世邦魏理仕集團 (CBRE) 2011 Q3 法說會逐字稿

Welcome to the CBRE third quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions being given at that time. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Nick Kormeluk. Please go ahead.

(technical difficulty) Thank you. Welcome to CBRE's third quarter 2011 earnings conference call. About an hour ago, we issued a press release announcing our financial results. This release is available on the homepage of our website at CBRE.com. This conference call is being webcast and is available on the Investor Relations section of our website. Also available is a presentation slide deck which you can use to follow along with our prepared remarks. An archived audio of the webcast and a PDF version of the slide presentation will be posted to the website later today and a transcript of our call will be posted tomorrow.

Please turn to the slide labeled Forward-Looking Statements. This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future growth momentum, operations, financial performance, business outlook, ability to compete and integrate our announced acquisition of the ING REIM business in Europe, and the ability to complete a new incremental senior secured sterling denominated term A-1 loan facility.

These statements should be considered as estimates only and actual results may ultimately differ from these estimates. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that you may hear today. Please refer to our third quarter earnings report filed on Form 8-K, our current annual report on Form 10-K and our current quarterly report on Form 10-Q, in particular any discussion of risk factors or forward-looking statements, which are filed with the SEC and available at the SEC's website, sec.gov, for a full discussion of the risks and other factors that may impact any estimates that you may hear today.

We may make certain statements during the course of the 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 attached hereto within the appendix. Our management team members participating with me today are -- Brett White, our Chief Executive Officer; and Gil Borok, our Chief Financial Officer. I'll now turn the call over to Brett.

Good morning and -- good afternoon. Thank you, Nick. Please turn to slide 4. This quarter, our strong performance and evidence of the continued commercial real estate recovery comes against a backdrop of persistent sovereign debt concerns in Europe and tepid economic and employment growth in the US. Revenue growth for CBRE was strong in the third quarter. Total Company revenue was over $1.5 billion, representing a 21% increase over the third quarter of 2010. This growth was balanced across all geographies and most service lines. Leasing revenue increased 19% in the third quarter of 2011, with all regions increasing by double digits in the quarter. The largest percentage gains in leasing were in Asia-Pacific and EMEA. Outsourcing revenue accelerated significantly in the third quarter of 2011 with growth of 19%. All geographies have double digit growth with EMEA leading the other 2 regions.

Investment sales growth was 23% for the total Company, entirely driven by the Americas as EMEA and Asia-Pacific were essentially flat. Investment management revenue showed a significant increase from higher asset management fees, primarily driven by CBRE Clarion Securities which we acquired on July 1, as well as higher incentive fees. Normalized EBITDA increased to $194.8 million from $175.5 million. Our normalized EBITDA margin was 12.7% versus 13.9% in the third quarter of 2010. This margin comparison is impacted by an unfavorable variance of 60 basis points resulting from an increase in net carried interest compensation expense in our investment management business this year versus last. Another 60 basis point unfavorable variance was due to increased legal reserves associated with 2 unrelated cases and insurance reserves on claims within our appraisal and valuation business which [date] back to the downturn.

Despite these variances as well as higher outsourcing business mix and increased staffing in EMEA which also contributed to lower operating leverage in the quarter, we are still not satisfied with the overall EBITDA margin result and fully expect our cost production measures to show greater impact in the fourth quarter of 2011. Because of this, we reiterate our expectation that full-year 2011 normalized EBITDA margin will exceed full-year 2010 normalized EBITDA margins. Some of the most significant transactions we completed during or immediately following the quarter are shown here on slide 5. As usual, I will not go over to them individually but we have included them for your review. I will now turn the call over to Gil to go over financial results in detail.

Thank you, Brett. Please advance to slide 6. Revenue was $1.5 billion for the third quarter of 2011, up 21% from last year. This increase results from strong growth in all business lines with the exception of development services. Normalized EBITDA was up 11% to $194.8 million in the third quarter of 2011 from $175.5 million in the third quarter of 2010, delivering a normalized EBITDA margin of 12.7%. Without the impact of the $7.4 million of carried interest compensation expense this year versus a reversal of $1.4 million last year and the $8.6 million impact of legal and insurance reserves taken in the quarter that Brett just mentioned, normalized EBITDA would have grown by about 21% and normalized EBITDA margin would have been almost flat compared to last year.

Our cost of services as a percentage of revenue increased very slightly to 58.3% in the third quarter of 2011 versus 58.1% in the third quarter of 2010. Third quarter 2011 operating expenses as a percent of total revenue increased by 100 basis points to 30.6% versus 29.6% in the third quarter of 2010. This was driven by the aforementioned carried interest expense, legal and insurance reserves, as well as the inclusion of CBRE Clarion Securities' expenses all of which flow through operating expense as opposed to cost of services. Interest expense decreased by $10.7 million in the third quarter of 2011 as compared to the third quarter of 2010 primarily due to lower interest rates resulting from our refinancing activities in the fourth quarter of 2010. Our third quarter 2011 normalized tax rate was approximately 40% and we also expect it to be approximately 40% for the full year of 2011. Third quarter 2011 GAAP diluted earnings per share was $0.20 versus $0.18 last year; adjusted diluted earnings per share was $0.24 as compared to $0.20 in the third quarter of 2010.

Please turn to slide 7. Property & facilities management was, again, our largest service line in the third quarter of 2011 representing 34% of total revenue in the quarter after growing 19% versus the third quarter of 2010. Leasing was our second largest service line in the third quarter of 2011, also reporting a 19% revenue increase versus the third quarter of 2010 which experienced a 27% increase over the third quarter of 2009. Leasing represented 32% of total Company revenue in the third quarter of 2011. Investment sales growth slowed a bit but was still strong with an increase of 23% in the third quarter of 2011; another meaningful improvement following a gain of 63% in the third quarter of 2010 versus the third quarter of 2009.

Appraisal & valuation revenue improved 26% in the third quarter of 2011 as compared to the third quarter of 2010. This was driven by large portfolio assignments globally, continued strength in US capital markets activities, and an acquisition in Asia-Pacific in the second quarter of 2011. The global investment management revenue increased 93% quarter-over-quarter driven by increases in asset management and incentive fees.

Commercial mortgage brokerage revenue increased 32% driven by solid capital availability, favorable interest rates and the continued search for yield by investors. Development services revenue was down 21% primarily due to lower rental revenues resulting from property dispositions. Revenue from property & facilities management, fees for assets under management, loan servicing fees and leasing commissions from existing clients are all largely recurring. This revenue comprised approximately 58% of total revenue for the third quarter of 2011.

Please turn to slide 8. The outsourcing business growth rate accelerated this quarter, with revenue up 19% versus the third quarter of 2010. This was driven by record-setting new account growth, continued strong client renewals and expansions, and acquisitions in the EMEA. Strong performance is evident across all regions with EMEA posting the largest revenue increase. In the third quarter, we set another record and signed 49 total long-term contracts. This exceeds the previous quarterly record which was 47 in the second quarter of 2011. This is also the third straight record-setting quarter in which we signed 20 new accounts which is itself a record -- 17 renewals, and 12 expansions. The revenue and [active] pipelines in this business continue to be very healthy with more assignments that are global in nature. Robust activity has helped us add nearly 1 billion square feet to our portfolio in just two years.

Slide 9 demonstrates the stabilized or improving vacancy rates and possible absorption in the third quarter of 2011 for all 3 market sectors depicted along with our forecasted improvements in all 3 areas for 2012. Average national office cap rates remain favorable in the third quarter of 2011 versus the second quarter of 2011 and showed improvements versus the third quarter of 2010 driven by core and Class A property sales. Please turn to slide 10. Sales revenue in the Americas continued to be strong with a 42% increase in the third quarter of 2011 versus the third quarter of 2010. Our US investment sales market share totaled 14.3% for the third quarter of 2011 according to Real Capital Analytics. This share was more than 470 basis points larger than our nearest competitor.

Our Americas leasing revenue grew 11% in the third quarter of 2011 as compared to the third quarter of 2010, which grew 36% over the third quarter of 2009. Fundamentals remain solid despite challenges experienced in the US economic recovery. During the third quarter of 2011, the US office vacancy rate remained unchanged at 16.2%. Given the increased [weighting] of outsourcing overall and the particular growth in EMEA and Asia-Pacific in the last few years, we have decided to add regional color on outsourcing in each of our regional revenue slides. The Americas' outsourcing business grew a strong 13% in the third quarter of 2011 which is consistent with year-to-date 2011 growth rate.

Please turn to slide 11. Our investment sales revenue in EMEA eased by 3% in the third quarter of 2011 attributable to cautious trading linked to concerns over sovereign debt challenges. Despite this, strong sales were evident in France and Germany. CBRE's EMEA leasing revenue posted excellent growth, with a 33% improvement in the third quarter of 2011 versus the third quarter of 2010. These positive results came despite macro issues and were driven by the UK, France, and Germany. Outsourcing contributed more than $30 million of the revenue improvement in EMEA's third quarter 2011 results and represented an impressive 48% increase for the quarter driven by new assignments.

Second quarter 2011 acquisitions in central and eastern Europe and Switzerland also made positive contributions to revenue growth this quarter. The revenue mix this quarter was -- outsourcing accounting for 5 percentage points more total revenue and sales declining by a [like] percentage had a notable negative impact on EBITDA margins quarter-over-quarter. However, the absolute quarter-over-quarter EBITDA growth was pleasing in such a tough economic environment.

Please turn to slide 12. CBRE sales and revenue in Asia-Pacific was essentially flat in the third quarter of 2011 as compared to the third quarter of 2010. CBRE's leasing revenue in Asia-Pacific grew by a dramatic 41% in third quarter of 2011 versus the third quarter of 2010. The strongest gains came from Australia, China, and Singapore. Outsourcing growth in Asia-Pacific was a solid 21% in the third quarter of 2011 versus the third quarter of 2010, as outsourcing continues to gain adoption in this region.

Please turn to slide 13. Revenue for the Development Services segment was $18.8 million in the third quarter of 2011 versus $22 million in the third quarter of 2010. Operating results for the third quarter of 2011 for this segment included normalized EBITDA of $5.2 million as compared to $10.7 million in the third quarter of 2010. Third quarter 2010 EBITDA benefited from higher gains on the sale of properties primarily reflected in equity income from unconsolidated subsidiaries and income from discontinued operations on our income statements. At September 30, 2011, in process development totaled $5.1 billion, up $200 million from both December 31, 2010 and the end of the third quarter of 2010. The pipeline at September 30, 2011, rose to $1.5 billion, up $300 million from year-end 2010 and up $400 million from the end of the third quarter of 2010 which indicates continued improvement in this sector. At the end of the third quarter, our equity [current] investments in the Development Services business totaled $81.6 million.

Please turn to slide 14. On July 1, 2011, we closed the ING Clarion Real Estate Securities portion of the ING Real Estate Investment Management, or ING REIM, at transaction for consideration of approximately $324 million. We also applied current investment positions of approximately $59 million in select sponsored funds. On October 3, just after the third quarter ended, we closed on the acquisition of ING REIM Asia for consideration of approximately $45 million and core investments of approximately $17 million. We remain on schedule to close ING REIM in Europe by the end of the year. In third quarter of 2011, our Global Investment Management segment's revenue was up 56% to $77.4 million from $49.5 million in the third quarter of 2010. The increase resulted from higher asset management fees, primarily stemming from the ING Clarion Securities acquisition and higher incentive fees.

Assets under management, or AUM, totaled $53.5 billion at the end of the third quarter of 2011, up 42% from year-end 2010 and [30%] higher than at the end of the third quarter of 2010. The third quarter 2011 total includes listed securities of $18.5 billion. Changes in market valuation and net reductions in the securities portfolio decreased assets under management by $4.6 billion in the quarter versus the second quarter of 2011. In addition to changing our calculation methodology to conform reporting between CBRE investors and ING REIM, decreased AUM [as] a direct real estate business by $1.6 billion during the quarter versus the second quarter of 2011. Currency fluctuations further lowered total assets by $600 million compared to the second quarter of 2011.

The third quarter 2011 total does not include $5 billion of AUM acquired from ING REIM in Asia on October 3, 2011. During the third quarter, we completed approximately $900 million of acquisitions and approximately $800 million of dispositions globally. Year-to-date 2011, we have raised new capital of approximately $1.5 billion and had approximately $2.1 billion of capital to deploy at the end of the quarter. Our core investments in this business at the end of the quarter totaled $157.2 million.

Our global investment management EBITDA reconciliation detail is shown on slide 15. In the third quarter of 2011, we incurred $9.4 billion of expenses related to the ING REIM acquisition primarily for legal and other professional services. During the quarter, we also wrote down the value of 2 current investments for a total of $4.5 million. In the third quarter of 2011, we reported $7.4 million of carried interest compensation expense which relates to expected future periods carried interest revenue. As of September 30, 2011, the Company maintains a cumulative accrual of carried interest compensation expense of approximately $33 million which pertains to anticipated future carried interest revenue. This business operated at a pro forma normalized EBITDA margin of 35% for the third quarter of 2011.

Please turn to slide 16. Slide 16 shows our amortization and debt maturity schedule for all outstanding debt. During the third quarter of 2011, we drew down our $400 million term loan C to fund the closing of ING REIM Asia and in preparation for closing ING REIM Europe. The terms at LIBOR plus 3.25% with 1% annual amortization and maturity in 2018. We previously announced that we will not be using equity to fund this acquisition. On October 18, 2011, we entered into discussions with our lenders for a new incremental senior secured sterling denominated term loan A-1 facility in the amount of approximately $250 million due in May 2016, with terms substantially similar to our existing term loan A facility.

To date, we have commitments from our bank [partners] to fund over 90% of those $250 million facility. We remain very comfortable with our balance debt maturity profile with no meaningful maturities until 2015. We are also pleased with our strong overall balance sheet positions as it provides us the necessary flexibility to take advantage of strategic opportunities as they appear in this early stage of the commercial real estate recovery.

Please turn to slide 17. Excluding our non-recourse real estate loans, mortgage brokerage warehouse facilities and cash within consolidated funds and other entities but not available for Company use, our total net debt at the end of the third quarter of 2011 was approximately $1.5 billion. This represents an increase from year end 2010 primarily due to term loan borrowings to finance the acquisition of ING Clarion Securities. During the third quarter, the Company also used $12 million to fund two (inaudible) acquisitions in Europe, a retail services business in the United Kingdom and a shopping center management business in the Netherlands. We have continued to seek consolidation [pressure] in the industry which we believe may present good opportunities for more acquisitions at attractive valuations.

At September 30, 2011, our weighted interest rate was approximately 5.5% compared to 6.2% at the end of the second quarter of 2011. The lower average interest rate was primarily driven by a larger portion of lower interest rate debt due to the term loan borrowings to fund ING REIM at the end of the second quarter and end of third quarter. Our leverage ratio on a covenant basis now stands at 1.55 times at the end of the third quarter of 2011 on a trailing 12-month basis. Our total Company net debt-to-EBITDA stood at 1.98 times which remains just below our current target of 2 times. We continue to anticipate that this ratio will be approximately 2.5 times, post the acquisition of all of ING REIM. I will now turn the call back over to Brett.

Thank you, Gil. And please turn to slide 18. Despite sovereign debt challenges in Europe and uncertainty in the economic recovery in the US, we continue to believe that we are in the early stages of a cyclical recovery. Outsourcing fundamentals remain very strong, as evidenced by the strong growth this quarter and revenue should continue to grow in the double digits by the intermediate term. The ING REIM acquisition will provide another significant source of stable growing revenue that will be accretive to our overall EBITDA margin. In addition, we expect to see increased revenue flowing to our otherwise business as the ING REIM operations are integrated. The final piece of the ING REIM acquisition will close as scheduled during the fourth quarter. When it does, we will hold a special call to discuss that business in much more detail.

Investment sales should continue to grow due to [financing] availability for core assets, investor appetite for yield, and attractiveness of the class as an inflation hedge. Leasing growth rates should revert to historical norms as the economy begins to stabilize. We remain focused on margins, balance with strategic recruiting in the appropriate service lines and geographies. We continue to expect EPS to be within our initial guidance range of $0.95 to $1.05 for the full year. Our full-year normalized EBITDA margin should exceed prior year. And with that, operator, we would like to take questions.

(Operator Instructions) Anthony Paolone at JPMorgan.

Just curious at this far into the year, why the guidance range is still a $0.10 for basically the last quarter of the year and what would drive the high and low end of that [bend]?

Well, as you know Anthony, this is a seasonal business and a very significant component of our earnings come through in Q4. So it's a bit more variable than the other quarters; the range, therefore, is a bit wider and I think that it's, from our standpoint, it's good to give you guys as much guidance as we can but probably foolish to try and tell you that we know within a couple of pennies where it's going to end up.

Okay. But it sounds like you're pretty confident that the EBITDA margins, at least will end up higher than they were last year so it suggests a pretty good ramp just compared to what your margins have been year-to-date. I know that's typically what's happened, but with a lot of concerns [over] business slowing down, just curious how you are feeling about the ramp being as dramatic as it has been in prior years in the fourth quarter?

Well, as far as I'm going to take that is what we have said, which is we expect that we're going to have a full year margin for 2011; it's higher than our full year margin for 2010. And you can do any math you want to do, but you're right. That would imply that we are fairly confident around the business volumes at the moment and we are. When you look at the third quarter numbers, it's striking to me that both leasing and sales globally showed good increase. Sales only in the US, but leasing in all 3 geographies. And again, I think as you know, Anthony, if there is one good leading indicator of job growth and of growth I think in the revenues for this industry, you would probably pick leasing because these are large corporate customers and [rent] in the marketplace committing to long-term space leases. So, we like what we saw in the third quarter. We particularly like that the leasing numbers held up quite well. And that is about as far as I think I can take that.

Okay. Just one last question on that topic though. You didn't have any expanses relating to cost reductions in the quarter and it sounded like on the last conference call, things had slowed enough that you guys would consider some cost initiatives it sounded like. Did you not have to do that or did they just not cost money or what is the status there?

Right, well, as we said on the last call, we actually began work on costs in the late second quarter and we ramped up those efforts a bit at the end of the second quarter, about round the time of our conference call. So we have not changed course on that. Again, and that is all about driving an acceptable level of growth in our margins but in terms of the accounting [rental] that -- Gil, do you want to say anything there?

Yes, Anthony, there's two points. First of all, one of the major actions we took was to slow hiring which would obviously not have had costs associated with it, and there were some costs associated with getting costs out but not material enough to call out and normalize.

Okay, got you. And then just on the outsourcing business, it seems like the healthcare and government opportunities has been a theme now for awhile. It seems to be pretty strong. I'm just wondering how much is left there if there is any way to just quantify the opportunity. And also similarly, in Asia and Europe where the growth just seems to be very strong and as a percentage of the total outsourcing pot, it's still fairly small?

Right, well, your first question on healthcare and government, these are massive, massive opportunities, both here in the United States and outside the States. I would say that the outsourcing of that type of work, we have just begun to scratch the surface. We believe we have a particular competency in this healthcare space brought to us from the Trammell Crow acquisition. You may recall, Anthony or perhaps you don't, but Trammell Crow had a very deep and very specific healthcare outsourcing business; They then (inaudible) down in Texas; they still have that account and that expertise really jumpstarted our firm's exploitation of that market.

As it pertains to outside the United States in terms of why that growth rate is high and what we expect for the future, remember, first of all, there's been virtually no outsourcing in those 2 geographies historically. I think the [seminal] point here or the data point that is most interesting to us is that it appears that this is a trend that has now caught on, and we saw some very large pieces of business in those geographies, [led], of course by our [PRU] business in the UK. But I think that we're finally at that point where large European; and it's primarily European, lesser extent, Asian customers, are embracing the concept.

Got you. Is there -- Can you give us any sense as to what the incremental EBITDA margins in the outsourcing business right now as that grows?

Yes, outsourcing, unlike the other transaction businesses, is very much a cost-first business. So let me just first say, you're not going to see the delta in incremental margins and outsourcing that you're going to see on leasing or sales where we can [onboard] lease revenues and sales revenues with zero additional costs other than commissions. In outsourcing, those structural margins you see in outsourcing are below teens probably close to what -- they probably are what the incremental margins are or less. But as I said, many times you [onboard] the costs before you get the revenues. But that all having been said, if you're just keeping your model margins for general outsourcing in the low double digits, you're going to get it right.

Okay, thank you.

Brandon Dobell with William Blair.

I guess one a derivative question off of one of the previous ones. As you guys looked at the close rate for both leasing and sales deals during the quarter, how did it stack up versus, I guess, your expectations given all the overall macro noise or historical quarters? Just trying to get a sense of how predictable you think the business is right now looking out three months.

Sure. Well, first of all, these are to your specific question in -- I'll use here the US data first. In the US, sales velocity, so number of transactions in the quarter, was about 18% higher than the same quarter in 2010. In leasing, it was about flat. All the leasing pick-up and revenue came from lease size, in other words, square footage.

Okay.

And what we look for in these numbers as an indicator of future quarters is a couple of things. First, trending. So for instance, we would look at Q1, Q2, Q3, and see if there's a trend there. Are leasing revenues going up? Are they going down? Same thing for sales. What we are taking away from all that is that, it is -- we're getting to that point where leasing is going to begin operating in a normal way. And that is not 20% or 30% growth a year. It's probably a high singles, low doubles. On the sales side, we continue to be impressed with the increases in sale revenues flowing through the business in the [space]. I don't have any reason to expect that they're going to maintain that level but I think they'll be good. I also believe that the sale business will pick up fairly soon in EMEA again and in Asia Pacific. So we look forward and we see a decent business out there for the transaction businesses.

Let me pile on that one for a second. Maybe your -- the source of your confidence for EMEA and Asia-PAC sales picking up, is it just resolution on some of the sovereign debt issues or do you think there's just more deferral of demand as some of this noise filters through, and there is just too much yield chasing going on?

Well, it's a combination of those things and others, but I would say, Brandon, the first place I'd go to answer that question is I look at history. And what we know about the capital market is that, generally speaking, the capital markets just call a time out almost instantly when there is a large amount of uncertainty in the marketplace about resolving something. If it's the bid-ask, if it's an event of some sort, and in this case, the sovereign debt issues in Europe. Capital markets move very quickly. You can cancel a sale in a one-minute phone call.

And once that uncertainty goes away, that doesn't really matter directionally where it goes. Once buyers and sellers believe that they can forecast their future bit better typically, and historically, that capital markets business returns. So if I just use history as a lesson or a guide here, I would say that there is more certainty now that this can's been kicked down the road a bit, maybe not stalled forever, but stalled for awhile; and that should bring some enthusiasm back to that European sale market.

Fair enough. And then can I reiterate at the confidence around closing, the balance of the ING business by year end didn't really change from the last time that you guys had talked about this. But there must be some reasons you're confident that, that deal gets done the next six weeks, seven weeks or so. Maybe it's the source of that confidence or you just think it's more just [dotting] the I's at this point versus anything major to get your arms around?

Excuse me -- what I will say on that, Brandon, is that deal should close in the fourth quarter.

Okay. And then final question for me. Within the outsourcing business, obviously, a lot of space and a lot of clients onboarded during the quarter. Should we assume that, given your comments around flow of business in Asia-PAC and Europe, that similar magnitude of onboarding the next couple of three quarters, maybe this deal -- don't take two weeks to onboard; they take a little bit longer than that. So, is this quarter indicative of one quarter or two quarter trend or do you think it's got more [legs] than that right now?

Well, first of all, it's impossible to say; the way that these contracts go out, it's all about a very formal RFP process. I'll tell you, our pipelines look quite robust. I also got to tell you that if you had told me a year ago that we would see these growth rates in outsourcing, I would have told you, you are out of your mind. These are historically high growth rates in outsourcing. It's hard for me to believe that they can be maintained yet. I've been wrong now for two quarters so there's something very fundamental going on in this outsourcing business. I think it's two things -- one, I think that in difficult markets and we went from enthusiasm in the markets to despair this year.

In difficult markets, there is a real momentum around outsourcing to reduce costs. The second, I think more important, dynamic here is that we believe, and of course, everyone else will say this about their firm. But we believe we have a clear competitive advantage in this business than we have had in the past and our win rate, which is close to 100%, I think demonstrates that. So we feel good. We feel positive about that outsourcing space. I think it's become a very, very big piece of our overall story, and I don't see anything at the moment in terms of headwinds in that space.

Okay, thanks a lot.

Sloan Bohlen with Goldman Sachs.

Brett, to your comment on the European situation, maybe getting stalled a little for awhile, I guess. How do you plan the business based on how long that while could be? Basically, I guess I'll ask the question from a standpoint of what do you guys view as the shape of the recovery particularly on the brokerage side from here? Do you feel like we have hit a bottom and now ramp up, particularly as companies are looking for yield on the sale side or on the hiring front for the leasing side? Maybe just general comments there.

Well, I suppose, well, first of all, this is a very tough question to answer, and we're in the process at the moment of putting together our 2012 budgets, and that's done ground up, by the way, Sloan. So I'll be learning and Gil and our team will be learning a lot more over the next month, 1.5 months about how our -- each country, each city feels in Europe about that question. I would say in absence of that data which we don't have yet, it would -- I think it would be logical to forecast that we're going to go back to this incremental recovery that we talked about the last five quarters on this call. That incremental recovery being probably something that is a growth rate less than the hockey stick, but growth nonetheless. And as far as I want to take it right now because we are, as I said, we don't have the data yet, and I think we should wait til we see what those pipelines look like before we give you the answer to that specifically.

Okay, and maybe I'll frame it this way though. You talked about the leverage on the balance sheet post the ING REIM getting to 2.5 times debt-to-EBITDA. For acquisition or opportunities beyond that, is there a level of leverage that you would be comfortable taking the balance sheet at this point in the cycle?

Well, it depends entirely on the type of acquisition we would be looking at. So let me be more clear. If we were looking at a [transformative] acquisition which we have lots of experience in, and we were dead certain what the expense synergies would be, and what the cash flow from that acquisition would be, we would probably be comfortable in levering up to make that acquisition. With the construct, it would delever as fast as we could, and that has been our model, Sloan, which is we're not afraid to lever up to get the right acquisition. But there's very few acquisitions of any size that we would probably do right now to take us over that level of net debt-to-EBITDA.

Our sweet spot, what we want to maintain over the long term our net debt-to-EBITDA, something between 1.5 times and 2 times. So we're levered up [a bit] for ING in the absence of a transformative acquisition. You should expect that rate should be coming down until we hit our comfort range again. I'll also tell you this, we're -- Sloan, we're not any more the Company that is comfortable with 4 times which we were back at the MBO and back in 2001. I think those days are far behind us.

Okay, and then maybe one last question just on what you thought, if any, big shifts in market share there were in the quarter? It seemed like year results definitely a lot better than what, I think, a lot of the market data would have been telling us.

Yes, I think that we definitely picked up share in outsourcing. There is no doubt about that. In the leasing and sale business, it's harder to say. In the sale business in the US, no question we picked up share and that has been documented by the publications that follow the capital markets in the States. It's hard to tell in Asia and Europe. We need to see a couple of competitors' report before I can give you a better answer on that. My guess is that on the share side in Europe and Asia, outsourcing, we may have picked up some share; Leasing, probably; sales, I don't know.

Okay, all right. Thank you.

Will Marks with JMP Securities.

Thanks. Good afternoon, Brett, Gil, and Nick. On that last question about market share and on the leasing side, you mentioned earlier that velocity flat, square footage up, what about rental rate?

Flat.

Flat. So it's really all about square footage.

At the moment, which I like by the way, Will. What that tells you and I is that we've got some bullish customers out there who are, for whatever reason, are taking more space than they -- and by the way, it was 10% was the increase in the amount of space taken, Q3 2011 or Q3 2010. I like that -- (multiple speakers)

Is that on a global basis?

That's US. And I don't have that data globally. We don't have that data. But I think it's a good proxy though for global. And also the fact that rents didn't go down; the fact that we got that growth with flat rent, I like that. Because we have been saying that we continue to believe that we're going to see vacancy rates decline over the next three quarters and rental rates begin to inch up, and as they do, that is free revenue. We don't have to work any harder to earn more revenue in the leasing business when rates go up.

Okay, that makes sense. Thank you. Balance sheet question. Gil, the -- it looks like the net debt changed from end of second quarter, end of third quarter was about $300 million, I think. Can you clarify that or confirm that and then mention what -- remind us what you paid through the third -- end of third quarter for ING and then what the cash flow would be, which I guess we could figure out?

At the end of the second quarter, we had $400 million of term debt that was raised but was sitting on the balance sheet. We hadn't spent that cash until July 1 for Clarion Securities. And then by the end of the third quarter we had drawn down the term loan C for $400 million. We only spent $65 million of it in Asia with $335 million still sitting on the balance sheet, and that is to go to ING REIM Europe in [part]. So that is the movement.

Okay. So there, I guess, had to have been some positive cash flow in the quarter.

There was.

Okay.

Operating cash flow as well, yes.

Okay, thank you. Then let's see -- on outsourcing, I wanted to ask. You give the figures now by region. That -- there's no way to tie that to the earlier page in your slides where you show the various categories, your various lines of business, right?

Are you talking about the revenue pie chart versus the Americas, Asia, the regional break-out? They would tie in total. Yes, it's on the same basis. Property management and facilities management fees. There's no sale or lease in those numbers obviously. They're on the same page. I'm sorry, so the total property facility management line should the $522 million for the quarter, should be the sum of the outsourcing for the 3 regions? Yes, yes.

Okay, sorry I hadn't done the math. Thank you. Last question. On the margin, you have talked about how the full year should be above full-year 2010. I guess I haven't really heard why third quarter would be down 120 basis points in light of the revenue growth, in light of the high margin part of ING added to the platform? And maybe I think you had mentioned, something about Europe, but maybe you could add to that a little bit.

Will, there's several items. The large ones are when you look year-and-year, we had carried interest expense this year in the third quarter of $7.4 million versus a reversal last year of $1.4 million. And then we had $8.6 million of legal and insurance reserves primarily related to our valuation business and primarily dating to developments on claims that go all the way back to the downturn.

So, Will, if you take those numbers at $17.6 million total and these unusual one-time items, if you were to normalize those out, we didn't, but if you were, we would report a 21% EBITDA growth and a margin of close to 14%.

Okay, I'm sorry. I thought those had already been taken out to get to the adjusted EBITDA at [$195] million but they weren't, right?

No, we just called them out so you could do the math.

Right. Sorry, I missed that. Okay, that's all for me. Thanks, guys.

David Ridley-Lane with Merrill Lynch.

Sure. As the European banks seek to shrink their balance sheets, do you see some opportunity for you around that process?

Absolutely. And I would be disappointed if we didn't capture a good amount of the asset disposition business and we're obviously very well-positioned to do that.

I guess thinking about what is the minimal level of [investment] sales you need to hit at a lower end of your guidance range?

Yes, it's -- I never thought about it that way but it's not a lot. It's -- the investment sales, incremental addition to earnings whether investment sales are up 10% or 15% just isn't that big. But I don't know the answer to that question.

Okay. All right. That's helpful. Is -- would -- is some of the appraisal and valuation work you're doing giving you a bit more optimism, i.e., those large portfolio assignments? Are those the things that might turn into transactions in the fourth quarter or are they more longer term than that?

I don't think it means anything about the fourth quarter but I do think it's just another data point that tells us we're probably, again, balancing along that bottom place and looking for better things to come. But that is as far as I would take trying to extrapolate that data.

Okay. And then you [explored] the hiring of brokers in the quarter, do you have a rough idea of what broker headcount is up year-over-year in the third quarter?

It's pretty stable year-to-date versus prior -- I don't have the data broken out by quarter with me.

I think that and just to, David, to be clear on that, the beating one's chest about hiring brokers is a silly thing. I don't think for any firm it moves the needle but because other firms were making a very big deal about hiring 3 brokers here or 5 brokers there, we started getting questions from some of you about what we had done and so we reluctantly began talking about the hiring of brokers. But I would just caution everyone on the call that it doesn't -- first of all, it never moves the needle for the first couple of years because you've got to pay something to get most of these people. And even once those -- that has been amortized off, I can't imagine there is a firm that is so small that you guys follow that hiring 20 brokers or 30 brokers in a year matters because your attrition is going to be probably that or more.

Okay. All right, that's all for me. Thank you very much.

Anthony Paolone.

All right, thanks. Just -- I was curious what you paid for those couple of European, it looked like retail-oriented service companies and just in terms of dollar amounts and just rough valuation metrics.

I'll give you the latter, not the former. So valuations at the moment for those businesses after the synergies we'll be able to extract from them, you should expect those to be in the single digits. Some we're looking at right now are coming in the [lope], It's called the 5%, 6% range. Others that are more mature business, more stable type of cash flow are coming at higher end of that single digit range. But the M&A market, at the moment, is surprisingly active at the small end. I think we all get it at the big end. There's some really [distressed] companies out there in our space but at the small end, there seem to be more and more small companies that are concluding that it just isn't possible to compete anymore as a small company and that joining a large firm, whether it's us or Jones Lang or somebody else is probably a better way to take care of their customers. I will tell you the total amount we spent on those [infields] was $12 million. Gil just pointed out to me it was actually in his script for the call. So I guess we did call that out as $12 million.

Thank you. Sorry. I didn't catch that and then just --

That's all right.

A follow-up to some of the commentary you just made. Any sense of some of those bigger platforms that you mentioned that are more stretched at the moment in terms of any of those potentially shaking loose in the next 12 months?

I just don't know. It's -- I think we're all watching with interest those firms and wondering how that is all going to play out and I think it's very uncertain at the moment how that is going to play out. I will tell you that, and by the way, they are all good companies, just different strategies but what it has done, which I will comment about, is that it has certainly provided the larger staple firms with a good pool of talent to recruit.

Okay, thank you.

And I have no further questions in queue.

Great. Well, thanks to everyone for your time. We'll talk to you next quarter.

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.