世邦魏理仕集團 (CBRE) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the fourth-quarter earnings call. (Operator Instructions). As a reminder, this conference is being recorded. I will now turn the conference over to Nick Kormeluk of Investor Relations. Please go ahead, sir.

(technical difficulty) -- earnings conference call. About an hour ago, we issued a press release announcing our 2011 financial results. This release is available on the home page of our website at www.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 the 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, operation, financial performance, business outlook and ability to successfully integrate the ING REIM businesses. These statements should be considered as estimates only, and actual results may ultimately defer from these estimates.

Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of these forward-looking statements that you may hear today. Please refer to our fourth-quarter earnings report filed on Form 8-K, our current annual report on Form 10-K, and our most recent 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 at SEC.gov for a full discussion of the risks and other factors that may impact any estimates you make here today.

We may make certain statements during the course of this presentation, which include references to non-GAAP financial measures as defined by SEC regulations. As required by these regulations, we have provided reconciliations of these measures to what we believe are the most directly comparable GAAP measures which are attached hereto within the appendix.

Please turn to slide three. Participating with me today are Brett White, our Chief Executive Officer, and Gil Borok, our Chief Financial Officer. I will now turn the call over to Brett.

Thank you, Nick. Welcome, everybody and please turn to slide four.

The cyclical recovery in commercial real estate is now entering its third year. As we predicted in late 2010, the current recovery is slower, more uneven and more difficult to forecast than those we have experienced in the past. As a result, the relative contributions from our various service lines and geographies in 2011 were a bit different than we had originally envisioned. Nevertheless, we provided invited earnings guidance at the outset of 2011, reaffirmed that guidance during the course of the year, and now have produced full-year results at the high-end of our guidance range.

We are pleased with this outcome. It underscores our ability to deliver on the expectations we set for our shareholders as we do for our clients, and we thank and acknowledge our CBRE colleagues around the world for another in a series of terrific years.

For the full-year 2011, revenue increased 15% to almost $6 billion, and normalized EBITDA increased to $803 million, both second best in Company history behind 2007. Normalized EBITDA margin for the year grew to 13.6%. Normalized diluted earnings per share came in at $1.03, which was almost 40% above full-year 2010 and, as I mentioned, near the top end of our $0.95 to $1.05 guidance range.

Total Q4 2011 revenues were $1.8 billion, a 7% increase over Q4 2010 with positive revenue growth in every region. Outsourcing growth continued its strong pace with a total increase of 14% and double-digit contributions from all regions. Investment sales revenue increased 10%, driven by continued growth in the Americas and Asia Pacific, while EMEA remained relatively flat in light of continued sovereign debt issues in the region.

While leasing revenues exceeded 2007 peak levels for the full year, in Q4 2011 they declined 4% as compared to Q4 2010. This decline resulted from a decrease in the Americas, while EMEA and Asia Pacific leasing continued to grow. The decrease in Americas leasing compares to a Q4 2010 that grew 45% versus Q4 2009 and was also indicative of a continued lack of meaningful US job growth.

Asset Management fees more than doubled, primarily due to contributions from businesses acquired from ING during the year. These revenue gains were partially offset by a lack of carried interest revenue, which was almost $20 million in the fourth quarter of 2010.

Normalized EBITDA increased to $315 million in Q4 2011 from $253 million in Q4 2010. Our Q4 normalized EBITDA margin was 17.8% versus 15.3% in Q4 2010. This very impressive 250 basis point margin expansion was partially attributable to cost reduction actions we took during and preceding Q4 2011, some of which were reflected in the $31 million cost containment charge we recorded during the quarter.

We are cautiously optimistic that the recovery will improve in 2012, but are onboarding new expense at a measured pace in order to protect and enhance margins and profitability in 2012.

Some of the most notable transactions we completed during or immediately following the quarter are shown here on slide five. As usual, I will not go through them individually, though we have included them for your review.

And with that, I will now turn the call over to Gil to go over the financial results in detail. Gil?

Thank you, Brett. Please advance to slide six. As Brett already mentioned, total revenue was $1.8 billion for the fourth quarter of 2011, up 7% from last year. This increase was driven by growth in outsourcing, investment sales, investment management, commercial mortgage brokerage and development services. Normalized EBITDA grew at a much faster pace than revenue, up 24% to $314.9 million in the fourth quarter of 2011 from $253.1 million in the fourth quarter of 2010, delivering a normalized EBITDA margin of 17.8%, our highest quarterly normalized EBITDA margin since the second quarter of 2007. In the fourth quarter of 2011, in our regional segments, we recognized cost containment expenses totaling $31.1 million, of which $20 million was in cost of services and $11.1 million was in operating expenses.

The Americas totaled $15.6 million, EMEA totaled $11.1 million, and Asia-Pacific totaled $4.4 million. These costs were predominantly related to severance for approximately 500 positions globally. This action was taken to calibrate our staffing levels to the current market environment and was executed with care to among other things ensure no impact on the delivery of client service. We expect resulting savings of approximately $40 million in 2012 from these actions.

Our cost of services increased to 57.2% of total revenue in the fourth quarter of 2011 versus 56.4% in the fourth quarter of 2010. Excluding the impact of the cost containment expenses just mentioned, cost of services as a percentage of revenue was 56.1% for the fourth quarter of 2011, a slight decrease versus 56.3% in the prior year quarter. Fourth-quarter 2011 operating expenses were 34.2% of total revenue versus 31.6% in the fourth quarter of 2010. Excluding the impact of the cost containment expenses and integration and other costs related to ING REIM, operating expenses as a percentage of revenue were 31% for the fourth quarter of 2011, a slight decrease versus 31.2% in the prior year quarter. This decrease was despite the inclusion of ING REIM operating expenses, all of which flowed through the operating expense line as opposed to cost of services.

Interest expense increased slightly by $1.9 million in the fourth quarter of 2011 versus the fourth quarter of 2010, primarily due to the ING REIM and Sterling term loan A1 financings, partially offset by lower interest rates resulting from our refinancing activities in the fourth quarter of 2010. Our fourth-quarter 2011 tax rate was approximately 38%, resulting in a full-year tax rate of approximately 40%. We expect the full-year 2012 tax rate to be slightly below 2011's rate, primarily due to a mix shift from the inclusion of ING REIM for a full year. Our Q4 2011 GAAP diluted earnings per share was $0.25 versus $0.30 last year. Adjusted diluted earnings per-share was $0.46 versus $0.36 in the fourth quarter of 2010.

Please turn to slide seven. Due in part to seasonality and even with a 4% decline on a year-over-year basis, leasing was our largest service line in the fourth quarter of 2011. With revenue of $590.8 million, it represented 33% of total Company revenue in the fourth quarter of 2011. The 4% decrease was partly due to a tough comparison in the US versus the fourth quarter of 2010. Leasing revenue for the full-year 2011 set a new record for the Company at $1.91 billion, surpassing the 2007 peak revenue year of $1.87 billion. Property and facilities management was our second largest service line in the fourth quarter of 2011, representing 31% of total revenue in the quarter with a 14% increase over the fourth quarter of 2010.

Investment sales showed a solid increase of 10% in the fourth quarter of 2011 and accounted for 18% of fourth-quarter 2011 revenues in its seasonally strongest quarter. Appraisal and valuation revenue was relatively flat as compared to last year at $108.9 million due to an outsized valuation fee recorded in China in the prior year fourth quarter, largely offset by an acquisition in Asia-Pacific in the second quarter of 2011 and higher revenues in EMEA.

Global investment management revenue increased 44% quarter over quarter, driven by increases in asset management fees, largely attributable to the ING REIM businesses that we acquired. Commercial mortgage brokerage revenue posted one of our strongest quarterly year-over-year increases with 25% growth driven by strong capital availability, ultra low interest rates, competitive spreads and investors continued search for yields. Development services revenue was up 7%.

Revenue from property and facilities management, fees for assets under management, loan servicing fees and leasing commissions from existing clients are all largely recurring. This revenue comprised approximately 56% of total revenue for the fourth quarter of 2011.

Please turn to slide eight. Outsourcing business growth remains strong this quarter with revenue up 14% versus the fourth quarter of 2010. This was driven by new account growth, client renewals and expansions, as well as acquisitions in the EMEA. Strong performance was evidence across all regions, particularly EMEA and Asia Pacific.

In the fourth quarter of 2011, contract activity remains solid with 13 new accounts signed, 10 renewals and 10 expansions. We are very pleased to cross a major performance milestone in outsourcing in 2011, that being the $2 billion revenue mark. We are even more pleased that there is plenty of room to grow this business line, particularly outside the Americas, and we continue to target higher milestones.

Slide nine demonstrates the stabilized or improving vacancy rates and positive absorption in all three market sectors depicted, along with our forecasted improvement over the next two years. Average national office cap rates remain stable in the fourth quarter of 2011 versus the third quarter of 2011 and showed slight year-over-year improvement, primarily due to strength in core and Class A property sales.

Please turn to slide 10. Sales revenue in the Americas continued to be strong with a 15% increase in the fourth quarter of 2011 as compared to the fourth quarter of 2010. Our US investment sales market share totaled 16.4% for the fourth quarter of 2011, according to Real Capital Analytics, which represented a significant 110 basis point improvement versus the fourth quarter of 2010 market share of 15.3%.

Our lead over the number two firm was more than 500 basis points. Our Americas leasing revenue decreased 9% in the fourth quarter of 2011 as compared to the fourth quarter of 2010, largely due to a tough comparison with the fourth quarter of 2010 when revenue rose 45% as compared to the fourth quarter of 2009 and as a result of a lack of meaningful employment growth.

During the fourth quarter of 2011, the US office vacancy rate fell by 20 basis points to 16% from the third quarter of 2011.

The Americas outsourcing business grew 10% in the fourth quarter of 2011, and full-year Americas outsourcing revenue improved 12% in 2011.

Please turn to slide 11. Our EMEA investment sales revenue was relatively flat in the fourth quarter of 2011 versus the fourth quarter of 2010. Pockets of strength were evident in Northern Europe. CBRE's EMEA leasing revenue grew 11% in the fourth quarter of 2011 as compared to the fourth quarter of 2010. These positive results were achieved despite heightened macroeconomic issues in the region and were driven by Germany, Spain and the United Kingdom.

Outsourcing continued its strong growth rate with revenue increasing 17% in the fourth quarter of 2011 versus the fourth quarter of 2010, driven by new assignments. However, revenue mix shifting to outsourcing did have a slightly negative impact on EMEA's normalized EBITDA margins this quarter, which was mitigated through cost controls, resulting in an overall normalized EBITDA margin increase as compared to the fourth quarter of 2010.

Please turn to slide 12. CBRE's sales revenue in Asia Pacific increased 11% in the fourth quarter of 2011 versus the fourth quarter of 2010, primarily driven by China and Japan. CBRE's leasing revenue in Asia-Pacific grew 3% in the fourth quarter of 2011 as compared to the fourth quarter of 2010. The strongest gains came from Australia, Japan and India, partially offset by Singapore where the market has cooled as compared to the fourth quarter of 2010. Asia-Pacific saw outsourcing growth of 36% in the fourth quarter of 2011 versus the fourth quarter of 2010 as it continues to gain adoption in this region. The strongest contributions were from Australia, China and India.

Asia-Pacific's fourth-quarter 2011 normalized EBITDA margin was negatively impacted as compared to the fourth quarter of 2010 due to the outsized valuation fee recorded in China in the prior year, as well as versus expansion in that country.

Please turn to slide 13. Revenue for the development services segment increased 15% to $22.4 million in the fourth quarter of 2011 versus $19.6 million in the fourth quarter of 2010, primarily due to higher development and project management fees. Operating results for the fourth quarter of 2011 reflected normalized EBITDA of $52.1 million, a significant improvement of the prior year that was driven by the sale of several high-quality assets, including two of particular note in the Houston and Dallas markets respectively. These two sales contributed approximately $33 million of net gains to the Company in the fourth quarter of 2011.

At year-end 2011, in-process development totaled $4.9 billion, and the pipeline totaled $1.2 billion. At the end of the year, our equity core investments in the development services business totaled $79.2 million.

Please turn to slide 14. Let me quickly recap for you the pertinent details of our ING REIM acquisition.

First, I will review the businesses we bought and when each closed. On July 1, 2011, we closed on ING Clarion Real Estate Securities for $324 million and $59 million in co-investments. On October 3, 2011, we closed on ING REIM Asia for $46 million and $14 million in co-investments. On October 31, 2011, we closed on ING REIM Europe for $443 million and $7 million in co-investments. This totaled $813 million in purchase price and $80 million in co-investments, as well as $67 million in transaction and integration costs through year-end.

The assets under management, or AUM, associated with this acquisition were [$62.4 billion] as calculated at year-end 2011. The remaining potential cash needs for this acquisition are additional purchase price of approximately $80 million if certain assets are transferred to us, up to approximately $70 million in potential additional co-investments and approximately $79 million in additional transaction and integration costs. The total cost of this transaction, including these remaining potential costs, is in line with our original estimates.

As you may recall, we financed the acquisition with cash and two $400 million tranches of term loans due in 2018 and 2019 respectively that had terms of LIBOR plus [3.25% and 3.50%] respectively and no LIBOR floors.

In the fourth quarter of 2011, our global investment management segment's revenue was up 35% to $107.8 million from $79.8 million in the fourth quarter of 2010. The increase resulted from higher asset management fees, primarily stemming from the inclusion of ING REIM, which contributed approximately $60 million in revenue in the fourth quarter of 2011. This contribution was partially offset by the absence of any carried interest revenue in the quarter. In last year's fourth quarter, we recognized $19.9 million of carried interest revenue, as well as moderately higher acquisition fees and rental revenue.

AUM totaled $94.1 billion at the end of the fourth quarter of 2011, up about 150% from year-end 2010, primarily due to the inclusion of ING REIM assets added in the fourth quarter which totaled $41.1 billion. In the fourth quarter of 2011, total AUM in the direct real estate business was impacted by $1.2 billion of asset acquisitions other than ING REIM, $2.1 billion of dispositions and transfers, and $100 million of improvement in asset values.

In addition, currency fluctuations lowered AUM by $1 billion for the fourth quarter of 2011. For the full-year 2011, in the direct real estate business, we raised new capital of approximately $2.5 billion and had approximately $2.7 billion of capital to deploy at the end of the fourth quarter of 2011.

Included in the $94.1 billion in AUM at the end of 2011 was $19.8 billion of listed securities. Net inflows and changes in market valuation in the securities portfolio increased AUM by $1.3 billion in the quarter versus the third quarter of 2011. Our co-investments in this business at the end of the quarter totaled $169.6 million.

Our global investment management EBITDA reconciliation detail is shown on slide 15. In the fourth quarter of 2011, we incurred $45 million of expenses related to the ING REIM acquisitions, primarily for legal and other professional services, retention and severance.

In the fourth quarter of 2011, we recorded $10.5 million of carried interest compensation expense, which relates to carried interest revenue that we expect to realize in future periods.

As of December 31, 2011, the Company maintained a cumulative accrual of carried interest compensation expense of approximately $44 million, which pertains to anticipated future carried interest revenue. This business operated at a pro forma normalized EBITDA margin of 25% for the fourth quarter of 2011. The decrease as compared to the fourth quarter of 2010 was a result of reduced carried interest revenue, the reversal of a significant provision for doubtful accounts related to a specific fund, and larger equity earnings in the prior year fourth quarter, partially offset by the EBITDA contribution from ING REIM.

Please turn to slide 16. Slide 16 shows our amortization and debt maturities scheduled for all outstanding debt. On November 10, 2011, we closed on a senior secured Sterling denominated term loan A1 facility in the amount of approximately $300 million due in May 2016 with favorable terms, substantially similar to our existing term loan A 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 position as it provides us the flexibility to capitalize on additional strategic growth opportunities and other corporate initiatives.

Please turn to slide 17. Excluding cash within consolidated funds and other entities not available for Company use, our nonrecourse real estate loans and mortgage brokerage warehouse facilities, our total net debt at the end of 2011 was approximately $1.6 billion. This represents an increase from year-end 2010, primarily due to term loan borrowings to finance the acquisition of ING REIM.

At year-end 2011, our weighted average interest rate was approximately 5.3% compared to 5.5% at the end of the third quarter of 2011. The lower average interest rate was primarily driven by the senior secured Sterling term loan A1 completed in the fourth quarter of 2011. Our leverage ratio on a covenant basis now stands at 1.53 times at the end of 2011 on a trailing 12 month basis. Our total company net debt to EBITDA stood at 2.05 times, which is significantly lower than the 2.5 times we projected that this ratio would be following the acquisition of all of ING REIM.

I will now turn the call back over to Brett.

Thank you, Gil. Please turn to slide 18.

We believe that the commercial real estate market will continue to recover in 2012, despite continued macro challenges. As for our business, we expect to grow both earnings and normalized EBITDA margins, even in this soft transaction environment.

Outsourcing revenue is likely to grow in the low double digits, one of the faster growth rates among our service lines. Investment sales will grow in line with the broader economic recovery with core assets still being the driver, but with increasing contribution from secondary market recoveries. Leasing growth rates will likely be modest and heavily weighted toward the third and fourth quarters. Any revenue increase in this business will be driven by meaningful employment growth and rental rate improvement in the Americas and elsewhere.

EBITDA and investment management will be higher than in 2011 due to the full-year impact of the businesses acquired from ING, while development services EBITDA will be lower due to the large gains Gil mentioned we achieved in 2011. By taking advantage of the revenue growth drivers just mentioned and continuing our focus on effective cost controls, our goal is to again achieve 2012 normalized EBITDA margins greater than we achieved in 2011.

It is important to note that 2012 performance is likely to be more backend-loaded than usual due to the slow transaction environment we have experienced and the heightened market uncertainty.

Our outlook for 2012 assumes a pickup in job growth, economic activity and sentiment by the summer. Giving due consideration to all of these factors, as well as anticipated higher interest appreciation and amortization expense, mainly as a result of the inclusion of ING REIM for a full year, we currently anticipate that full-year 2012 normalized earnings per share will be in the range of $1.20 to $1.25.

As we told you last year, forecasting EPS in an environment such as this is exceptionally difficult. We may very well update this guidance throughout the year as full-year trends become clear.

With that, operator, we are ready for questions.

(Operator Instructions). Anthony Paolone, JPMorgan.

Gil, I was wondering if you could help us with the OpEx and just cleaning that up and taking out some of the things like the severance and just charges related to ING and so forth and give us a sense as to where that number on a clean basis was in the quarter and how to think about these cost cuts going into 2012.

Yes, well, go ahead and take that. Before Gil does, this is Brett. Nick Kormeluk just passed me a note and asked me to tell you all -- so bear with me here -- I have a cold and my slow, pedantic, gravelly voice today is because of my cold, not my lack of enthusiasm for the year. So I have done my duty, and Gil, you can now ask the clean question on expenses.

Thanks, Brett, and you gave me time to think about it. I think the best way to talk through it is to refer you back to my comments, which suggested that if you take out the cost containment expenses that are in operating expenses, we get to a percentage of revenue, that 31% on a comparable basis to prior year of 31.2%. And that would take out what we have normalized essentially in the operating expense line, and in that line I think we have $11 million of such costs. So whatever is on the P&L you can take $11 million out for OpEx for cost containment.

And, in addition, we have about $45 million of integration costs in that line associated with ING REIM. So a total of about $55 million.

And you mentioned $40 million of savings in 2012 from the severance that you talked about in the quarter. Is there more to come there? Where are you with those expense cuts?

Well, the $40 million is the savings from the action taken in the fourth quarter, which approximates about 500 positions. So that is a run-rate savings in 2012 or full-year savings that we project from these actions, and at the moment that is what we have taken to rightsize expenses against where we think revenues are going to be and against the market environment.

So you are done in terms of those cost initiatives for now?

Correct.

On the leasing side, do you have a sense as to how your market share in that business was in the key regions?

I will take that question. We believe that as we have mentioned before that we are by far the number one leasing brokerage firm in most of the major world markets. I don't believe that has changed anywhere over the past few years. It is absolutely true, and we are excited about this that we now for the first time in a long time we have got a competitor that is really nipping our heels at leasing in certain markets, and it is great to have them. It has been a while since we have had anyone really anywhere near where we are at in the leasing business, and we look forward to a good fight for share going forward. But I would say that we picked up decent share in most markets, and we remained I think by a pretty good margin the number one leasing firm in most of the major world markets.

When you look at your comps versus some of your competitors for the quarter, I mean were you still satisfied by the performance there and really chalk it up to the tough comp from back in 2010, or do you think that is a business that is just simply getting more competitive as you alluded to with competitor nipping at your heels?

Well, I think the quarter is somewhat irrelevant. I think the full-year numbers are more relevant, but the trend you are referring to exists in the full-year numbers as well. And I think there is a lot of things going on in those numbers, and it is different by geography both globally and within the United States.

I think the bottom line for us is we have a very, very strong commercial leasing business in most the major world markets. But there is no doubt that it is getting more competitive every day. And I think what you are going to see, by the way, is, and this is very consistent with what we have been talking about for years, this business is rapidly consolidating down to a very small number of players. And the trend you are referring to, that player along with us, I believe, is going to capture the vast majority of the available share going forward. And I suspect that quarter to quarter, year over year those numbers will move a bit back and forth. But that trend is absolute, and I suspect that the mid-tier firms and the smaller firms, you are just going to see them lose more and more share every quarter and every year and more and more of that share on board to these two firms that are the demonstrated market leaders.

I think that I am pleased with the position we have in the major markets, and I think that at the same time we have got a lot of work to do to retain that number one position in every major world market because it is under attack everywhere and it is something that we pay attention to. But yes, I am generally pleased with the results.

On the outsourcing side, the growth rate there has been quite high. I was wondering if you can break that out between how much of it is being driven from added contracts versus pricing, say, changes for existing contracts or for, say, existing clients expanding a contract?

Right. Well, I know you wrote this down. In Gil's script, he mentioned the number of new contacts and the number of expansions, and Gil, do you want to just remind him what those numbers were?

Yes, I have it for the quarter, Brett.

Do you have it for the full year or no?

I don't have the full-year handy, but we have disclosed it every quarter, I think.

Okay. And so for the quarter, it was --?

For the quarter it was -- I believe it was 13 new -- 10 renewals and 10 expansions.

And I would say that the general story on the corporate services space at the moment is that this does remain a very, very competitive marketplace, and there are lots of players that are in that marketplace. We believe we capture a very good share of that space both in terms of new clients entering the market, but also when existing clients go to re-bid.

We have a -- and I don't have the statistic for the fourth quarter -- our loss rate is almost 0. It is a very, very rare day that a client terminates us in that space and goes with somebody else. And we onboarded in 2011 and particularly in the fourth quarter, some very impressive clients.

I think what you are going to see in 2012 and going forward is this market is advancing much more quickly than we thought it would. That is good news. And it is advancing globally also more quickly than we thought it would, and that is also very good news. Yet it is no secret to you, these contracts come with significant upfront costs, and they can be punishing to short-term margins, although we price them and make absolutely certain as we price them that once those accounts stabilize, their run-rate margins are very good.

But you are going to see I think forever now going forward and you have seen it in 2011, that these are very expensive accounts that come in with real costs, and for a quarter or two, they can materially hurt margins a bit. But if you have another of them that are hitting the run-rate, we can cover all that and more with the terrific performance of the existing accounts. But we are really, really excited about that business, and you saw that more than half of our growth in the fourth quarter came from outsourcing. So it has been extremely helpful to the Company as well, as you know, the last four years.

I understand, and my question was more towards -- and I appreciate all that color. I just wanted that as well. But when I look at, for instance, the 14% growth in revenue year over year, is it 10% of the 14% is from adding contracts or expanding contracts? Or if you have an existing contract for, say, 1 million square feet and they renew for 1 million square feet, how much of that growth is from just charging them more for that same 1 million square feet?

Okay, that will be a big caveat. By the way, that was a very polite way of telling me I did not answer your question, so I appreciate that.

But here is how I would answer there. I don't have the numbers in front of me, so this is going to be a gross generalization. It is a rare day that an outsourcing contract renews and we get paid more for doing the same work we got paid the time before. These clients are heavily, heavily focused on cost. That is why they put the contracts out, and every time you renew it, they are grinding.

So I would just tell you that in this business the ability to push pricing is almost nonexistent, which would, therefore, extrapolate to that 14% being primarily new accounts or the addition of new services to existing accounts.

Now that is where the renewals get exciting for us because once we prove ourselves with newer generation accounts, we are allowed to perform additional services to them. And many times it is the additional services that bring in the great margins, not the original services we were hired for. And, again, we have gone over that with you and the other callers many times.

But facilities management many times is the lead. Facilities management is a decent margin business, but nothing to get excited about. But it is the additional services that we can sell through that push those margins, and those many times come at renewal or later.

Thanks and just one last one on the cash balance. Can you maybe play that out over the next few quarters and thoughts there?

Sure. Well, I will let Gil give the specifics, but remember we pay bonuses in the next few weeks, and that will hit cash to the tune of a couple of hundred million. But Gil, do you want to -- I think that number is right, Gil, a couple of hundred?

It will be bigger than that, Brett. I hate to break it to you on this call. (multiple speakers). It will be a little bit bigger than that, but that is exactly right.

Brett is on it that. Of course, with seasonality in the business, you have to anticipate bonuses going out. That will be a sizable chunk of change.

Also, when you look at the balance sheet, there is over $1 billion showing in cash. We net out about $200 million that is consolidated, but we don't control. It is in entities that are consolidated through investment management segment and so forth.

So there is about $800 million, a little bit over $800 million, of which about $500 million is in the US. A big chunk goes out for bonuses. There will be some leftover after that obviously, and that will be held for now to assess opportunities in the market. And given the uncertainties in Europe and so forth, we are leaning towards intending toward having a cash balance available for use until we have some better visibility for the foreseeable future.

And let me just add a little bit to that for -- I know you understand all this, but we have some callers that are probably fairly new to the story. For folks to understand, first of all, we are a seasonal business, and we tend to onboard cash heavily in the third and fourth quarters and very little in the first and second quarters. So we end up every year with a heavy cash balance. Because of seasonality and also because we need to preserve a decent amount of cash to pay out bonuses, we have 31,000 employees, and many of those are bonusable, and so those numbers add up as Gil just mentioned.

Given where we are in the cycle, we see lots of opportunity out there to grow the business, not just organically but through acquisitions. And so having this cash on the balance sheet, as opposed to using it for other things, to us is a wise move at the moment, and that is, as Gil mentioned, you are seeing the combined dynamics of saving for bonuses, plus opportunities in the markets moving up that cash number a bit higher than we usually have it.

Sloan Bohlen, Goldman Sachs.

Maybe just first a question on outsourcing. To what degree do you guys have visibility of the forward pipeline of what new contracts you are either in negotiation with?

And then I guess as a related question, of the growth you expect for next year, is any of that locked in with what business you have signed already to date, Brett, to your point about stabilizing those margins over time?

Yes, I just want to be very clear, when you say next year, do you mean this year?

Yes, 2012.

Okay. Great. Got it. First of all, the pipeline information on outsourcing is very good for the next 60 days because those are contracts that have been put out to the market for which we are competing presently. However, the pipeline beyond that is almost nonexistent because of the way in which these companies hire services.

This is not a business. It is very interesting actually. This is not a business where you have the big marketing force out cold calling major corporations and trying to convince them to outsource. The process to get a company to do that is long-lived, and by the way, the momentum to do it is so strong at the moment that we are -- most of our work is simply responding to RFPs that are coming in the door and making decisions around which RFPs we think are worth chasing and which we are going to just let go by the wayside.

I would tell you that the short-term pipeline looks really good, and all the trends, long-term trends that we would look at to support future growth in that business look very strong as well.

So said another way, it is purely subjective, not objective, but I would tell you that if there were a 12-month or an 18-month pipeline, it would look very strong right now, and I get that by extrapolating the macros that we watch around that industry.

We have a number of very significant contracts that we have won in the past two years, and we certainly expect those contracts at this point to either be bedded down or getting close to being bedded down. But because this business is growing so fast right now -- and this is what I was trying to allude to earlier and probably not very well -- because it is growing so fast right now, we have got a lot of business coming in the door right now that is going to require some upfront costs. And I think that what the net impact in all that is that because so much business is new business that is coming in, the margins in that business might be a little bit soft until this rate of new business coming in plateaus and we have a chance to bed down these many, many clients we have got coming in the door.

I don't remember the specific number, and Gil, what comes to memory is something like 173 accounts of one form or another that came in in 2011. But you get the sense for the velocity of this business and the way in which we have to approach those accounts and onboard costs for those accounts and then manage them going forward.

Gil, is that number relatively --?

Yes, 173 for the year.

173 for the year. So it is an account every two days, and that is just an unprecedented rate of growth. But I think the more important issue by far is that because of the rate of the onboarding of these accounts, what we are looking at now is a very long runway of margins that should be moving up a little bit each year in that business as we bed these down. And we are very -- as you can imagine, we are very excited about the long-term prospects for outsourcing given a rate of growth like we are seeing right now.

I mean is it to the point that you are seeing so much demand that there is pricing power that you may have for those new accounts that you may bring in kind of to Tony's question?

It is not pricing power, but let me tell you how we get there. We get there by not bidding on accounts that we think are priced too low. So there is no way in a competitive market environment like this one -- and that business is supercompetitive -- we don't have any pricing power, none. And we get into the bid process and we know the margins we want. If the client for whatever reason is unwilling to pay those margins, we drop out.

And so I suppose the net affect of all that is it kind of feels like pricing power, but it is more turning down accounts that are not profitable enough for us and only pursuing those that are.

And I think -- and you and I have talked about this -- I think it is going to be a long, long time before in the outsourcing business, any provider really has pricing power to speak of. I do believe that even right now in the first quarter of 2012, I do believe that all the service providers have done a much better job of educating these clients around the idea that it makes sense to pay reasonable pricing with a reasonable margin for these services.

Because what has happened to a number of these clients is they have gone and they have hired -- or their consultant, even worse, their consultants have gone out and hired a low margin, low-cost bidder. Six months into the contract they call us up and ask them to help them out because that provider is failing miserably. They don't have a platform. They don't have -- they did not price it right. We make sure and remind those clients that we are happy to do it, but there is a reason why we dropped out of the bid. And that is happening less and less as those failures are more obvious and I think public, and that is allowing the marketplace I think to price the business at the RFP process a bit better for us than they did in the past.

This is just not a business that I think any smart corporation or owner for that matter would want to choose a low-cost provider. It is far too strategic to what they do and the risks to choosing the wrong provider are far too large, and that helps the pricing as well.

Okay. Thanks. That is good color. And then just one last question on capital markets. Brett, you talked a little bit about obviously core assets are still trading quite a bit, but what should we look for as the driver to really push those secondary market trades? Is it going to be more a function of capital availability, or is it going to be a function of banks finally deciding to do something with their balance sheets?

Well, it is all those things, but what it really is is time without shock. I think, as you well know and most the callers are very well aware, we are in this very odd recovery. It is fits and starts. It is incremental. It is so susceptible at the moment to sentiment either positive or negative. Sentiment has outsized impacts on the margin.

So when we see a shock to the system, which may actually not be material, it can freeze the credit market, and certainly you folks know this even better than I do. And when you see a single good jobs report like what came out last week, there is this euphoria that everything has gotten entirely better. Neither are true.

But because of that, what the capital markets need is just a period of time of quiet, of no new big news. And I'm hopeful that 2012 may actually be the year where that happens and that what we get is a return to a more normal recovery expansion cycle. We have not had one to date since the bottom of the downturn, and that is what we need. And when that happens, you begin to see actually financing loosen up fairly quickly.

You may recall and our callers may recall that by the spring of 2011, the sentiment was things were getting better quickly the first quarter and most of the second quarter. And the secondary property markets began to see a lot of action in that kind of May/June timeframe, and then we got a shock again and everything shut down again, and all the money went back to core. That kind of bunker mentality, anytime there is a body check, exists very much today just as it did last year and the year before. Those secondary markets, I believe, are not going to get real action and real traction until the recovery has a chance to operate in a normal fashion, in a normal fashion that is without big negative shocks.

Will Marks, JMP Securities.

I wanted to start off asking if you care to give further color on the bonus figure. $200 million is obviously too low. Is a $300 million to $500 million range fair, or I will let you answer?

Gil, do we comment on that number?

No. No, we don't. I guess since the number has been mentioned, but it is north of $200 million, but that is much as we are going to say.

I will tell you this, which is not I don't think material to the number, but it is at least interesting. The senior management bonus pool will be less -- it will pay out less money in 2011 then it did in 2010. And just as a reminder to everybody, the senior management is not paid on a profit share bonus. At CBRE we believe that we need to raise the performance target objectively for management every year in a recovery.

So the net impact of that is we have to do much, much better in 2011 over 2010 to get the bonuses we earned in 2010. While we did much better, it was not enough to get us back to that level. So it is a material decrease, and senior management bonuses in 2011 about what we received in 2010. It is a real good bonus program. I think it is dead on aligned with shareholders who want to see improved performance every year and not the same performance every year.

Thank you. On another note, can you, Gil, maybe talk about what operating and free cash flow was in 2011 maybe ex the integration cost?

Yes, it is around -- it is approaching $300 million from operations.

And would you expect to grow that figure as EPS is growing in 2012?

Well, that is a logical conclusion, right? We would want to convert to cash, yes, so it ought to grow in line with earnings, yes.

There was a question earlier about ING integration costs, and it sounded almost as if you were done completely. I thought I had read in the prior quarter there was about $150 million of total integration costs. So is that correct, or more importantly are you -- are there any other costs related to ING?

Gil, let me hit the front end of that, and you can remind him what we wrote -- what you spoke to in the script. But I think from an operational standpoint, I can tell you that the integration is complete. We have fully integrated people. We are in the process, and the physical facility integration obviously takes a few months, but it is well on its way. And I think I can tell you as we sit here today that this integration, it may very well end up being the best operational integration we have ever had. And we hold -- you know, we are very, very focused on successful integrations. We have not had a bad one yet. All of them have been very good. This one was damned close to flawless, and all that credit, by the way, goes to Jim Groch and our integration team, Cal Frese and others. It was really good.

Now there are remaining costs to be had, and Gil, would you just please give Will what you mentioned earlier.

Yes, so you are right. The overall is about $150 million of overall integration costs, and we are about halfway through in terms of cash expenditures. A lot of that is over time, so we are about halfway through. My comment was in response, I believe, in response to cost containment, and that, with that action, was all that was contemplated currently.

Okay. And then the co-investments, were those all made in the fourth quarter?

No. Once again, there is the potential for about $70 million of additional co-investments, but it's not -- certain things have to happen in order to have those trigger.

All right. You are repeating yourself there. One last ING question. You had given when you announced the acquisition, you had given the 2010 number for revenue in EBITDA. Can you comment at all on 2011, whether it was above 2010, how much?

Yes, no, I'm not going to comment on that. The 2010 numbers that we gave was as a proxy for what that acquisition would do relative to the total. Obviously 2011 is not a full year, and a lot of that has now been integrated.

So I don't want to get into bifurcating out the ING contribution from the rest of the investment management business. It will be accretive in 2012, and it is moderately accretive, as we said, and it is all incorporated into our 2012 guidance.

Well, just subjectively because I know what you are driving here, just subjectively I think I can give you comfort and the rest of the callers comfort that we did not have any negative surprises in terms of performance for that business in 2011 either the time we owned it or prior to it being owned by us.

Great. I still have one final question on the development gains. I guess this highlights how difficult it is to model your Company. Does the guidance for 2012 assume the same level of development gains that we saw in 2011 on a full-year basis? How lumpy is it going to be in 2012?

Yes, it assumes actually a material diminution in gains in 2012 over 2011. 2011 we had some very large gains come through, which Gil spoke to on the call. But 2012 we are forecasting that we will not have as much in gains as we had last year.

The business, it is lumpy right now as is investors because those markets are so muted. And so one or two gains really moves the needle. When we get back to a more normal market environment, both the CBRE global investors and the Trammell Crow development company will have a higher number of these coming through, and they will not -- one deal here and there will not be as material as perhaps they were in 2011 or 2010.

But to answer your question, we don't have -- at the moment we are not seeing big gains in 2012 around development, but that could change. These markets do move very quickly, and decisions around buying and selling properties can move very quickly as well. So I don't want to say it is not going to happen; it could.

Gil, anything more you would like to say around that?

No, I think that is exactly it. You are right on point, Brett.

David Ridley-Lane, Bank of America/Merrill Lynch.

I'm curious on some of the metrics on US leasing. Did average lease terms decline in the fourth quarter? Did average square footage decline? Was there a turn down in the rental rates on average that you saw? Just some of the color for the change in US leasing in the fourth quarter?

Sure. So for US leasing, it was purely a story of number of -- of velocity, number of transactions. They were down 8% quarter over quarter. That was the entirety of the change quarter-over-quarter in the leasing revenues.

Rents were -- it was very little change in rents in the quarter, and there was very little change in square footage. What -- and, by the way, what we are seeing in that marketplace, as you would expect, with the type of economy we are dealing with right now is, of all the business lines we have, leasing in the US is the one acting most abnormal to a typical recovery cycle. And the reason, of course, and this is obvious I know to you, David, and to everyone else, the reason for that is the job growth is so muted.

So in a typical recovery, you have the combined impact of rental rate growth, which tends to move very quickly up in a recovery cycle and rapid job growth, which tends to move very quickly up. We don't have either of those right now because of the type of very, very incremental recovery we are in. We believe both those are coming, and I think as most of you know in 2011 I believe the number was 56 million square feet of construction was brought to the market in the United States, which is the lowest amount of new -- absolute lowest amount of new construction since the numbers were capped in 1960.

What that tells you is you have a lot of people out there right now who are not willing to build a new building and lenders unwilling to lend on one. But what it also tells us is that when the recovery gets its legs and we get real job growth, rents could move up very, very quickly because the inventory number is artificially constrained right now.

But, David, to answer your question, it was purely velocity. Our comments on the scripted portion of the call related to leasing, our expectation is that leasing is going to remain very muted until we see meaningful job growth. And our projections are based on a lot of different data points is that we think that is a Q3, Q4 event, and that Q1 and Q2 on leasing will be relatively flat, perhaps nominally up or nominally down. It's not going to move much.

The surprise, if we get one, will be up. I think the level of leasing we are seeing right now is pretty much dialtone. We are also now working off of compares that are quite strong as you saw. But the leasing number for 2011 was a record high.

So we are at a high level. I don't see a lot of growth in that until we see real job growth, and we are hopeful we are going to see that in the second half of the year.

Okay. Sure. And if we continue to have US job growth as we did in January, it would be lagged -- every acceleration in your leasing revenues would be lagged anyway, right?

Yes, they would. And I think that for us, when we will know that January was not a head fake is when you get probably three months of these together. And I think that most large corporations will look for something generally like that as well. They are going to start ramping up space acquisitions in a very serious way if these job numbers hold for another month or a month and a half, and the consumer numbers are pretty decent, too.

So, again, we are more bullish than we are pessimistic on leasing globally in 2012, but we think it is just a bit more backended than normal.

Okay. And then if I could, just a quick numbers question. Do you have any thoughts on what a normalized interest expense run-rate is or what for 2012 total interest expense could be?

Sure, Gil?

Yes, it's going to be around $180 million all-in. So that is not just on corporate borrowings, so to speak, but also the entities that we consolidated there for run through interest expense on our P&L. So about $45 million a quarter.

Mr. Dwight, we have no further questions. Please go ahead with any closing remarks.

Great. Thanks, everybody. We will talk to you in three months.

Thank you. Then, ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.