Colliers International Group Inc (CIGI) 2008 Q1 法說會逐字稿

Welcome to FirstService Corporation's first quarter 2008 results conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve risks and uncertainties. Actual results may be materially different from those contained in these forward-looking statements. Additional information concerning the factors that could cause actual results to materially differ from those in the Form 10-K and in the Company's other filings with Canada and U.S. Securities Commission.

At this time, for opening remarks and introductions, I will turn the conference over to the founder and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

Thank you. And good morning everyone. As the Operator mentioned, I'm Jay Hennick, the Chief Executive Officer of the Company. And with me today is Scott Patterson, our President and Chief Operating Officer and John Friedrichsen, Senior Vice President and Chief Financial Officer.

This morning, FirstService reported record first quarter results, and we increased our financial outlook as a result of the strong momentum and the impact of several acquisitions we completed during the quarter. For the quarter, revenues were up 29%, EBITDA increased 26%, and EPS were up 23%, all over the prior year. John will provide detailed financial results of the quarter in just a few minutes.

We were also very happy with our operating results, as you'll hear from Scott in his report on operations, following John. As I mentioned, we were busy on the acquisition front. In residential property management, we substantially increased our size and breadth with the acquisitions of The MERIT Companies, California's largest and most respected provider of property management and developer services, as well as Premier Communities, one of the largest managers of residential properties in Texas.

Including the acquisitions of MERIT and Premier, we now manage a total of 3,700 high rise, active adult, and large scale residential properties across North America, representing more than 800,000 homes. And we do that from 45 offices in 18 states.

As part of these management contracts, we also administer the operating budgets and oversee the day-to-day operations and maintenance of these properties, which totals about US$4.8 billion a year. As we have mentioned in the past, having influence over how these monies are spent puts us in an excellent position to offer multiple services to our clients, and gives us multiple opportunities to expand and grow our business in the future.

Not only can we selectively offer incremental services over and above the base property management function, but we can also leverage these expenses to create new and innovative programs that save our clients money and increase service levels. Both of these help to differentiate our services from those of our competitors.

Our Colliers International commercial real estate business was also busy with acquisitions during the quarter. In June, we partnered with the senior managers and active brokers of Colliers Monroe Friedlander, the Colliers affiliate in Hawaii. Founded in 1973, Colliers Hawaii is the market leader in both brokerage and property management services on the island, and operates from two offices with more than 100 professionals. Needless to say, Hawaii is an important gateway to the Pacific Rim. And bringing Colliers Hawaii into the fold will help us capitalize on our already significant and growing Colliers International business in the Asia Pacific region.

We also announced two other important acquisitions with Colliers affiliates, both in emerging markets. Both provide us with strong growth opportunities and both further strengthen and expand our rapidly growing commercial real estate services platform. In southeast Europe, we provided important growth capital and access to our enhanced trading and operating systems to rapidly expand the existing Colliers operations in Greece, Bulgaria, Croatia, Serbia, and Montenegro.

With seven offices and more than 130 professionals, Colliers is already one of the market leaders in these areas, areas that are growing much more quickly than most of the others in Europe. And seven of the ten countries are already part of the European Union, and those that are not are working diligently to join. The importance of membership in the EU cannot be underestimated. It provides these emerging markets with a tremendous vote of confidence, indicating a more stable and responsible business environment, and one that is open for business from foreign investors.

Importantly, this acquisition in southeast Europe also complements our existing operations in the area, markets like Poland, the Czech Republic, Romania, Hungary, and Slovakia, where we have been operating for many years. Today, our combined business generates, in total, about US$50 million a year in annualized revenues across 10 contiguous countries with a combined population of more than 120 million people, about half the population in the United States.

In another effort to enhance our global competitiveness, we increased our ownership stake in Colliers Brazil to 90%, with the balance of the equity owned by the operating team. Brazil is another country that is overflowing with opportunities to attract foreign capital. By most metrics, Brazil leads the way in Latin America and is the 11th largest market in the world. We first entered Brazil in 1998 in partnership with a local family, and since that time have gotten to know the market and business opportunities fairly well.

Recently, we had the opportunity to increase our ownership stake in a business that had 32 professionals providing traditional brokerage and consulting services from two offices in San Paolo and Rio de Janiero. Now that we're in full control, we expect to be able to help them accelerate their success and expand their service offerings in a market that is ripe for future growth.

Make no mistake about it, increasing our presence and putting our capital to work in key emerging markets like southeast Europe and South America is an important part of our long-term strategy, and it allows us to enhance our leadership position globally. However, we're doing it the right way, the FirstService way, in partnership with local operating managers who know and understand their markets and who have a vested interest in the businesses they operate day to day. And we're also doing it with people that we know well and have worked with for many years as part of the Colliers International global real estate network. This combination gives us lots of confidence that this method of growth, combined with the usual FirstService acquisition disciplines, give us a future as a company that is global.

So far this year, just one quarter, we have invested a total of US$45 million in acquisitions, and [batted] above US$11 million in annualized EBITDA. Our target for the year was to acquire about US$15 million in annualized EBITDA, and I'm pleased to say that based on our current acquisition activity, we expect to beat this target and perhaps even come close to the US$25 million in EBITDA that we acquired alternative year. And there was more.

As all of you know, at this year's annual meeting we announced an exciting new initiative to enhance shareholder value through a special dividend of 7% preferred shares, which will be issued tomorrow, August 1st, to all shareholders of record as of last Wednesday, July 25th. One [preferenced] share with a face value of U.S. $25 a share will be issued for every five shares of FirstService held. So in effect, this means that we're returning about US$5 per share to shareholders.

The stock dividend will result in about US$150 million of preferred shares outstanding, with a total annual obligation of about US$10.5 million per year, very manageable for a company of our size. The preferred shares will formally start trading tomorrow on the Toronto Stock Exchange under the stock symbol, FSV.PR.U., because they are U.S. dollars.

We're also pleased to report the preferred shares have been rated investment grade by the Dominion Bond Rating Service, DBRS. These preferred shares have been designed with the help of the RBC Capital markets people in Canada and William Blair of the United States to compare very favorably to the other preferred shares trading in the market, and we fully expect our preferred shares to trade accordingly once the initial issue is completed.

FirstService shareholders can elect to retain both instruments and have the best of both worlds as they do today, or they can have the option and flexibility to sell one of the other as they see fit to achieve their goals. We also expect the preferred shares to be an attractive investment opportunity for new investors, and in particular, the large number of yield-oriented investors seeking better returns from highly rated public companies, such as FirstService.

As expected, the value of our common shares have fallen to compensate for the added value of the preferred shares. However, on a combined basis, our common shares and preferred shares have traded at or above all time highs for FirstService, which is a nice thing to see. Overall, we're optimistic that this new initiative will prove to be a positive impact on the combined value of our securities, and as a result, enhance value for all shareholders.

But perhaps most importantly, the issue of these preferred shares allow us to maintain our current very low leverage ratios, and will not in any way impede our future access to capital or borrowing capacity. Our balance sheet and financial metrics remain strong, and we will continue to have the flexibility we need to grow and develop our business in the future, one step at a time.

Now, let me ask John to take you through the financial details for the quarter. And as usual, once Scott has completed his operational review, we'll open things up for questions. John?

Thank you, Jay. As announced earlier this morning, FirstService reported first quarter consolidated results establishing new levels of performance for our company. And once again, the advantages of our diversification, along with business units led by strong management teams focused on driving growth in their operations are evident in our results.

Consolidated revenues, EBITDA, adjusted net earnings and diluted EPS all were up significantly in our first quarter, compared to last year. Revenues were up 29% to US$419.3 million from US$325.5 million last year, with 15% internal growth from the balance to the acquisitions. EBITDA was up 26% to US$48.4 million from US$37.3 million last year, with an overall EBITDA margin of 11.5%. Adjusted net earnings, up 22% to US$18.7 million from US$15.3 million. And adjusted diluted EPS up 23% to US$0.58 per share from US$0.47 last year.

As outlined in prior conference calls, the adjustment to net earnings and EPS represent the non-cash amortization of short-lived intangible assets relating to pending commercial real estate brokerage transactions and listings recognized on acquisitions completed within our commercial real estate services platform.

Cash flow from operations after working capital changes totaled US$31.5 million a quarter, up significantly from the first quarter last year, benefiting from strong earnings and some of the working capital investment carrying over our fourth quarter of last year unwinding. Our strong cash flow during the quarter supported higher investment activity. Firstly, we invested over US$45 million in immediately accretive acquisitions to provide new growth opportunities in our commercial real estate and residential property management operations, and support our strategy in building long-term value for our shareholders. This compares to US$34 million of acquisition investment for the first quarter of last year.

We also invested US$11.2 million in capital expenditures during the quarter to support growth in our businesses and maintain our existing asset base. This amount is significantly higher than the CapEx of US$6.5 million we invested in the first quarter of last year, but does not represent an increase in our expected annual CapEx investment, which we estimate for the full year of fiscal 2008 to be at or slightly above the US$27 million invested in CapEx last year. Consistent with past practices, we will continue to carefully control our annual CapEx investment and limit this to not more than 2% revenues, or about 20% EBITDA.

Finally, we spent about US$2.7 million to acquire just over 120,000 of our outstanding shares during the quarter, purchases that we had initiated just prior to our March 31st year end and had settled in early April. As announced on June 25th and as Jay already mentioned, common shareholders of record on July 25th will be receiving a stock dividend of one preferred share, paying a quarterly dividend of 7% for every five common shares held. The stock dividend will be distributed tomorrow, August 1st, with quarterly cash dividends expected to commence payment on October 1st. The annual dividend payment will be approximately US$10.5 million, or about 20% of our estimated fiscal 2008 free cash flow.

Moving to our balance sheet, our net debt position at quarter end was US$156.7 million, up from US$136.1 million at year end, primarily because of our acquisition activity during the quarter. Our leverage, expressed in terms of net debt to trailing 12-month EBITDA adjusted to include the annual contribution of acquisitions owned for less than a year, was 1.08 times, still well below our historical operating range of 2.5 to 3 times, and up slightly from the 1.05 times at our March 31st year end.

During the quarter we also made a US$14 million principal repayment on our 8.06% notes due 2011, which will lower our overall interest costs and weighted average rate of interest related to our senior notes, which total in excess of US$200 million and are all at fixed rate of interest. With about US$175 million in cash and undrawn capacity under our existing revolving credit facility and our low leverage, we remain well positioned to fund future growth.

Looking forward to the balance of the year, we are increasing our outlook for fiscal 2008, which was last updated for the impact of the future quarterly cash dividends to be paid on preferred shares. Based on our operating results to date and expectations for the balance of the year including the impact of our recently announced acquisitions, we now estimate revenues to be in the range of 1.55 and US$1.65 billion, EBITDA of 141 to US$151 million, and adjusted diluted EPS of US$1.30 to US$1.42.

For growing amounts, exclude the impact on the acquisitions or the [divestitures] that may be completed between now and March 31, 2008, and assumes no material changes in current economic conditions in our major markets. I'm also obligated to remind you that these announcements are forward looking, and that the actual results may differ materially from those stated in our outlook.

Now, I'd like to turn things over to Scott for his operational highlights. Scott?

Thank you, John. As you've heard, we had a strong first quarter, with total revenue growth of 29% and organic growth of 15%. Very similar growth figures to those posted for fiscal 2007, and again, reflective of the balance that we strive to achieve between organic growth and growth through acquisition.

The first quarter also represented our 10th consecutive quarter with double digit organic growth. This strong quarter was largely driven by our commercial real estate platform which again generated superior results, continuing the positive momentum that we have experienced in this division for the last several quarters. Revenues were up 43% over the prior year, with over half of the increase an impressive 23% driven by internal growth, fueled by very strong results in Australia, New Zealand, Asia, Latin America, and central Europe. This is a trend which has been consistent since Q2 of last year. CMN has invested for years, building a broad service offering and a leadership market position in these regions, enabling us to take full advantage of the buoyant markets that each of these regions are currently enjoying.

In North America, we generated solid high single-digit internal growth, with brokerage and ancillary services contributing equally. The balance of CMN's growth for the quarter resulted from the five acquisitions that we completed in fiscal 2007, plus the two acquisitions completed in June of this year that Jay referenced in his comments, Colliers Hawaii and Colliers Southeast Europe. I can report that all of our acquisitions which impacted our first quarter year-over-year comparison, are at least performing in line with expectations, and several are exceeding expectations.

Our EBITDA margin in the first quarter was 11% compared to 11.7% in the prior year, (inaudible) the (inaudible) higher margins from our operations offset by higher corporate costs related to investments in personnel, infrastructure, and integration.

Looking forward, we expect continued positive trends from our commercial real estate division as pipelines and markets remain strong in all of our regions. We expect that our growth will continue to be driven primarily from our international operations.

Moving on to residential property management where our revenues grew 29% over the prior year quarter, 10.5% organically, with the balance from the acquisition of Service America, The MERIT Companies, and Premier Communities. Internal growth in the quarter was driven by a 17% increase in property management revenues, tempered somewhat by flat year-over-year revenues generated from ancillary services. We experienced at least double-digit organic growth in property management revenues in each of our markets.

Las Vegas was our strongest growth market during the quarter, as we continue to penetrate the active adult and high rise communities in this region. In all our markets, we continue to achieve success in driving contract wins of existing buildings and communities relative to the new development. Approximately three-quarters of our internal growth resulted from market share gains, with the balance from new development. In the prior year quarter, almost two-thirds of our internal growth was from new development.

As I mentioned, our ancillary service revenue, which accounted for approximately 37% of total revenues in this division for the quarter, was flat year-over-year. General increases in the services provided to our growing unit base across the country were offset by an approximate 20% decline in landscape and lawn maintenance revenues in Florida. In the first quarter of last year, we were experiencing an unusual surge in Florida landscape revenues due to continuing Hurricane Wilma cleanup as well as very high landscape installation activity associated with condo conversions and new development.

The EBITDA margin for the quarter was 10.2%, down from 10.8% from the prior year, due primarily to lower margins associated with our lawn and landscape business in Florida. Looking forward, we expect to generate solid low double-digit growth in this division by continuing to leverage our significant competitive advantage.

Property improvement. Revenues in this division grew organically by 3% relative to the prior year quarter. The moderate growth was driven by solid gains in CertaPro Painters and Paul Davis Restoration, but tempered by a decline in the revenue that we realized from California Closets during the quarter. System-wide sales of California Closets were approximately flat compared to a year ago, but we experienced a decline in the sale of melamine board to our franchisees, a continuing trend as we deemphasize our rule as supplier of this commodity material. Our franchisees are increasingly able to source melamine board direct on a more efficient basis, and we are facilitating this wherever possible.

System-wide sales [or our] smaller franchise systems including Floor Coverings International, Handyman Connection, Pillar to Post Home Inspections, and College Pro Painters were down slightly from the year ago quarter, and revenues from our franchise operations were up slightly.

Looking forward, we expect our growth from this division to continue and to look in the low to mid single-digit range. Moderated by a soft home improvement market and a consumer confidence index which has declined in recent months and is lower than a year ago. Our EBITDA margin in this division was up slightly to 27%, compared to 26.7% in the prior year.

In our integrated security division, we continued to enjoy the positive momentum that we experienced in fiscal 2007. Revenues for the quarter grew internally by 9% year-over-year against a tough comparison which was up 29% for the first quarter of 2006. Revenue growth was driven equally by our Canadian and U.S. operations, and in both countries was the result of continued strength in the sale and installation of large complex system solutions within certain market variables where we have specific expertise.

The EBITDA margin for the quarter was 6.8%, up from 5% in the prior year. The increase in margin reflects installation process improvements in the U.S., and to a certain extent improve pricings we continue to differentiate ourselves within our selected market variables. Looking forward, we expect continued positive trends from our security division. In June 30th, our sales pipeline was approximately 15% higher than a year ago, bolstered by a large number of bookings during the first quarter.

I would now like to ask the operator to open up the call to questions.

Thank you. (OPERATOR INSTRUCTIONS) The first question comes from Sara O'Brien, RBC Capital Markets. Please go ahead.

Nice strong quarter. Just a question. It seems that the consumer spending segments of your business are slowing down a little bit. I just wonder if you can comment about what your feeling is going forward for ancillary services and property management, as well as your California Closet system-wide sales going into the back half of the year. If you're expecting some margin compression or further margin compression in those segments?

This is Scott. The reference to consumer spending would really relate more to our property improvement division. You also mentioned property management, so maybe I'll clarify the question as it relates to property management. But let me speak for property improvement first. The two home improvement indexes that we focus on, the significant indexes, show that home improvement spending is down from '06 from about 8% to 2 to 3%. We tend to track that closely. So as I said in my prepared comments, we expect generally in this division, to show low single-digit internal growth, increasing in '08 and beyond. The expectation is that the home improvement index will pick up in '08 to the 5% to 6% range.

Okay. So in that segment, although we might see the growth slowdown, we should not expect further margin contractions? Is that fair to say?

We're not expecting margin contraction in our improvement division, no.

And just in terms of the comment about property management seeing a decrease in ancillary services. I just wonder if that's accounting for your margin compressions in property management, if that's a trend that we should expect to go forward in the year, as well?

I think our year-over-year comparison will start to smooth towards the end of the year, which we still have a tough comparison. As I referenced you to the heavy installation activity we had, the unusual installations we had as a result of the hurricane cleanup, and the considerable amount of new development last year and our margins were expanding at that time, that started to taper for us as we got into the third and fourth quarter. I would expect the comparisons to do better towards the end of the year.

Just in terms of commercial real estate, I missed the comment about North American growth. Was it high single digit on an organic basis?

Yes.

And what's the pipeline-- which markets are seeing more strength or more weakness in North America, in particular, in terms of pipeline outlook?

We're stronger in Canada than we are in the U.S. But generally, we're looking for single-digit growth for the balance of the year in those markets.

And Australia, central eastern Europe still looking extremely strong?

Yes.

I just wondered, deal-wise, with North America slowing down a bit, if this is sort of an opportunity for you to make more acquisitions, if you're starting to see multiples come down a little bit in your favor? Or if that's still pretty high and you're looking for basically a waiting period before you can get your four to five times in?

There's for sure a waiting period, this is just that recent phenomena. But we're busy on the acquisition front, and our acquisitions are, especially some of the ones that we've been reporting, very relationship-oriented acquisitions. So pricing parameters are important, but probably second most important to the relationship and the potential partnership opportunities that the target would have with us. So we spend a lot of time with the potential targets talking about where we can go together in the future, and that is particularly in the commercial real estate business, which is what you're asking about, that's been something that's been music to a lot of people's ears.

And maybe just a last question before I circle back. In terms of deal financing, is the pref share the way to go now? Or are you still looking at using debt, given that you have ample room on your balance sheet to debt finance?

The preferred shares-- and maybe, John, this is probably one more for you than for me, but from my perspective, the preferred shares are just an instrument to enhance shareholder value. We have huge capacity in both cash and available credit lines. That's financed our growth from day one, we'll continue to do that. I don't think we would change anything as it relates to that. John?

No, absolutely. Our focus is on tapping the lowest cost of capital possible. At this point, we have ample debt capacity. Debt is the cheapest way to go, it's fully tax deductible and at very good rates. So we're going to continue to focus to the extent we need to fund acquisitions through debt financing.

Okay, excellent. Thank you very much.

Your next question comes from Frederic Bastien from Raymond James. Please go ahead.

Morning, guys. The internal growth at Colliers was much higher than what we were expecting, and actually much higher than what you had conservatively guided towards a year ago. What's your feel for where we are in the commercial real estate cycle, and how confident are you for the rest of fiscal '08?

We can only comment on our pipelines, the visibility we have from our pipelines. Our markets remain strong, the indicators are good. I'm not sure we'll see the kind of growth that we saw this quarter, but certainly, internationally in particular, we're very optimistic.

Is it safe to assume that [adds] seven to a high single-digit to a maybe low double-digit growth rate for the full year is achievable?

Yes.

Also, I was reading somewhere that the problems in the single family housing market and also the sub-prime mortgage industry, they're having a negative impact on the U.S. commercial mortgage market. Are you seeing signs of that? And I was just wondering how Cohen Financial is performing in light of that?

We are not seeing signs of that in our commercial real estate business.

So maybe [in] specific, Cohen is performing well and you're happy with it?

Yes.

Quickly on the RPM. Did you incur some one-time expenses associated with the two acquisitions you did in the quarter?

No.

So it wouldn't have impacted the margins there. How comfortable are you with the-- on the Colliers side again-- on the robustness of the market in Asia?

Again, Frederic, we can only comment on the pipelines and the activity, the visibility that we have. And right now, things are very good for us in Asia.

Okay, fair enough. One last question. I was wondering if you could guide us towards the amortization rate for the backlog? It's obviously gone down substantially on a year-over-year basis. I'm wondering if you could provide some guidance there.

We've got about US$2 million (inaudible) in that backlog. And that'll burn off over the next 12 to 18 months.

Great. US$2 million?

Yes.

Thank you.

Your next question comes from David Gold from Sidoti. Please go ahead.

Good morning. A couple of questions. Property improvement, generally it sounds like, as we progress through the year, to get to the mid single-digit level, we're looking for a little bit of a tick up there. And just curious, two things. One, if that's sort of entirely dependent on just the consumer coming back, or are we doing anything different there? I'll leave it at that for now.

David, we're not doing anything significantly different. We are reliant on consumer spending in that business to a certain extent, and I think it's important to note that although there has been a significant slowdown in the housing market, the home improvement market is still growing. So we expect to show modest growth in that business this year, but growth.

And part two of that question is should it continue to be slow, I think over time, just a little bit presumably a perception that you're heavily weighted, profitability wise, there, obviously to the consumer. And I guess if you can just talk a little bit about how different it would be to size it down if necessary.

We wouldn't expect any declines in that business. And so if I understood your question, we wouldn't see a need to size that business down.

If I can add a little something. First of all, the consumer portion of our business-- let's go back to basics-- is a franchise organization. So although our system-wide sales in that business is approaching US$1.2 billion, our general revenue in that business is about 140 or US$150 million, made up primarily of royalty revenues that we generate from our franchisees. And our margin as a franchisor is very high.

So the impact of a slowdown in the [net] business-- and really, there is growth in that business, and I think that there's just-- we saw the first quarter of an immediate reaction to a lot of things that are happening, primarily in the U.S. But a slowdown in that marketplace impacts the royalties that we might generate, but our cost structure in that business is very lean relative to the size of the business. So from my perspective, consumers are always going to be renovating and improving their homes, and there may be a bit of a slowdown for this quarter.

But being a franchisor in that business is the ultimate place to be, and our costs are very controlled. Our margins are very high, and our role is to drive our franchisees and make them as successful as we possibly can. So this is a critical part of FirstService. It is, in revenue terms, about 10% of our overall revenues, but an important profit contributor. But still a very critical business for us and one that we've been in for a long time and understand.

I guess Jay, part two of that is, in your year-end report you talked about, at least in that business, a goal of maybe picking up some of the larger, we call them brandchises. And just curious if that's still up there by way or priorities for you this year on the acquisition front?

Yes. I mean, we've been a little slow in that area in the last two quarters, but you'll recall last year I think we added two significant franchises. We like to pick our spots. It's got to be opportunistic. When we have a franchisee that has built a very significant business and wants to retire, or doesn't feel they're up to running a more significant business, which is typically what happens in a franchise organization, we look at that as an opportunity front from our perspective. So it's very much part of our strategy, but we've got to pick our spots.

John, on the G&A front, a little higher by way of margin than I was modeling. And just curious how to think about that for the rest of the year, or if there's anything abnormal in the qtr?

No, there's nothing on the G&A side, nothing unusual. It can move around between cost of revenues and SG&A, and as a service-based business, there's not a whole lot of delineation. So it's not something that's unusual.

Perfect. Thank you all.

Your next question comes from Bill MacKenzie from TD Newcrest. Please go ahead.

Thanks. Good morning guys. Just a couple of housekeeping things (inaudible). First, just on the corporate costs, that sort of segment, in that segmented results was down year-over-year as well as lower than I was expecting. Just wondering-- I guess it came in at about US$2.8 million-- any reason why it was that low? And what should we expect through the balance of the year?

I think it was a little bit below last year, primarily as a result of some lower costs on the Sarbanes-Oxley project, which, last year was in high gear as we were in the implementation stage of documenting our key controls and all the work surrounding that. So we're moving more down to sort of a maintenance and sort of ongoing testing phase, which is less labor-intensive and less costly. And our expenses as it relates to performance-based compensation is lower, based on the growth that we expect this year versus last. So these would be the principal contributors.

Great. And then, John, do you have handy an update just on what the-- you've done some more acquisitions here. [Where would] the update on the call option for the minority interest would be right now?

We were at 150 year end, we're probably closer to 170 now, would be the amount which increases as these businesses are performing well and increase their own profitability.

Great. And then just on the EBITDA guidance, just to be clear, that excludes stock-based compensations. Is that right?

Yes, it does.

And then, just one last question, I guess for Scott, on commercial real estate. Margins beat down a little bit year-over-year. You talked in your presentation about some of the increased corporate costs that are driving that and some of your recruiting costs. I'm just wondering, on a go-forward basis, how should we look at margin through the balance of the year? Obviously, there's some seasonality to take into account for the last three quarters, but on a year-over-year basis, do you expect similar margins, margins to be up, down? Just any color you can provide on a go-forward basis for margins there.

I think we expect similar margins, Bill. There may be some fluctuation from quarter to quarter, but at the end of the year, I think we're expecting similar margins, operating leverage being offset by investments in infrastructure.

These infrastructure investments, I guess they've been going on for a few quarters now. Is this part of the long-term-- are we going to see this presumably for a while, given you are essentially building a business here? Or does it start to moderate at some point?

It will. I mean, we're new officers. We're investing in systems, we're adding people, our labor costs are up. I can't tell you when operating leverage starts to take over and our margins start to increase materially. But yes, it will change.

Okay, well, we'll keep watching that. Great. Thanks very much.

Your next question comes from Frederic Bastien from Raymond James. Please go ahead:

It looks like we've got some good visibility for the security division going forward, margins obviously show a healthy year-over-year improvement. What kind of run rate should we expect going forward? Are you comfortable with-- I guess you were almost 7% in the quarter. Would that be a good run rate to use for the full year?

That would be our expectation for this year.

So roughly a one basis point increase over last year. Perhaps the last question. With the CBRE acquisition of Trammell Crow now well behind us, have you seen some professionals knock on your door and look for employment? How's that dynamic working out?

I think going into that transaction, we expected more activity than we've seen.

Fair enough. Thank you and good quarter, guys.

Your next question comes from Sara O'Brien, RBC Capital Markets. Please go ahead.

Hi. A follow up question. Just in terms of property management, Scott, did you say that three-quarters of the internal growth was from market share gains this quarter?

Yes.

Okay. And that's versus last quarter? Was it last quarter you had two-thirds from new development?

Right.

Okay. So that's quite impressive. How are you able to go after and grab that much market share gains?

To put it another way, three-quarters of the unit wins are of existing buildings. And that can include boards moving from self-management to professional management, but primarily would comprise us winning contracts from other companies.

How competitive is it right now, in terms of grabbing contract wins?

It's always competitive. We do have a competitive advantage, and we're constantly working on improving it. And we are improving it. And I think that's really what we're seeing with these market share wins.

So in terms of if you're looking for some solid 10% or so growth for this year, it'll be the same trend you're looking to grab market share? This is your new kind of dynamic of organic growth?

Well, it's not really a new dynamic, actually. We have been dealing with, in the last couple of years, the new development. But it's really been the way that we've grown the business, or certainly a significant part of our growth over the last ten years.

Okay, great. And Jay, you did mention maybe getting to the US$25 million in added EBITDA for the year. What is your focus? Is it still commercial real estate in terms of priority? And within commercial real estate, have you seen any candidates in commercial property management that are interesting, or is it still more on the brokerage side that you're looking?

Well, none of them are priority. We'll, again, look at anything opportunistically. We've got four strong platforms, all of which I think are open for growth right now. In terms of our pipeline, we're looking at commercial real estate. Most of the commercial real estate opportunities would have within them property management, so we're active there. We're active in the residential property management area, and we're active in the property improvement area.

So those three areas, security, as it has been for a year or two, maybe even a little longer than that. Security has been, from an acquisition standpoint, a little slower for a while variety of reasons. And one of the things we've been doing in that business is [greenfielding] again. And that's buried in some of our numbers there, but we've had some very good success in some [south] markets in terms of opening up new regions. But specifically on the acquisition question, we're busy in three of the four areas.

And since security is not one of the busy acquisition fronts, I know we've spoken about this before, but is this a division that we could see ultimately spun off? And if so, where is the replacement, or is there a replacement that's [envisaged]?

We've had this conversation 30 times probably. This is a business that has turned around beautifully for us in the past couple of years, probably the last year and a half, anyway. The security business has very strong recurring revenues tied into the buildings. We see this as a tremendous opportunity for us if we wanted to expand this particular division-- which is something we're always looking at-- and adding other specialty businesses around this core security business. And so right now we're excited about the prospects and opportunities.

We continue to build out a platform, and it is a business that is pregnant and ready to be leveraged if we can find the right opportunity. So the answer is no. We've got our head down, and we're hoping to work those margins up, increase the revenues, open new offices. That's what we're keeping our eyes on.

Okay, great. Thank you very much.

Your next question comes from Bill MacKenzie from TD Newcrest. Please go ahead.

Thanks. Just one follow up. Scott, I'm not sure if you mentioned this, but can you just give me an update on the commercial real estate side. What's the current revenue mix between brokerage and non-brokerage business?

We didn't specifically update that for this quarter, Bill, but I think we're in the 70/30, 65/35 range.

Okay, great. Thanks.

(OPERATOR INSTRUCTIONS) Gentlemen, there are no further questions. Please continue.

Okay. Thank you, everyone, for joining us. We'll speak to you next quarter.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation and have a great day.