. The majority of these real estate loans are recoursed to the development projects but nonrecoursed to the Company. As of March 31, 2007, the outstanding balance of the real estate loans was approximately $386 million, of which only $17 million of these loans were recoursed to the Company. The increase in other long-term liabilities was primarily due to the establishment of a long-term tax reserve as a result of the adoption of FIN 48.

Stockholders equity rose by $17.3 million, primarily as a result of the activity related to stock options and restricted stock, partially offset by a one-time reduction to retained earnings as a result of the adoption of FIN 48.

Please turn to Slide number 11. Our net debt-to-EBITDA multiple at March 31, 2007 was 2.01 times, as compared to 2.25 times at the end of December 31, 2006. Our trailing 12-month interest coverage ratio was 5.71 times. Our weighted average cost of debt was approximately 6.8% at March 31, 2007, which is consistent with our rate at December 31, 2006.

Please turn to Slide number 12. Internal cash flow has been traditionally defined as normalized net income adjusted for depreciation, amortization and capital expenditures. As a result of the one-time items associated with the acquisition of the Trammell Crow Company, we have also included the impact of the proceeds from the sale of the equity stake in Savills, as well as a reduction for the cash component of acquisition-related costs. The first-quarter 2007 trailing 12-months internal cash flow was thus $601 million.

Usually, there is a close correlation between net income and internal cash flow because of the limited capital expenditures and working capital needs of the company on an annual basis. Capital expenditures, net, were $39 million for the trailing 12-month period. For 2007, we anticipate capital expenditures, net, to approximate $60 million, excluding one-time expenditures attributable to the integration of Trammell Crow Company. Additionally, as we noted on previous occasions, we have used a portion of our operating cash flow for infill acquisitions.

Let me turn the call over to Diane Paddison to talk about wins and our regional operations.

Thank you, Ken.

Please turn to Slide 13. This self-explanatory slide reflects some of our major successes during the first quarter of 2007, which are a testament to the global reach and the strength of our platform. I will only highlight three of them, although each one is noteworthy.

CBRE represented the Blackstone Group in the $770 million sale of a five-building 2.8 million square foot Denver office portfolio. The properties are all located in the downtown marketplace, and had been part of the EOP portfolio. Callahan Capital Partners acquired the portfolio in the largest transaction in Denver's commercial real estate history by a factor of 3, and subsequently named CBRE as the leasing and managing agent for a majority of this portfolio.

Travelers renewed CBRE's facility management and project management contract for a five-year period and also awarded CBRE responsible for its St. Paul, Minnesota headquarters building and its primary data center site in Georgia. This new assignment has added 2 million square feet of managed space to CBRE's overall responsibility for Travelers. We provide Travelers with facility management services for 4.1 million square feet and project management services for 10 million square feet.

CBRE advised IVG Immobilien AG on the purchase of this Swiss Re Tower, the elliptical-shaped landmark building widely known as the Gherkin. IVG purchased the 500,000 square foot office tower for 1.2 billion in a partnership with Evans Randall, a local investor who CBRE introduced to IVG. This is one of the largest single asset sales in UK history.

Please turn to Slide 14. In the Americas, the first-quarter revenue increased 61% to 791.9 million, compared to 493.4 million for the same period in 2006. The growth was mainly attributable to strong investment sales, higher mortgage brokerage, appraisal valuation and property and facility-management fees, enhanced by revenues coming from the integration of Trammell Crow Company. Excluding the impact of one-time items, EBITDA was $84.2 million for the first quarter, an increase of $28.8 million or 52% as compared to the first quarter last year. Higher EBITDA was primarily the result of the improvement in revenue and operating leverage inherent in our business model.

Capital flows into commercial real estate continue at high levels. This is borne out in the robust performance of the U.S. investment sales market in the first quarter of 2007. According to real capital analytics, U.S. investment sales reached a new record for the first quarter, rising 57% from a year ago to $87.1 billion. RCA credits CBRE with 15.7 billion of investment sales for the quarter, a 62% improvement from the first quarter of 2006. We captured total market share of 18% and registered especially strong growth in retail industrial properties, as well as office buildings.

Loan origination volume surged 85% to 6.2 billion in the first quarter of 2007. The sharp jump reflects the high levels of liquidity in the marketplace, attractive long-term borrowing rates, investors' continued strong appetite for investment property, as well as a trend towards larger transactions. Volume attributable to referrals within the CBRE system rose 61% from the year earlier to $877 million, reflecting the success of our cross-selling initiatives. As these numbers suggest, we find the overall tenure of the investment market to be favorable.

With regard to leasing, rents are still rising and investors continue to favor office properties for good reason, since office occupying professions are leading our economic expansion. Overall, office rents increased by an estimated 5.6 year-over-year during the quarter, and Torto Wheaton Research forecasts continued strong growth in office rent for the next five years.

The national industrial availability rate declined 10 basis points to 9.3% in the first quarter and now is down by 50 basis points year-over-year. Net absorption continues and Torto Wheaton forecasts an acceleration of industrial rent growth, averaging 4.5% annually for the next five years.

The Company continued to score major outsourcing wins for both institutional and corporate clients. In the first quarter, we added nearly 33 million square feet of property management assignments. High-profile leasing and management assignments were garnered in Denver, San Francisco and Seattle. In corporate services, the combined strength of Trammell Crow Company and CBRE Resources has resulted in an increase in client relationships.

The first quarter is typically the slowest period for valuation services, as the pipeline rebuilds during a flurry of year-end activity. This year, however, business levels have remained very strong and accelerated throughout the quarter. New assignments increased 41% in the first quarter compared to a year ago.

In EMEA, revenue increased significantly by 37% to $225.3 million for the first quarter of 2007, compared with $164.7 million for the same quarter last year. The revenue increase was largely organic and primarily driven by strong performance in the United Kingdom, France, Spain, and Germany, due to significantly increased transaction revenue as well as higher appraisal valuation activities.

EBITDA, excluding one-time charges, was $37.3 million, which represents an increase of $17.4 million or 87% as compared to the first quarter last year. These improvements were primarily driven by aforementioned revenue growth.

Office leasing activity is strong across Europe, fueled by above-average GDP growth in many countries. In particular, Paris, Madrid and London have seen very high levels of leasing activity in 2006 carry over into the first quarter of 2007. Most other cities are also experiencing increased levels of leasing activity. As a result, vacancy rates are falling across most of Europe.

Investor demand for European property has continued into 2007, following the record performance of 2006. Demand is strong across nearly all markets and for all property types with activity increasing most rapidly in Germany, Central and Eastern Europe. Cross-order activity has been an important investment market driver with foreign buyers now accounting for around half of all transactions.

In Asia-Pacific, revenues totaled $94 million for the first quarter of 2007, an increase of 50% from $62.8 million for the first quarter of 2006. The increase in revenue was primarily driven by higher sales activity in Australia, Singapore and Japan. EBITDA was $9.5 million, which represents an increase of $7.4 million or 352% as compared to the first quarter of last year.

I will now turn the call to Ken to discuss Investment Management and Development Services.

Thanks, Diane.

Please turn to Slide number 15. The Global Investment Management business also continues to show strong growth. Revenue totaled $85.6 million for the first quarter of 2007, an increase of 182% compared with $30.4 million in the first quarter of 2006. This increase was mainly due to carried interest revenue earned as a result of the liquidation of certain funds and higher asset-management fees.

EBITDA was $38.9 million, which represents an increase of $32.3 million or 489% as compared to the first quarter last year. Assets under management in the Investment Management business continued to grow in first quarter, increasing more than 7% from year end 2006 to $30.6 billion. During the quarter, we made acquisitions of $1.8 billion and dispositions of $700 million. Most of the remaining increase was driven by increases in valuation.

Please turn to Slide number 16. For the first quarter of 2007, the Company recognized $46.4 million of carried interest revenue and recorded $16.7 million of carried interest incentive-compensation expense, part of which pertained to the above-mentioned $46.4 million of revenue, with the remainder pertaining to future periods' revenues. Excluding the incentive compensation expense pertaining to the future period, EBITDA for the first quarter of 2007 would have been $43.3 million as compared to $15.6 million for the same period in 2006, equating to an EBITDA margin of 51% in both periods. As of March 31, 2007, the Company maintained a cumulative remaining accrual of such compensation expense of approximately $25 million, which pertains to anticipated future carried interest revenue.

Please turn to Slide number 17. Revenue for this segment totaled $17.1 million in the first quarter of 2007, while EBITDA was a loss of $8 million. The losses incurred in this segment were largely a result of purchase accounting for the Trammell Crow Company acquisition, which dictates the write-up of assets to fair value upon acquisition, thereby eliminating any gains in the near term. Excluding the impact of purchase accounting, the Company's earnings would have increased by approximately $8.5 million from gains on real estate sold during the first quarter of 2007. Despite not being able to recognize the gains on sale, the Company does receive the related cash.

Development activity remained strong in the first quarter of 2007, as evidenced by our project starts and inventory of in-process and pipeline projects. In the first quarter of 2007, we started 16 new projects with total budget costs of $439 million, approximately double the level of the first quarter of 2006, when we started nine projects with aggregate total project costs of $220 million. Approximately $162 million of this quarter's starts were part of the Company's healthcare initiative and $73 million were to be developed within our industrial development program.

At March 31, 2007, our in-process projects totaled $5.5 billion, and our pipeline deals stand at $2.9 billion. The combined total of $8.4 billion of in-process and pipeline activity was consistent with levels at December 31, 2006 and remains at a high point for Trammell Crow Company.

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

Thank you, Ken, and thank you, Diane.

Our first-quarter performance reflects our consistent record of growth and profitability, testifying to the leadership position we hold in commercial real estate services. The favorable moment evident in our business in 2006 continued in the first quarter of 2007, resulting in very strong top and bottom-line growth.

Major markets around the world remained strong fueled by global economic expansion, substantial marketplace liquidity, and increased cross-border capital flows. As a world's leading commercial real estate services company with the broadest geographic reach and service offerings, 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. Based upon these factors and our progress to date on the integration of the Trammell Crow operations, our bias for full-year 2007 results is at the upper end of our previously discussed earnings guidance range.

With that, operator, I would like to turn the call over to questions.

Thank you very much. (OPERATOR INSTRUCTIONS). Mike Fox, JPMorgan.

Good morning, guys, and congratulations on another very strong quarter. With regard to the Trammell Crow acquisition, it sounds like things are going very well. I was wondering if you can talk a little to about revenue synergies that -- not as far as quantifying but just talk about, maybe in more qualitative terms, what you are seeing in that regard, and then just different businesses that you are getting from the corporate clients because the outsourcing increased as a percentage pretty healthily.

Sure. Why don't I start by giving you some qualitative comments on this. We fortunately have Diane Paddison with us. Diane, I will ask you in a moment to talk a little bit about your experience with both your previous customer as well at Trammell Crow who are with us now and new customers you are talking today.

But Mike, let me just begin by saying that we have been very, very pleased with the integration efforts to date. One of the most positive surprises to me, over the past five months/four months, has been the fact that we, for all intents and purposes, did not lose a single customer, a large customer of either company in the corporate service side after the announcement of the merger between these companies. We have, of course, underwritten for a loss of some number of these and have been very pleased to see that these clients at both firms view the merger of the two companies as a net benefit to them rather than an issue.

But Diane, you're on the front lines. Any comments you'd like to make on this?

Sure. Thank you, Brett. I would just say, as I have the opportunity to be out with our customers on a weekly basis, our teams on the ground have done a wonderful job of responding to our clients through this merger. When I ask the clients how it has affected them, they basically say "seamless." So I really give a lot of credit to our teams serving our clients, but they have only seen positives from the two companies coming together.

I would say, Mike, from your question regarding the revenue synergies, just from an overall basis, first of all, you look at the accounts that CB Richard Ellis had and a lot of them were transaction-only accounts. We are having the opportunity, with a lot of the great brokerage relationships, to expand with those accounts into multiple services.

With the legacy Trammell Crow Company accounts, we have the opportunity to expand much more in the transaction side and globally, which the platform that we have now for those clients is a very strong positive, especially as they are looking to expand globally and centralize their real estate more from one decision-making person.

There's a lot of opportunities to grow both accounts and there's a lot of our current accounts that we don't have the full share of their business. There's a lot of customers out there that have not outsourced yet, so it's a huge opportunity.

Thanks, Diane. Michael, any more questions on that topic?

One more on that topic with regard to attrition. I was wondering if you could comment on that, because I know that's something that's talked about a lot with regard to the industry and attrition recently with the deal.

Sure. In this transaction, unlike the Insignia transaction, we expected to see a fairly decent amount of attrition. You can imagine that bringing these two companies together with the footprint we have in the brokerage business, we knew that, in many of our marketplaces, there was not going to be a home for a lot of the former Trammell Crow brokerage personnel. I'm pleased to say that, for the most part, those star performers in the Trammell Crow brokerage ranks that we wanted to stay did, and we were able to move out of the combined brokerage ranks with those folks that we felt would not be a good fit.

Outside of brokerage, the attrition has been the nil, at least attrition in the areas that we didn't expect. Of course, as you know, in the back office area, we had a lot of synergy built into overlapping back-office functions, but on the what I would call client-facing personnel, or those personnel that we had highlighted as wanting to keep in the integration outside the brokerage area, we've had a terrific retention of those folks and we've been very, very pleased with the results there.

As Ken mentioned, Michael, although we're not going to go into the specific numbers around the revenue synergies and the expense synergies, I will just underscore what Ken said earlier, which is we are, at this point, confirmed that we will beat the targets we put out to the marketplace. We will be talking more about that next quarter.

Okay, great. Then with regards to the transaction business, when you look at the sales and leasing, how it came in this quarter, I guess sales was much better than we would have expected. Can you talk about the outlook for the year? Are you still expecting that to stabilize in a more normalized kind of high single digit rate, and leasing to be above where it was this quarter?

Well, at the risk of been redundant and looking even more foolish than I have the last 2.5 years, when I told you this, Michael, I would say we believe the capital markets businesses certainly will revert to the mean at some point. We were, again, pleasantly surprised with the strength in the capital markets business in the first quarter.

I would say there are some additional positive indicators in that business at the moment that perhaps we didn't see as well the end of last year. One of those certainly is -- and this is all public information -- that the amount of capital out in the marketplace looking for a home in commercial real estate remains at very, very high levels. As I tour around the markets and talk to both our own personnel and buyers and sellers of real estate, the activity in these markets is at a very, very high pace.

So, at the moment these markets are quite strong. We don't see anything on the horizon that would diminish the rates we are seeing in these markets, but nonetheless, as we said for quite some time, inevitably, at some point, these markets can revert back to a more normalized and mean rate of growth. We think that is, in fact, slowly occurring.

Okay. Then just one final one for Ken -- the tax rate was a little bit higher this quarter than last year. Can you talk to that, and maybe what we should expect for the full year?

Sure, no problem. I mean, the rate was a little higher for the quarter, as you can see from the numbers. The GAAP pre-tax number is obviously a lower number because of the one-time charges, so we had a couple of discrete items that were actually very small in absolute dollars that impacted the rate more significantly than that, so the rate pushed it up for the quarter. Those items obviously, on of full-year basis, will have a much less impact. So I would expect that, for the full year, our rate is going to be closer to kind of around 37%.

Okay, great. Thanks a lot. Congratulations again.

Pat Burton, Citigroup.

Congratulations. My question relates to the timing of when you will provide us an update on the Trammell synergies. Brett, is that just a function of getting the savings behind you and under your belt, or is does that get into the area of guidance?

Well, I will leave that to our expert on the financial deck. Ken, do you want to comment on the update on synergies?

Sure. I mean, as Brett mentioned, we talked about it in our prepared remarks. You know, we have taken the actions required to lock in the $65 million that we had talk about before with regard to net synergy savings, which are full-year run-rate savings.

You know, as Brett mentioned, we will exceed that number. What I think we are planning on doing is, during the second quarter, is really refining that for your so that when we talk about our second-quarter results, we will give you an updated projection on kind of what we feel we will be able to achieve on full-year run-rate synergies. That will be obviously north of the $65 million and then to the extent that impacts our guidance numbers, we will update you in the regard as well.

Okay good. That's a pleasant surprise.

The other follow-up I have for you, Ken, is that the carried interest in the Investment Management business -- you would expect additional carried interest still in the fourth quarter of this year, correct?

Well, we don't want to necessarily pinpoint specifically the quarter. I can tell you that we do expect additional carried interest revenue in 2007, but I don't want to pinpoint exactly which quarter (inaudible) that it comes in because, as we've talked about before, to nail it down to a specific quarter is not the easiest thing to do, but on an annual basis, we think that we' are more able to predict what those are. So as I said, we will have more in 2007, not necessarily in the fourth quarter, though.

Okay, fair enough. Thank you very much and congratulations, everybody, on the quarter.

Jennifer Pinnick, Morgan Stanley.

Good morning. I was wondering, following up on Mike's question, if you could just talk about the leasing outlook in terms of the deceleration in the year-over-year growth, and perhaps if you could talk about, globally, if you're seeing any growth differentials.

Sure, and it's a good question, Jennifer. What we experienced in the first quarter was interesting. We saw continued very strong leasing outside the United States and Europe, in Asia-Pacific, particularly in the large markets, as you might expect. In the United States, leasing came in a bit below our projections. I will tell you that, anecdotally, in the field, our people believe this was more of an air pocket in the gas line than a trend. While time will certainly prove whether they are incorrect or correct, our view at the moment is that the leasing outlook for the year is still quite positive. I think that is certainly underscored by the data. As you well know, Jennifer, we are seeing a continual drop in vacancy rates in almost every major market in the United States and a real lack of new construction in most major markets. As long as the economy remains even modestly healthy, those 3 data points ought to auger for a continued strong appreciation in rental rates in the markets in the United States and good production out of our leasing professionals, and that's what we expect.

Great. Then moving onto development profits, given the write-up of assets upon the acquisition, can you just talk a little bit about the type of annual profitability you expect to see?

Sure, Ken?

I mean, you're asking us to predict full-year profitability for our businesses which we don't necessarily do. As we've talked about in the past though, we do expect the development business -- if you kind of normalized for all of the purchase accounting issues, we would expect them to have a stronger year from an EBITDA performance standpoint than they did in 2006, but I'm not going to get necessarily specific terms of what that means, but definitely a stronger year. As we have done for this quarter, we will kind of provide you kind of with what the adjusted numbers would be, exclusive of the impact of purchase accounting, so that, as the year progresses you will get an idea in terms of what that is.

Jennifer, just to add onto Ken's comment, he is right. We really don't want to give and aren't going to give explicit guidance on development profits. But I would say that, in talking to our development partners and to Bob Sulentic, who is running that business along with our EMEA/Asia-Pacific businesses, what our development folks see is a very favorable market for commercial development and a very favorable reception to the various programs laid out in the marketplace at the moment.

Okay. Then the pipeline, it looks like the acceleration has slowed down. Do you see that reaccelerating this year or is that pipeline sufficient for the type of growth projections you have?

It is definitely sufficient for the growth projections we have.

One more question regarding the timing of fund expirations and the garnering of incentive fees and equity gains -- can you give us a little color, quarterly, of what you are expecting?

I doubt it, but Ken, I will let you answer the question! (LAUGHTER)

Jennifer, it's a good question and probably you know the answer to that already. But we don't necessarily, as I said before, pinpoint exactly when we expect to recognize equity income or incentive fees or carried interest revenue relative to our investment management business. So I think you get a pretty good feeling that we're going to have a strong year for that business. But to kind of break that out on a quarterly basis, we're not going to do that. As you know, it's tough to do that from a timing standpoint because some of that is dependent upon the timing of fund liquidations and the receipt actually of distributions from those funds. Those can change from quarter to quarter as to timing.

So I think it's suffice to say we will have a good, strong year in that business but as we progress the year, we will kind of update you in terms of what we've been able to achieve in each one of those quarters but without trying to kind of prognosticate when we were recognize that in future quarters.

Okay, great. Thank you.

Brandon Dobell, Credit Suisse.

Kind of following up on Jennifer's question about the service lines, if you could look at sales and leasing and kind of parse out the organic versus acquired and then maybe geographic (inaudible). Obviously, you talked about leasing within sales. Any major variances there between North America and other parts of the world? I'm just trying to get a sense of organic growth in those lines as well.

Sure, Brandon, I will take a shot at it but it's going to be redundant, as I just mentioned on Jennifer's question. But first, in terms of organic versus nonorganic, we don't have an accounting, explicit accounting organic/nonorganic net area but I can to you that, first of all, as it relates to the Trammell Crow acquisition, I would say virtually all of our sale activity was organic, non-Trammell Crow, and the vast majority of the leasing activity as well. Remember, the Trammell Crow business was heavily weighted towards outsourcing and development.

In terms of where those businesses are growing and where we are seeing strength and where we are seeing weakness, first of all, there really isn't any market globally that I would characterize as weak in either sales or leasing. Now, that having been said, in terms of relative rates of growth, the growth of the capital markets businesses, particularly the sale business, at the moment is quite strong in Europe and strong in Asia and for that matter the Americas. All three regions had a particularly good first quarter.

In leasing, and I did mention this on Jennifer's question, we saw a very strong leasing growth throughout Europe and Asia, and good growth but not nearly as strong in the Americas. As I mentioned on Jennifer's question, we view that more as a bit of a gap of air in the fuel line as opposed to a structural trend. That's based on anecdotal evidence and examination of pipelines in our U.S. business.

But Ken, on the organic/nonorganic question by business line, any more data you want to share on that?

No. I mean, I think, obviously, the Americas information is a bit skewed as a result of the Trammell Crow acquisition, and so obviously there would be a little but more from the acquisition as a result of that.

If you kind of flip over to kind of the EMEA, you're going to have significant organic growth there, predominately in the sales area. Then if you look to kind of leasing, it would probably be in the kind of 60% to 70% range growth from organic business activities as opposed to acquisitions. So generally, the marketplace is growing predominantly from organic activity.

Then Asia-Pacific, it's almost all organic growth. So, the only kind of region that is a bit skewed as a result of kind of acquisitions, which you would expect from the Trammell Crow Company acquisition, is really the Americas, the rest being predominantly outside of the United States or the Americas is coming from significant organic growth.

Then coming at it from a bit of a different angle, I guess mostly focused on the sales business, if you could kind of parse out price versus transaction velocity. (inaudible) couple of comments about year-over-year increase in (multiple speakers)?

Sure, it's almost entirely price.

Okay. Then more of a broad question, as you look at the customers that you have now and compare the customers on the transaction side versus the outsourcing side, what kind of an overlap or lack of overlap do you have? How many (inaudible) customers on percentage basis, or do you see that (inaudible) everything versus just use you guys for being a broker and not being a manager (inaudible) get an idea of the overall cross-sell opportunity you guys (inaudible).

Sure. Maybe an easier way for us to answer the question -- and Diane, I am going to put you on the spot again, if you don't mind -- would be to try and quantify how many of our corporate customers use, I guess, Diane, most of our services or, let's say more than three of our services. Diane is not going to have the specific data but perhaps, Diane, you can give an answer here that's a bit subjective.

Sure. Just from the Trammell Crow legacy accounts, we had a little more of a broad service offering that our clients bought from us, so there were only about ten of our key clients that only used us for one service line. With the CB Richard Ellis legacy clients, there was many of the clients that only used us for one service line, which was the transaction management side. So there is a huge opportunity to grow into other service lines, the facilities and the project management, plus consulting.

Then I would just say, in general again, over all the customers which we have 270 with a contract, that even among those that came with the Trammell Crow Company acquisition, we still -- a lot of those customers did not have 100% share of their business. So, there is a huge opportunity with the two companies coming together.

I would just first totally agree with that and underscore that point to say that the opportunity to get a larger share of wallet from existing customers is very, very significant. We've done lots of studies on this and concluded years ago that we could hit all of our growth objectives for many, many years simply by capturing a additional relatively small amount of share of existing customers' wallets. Now, where that comes from is not so much the existing contract corporate services customers that we have, because as Diane mentioned, those are a discrete number of accounts and we are selling real hard to them right now. But rather, it's the tens of thousands of accounts or customer relationships that sit in our global brokerage activities, where those clients are really only hiring us to do one thing, yet all those clients have a number of services provided to them.

So, it has been our thesis for many years and it's one of the fundamental reasons we merged with Trammell Crow was that if we could build a global leading practice in integrated services, such as Trammell Crow had, that we would be able to quickly capture additional share from these tens of thousands of brokerage clients around the world. That's exactly what we're going about trying to do at the moment.

Then the final question -- a lot of publications we see talk about cap rates being very, very low, 3 or 4%, and that being a potential headwind to the investment sales business, regardless of geography. How do you guys think about kind of the published cap rates versus the forward cap rates, given what's going on in the leasing market? Is that the right way to think about why there's still opportunity in the investment sales business for price to go up?

It's certainly one of the fundamental drivers, I believe, behind the continued strong capital flows in commercial real estate.

I would also say the headline cap rates on a 1 million-square-foot Class A office tower in Manhattan may look quite different than the actual cap rates on terrific buildings in Greenwich or in suburbs of Atlanta. Certainly, as we go outside the core markets -- and that's where you've really seem the most cap rate compression into suburban, secondary marketplaces or, for that matter, outside the United States. When you get into even very developed markets in Western Europe and certainly Asia, it's not at all uncommon to see yields in ranges that look like the States two or three years ago. I'm actually calling in at the moment from Frankfurt and I can tell you that there are plenty of buildings we bought in Frankfurt with yields north of 6%. Oh, by the way, that's why so many U.S. investors have shifted their focus out of core U.S. markets and into markets such as Germany. The money is following the yield and there's still plenty of attractive yield opportunities globally at the moment.

Great, very helpful. Thanks.

Jeffrey Kessler, Lehman Brothers.

Thank you. Most of my questions have been answered but I do have -- while you're in Germany, I did want to ask you a couple of questions about EMEA. Number one, the name Germany was trailing Paris, Madrid, UK for several years and was it somewhat of what I would call a flat, desolatory market. It seems that it has now become -- is it just because of where yields are? Is it because of overall business activity pick-up? Is this enough of a driver to keep the fuel in the fire for Europe now for several years to come?

Well, I think the Germany story is indicative of a broader European story, but specifically speaking of Germany, you see intense interest in German real estate at the moment for a number of reasons. And you, Jeffrey, touched on a number of them. First, we've seen good GDP growth out of Germany now for a few quarters. We are seeing slowly but nonetheless improving consumer confidence in Germany. We are seeing yields in Germany that are still in a range that look quite attractive as compared to other major cities. Finally, we are seeing a real, stabilizing, and in some cases in some of the major cities here, appreciation in rental rates and a decline in vacancy rates. So those dynamics certainly augur towards a healthy marketplace and that's exactly what Germany is experiencing.

In Europe, it is, though, certainly not just a Germany story. You are seeing similar stories play out in Italy, in Spain, in the Netherlands. The UK has been playing out along with Paris for quite some time. The UK, particularly London and Paris, look a lot like major cities in the States with very, very low yield on commercial real estate. By the way, real estate is still being bought, and I think that a lot of dynamics at play here, Jeffrey, but certainly a global view that there is a tremendous amount of liquidity in the marketplace, a global view that, generally speaking, the world economy is in decent shape, a global view that vacancies are generally declining and rental rates are generally appreciating and expected to do so for some time. And commercial real estate as an asset class, due to all of those factors and more, remains highly favorable to asset managers.

Okay, another question about Europe, because it is becoming a much more significant factor in your overall mix even than it was to were three years ago. Number one, your EBITDA margins have generally been higher than your competition. The question is, is that just a factor of scale? Is it a factor of the mix of businesses that you are doing? I guess a corollary to this is can you export Trammell Crow to Europe, essentially get more wallet to Europe? How long is that going to take?

So I guess there's two parts to the question. Why the higher EBITDA margins, and can you export greater market share, better wrap-around to customers to Europe, but how long is it going to take?

Sure. Well, on the margin question, first of all, I will tell you what I think is obvious, which is, in Europe just like in the States and Asia-Pacific, we compete in a very competitive marketplace and we have terrific competitors over here. Some of those competitors run margins close to ours; others run margins much less. I think the reasons for that, for those differentials, are many. Some of them I believe are that for quite some time -- and I think you know this because you've been familiar with our company for a while -- we have focused and continue to focus on EBITDA margin as a key metric to measure the business. Frankly, we use it as a key metric to measure management. So when we look at management performance in our company, EBITDA margin stands right near the top if not at the top as a metric that we use to show good management or poor.

Second, we are clearly benefiting in Europe from the strength of the brand. Our market position in Europe changed dramatically when we made the Insignia acquisition, but perhaps more importantly, our market position in Europe then began to gain very, very quickly post the Insignia acquisition. We believe that was due to the fact that the brand in Europe became very powerful and that it allowed us to begin to accrete significant share. As we did that, we were able to onboard new revenues without expending serious dollars in employment acquisition or retention, for that matter, for employees. People wanted to be with us as staff. Clients wanted to work with us as a service provider. So I think we were able to build our business without some of the expenditures other firms had to make to retain staff or to onboard new clients.

As we sit here today, we now have these great pieces in place. We have a terrific brand throughout Europe. We have an awful lot of momentum over here, very, very high morale in our business, and a business that's producing terrific profits. And so, the compensation schemes here in Europe are producing terrific rewards. All of those things come together in a pretty good chemistry for continued improvement in our business and continued strong margins.

I'm sorry, Jeffrey, I've now forgotten your second question. (multiple speakers)

According to the Trammell Crow model, so to speak, what you are trying to do already in the States, get greater wallet share of existing customers with improving services. How long is that going to take in Europe? Is that going to trail the U.S. by three or five years or are we talking about just one year?

Well, it's a great question. I will tell you that the first trip that I asked Bob Sulentic and Diane and Bill Concannon and Michael [LaFeyette] and others to take once we completed the acquisition was to Europe. Diane and the team went around the European marketplace, first educated themselves on our capabilities here and second to educate our people here on their capabilities. I would tell you that both sides walked away from those visits very, very excited about the possibility.

Just anecdotally, as I said in our business review this morning, in Frankfurt, one of the key points I talked about was their now completed integration of a group of Trammell Crow professionals here in Germany and their excitement around their ability to attack the corporate outsourcing market here in the German marketplace.

Now, how long will it take? Who knows. I will simply tell you that there is very good momentum in Europe; there's a lot of excitement around the additional capabilities we've enjoined with Trammell Crow. Diane, you've been over here and again, you are on the front lines of all this. The question I think is what is your view of our ability to export into Europe and Asia-Pacific the great capabilities that we have built up over the years on corporate services?

Well, what I would add to what you said, Brett, is with Mike Strong and Rob Lane and Bob Sulentic's leadership, we've already worked together to put in place an executive account leadership structured like we have in the Americas. Those people are a part of the team that I deal with on a daily basis. There's also a very strong focus on our project management and facility management capability, matched with the amazing global transaction management capability. We are already seeing our U.S. multi-nationals, and I think, as we speak, I've got one of our largest clients in Barcelona meeting with our office there.

So, we are already starting to see our U.S. multi-nationals taking advantage of this platform with the merged companies. In addition, there's [opportunities] of companies based in EMEA or Asia-Pac to bring exactly to them what we do in the Americas.

The final question on this subject, and that is ultimately the margin mix. I know you've just said you're focused on margin -- also margin as a way of keeping -- of paying your people. But does the mix of overall service that you are bringing over from Trammell Crow, will that cause any type of margin compression, even though you're trying to get more services out of the same customer? Does that initial attempt at getting more services put any pressure on margins in EMEA and Asia-Pac?

Well, I think that -- let me answer the question this way and I am also going to let Ken weigh in on this topic. But first of all, as you know, with the acquisition of Trammell Crow, we changed our accounting on reimbursables, so definitionally, what you saw is the overall company margins were compressed as we counted reimbursables as revenue, as Trammell Crow did and as does our other major competitor.

Also, the outsourcing businesses -- some of the components in the outsourcing business do run at lower margins than other components of the outsourcing business and at lower margins than our development in the investment management business and at times our transaction businesses. So as that business grows, certainly the mix could put pressure on margins. That, in our view is perfectly acceptable, and our people are measured against targets as opposed to absolute growth or decrease.

So we think it's terrific that we can grow our outsourcing business. We want to grow it absolutely as fast as we can. These are sticky, contractual revenues. They give us terrific entrees to very, very large global customers. If those have a little bit of pressure on margins, then that's perfectly okay with us.

Ken, do you want to add any color to that question?

Yes, no, I think that's right, Brett, but I think there's a couple of other things that I just want to kind of supplement that with. First of all, with just the sheer additional size of the organization or the combined companies with the merger with Trammell Crow Company, it just gives the Company a lot more opportunities for let's call it operating leverage,. We talked about operating leverage in the past as the key driver for a margin improvement. You've seen we've done a pretty good job dating back to 2002 when you see consistent annual increases in operating margin. What really drives that is tight controls with regard to kind of fixed expenses that grow at really a modest rate, and obviously trying to grow revenues as quickly as possible. That, in and amongst itself, will drive margin improvement.

In addition to that, I think the opportunities for additional synergy savings from the Trammell Crow integration will give us margin enhancement opportunities. As we've talked about before, we still think this business is (technical difficulty) consolidated basis, based upon the mix of revenues. And we've got some businesses that are higher-margin businesses as well, for instance Investment Management and Development Services just to name several of them, Appraisal Valuation as well. When you take the mix of those and you kind of roll them all up together plus the enhanced synergy savings, you know, this business will show margin improvement. As we said over time and we said, but in the mid-term as opposed to the immediate next year or so, you know this business will get upwards of, you know, to a 20% index margin business. Now, it will take us some time to get there but we still see the opportunity for our consolidated business to have an EBITDA margin in the 20% range, so call it like that. So despite the fact that we had some margin compression as a result of the combination of two companies, based upon the modification of the accounting and showing reimbursements in revenue, we still kept that as a goal for us and we think we certainly have opportunities to get there.

Thank you very much, and great quarter.

Will Marks, JMP Securities.

I just had a question relating to kind of big picture and what we saw in the '90s relating to REITs taking a lot of service business in-house. And just this Blackstone (inaudible) deal brings to mind or seems to be that deal in and of itself changes things a little bit. I'm wondering if we are seeing more of this, not necessarily deals like EOP. But are REITs starting to outsource more? Has this stabilized, and any comments regarding that?

Well, I think that, certainly looking at the Blackstone deal, what it did was it provided an awful lot of fuel to a number of components of the commercial real estate industry. Certainly as a service provider, it gave the market a very positive jolt. It had an impact on valuations. There were tens of millions of dollars in fees paid into the marketplace in a very, very short period of time. I think that our company and an awful lot of companies in the marketplace are quite thankful that the transaction occurred.

As Diane mentioned earlier in the call, one of the results of the transaction was that a very large portfolio of office properties held by EOP, who traditionally insourced most of their leasing and management, is now out in the marketplace. Much of that property has now been outsourced for leasing and management. We were fortunate to pick up a good piece of that.

So, you know, I don't know what the future holds for ownership of commercial real estate. You will have to ask brighter people than us about that, but certainly there's an awful lot of interest in public-to-private moves, and so far those types of transactions have been very beneficial to the services industry.

Great, thanks, Brett.

Thanks. At this time, I would like to turn the conference back over to Mr. White for any closing comments.

Okay, Shelley, do you want to close the call?

Yes, thank you very much for joining us and we look forward to speaking to you again next quarter.

Great, and thank you. Ladies and gentlemen, this conference will be available for replay starting today, Wednesday, May 2 at 2 PM Eastern time. It will be available through Wednesday, May 16 at midnight, Eastern time. You may access the AT&T Executive Playback service by dialing 1-800-475-6701 from within the United States or Canada, or from outside the United States or Canada, please dial 320-365-3844 and then enter the access code of 871538. (Operator repeats numbers.)

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