世邦魏理仕集團 (CBRE) 2014 Q2 法說會逐字稿

Greetings. Welcome to the CBRE second-quarter 2014 earnings call.

(Operator Instructions)

As reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Iaco. Please begin, sir.

Thank you, and welcome to CBRE's second-quarter 2014 earnings conference call. About an hour ago we issued a press release announcing our Q2 2014 financial results. This release is available on the homepage 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 audio archive of the webcast and a PDF version of the slide presentation will be posted on 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. These include statements regarding CBRE's future growth momentum, operations, financial performance, and business outlook.

These statements should be considered to be estimates only, and actual results may ultimately differ from these estimates. Except to the extent required by securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements you may hear today.

For a full discussion of the risks and other factors that may impact any estimates that you may hear today, please refer to our second-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. These reports are filed with the SEC and are available at the SEC's website.

During the course of this presentation we may make certain statements that refer to non-GAAP financial measures as defined by SEC regulations. Where required by these regulations, we have provided a reconciliation of these measures to what we believe are the most directly comparable GAAP measures. Those reconciliations can be found within the appendix of this presentation.

Please turn to slide 3. Participating with me today are Bob Sulentic, our President and Chief Executive Officer; Jim Groch, our Chief Financial Officer and Global Director of Corporate Development; and Gil Borok, our Deputy Chief Financial Officer and Chief Accounting Officer, who will join us for the Q&A period. Please turn to slide 4 as I turn the call over to Bob.

Thank you, Steve. Our strong performance in 2014 continued in the second quarter. We again turned in double-digit growth in global revenue, even without our acquisition of Norland Managed Services, and a 16% increase in adjusted earnings per share. Overall results were in line with anticipated trajectory for our business and reflect our success in driving meaningful growth, while continuing to make investments that support our professionals, enhance client service, and will sustain our long-term performance.

Before Jim takes you through the quarter in detail, I'll cover some highlights, starting with our global regions. EMEA once again produced outstanding results. We continued to benefit from an improved macro environment in the region and from Norland's first-rate building technical engineering capabilities, which are now part of our integrated suite of occupier outsourcing services. While Norland was a major contributor during the quarter, we also produced solid organic revenue growth from our existing businesses.

The Americas, our largest business segment, showed strong growth. Property leasing and occupier outsourcing were key catalysts. In leasing, we registered our strongest revenue growth in three years, driven by market share gains. Asia Pacific faced dual challenges of a sluggish macro environment and continued currency weakness. However, revenue rose 9% in local currency, paced by Australia.

We augmented our Asia-Pacific business at the end of the second quarter by acquiring our long-time affiliate in Thailand, an established well-run domestic business. We continue to see strategic, well-structured M&A as an effective use of capital, and have announced six acquisitions thus far in 2014, including three in the past two weeks.

Now I'll turn to our global business line highlights on slide 5. As mentioned, particularly notable was property leasing, which generated double-digit growth for the fourth consecutive quarter. This increase was driven mainly by the US, where we are reaping the benefit of improved occupier sentiment and continued focus on market share gains. Asia-Pacific grew solidly in local currency.

Occupier outsourcing, which we call Global Corporate Services or GCS, had an exceptional quarter. Globally, revenue rose 58% with a big boost from Norland. However, even without Norland, this was our fastest growing business line with organic revenue up 17%. We continue to benefit significantly from the high quality, depth, and scale of the global integrated solutions that we deliver for large occupiers.

We also saw improved results in Global Investment Management. The strong track record of our investment programs drew significant new capital and generated higher performance-based fees during the quarter. Property sales grew significantly in Europe, but only increased modestly in the Americas as compared with the robust revenue growth we delivered in the second quarter of 2013. Capital targeting US real estate remains strong, liquidity is plentiful, and we believe our pipelines for the balance of the year are solid.

Commercial mortgage service revenue fell due to lower activity as expected with the government-sponsored enterprises. Overall and importantly, contractual revenue sources continued to rise, accounting for 53% of total revenue during the period, up from 47% in the second quarter of 2013, mostly reflecting the Norland contributions.

Our long-running revenue mix shift toward more stable recurring revenue sources was a major factor in the credit rating upgrade we received during the quarter. We are pleased with our performance in the first half of the year with growth of 24% in revenue and 30% in adjusted earnings per share.

In the Americas, revenue increased 11% and EBIT improved 9% for the first half, despite the drag from lower GSE originations. Had GSE activity been flat versus last year's first half, America's EBITDA would have increased 14% for the first half of 2014, reflecting positive underlying operating leverage in the business.

Overall, our results reflect the ability of our people to deliver premier, globally-integrated services that create superior value and are increasingly required by clients. This is an enduring strength that provides a competitive advantage to CBRE.

Now Jim will review the quarter in more depth.

Thank you, Bob. Please turn to slide 6. Q2 2014 was another period of strong growth for CBRE. We achieved a 22% revenue increase on the strength of solid organic growth, as well as contributions from our acquisition of Norland. Excluding Norland, consolidated revenue rose 11%.

Normalized EBITDA in Q2 increased 8% over the prior-year quarter. As previously forecasted during our Q1 earnings call, this quarter's normalized EBITDA was impacted by lower GSE activity and the timing of development sales. If these two items were flat versus same quarter last year, normalized EBITDA would have been up 13%. After adjusting for select items, EPS increased 16% to $0.36 in Q2. On a GAAP basis, earnings per share rose 52% to $0.32.

In Q2 2014 we benefited from a $9.1 million decrease in interest expense, primarily due to our refinancing activities last year. This benefit was offset by a $10.6 million increase in normalized amortization and depreciation expense. Our normalized tax rate fell to 37% for the quarter compared with 40% in Q2 2013. For the full year we continue to expect the normalized tax rate to be approximately 35%.

Now, I'll discuss the performance of our regional business segments in local currency, starting with the Americas on slide 7. We continued to produce double-digit growth in the Americas. Overall revenue increased 12% for Q2 2014. This is the seventh consecutive quarter of double-digit revenue growth.

Property sales, which can be lumpy quarter to quarter, grew 4% in the second quarter off a tough compare. Within the Americas, the US experienced 38% growth during Q1, but only 2% growth in Q2. Q2 was against Q2 of 2013 that had grown 37% over Q2 2012. We anticipate mid-teens growth in the second half of the year.

Leasing was a standout performer with a 19% revenue increase. This was our highest growth rate since Q2 2011, as we benefited from investments in this core part of our business, including continued strong recruiting. Market conditions are improving, and CBRE econometric advisors forecast about a 4% rent increase for Q2 2014 over Q2 of 2013, based on preliminary data.

We continue to enhance our transaction professionals' ability to create competitive advantage for our clients. By example, our transaction professionals now draw from considerable internal expertise in workplace solutions, logistics, project management, investment banking, and healthcare.

Global Corporate Services, or GCS, in the Americas grew revenue by 19%, or 18% in dollars, with strong new business wins. There's significant synergy in both directions between GCS and our leasing business, as our large corporate customers are increasingly purchasing these services on an integrated, multi-year contractual basis. Combined with asset services, GCS and asset services together grew by 14%.

Please turn to slide 8 regarding EMEA. EMEA had revenue growth of 82% in Q2. Norland added $196 million of revenue during the period. Even without this contribution, EMEA revenue grew 9%, or 16% in US dollars.

Norland bolstered our combined GCS and asset services growth. However, we achieved 20% revenue growth in local currency without revenue from Norland, as our outsourcing business gained traction in Europe with significant new business wins, including a major facilities management contract with Credit Suisse.

Property sales also remained strong, with revenue up 14%. We continued to see increased activity in more countries, including Ireland, the Netherlands, and Sweden, as well as ongoing strength in Germany. This compensated for lower revenue in the UK, where Central London had a pause in activity and some expected Q2 deal activity likely slipped into Q3.

Leasing in EMEA declined 5% in local currency and was essentially flat in US dollars.

Please turn to slide 9 regarding Asia Pacific. We achieved 9% revenue growth in Q2 2014. However, the growth rate was reduced to 3% when translated into US dollars, primarily due to the weak Australian dollar.

GCS and asset services combined saw revenue increase 12%. Third-party real estate management is gaining a stronger foothold in Asia, with greater China, India, and Japan providing significant contributions this quarter, as did Australia.

Leasing revenue rose 9%, driven by Australia, India, and greater China, where we represented Citigroup in the largest-ever office transaction in Hong Kong. We are particularly pleased with this growth at a time when the region's occupiers generally remain cautious about long-term space commitments.

Property sales revenue rose 6%. Activity in Australia was especially robust, which compensated for sluggish performance in most of the rest of the region. Lower EBITDA and operating income for the region in Q2 was primarily due to a decline in high-margin property sales in Japan compared with a very strong second quarter 2013.

Please turn to slide 10 regarding Global Corporate Services. In Q2, the International Association of Outsourcing Professionals once again ranked CBRE the number one real estate outsourcing firm. Even more noteworthy, CBRE was ranked the number three global outsourcing company among all industries.

GCS growth is being propelled by a secular change in how multinational corporations and other large users of space are contracting for real estate services. Corporations are increasingly putting a premium on strategic, globally-integrated solutions that help them operate more efficiently and enhance their ability to achieve their own strategic objectives. CBRE is particularly well positioned to deliver these solutions.

While the outsourcing trend has been growing strongly in the US for some time, it has recently gained more traction overseas and in newer vertical markets. We signed 32 contracts in EMEA and Asia Pacific in the first half of 2014. In healthcare, an industry facing intense cost and regulatory pressure, we signed new contracts or expanded our existing relationships with eight US hospital systems in the first half of 2014.

In Europe, our GCS offering has been materially strengthened by the Norland acquisition. It has not only given us a best-in-class building technical engineering capability, but has added real depth to our senior management ranks. During Q2, we appointed Norland's CEO, Ian Entwisle, to lead our entire GCS business in Europe. He is a talented executive with a record of driving strong growth through new business and client retention.

Please turn to slide 11 regarding Global Investment Management. Revenue grew 6% (sic -- see Press Release "7%") and normalized EBITDA increased 15% in Q2, or 9% (sic -- see Press Release "10%") and 17%, respectively, in US dollars. This growth is notable following a year in which we sold $10 billion of assets for our clients and exited the management of a private REIT.

We raised $3.2 billion of new equity in Q2, or $4.4 billion year to date, already nearly matching our total capital raised in all of last year. Our ability to attract fresh capital attests to the underlying strength of the business.

We have $6.6 billion of equity available to deploy. AUM increased for the quarter to $92.8 billion, up $4.6 billion from Q2 2013. Property acquisitions and dispositions each totaled a bit more than $1 billion for the quarter. We now have increased AUM for three consecutive quarters.

We generated over $7 million of carried interest revenue in Q2. Under the normalized accounting treatment we adopted beginning last year, we matched the timing of related compensation expense, which is typically about half of the revenue. Our equity co-investment in the Global Investment Management business totaled $167.2 million at the end of Q2 2014.

Please turn to slide 12 regarding our Development Services business. As expected, second-quarter revenue and normalized EBITDA in this business declined from year ago. This is due to timing. As discussed on our last quarterly call, we completed a major asset sale in Q1, which was earlier than expected, and another major sale originally scheduled for Q2 will close later this year.

The Development business continues to ramp up as the economy improves. This can be seen in a larger deal pipeline, which has increased by $400 million since year-end 2013 to $1.9 billion. Development projects in process totaled $4.8 billion at quarter end, down marginally from year-end 2013. Our equity co-investments in the Development Services business totaled $96 million at the end of Q2, while our total recourse debt for this business stood at only $13 million.

Now I'll turn the call back over to Bob for closing remarks.

Thank you, Jim. Please turn to slide 13. At the midpoint of the year, we are pleased with the way 2014 is unfolding. While the macro environment is mixed globally, we are encouraged by signs of improved conditions in the US and Europe. As important, our people, armed with the industry's premier service offering and our increasingly strong platform, are creating significant value for clients.

Our balance sheet is strong, and we recently achieved an investment-grade rating on our secured debt for the first time. First-half property sales growth of 14% is in line with our expectations for a double-digit revenue increase for the full year. Property leasing growth of 12% in the first half is pacing ahead of our expectations of mid to high single-digit growth for the year, fueled by share gains and an improving market.

We expect Global Corporate Services to continue its strong growth rate following a first half during which revenue was up 59%, or 15% without Norland. We now expect GSC origination activity to be down modestly rather than flat for the full year. We also expect revenue and earnings in valuation and appraisal services in the US to be down for 2014.

Our principal businesses, Investment Management and Development Services, remain on track with some upside versus our initial expectations.

In light of our performance in the first half, with adjusted EPS up 30% and our active pipeline, we now expect full-year earnings per share as adjusted to be in the $1.60 to $1.65 range, an increase of $0.05 per share from our initial guidance. This upside is driven largely by transactional activity which we anticipate entirely in the fourth quarter. We believe this range is an aggressive but achievable result for 2014.

At the same time, we want to emphasize that we face much more challenging earnings comparisons in the second half, due to the nearly $90 million of EBITDA from carried interest we generated in last year's second half. Further, the macro environment continues to present challenges underscored by heightened geopolitical tensions.

In closing, we remain positive about our outlook and the advantages afforded by our people, globally integrated services offering, and strong cash flow and balance sheet.

With that, operator, we will open the lines for questions.

(Operator Instructions)

Anthony Paolone, JPMorgan.

With regards to your comment about transactional activity in the fourth quarter driving up the guidance, can you be more specific as to what that is? Is that promotes that you weren't previously assuming or is there something else?

Anthony, this is Bob. What we mean to say there is that the upside -- we think there is some upside combined in our principal businesses, Investment Management and Development, and that's transactionally driven. That will be from the sale of assets and potentially in our brokerage businesses, our investment properties business and our leasing business. So it is various types of transactions.

But, those items that could come out of Investment Management, if you sell assets like the carries, the carried interest and the promotes, you are now including a bit more of that in the $1.60 to $1.65, or that would be on top of the $1.60 to $1.65?

No, no, no. That would be inside it, and it would be a small amount from where we sit today.

Okay. But then the rest of the increase in the guidance also relates to just other businesses, not just purely promotes?

Yes. Again, transactionally-oriented, so brokerage-oriented businesses -- investment, sales, leasing.

Okay. Then on leasing, you had good growth in that for several quarters now, but it seems like each time you've chalked it up to market share gains. Just trying to understand, A, how much more can you gain in share before you really need the market to get behind you? And, B, can you put any brackets around what you think a better leasing environment could deliver in terms of growth in that business segment?

We wouldn't -- we've said that we expect growth in Americas leasing, for instance, which is our biggest leasing market by far to be in the 5% to 10% range. We really haven't modified our view on that.

As it relates to our -- that could go up if the economy got better, but based on what we're seeing in the economy now and what's being forecasted, we think that's a reasonable rate. As jobs are getting added, companies are also becoming more efficient in their use of space, so on and so forth.

We think we can continue to gain market share for a while when you look at our business. There is none of our product lines, including leasing, that we have across the board more than about 10% market share.

Leasing, in particular, is a product line that's moving in an account-base direction. Sometimes just leasing accounts, so we'll do all the leasing for a particular company across the United States, or potentially beyond the United States. It may be integrated with a GCS account. So as that part of the business moves in an account-base direction, we're advantaged.

We've added a good number of producers over the last couple of years. As we talked about, that creates an opportunity for us to gain market share. And we've done some work to gain deeper knowledge into the local markets and what sub-markets we have good market share in and what sub-markets we have lesser market share in. So we are targeting those markets for additional -- for the addition of brokers and so forth.

Okay. Last question. You guys seem to have done a number of tuck-in acquisitions, if you will, over the last several months. Can you give us any color on the economics of those, or contribution on a go-forward basis, and also just what that pipeline looks like as well in terms of doing more of those?

Anthony, this is Jim Groch. We've closed six smallish transactions and announced a seventh. We've historically said that our infill of transactions run between five and six, generally averaging over the last several years at about 5.5 EBITDA multiple.

We're continuing -- that record continues. We're actually running a little bit -- at a little bit lower multiple. We're staying quite disciplined on the M&A front.

Then I would just note that including the announced deal that hasn't closed yet, most of these have been quite recent, in the last few weeks. We will be acquiring in the neighborhood of $130 million of run rate revenue in aggregate.

And what does that pipeline look like in terms of other deals you might be contemplating? Did all of these just happen to occur at around the same time, or was there sort of a shift from you guys to focus more on M&A?

If you look over the last 18 months, we've been, on average, closing a transaction about one transaction a month. We closed 11 deals last year and we're six closed in the first six months of this year. So over this period, we've obviously increased the volume from prior periods, but I would say it continues to run pretty steady. We may have a lull for a couple of months, as we've just had a crunch of deals come through and close, but the pipeline continues to look pretty good.

Okay. Thanks.

Brad Burke, Goldman Sachs.

Wanted to touch on property sales, and realize that the property sales can be lumpy quarter to quarter. But wanted to get a sense of whether the deceleration that you saw in terms of the growth from Q1 to Q2, particularly in the Americas, if that's consistent with what you're seeing in the market, or whether the quarter was just unusually choppy.

You are still forecasting double-digit growth for the entire year, which would imply an acceleration from 2Q. I was hoping you could elaborate that, because the comps don't appear be getting any easier year over year as you get into Q3 and Q4.

Brett, first of all, we had a really tough year-over-year compare in terms of growth with the growth we had in the second quarter in 2013. We had a big quarter in Q1, as you know, which can suggest that some activity that could have closed in either the first or second quarter closed in the first quarter.

And, frankly, we did not have a lot of activity in the second quarter. It wasn't a real active quarter for us at all, as evidenced by the numbers we turned in. We think that was just a circumstance attributable to the lumpiness of the business, a lot a lot like we saw in the first quarter when we had 30%-plus growth in the Americas.

We still -- based on everything our research people are telling us and our economists are telling us, what we're tracking in the market, the backlogs we have, we still think mid-teens growth in the second half of the year is reasonable. We keep close tabs, as you know, on what our producers have in their pipelines, and that would suggest that those numbers make sense.

Okay. That's helpful. Then on asset management, obviously a good quarter for the fundraising and nice to see the AUM tick up, so just curious what you are seeing in the pipeline in terms of more appetite for fundraising. Also a nice increase, it looks like, in the base fee. I was just wondering whether or not we should expect that to continue, or whether there was anything unique in Q2 that drove the quarter-over-quarter increase.

We're seeing good momentum around the world in asset AUM -- or in capital raising for that business, and expect that to result in increases in AUM. That's really particularly true in Europe and the Americas and we don't see any reason for that to change through the end of the year.

In terms of the question on the fee, Gil, can you answer that?

Yes. Hi, Brad. In terms of the fee, I think what you'll notice is that the fees for assets under management quarter over quarter are pretty flat. Then there were some incentive and disposition fees that we received that were higher than prior year. That has to do, obviously, with disposition activity, or largely with that. Then there was some carried interest. That's sort of the components.

Okay. Then just last one. The expectation for valuation appraisal will be down in 2014? What's driving that?

This is Jim, Brad. The valuations business has done a lot of work over the years with lenders in particular, working out loans. That activity has fallen off. And then we've also seen a little bit of a shift in what some folks are buying or looking to buy from that service line, where they're purchasing lower cost summary-level appraisals. So we've seen a little bit of a shift in the fee structure and in the product as well.

Okay. I appreciate it. Thank you.

Brandon Dobell, William Blair.

Wondering if you could address the thought process at the management level, thinking about flowing through some of the transactional upside versus pushing that back into the business and going out and hiring some more transaction professionals. How do you guys think about the trade-offs between those two, I guess, uses of margin points these days?

Brandon, we made the decision a couple years ago that we were going to trade off some current income for more certain long-term growth in a variety of ways.

One of the ways was by additional recruiting in our various brokerage lines of business. We -- as you know, last year we had our best year in a decade of recruiting. That has continued into this year, that strong recruiting momentum. We will see by the end of the year how it stacks up to last year, but we've had good recruiting momentum this year.

We also chose to make investments in our, what we call our operating platforms, so things like technology, research, et cetera, that support our market-facing professionals. We have a mindset and a strategy that is aimed at investing in the business to a rational degree in the short run to support long-term growth and long-term stability in the business. That will continue. That will continue with the acquisition of producers, but it'll also continue in the other ways I mentioned.

It sounds like there's enough upside in the flow of business that you can continue all those efforts at the pace that you thought you would be on as you started the year, but it doesn't sound like there was enough to say, all right, let's step up the pace of either technology investment or producer recruiting. Or are you -- you sound like you're satisfied with the pace of both those initiatives, technology and producers.

We are satisfied. We stepped that pace up some time ago. We haven't backed off the pace, but we are not accelerating. We think we are at about the right place now.

Okay. Then focus on Norland for a second. Any material or noticeable seasonality in that business as we think about modeling its contribution in the back half of this year?

Brandon, this is Jim Groch. Norland's historical strongest quarter is Q1. The next strongest quarter is Q4, typically, and then two and three are -- have been, plus or minus, the same. So unlike a lot of our business, it's actually slightly weighted to the first half of the year.

Okay. Then looking at the contracts that you guys signed in the quarter, where you had opportunities to perhaps bring Norland into those discussions. I guess I'm curious from two perspectives.

One, are you able to go into existing contract that either aren't up for renewal or in a period where you are not talking too much about the next leg of the contract and inject Norland into the discussion, maybe to either to displace an existing vendor or displace an in-house capability? Then, secondly, in the contract negotiations where there is a renewal opportunity, have you been able to put Norland into that discussion as easily as you thought you could post-acquisition?

With regard to our GCS business, which is where Norland primarily plays, they have been welcomed by our folks and by our clients in renewals in contract pursuits, so the answer to that is very definitely yes. It has been viewed roundly as an upgrade to our offerings and a rounding out of our offering in a big way in Europe, particularly in the UK.

In terms of inserting them in ongoing contracts, we only do that at points where there's -- we only attempt to introduce them into a contract at a natural point where there is a renewal or there's a need for the particular service they offer to be bid. That's the right way to do that, and that's the approach we take.

Okay. Then final question for me. The leasing markets, obviously some nice gradual acceleration in the past handful of quarters. In your discussions with corporates out there, I guess occupiers in particular, how fast do you think they're moving towards this contractual relationship where leasing is part of a broader relationship with you guys? Is there any specific type of company that's making a faster push that way, looking to integrate a whole lot of services with one provider?

I'm just trying to get a sense for how quickly market share drivers can change, given that push towards more a broad contractual relationship with you guys.

Brandon, this is Jim. It has been kind of on a steady march along that path for the last few years. We estimate that about 30% of our tenant revenues are now coming from our large corporate outsourcing clients, and roughly half of our corporate outsourcing assignments include transactions as part of the contract. So it's become quite material over the last few years.

Okay. Great. Thanks, guys.

David Ridley-Lane, Bank of America.

I think we will start comping the lower GSE in the third quarter. I'm just kind of curious; I know you are saying that their originations would be down for the full year. How much of that drag goes away as we look into the second half of this year?

David, it's Gil. If you'll recall, our original outlook said we thought for the full year we'd be flat, but the first half down and the second half recovering. That was the original guidance. And so what we're indicating is we just don't expect as much of a recovery in the second half. So it will be down slightly for the full year.

Is my math right, around $12 million drag for the first half in terms of EBITDA?

$13 million.

$13 million, okay. When you look at the drivers of leasing acceleration, are you seeing more on the square footage demand? Is it the fact that rents are increasing, are terms going up? Is there any sort of driver that stands out as improving significantly?

The one thing we commented, David -- this is Jim -- is that rent growth, our Econometric Advisors group has rent up about 4%. That's preliminary data, so it's not all in, but that's over 12 months. That is starting to become more material on the impact on the leasing business.

Otherwise, no single factor that is material. But on the margin, the square footage getting a little bit higher. We're even seeing a month or two more in term on occasion on average. So all the indicators are moving slightly, but the big moves, I would say, are rent and then market share.

Got it. Then if you had to look into your investment sales pipelines, are you seeing more activity in the Tier 2, Tier 3 cities? Or is it kind of evenly balanced in terms of growth between Tier 1 and the other cities?

We are seeing the smaller markets pick up on a relative basis, and it's a direct link to the fact that capital is looking -- there's a lot of capital out there. A lot of it has already been aimed at the gateway markets, et cetera, and it's now moving into the second-tier markets.

Got it. Then a final one for me. When you look at the asset services piece of the outsourcing business for institutional owners, are you feeling a little bit more optimistic? There's been a couple of reports around increased allocation to real estate among some pension funds and some sovereign wealth funds. Do you see an opportunity for your business to increase there?

This is Jim. I would say we're not seeing much of that, to be honest with you. That business is being impacted somewhat by just a very high churn rate as asset -- as the pace of sales have gone up. Are you talking about -- let me just clarify that. Are you talking about Investment Management or property management?

I'm talking about the asset services piece of the outsourcing. Not GCS, but for the institutional owners.

Yes, for the property management side, which falls under asset services. We are seeing a little bit of momentum as net operating income in the buildings begins to improve with higher rental rates that can flow through on fees, but that business overall has a relatively slow growth rate still right now.

Got it. Thank you very much.

Mitch Germain, JMP Securities.

Bob, I'm just trying to circle back to your comments on leasing. You are up 12% on the year. You guys are, I think, mid to high single digit. You talking about transaction, really, is what's driving some of the upside to guidance. Is that now a double-digit growth? Is that what you're expecting? Or should we expect a bit of a slowdown in the back half of the year versus the first half of the year as you -- given how much you've accelerated? Trying to understand how that plays out.

You are speaking strictly about leasing as you ask that question?

Yes, I was just curious about leasing. Yes, thank you.

We think we've had a really good rate of growth in leasing in the first half of the year. We don't know if we'll keep it at the level it's been at. We think we're going to take market share. We think we'll outgrow market.

But our comment on the upside at year-end is we look at all of our transactional businesses. As we said, a little bit Development, a little bit Investment Management, a little bit investment properties, a little bit leasing. We see generally good activity, or good opportunities in those areas, and we think that the cumulative effect of all that should provide the kind of upside that we've given you in our number by raising the range $0.05. It's not something where we've budgeted that 5% out in detail and allocated it among those various pieces.

Okay, understood. I just wanted to go back to one of Brandon's questions with regards to your hiring efforts. Is your foot -- I guess what I'm trying to characterize, is your foot on the accelerator as fast as it was in 2013 or has it slowed down a bit?

It's comparable. It's comparable. Our attitude toward recruiting is the same as it was. We're trying to find the right people, and when we find the right people in the right slots that we need we go after them aggressively.

We don't have an attitude that we have to hire a certain number of people. We have more of a view of our network and where there's opportunities to take market share in our network, and we go after the right people to fit those holes. And our attitude toward that hasn't changed in the last 18 months.

Great. Last question for me. You talked about some increased wins in Europe and Asia. I guess maybe I'm curious. Are they local, European local and Asia local companies? Or are they being -- or are they effort being run out of the US?

For the local European and Asian companies is there some sort of theme? Is there some sort of reason? Is it cost savings? Is it trying to maximize efficiency out of real estate, collaboration, or whatever? What's really driving them gaining increased adoption of outsourcing?

First of all, the trend on this for our outsourcing business, and I think in general for businesses that outsource, whether they're real estate or otherwise, is that there's some early adopters. and others in the marketplace watch them. If they see good results, they start to adopt themselves and then the population of people that know how to do it within a sector grows.

So right now, we are seeing it trend a little bit like we saw in the States. There were some early adopters in Europe and Asia, and it's becoming more and more accepted over there. So it's growing.

Almost always they're looking for a couple things: cost. They're looking for us to deliver cost savings, because we have a track record of being able to deliver costs at a better rate than they can. We are more expert at it than they are. They tend to be in other industries. We're in the real estate industry, and so that's helpful to us.

Secondly, they're looking for strategic advice. When we provide integrated outsourcing services, we are at the high end of the strategic pecking order, so to speak. So we are doing facilities management, project management, transaction management, advice, consulting advice. They're looking for strategic advice in real estate, and then coupling it with these other services, and that creates an advantage for them.

And so those are two things that they are consistently looking for that we are able to deliver. We have a demonstrated track record of doing that and it's starting to be recognized in Europe and Asia as it was in the early days in the United States.

Thank you.

Todd Lukasik, Morningstar.

I have a couple on Global Corporate Services business. First, I was wondering how you would describe the pace of interest in this area. I know it's been strong lately, but have you noticed that accelerating at all?

Then, second, can you talk a little bit about the onboarding process for those new GCS clients a bit? And in particular I'm wondering, if there were a big uptick in client interest, are there any onboarding capacity constraints to accelerating the growth in that area from your perspective?

We haven't had onboarding capacity constraints. It's a lot of work when you land one of these accounts, and you have to have a deep bench of people. That's one of the advantages we have. We have 300 of these accounts now, which provides a strong base of people we can use to bring on additional accounts.

Again, going back to the previous question, in the early days when there were only a small handful of accounts, there weren't that many practice professionals out there, so to speak. But we have that now, which is very helpful.

I would say we've seen a consistent growth in interest in this part of our business over several years, and that continues. As we said, it's being helped by a couple of things now. Number one, the fact that it's becoming more accepted in Europe and Asia.

And number two, the fact that there are some particular verticals in the United States, and in our case healthcare is a big one for us, where there is growing interest. We had the eight new opportunities we signed in healthcare in the quarter. So the combination of those two things is driving growth and interest in that business for us.

Great. Thanks a lot.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comment.

That's all the comments. We appreciate everybody's questions, and we look forward to talking to you again in 90 days.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.