Colliers International Group Inc (CIGI) 2008 Q4 法說會逐字稿

Welcome to the FirstService Corporation fourth quarter and full year fiscal 2008 earnings call. Today's call is being recorded. We are required to advise that the discussion scheduled to take place today may contain forward-looking statements that involves risk and uncertainties. Actual results may be materially different from those contained in these forward-looking statements. Additional information concerning 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 would like to turn the call over to the Founder and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

Thank you. Good morning everyone. As the operator said, I am Jay Hennick, Chief Executive Officer of the company. With me today is Scott Patterson our President and Chief Operating Officer, and John Friedrichsen SVP, and Chief Financial Officer.

This morning Firstservice reported fourth quarter, year end financial results. For the quarter revenues were up 35%, but we had an EBITDA loss of $1.4 million, and a loss of $0.34 a share. For the year, revenues were up 33%, EBITDA was up 9%, and earnings per share were $1.02 versus $1.05 last year. The reported numbers did not include the results of our securities segment, which we're in the process of selling, or the results of Canadian mortgage securitization business, which we discontinued during the quarter. The challenging global economy, particularly in the U.S., clearly demonstrated the importance of our diversification across service lines, and across international markets.

Colliers International our commercial real estate services business, was impacted by market conditions, and reported disappointing results affecting our overall quarter and our year. However, revenue and EBITDA from our other two core service lines, residential property management, and property services, were both up sharply over the prior year, demonstrating the stability and balance inherent in our diversified business model. Scott will provide further details on all of this, in his operational report in just a few minutes.

While the results for the fourth quarter were obviously disappointing, we were otherwise very pleased with our accomplishments in fiscal 2008. During the year, we completed several strategic acquisitions, adding substantial depth and breadth to our service offerings. And we initiated a significant divestiture creating substantial value for our share holders, and increasing our financial capacity to capitalize on emerging growth opportunities at exactly the right time in the business cycle.

In commercial real estate, Colliers International completed a total of seven acquisitions, primarily in international markets, with important additions in Australia, central and eastern Europe, and Russia. In North America, we strengthened the Colliers brand with the acquisition of Colliers Meredith & Grew in Boston.

In residential property management, we completed a total of five important acquisitions, as we added to our U.S. market coverage. We grew in the northeast, with the purchase of Planned Communities, a company providing a broad array facility and staffing services, in more than 275 residential and commercial climates. And we were finally able to complete the acquisition of Merit Property Management, the leading player in residential property management services in California, and a company that we have coveted for some time.

In property services, we completed a strong strategic play, with the addition Field Asset Services to our portfolio of market leading franchise and contractor networks. Field Assets is a leader in the business of preserving and servicing foreclosed properties, for leading banks and mortgage lenders in the U.S., which is a business that is obviously doing very well in this kind of market. Not only do we expect Field Assets to more than double its revenues in the first full year with FirstService, we also believe that it provides us with an excellent vehicle to lead, and consolidate, the highly fragmented business of third party contractor services.

All of these acquisitions that were completed this year, were structured the FirstService way. With lots of downside protection, and with significant management ownership, particularly in key emerging markets like Russia and Eastern Europe, where market knowledge and shareholder alignment, is the key to long term success. Structuring our acquisitions as we do, not only ensures we get what we pay, for but it also gives us tremendous confidence that when the chips are down, our partners in management teams are there with us in the trenches, doing what is necessary to compete and win, when the opportunities are the greatest.

In April, as you know, we announced that we had agreed to sell our security business to ABC Security, a division of TYCO International for gross proceeds of $187 million. The transaction is expected to close in late June, following a receipt of required regulatory approvals, and the satisfaction of customary conditions. While the prospects for our security business are excellent, we concluded that accelerating the growth of our other service platforms, commercial real estate, residential property management, and property services, by continuing to follow the FirstService strategy of balancing both internal growth with acquisitions, will create the greatest long-term value for our share holders.

The sale of the security business is a key strategic move for FirstService, designed to intensify our focus on being a global provider of diversified real estate services. The proceeds from the divestiture together with our existing financial resources, providing for a service with access to more than $300 million of available capital, to fund our growth, without having to issue additional equity. This gives us lots of dry powder to continue to grow and develop our business, and to creating significant incremental share value for our share holders.

We also announced two other significant changes this morning. The first is a change in our year-end to December 31, and the second change is that we will no longer be providing earnings guidance. John will discuss both of these more fully in his financial review, in a minute or so.

Going forward, FirstService is extremely well positioned to capitalize on opportunities in global real estate services, despite some short term uncertainties in global markets. Each of our service segments is a leading player in their sectors. Each is led by a strong management team, with a significant equity stake in the business they run day-to-day. Each one has unlimited growth opportunities, on a global scale, and each is supported by FirstService. A company with a long track record of success, a proven business model, and the financial capacity to capitalize on emerging opportunities in a market ripe with opportunity.

Our goal over the next five years is to be a $4 billion company, with a stock price which is at least three times where it is today. To accomplish this, we're going to have to continue to do all the right things, and continue to be disciplined in our execution. We're going to have to grow internally by about 8% per year on average. We're going to have to continue to balance our internal growth, with a steady stream of tuck-in acquisitions. And of course, we're going to have to continue making important decisions about our strategic focus, and about the way we manage our business, as the stakes become greater. Our goal of more than doubling our size, and tripling our share value is very ambitious. But I am confident that we have the right business model, the right people, and the right business segments to be successful.

Now I would like to ask John to take you through the financial details for the quarter and the year. And then year then Scott will provide his operational report, and then we will open things up to questions. John.

Thank you, Jay. As Jay indicated FirstService reported operating results for our fourth quarter ended March 31, 2008, for below our expectations. While fourth quarter revenues were up over Q4 last year, EBITDA and earnings per share were considerably lower than expected. Primarily due to the weak operating results in our commercial real estate division. My comments will address both our fourth quarter, and annual results on a consolidated basis. As well as our capital usage and balance sheet.

Reported operating results for the quarter for the year, will center on continuing operations, and exclude those that are discontinued operations. Both our integrated security services business, which has been discontinued pending its sale, and our Canadian commercial mortgage operation which was wound down during the quarter, and both as previously reported.

For the fourth quarter, consolidated revenues grew to $371.7 million an increase of 35%, from $257.7 million in Q4 last year. With internal growth of 8% for the quarter, 4% after excluding growth related to foreign exchange, and the balance contributed by acquisitions. EBITDA was a loss of $1.4 million, compared to a positive $20.1 million reported in Q4 last year, with both residential property management and property improvement services contributing positively in the quarter, and operating loss on weakness is commercial real estate services as I mentioned. And adjusted loss per share from continuing operations was $0.34 versus earnings per share of $0.07 last year, after adjusting for the pro forma impact on the preferred dividends on prior year's EPS.

Before moving on to our annual results, I would like to address a couple of things related to our fourth quarter results. Although Scott will be providing more details on the revenue and EBITDA performance of our operating divisions in his prepared comments, I would like to note the following with respect to our commercial real estate division revenue and EBITDA results for the quarter. First, I would like to point out that our under-performance was in three regions. The U.S., primarily related to reduction in transaction volumes, which were most evident within our U.S. mortgage brokerage operations. Russia, acquired last November. And in Asia, specifically Australia and Hong Kong. This downturn was relative to a very strong Q4 in our fiscal-- in our prior fiscal year, that significantly exceeded our expectations in near optimal market conditions at that time.

Second, though there were many factors impacting our EBITDA performance in commercial real estate in the quarter, one was not operational, and related to our accounting for commissions and other variable compensation. This added a $2 million negative impact on the segments EBITDA in the quarter. As indicated during my comments during a conference call last quarter, we recorded higher commission and other variable compensation accruals in our fourth quarter just ended, compared to the fourth quarter last year, as we have accelerated the recognition of these expenses, based on full-year revenue estimates.

Now let me turn to our results for the full fiscal 2008 year, from continuing operations, consolidated revenues grew 33% to $1.5 billion compared to $1.18 billion fiscal 2007. With internal growth of 12%, 9% after excluding growth related to foreign exchange, And with acquisitions contributing to the balance. EBITDA from continuing operations increased to $119.9 million, up from $109.8 million or 9%, while adjusted diluted earnings per share increased 3%-- sorry, decreased 3% to $1.02 compared to $1.05 last year, after adjusting for the pro forma impact of preferred dividends on prior year's earnings per share.

Consistent with our reporting in prior periods, when we refer to adjusted diluted earnings per share, it includes accelerated non-cash amortization of the brokerage backlog, intangible asset, that we record relating to acquisitions in our commercial real estate operations. Back log amortization expense for the year, at $0.10 per share compared to $0.15 per share last year, and $0.02 per share in both the fourth quarter of this year, and last year. In addition, our full-year adjusted diluted earnings per share for fiscal 2008, excludes the $0.11 per share impact of the incremental stock option expense we recorded to properly reflect the expense incurred, and stock options granted during the period 1995 to 2007. Additional information regarding these adjustments is outlined in the GAAP reconciliation tables, included with our press release issued earlier today.

We invested a further $20.4 million in acquisitions during our fourth quarter at a more measured pace than in the first three quarters of the year, bringing our year-to-date total to $152.5 million. Meanwhile, capital expenditures increased to $32.2 million, from $25.1 million last year, and we continue our investment in our capital asset base. Namely IT systems and leasehold improvements, relating office expansion, both to support our growth across our operations. While our CapEx investment remained within our target rate of not greater than 2% of annualized revenues, we exceeded our internal guideline of 20% of EBITDA, coming in at just under 27%. We expect a return to our historical CapEx investment level in the 20% or less EBITDA, during the next year.

Turning to our balance sheet, our net debt position stood at both $279 million at year end compared to $230 million at the end of the third quarter, reflecting our investment activity that I previously outlined. Leverage ratio expressed as net debt EBITDA for both continuing and discontinued operations, adjusted for the full year impact of acquisitions, was just under 2 times, up from 1.4 times at the end of our third quarter, and so well below our historical operating range of 2.5 to 3 times.

We continue to have significant financial capacity. Including cash in the undrawn amount of our $225 million revolving credit line, we currently have about $125 million of available capacity. And $175 million, inclusive of the $50 million accordion provision within our revolving credit facility. Add to this, the after tax proceeds from the sale of our integrated security services business, which we expect to close within the next 60 days, pending normal course competition review clearance, we will have an excess of $300 million in capacity. Low leverage and a strong balance sheet, with ample capacity to support our growth initiatives, generating the value for our share holders, without having to issue equity.

We also announced this morning as Jay indicated that our board of directors has approved a change in our year-end from March 31 to December 31, effective December 31, 2008. While this will result in a nine-month reporting period during the transition, the longer term benefits, merit the change in year-ends. Including the alignment of our year-end, with that of two out of our three ongoing operating divisions, given the sale of our security business. This will remove some duplication around our annual audit process, including efficiencies, and reducing costs. The change in year ends will not result in any change to the present calendar quarter ends, that we operate under, and report on.

The change is the culmination of an internal discussion that began with the acquisition of Colliers in fiscal 2005. Which had a December 31 year end, and that continued after the sale of Results, our former business services operation which had a March 31, year end. We have transitioned from five operating divisions that included four March 31 year ends, and one with a counter year end, to three operating divisions that includes only one for the March 31 year end, and the other two were December 31 year ends.

At the question of our board of directors we will not be providing annual financial outlook as we have in the past. With many public companies no longer providing guidance, combined with current market conditions, and the lack of visibility in our commercial real estate operations, related to transaction volumes, a decision was made to no longer provide an annual financial outlook. We remain committed to a long term growth strategy average annual and internal revenue growth, percentage terms in the high single digits, combined with acquisitions to build out each of our service lines, resulting in average annual percentage growth in revenue, EBITDA, and earnings per share, in the mid-to upper teens or higher. Now, over to Scott for the operational highlights. Scott?

Thank you, John. As you have heard, each of our divisions have improved significantly in the quarter, and contributed to total revenue growth of 35%, 26% relating to acquisitions, with the balance from internal growth. After adjustments for FX inflation gains, organic growth was 4% for the quarter. We continued to face softening economic conditions in many of our markets, and our profitability reflected this, as we experienced marked declines in each of our continuing divisions, and losses in our commercial real estate operation. I will focus my comments on the quarterly operating performance of our three service platforms, brief operating highlights, and identifying areas where we're experiencing weakness. We will then open up the call to questions.

Let me start with our commercial real estate platform, Colliers International. Colliers revenue for the quarter was up 24%, as a result of acquisitions completed in the last 12 months, including Colliers Hawaii, Colliers Southeast Europe, Colliers Russia, and Meredith & Grew. The internal growth was 3% but negative 5%, after adjusting for FX translation gains. EBITDA for the quarter was negative $13.5 million, compared to a positive $11 million generated in the prior year quarter. Positive relative results in Canada, Latin America, and Central and Eastern Europe, were more than offset by negative EBITDA results in the U.S., Asia, Australia, and Russia. EBITDA in the quarter was also negatively impacted by the change in accounting for commissions accruals, mentioned by John.

I am going to provide detailed comments on a region by region basis, in an effort to clarify the large year over year decline in profitability on this platform. Let's start with the Americas. As I alluded to, we had a solid quarter in Canada, and Latin America, with revenues and profits up slightly, from a strong performance a year ago.

In the U.S. it was a different story. As we experienced significant revenue declines in our mortgage brokerage, and traditional brokerage operations. The economic slowdown, and liquidity squeeze, materially impacted transaction volumes in our mortgage brokerage business. Revenues were off 50% from a year ago, and as a result we experienced large losses in the March quarter. The difficult credit markets also continued to impact transaction velocity in our U.S. brokerage operations. Although leasing revenues were approximately stable with prior year, investment sales activity was down significantly, which caused an overall decline in brokerage revenues of 25%. The magnitude of the revenue decline drove operating losses during the quarter, compared to positive results in the prior year quarter.

Looking forward in the U.S., we believe we will have a better first quarter, principally based on the fact that a broad based cost reduction and cost containment plan, will have been largely implemented. We do not yet have any indication that the market is improving, and our U.S. pipelines of March 31 are down 30% over the prior year.

In Central and Eastern Europe, we had a strong quarter with revenues and EBITDA up versus a year ago. We continue to show particular strength in Romania, Hungary, and Poland. Looking forward, we expect continued strong results in those regions through our first quarter, but there signs that the global credit crunch is reaching these markets, as we begin to see deal delays and financing difficulties.

Moving east, let me now discuss Russia, which is a new market for us effective last November, with our acquisition of Colliers Russia. The marked quarter has historically been a loss quarter for this business, as it is seasonally slow due to holidays, and low levels of activity, plus it has a higher fixed cost structure, with broker compensation heavily weighted towards salary. The loss we experienced in Russia during the quarter, was greater than expected, due to our combination of lower than expected revenues, and accelerated investment spending in the operations. Our market position pipeline and activity levels are strong. And we see the revenue, as largely a timing issue. On the cost side, we had have a plan to significantly increase the number of brokers in this market, and we were aggressively recruiting and hiring during the December and March quarters. We have see an opportunity for accelerated growth in Russia, and their investment in personnel and infrastructure will continue for the next several quarters. Looking forward, we expect stronger revenues and profitability for the balance of calendar '08 in this market.

In Asia, across our many opposites, we experienced a net revenue decline of 12%, and a profitability decline of approximately $2 million relative to the prior year. Strength of Singapore, was more than offset by declines in China, India, and Hong Kong. The decline in China and India are timing issues as the pipelines are strong, and we expect to get back on track by the end of our second quarter in these markets. The weakness in Hong Kong is expected to continue as this market is most closely tied to the global market, and most affected by the credit crunch.

Moving south to Australia, we experienced a 15% revenue decline versus year ago, against a tough comparison. But also due to a tightened credit market, which slowed transaction velocity. The revenue decline combined with increase investment spending in systems, communications, premises, and producing brokers, resulted in a significant year-over-year reduction in profitability. Looking forward, we believe we will show improved relative results in the first quarter, and for the balance of the year, of the global credit crunch, is definitely impacting the Australian market.

Looking forward in the aggregate, for our commercial real estate division, we expect significantly improved results in the first quarter relative to the fourth quarter just passed. We do however, expect to continue to show weaker comparative year-over-year results, for at least the next two quarters. Let me now move on to residential property management, where our fourth quarter results were relatively strong. Revenues were up 30%, 10% were organically with the balance and acquisition of five companies over the last year, including premier companies in California, and premier communities in Dallas, Texas.

Internal growth in the quarter was driven by 12% increase in property management revenues. Tempered by a mid-single digit growth rate in revenues generated from auxiliary services, we continue to generate solid growth in property management revenues, and it continues to come from market share gains. Net contract wins from competitors, were a switch from self management to professional management. The majority of our revenue gains during the quarter, came from high-rise condominium towers in Florida, and the Northeast, and Las Vegas. Where we have generally provided full service management, including front desk concierge, engineers, and in some cases maintenance and janitorial labor. We have a clear leadership position in the high-rise markets in Florida and New York, and we have used this expertise in recent years to drive our high-rise business in other markets. During the quarter, we successfully introduced our high-rise expertise to our new operating platform in Dallas, with two significant high-rise wins.

In terms of auxiliary service revenue, we experienced modest gains in our service operations, primarily driven by new landscaping contracts. We continue to be a top market for our service operations, as many of our community boards are faced with some level of maintenance fee delinquency, which reduces community operating cash flow. As a result, of course, they are looking to reduce operating cost, by cutting the level of service, and deferring to discretionary expenditures for services.

The EBITDA market for the quarter was 7.1% down 90 basis points from 8% in the prior year. The market was negatively impacted by $1.2 million in costs, associated with the development of a Florida-specific insurance program. During the year we partnered with a major global reinsurer to offer a proprietary insurance program to our Florida based management clients. Over the last several months, insurance has become more available and affordable to communities in Florida, which has for the time being, reduced the attractiveness of our insurance product. As a result, we have fully expensed our investment. The adjustment fot this expense in our margin was approximately the same as prior year, with a slight increase in management marketing, offset by a small decline in margin from our service operations. Looking forward, we expect to continue to generate high single digit, or low double digit growth in this division, driven by continuing market share gains.

Property services, revenues in this division more than doubled from a year ago quarter, entirely due to the acquisition of Field Asset Services, which we acquired October 1. That continues to exceed expectation on the revenue line, as foreclosure volumes continue to build significantly, as you would expect given current market conditions. By the same store basis, excluding FAS, revenues in this division were down by 9%, with small increases at Paul Davis Restoration and CertaPro Painters more than offset by declines in California Closets, and our own California Closets franchise operations. Our other franchise systems including Indian Inc. Connection, College Pro Painters, (inaudible) Floor Coverings International were in the aggregate, down slightly from the year ago quarter.

EBITDA for the quarter increased from $2 million to $3.1 million, but the margin declined from 6.6% to 5.1%. Primarily as a result of the revenue drop in our California Closets, and Pillar to Post home inspection operations. These businesses are managed by seasoned drivers, who are responding to the down market, with appropriate cost reductions. But these did not match revenue declines during the quarter. The fourth quarter is also a seasonally slow period for our painting operations, and increased recruiting and marketing cost versus a year ago, amplified our seasonal losses in these businesses. The margins generated by FAS in part offset the margin decline experienced on a net basis in our franchise systems.

Looking forward to growth in our property services division, will primarily be driven by FAS as foreclosure volumes continue to grow. Our existing customers are obviously experiencing increases in the number of properties acquired through foreclosure, and at the same time we're bringing on new customers. The combined effect has meant a dramatic acceleration of activity over the last several months. We've invested significantly in recruiting trained and infrastructure to meet this demand, and expect to continue to invest over the coming quarters. Excluding FAS in our consumer franchise systems it is a different story. The fallout from consumer confidence is clearly inhibiting the whole remodeling market, which we track to. We don't see any improvement for the balance of the year. At the same time however, we feel like we are performing well in the relative basis, or put it another way we think we are winning share in our franchise systems.

I would now ask the operator to open the call to questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS). Our first question is from Sara O'Brein from RBC Capital Managements. Please proceed with your question.

Hello, guys. Wondered if we could get a little more clarity into the commercial real estate business, and its issues in the quarter? In particular the mortgage brokerage. If we look at the overall top line, it was impacted with a negative organic growth, but not significantly, and yet the EBITDA was so significantly lower. Can you just go into a little bit more detail into how much of that comes from the mortgage brokerage business, and where it is at, at this point in your Q1, I guess from this point?

This is Scott speaking. There is a $24 million deterioration in EBITDA year-over-year, and the-- if I look, give you a summary of where that is coming from, broadly the U.S. accounts for about a third. Asia and Australia would account for about a third. And Russia, the accounting change, and increased [cops] would account for broadly the other third.

The mortgage brokerage would account for the biggest piece of the U.S. component. That has a more fixed cost structure than our traditional brokerage business. Certainly weighted more heavily to salary, than traditional brokerage. And that is the principal reason. The other reason is simply that the revenue drop off has been so significant in that business.

Okay, so is it safe to say then, that as far as you can see right now, U.S., Asia, Australia, component is still going to be suffering, at where you stand right now? And that maybe on the cost component basis, and accounting changes, that should no longer be there?

Okay. Well, certainly would continue to experience some revenue declines in the U.S., both traditional brokerage and mortgage brokerage. Asia and Australia, are different. Australia, we are experiencing some declines. We expect to continue this-- to experience declines, but that business will be profitable. For the balance of the year, in Asia, there are different markets, that are being impacted differently. Hong Kong, and China, to a lesser extent, are being impacted more than some of our other branches, which were weak in the quarter. We will continue to experience weakness in Hong Kong, but we see China, and India, and the rest of our markets, being stronger for the balance of the year.

Okay. Great. And just in terms of the Canadian operations that you exited in the quarter, was there any negative mark to marketing that was-- you contributed to the negative EBITDA?

Well, that's all under the (inaudible), that is all separated out. That is not in the continuing operations.

Okay fair enough. And I just wondered, Scott, when you talked about property services and ancillary services going forward, sorry, property management, you were talking about how some of the landlords I guess, are getting a little more discretionary, on the expenses they can cut. Is that suggesting that margin-wise you will be impacted for the remainder of the year, based on seeing a lower volumes in these ancillary services?

No, I don't think so. We had (inaudible) was approximately the same, as this past quarter. We continued to generating some operating leverage on the margin side. And experienced some-- slight declines on the services side. Margin was down. This was past quarter principally from a (inaudible) associated with our insurance program. Going forward, I would expect to see our margin approximately the same as the prior year.

Okay. Great. And maybe a question for Jay. I mean, in terms of you know I guess a lot of negative economics impacting you at once, does this change in any way your outlook for new platforms that you might want to add to FirstService? Would you branch out of the real estate focus, and get into something sort of completely different, or more counter-cyclical if you want, or are you still focused on real estate given the long term potential there?

We're keenly focused on real estate, it is the biggest market. There are multiple service opportunities in every one of our markets, and we see this as a huge opportunity for us going forward. And you know, the current market conditions are actual helping us from the consolidation point of view. Because there is some pretty interesting opportunities that wouldn't be available, but for the current market conditions. So we're staying focused on real estate services, globally.

Okay, great. Thank you.

Our next question is from Frederic Bastien, from Raymond James. Please proceed with your question.

Good morning. Just follow on the last question, regarding the market conditions giving you a better opportunities for consolidation. Where are you seeing the growth potentially coming from, going forward?

Well, the U.S. market is obviously under some significant pressure, and that's creating some very interesting opportunities for us. So, near term we have our eye on the U.S. market place. But there is also from a Colliers standpoint, there is also other markets globally, that we would like to add, to fill out our global service platform. And so we're looking at those as well.

And on the residential property management side, are you happy with where you're going so far? Or are there still holes that you need to fill?

Property management with the addition of Merit last year, really gave us a full sort of coast-to-coast platform. There are regions within the U.S. that we will like to augment. The U.S. northwest for example, is an area that we're looking at.

But our philosophy in that business has always been to consolidate our activities around our geographic concentrations. So adding contiguous real estate service-- adding contiguous markets to our existing managed base, has been sort of our strategy of expanding. So, this year, Scott may have something to add here, but this year, our focus in property management will be to continue to, consolidate in markets in which we have a strong presence, and also potentially, one or two new regions. But they are smaller regions generally. Scott, do you have anything to add for that?

Well, I think the acquisitions this year have opened up California and Texas. So that will be more of a focus going forward, for sure.

And I just want to go back to Cohen. What makes it a much higher fixed cost business?

The cost plan for our mortgage brokerage agents, professionals, is more heavily weighted towards salary than a traditional real estate broker's cost plan. The mortgage brokerage-- there is just-- the markets are so tight in the U.S., it is very, very difficult to obtain financing on real estate transactions. And that's not only impacting Cohen for sure, who by the way is very busy, trying to help clients obtain financing, and when it turns it will be very interesting for them. But it is also impacting our commercial real estate business, because if you can't finance a transaction, you're not going to be able to buy that piece of real estate. So, that is impacting us in both sides.

And you expect more tough times ahead obviously for Cohen?

Yes, we do. But sooner or later lenders will be back in the market place, and we're looking forward to that. I don't know if it is eight months or twelve months, but they will be back.

Okay, thank you.

Our next question is from David Gold, from Sidoti & Company. Please proceed with your question.

Hello, good morning. Couple of questions for you. Jay or Scott, can you speak a little bit more about, I think on the cost adjustment side of things, both timing, is that something that would be done by the end of this quarter, or are we done already, and how do we sort of proceed there?

Cost reductions?

Yes.

Okay. Well, I think we're particularly focused on our U.S. businesses, brokerage, really across the board, mortgage brokerage, and our various service lines. And, I think that, that the bulk of the action items will take place this quarter, have largely taken place, and will take place for the balance of the quarter, and we are looking at anywhere between $7 million and $10 million in cost reductions. Big focus on discretionary spending, eliminating certain support positions, and also continuing to rationalize our process, which has been an ongoing exercise, taking advantage of co-locations opportunities between brokerage and other services, such as appraisal and mortgage brokerage.

Got it. You said the bulk of that has taken place?

Yes.

Okay. And then, one other question. Given sort of we have where the stock is and capital availability, how are we thinking about buybacks versus acquisition opportunities these days, I guess they are not mutually exclusive, but just thoughts there?

Our view on buybacks now, is that we have got so much opportunity in front us, we want to just deploy our capital towards our strategy. We have always built this company on the basis of our long-term growth strategy. And, freeing up some additional capital with the sale of securities, is going to allow us to take advantage of a few things. So I don't think you will see us in the market, buying stock. It will be-- unless it is maybe as a support function, we're going to spend our capital building the company.

Okay. And then, just one more to add to, that Jay. So given sort of where we are, and presumably, as I think John said, basically done, or made some decent cost adjustments, if a really solid interesting acquisition came to you tomorrow, let's say, are you comfortable doing it just now?

Yes, for sure.

Perfect. Thank you all.

Our next question is from Robert Riggs, from William Blair & Company. Please proceed with your question.

Good morning. I just wanted to touch on the head count in Colliers. You know, given the disruption in the market, you think it would probably necessitate taking a look at some of the under-performers, but also provide an opportunity to go out and recruit some new top performing talent. So just wanted to get a sense on how you're thinking about that balance in terms of number of brokers?

Certainly we-- one thing that we have not curtailed is the-- our recruiting efforts. We're committed to a plan to fill out our array of services across the U.S. and around the globe for that matter, and recruiting accounting professionals, and producers is a key part of that. There is a rebalancing of head count, perhaps, as we eliminate certain support positions, we are adding producers, this past quarter, next quarter, and for the foreseeable future.

Okay. Great. And then, one more question drilling down on acquisitions. Outside of different geographies are there any particular business lines that you're looking to get into, kind of, to help balance the slowdown in sales and leasing, for example, maybe like a valuation, or some type of you know outsourcing services, if you could touch on those opportunities?

Yes. We have followed a strategy from the time we acquired Colliers, of changing the split of broker revenue, to our overall revenue, from it used to be 85% brokerage revenue. Today it is 65% brokerage revenue, and brokerage includes both sales and leasing. Leasing is very recurring, and brokerage is as you know, buying and selling is somewhat cyclical.

The balance of our revenue has been augmented considerably over the past couple years. Property management represents 15% to 18% of our revenue today, consulting, appraisal, services, represents 15% of our revenue today. Mortgage services obviously impacted by the economy right now. Also, impacts or generates about 5% of our overall revenue in Colliers. So we have filled out the service lines, with much more recurring revenue type services, and we believe we can continue to do more of that in other markets as well.

Great. And has there been any change in your thinking about, perhaps maybe looking to pursue an investment management avenue?

That has always been on the list. It would be an interesting opportunity for us, but right now, we're keenly focused on finishing the job we set out to do, which is build up the service platform, and we're well on the way to that.

All right. Thanks guys.

Our last question is from Bill MacKenzie from TD Securities. Please proceed with your question.

Thanks. Two things. Jay, to break down, you just gave us, in terms of the mix of business, between brokerage, property management, the other services, is that from a global perspective? Is the mix different in the U.S. versus other markets in the world?

Those were global numbers that I gave you. There is a mix difference. We're doing more services in the U.S. and Canada, than we are in other markets. Australia, Canada, U.S., would be roughly the same in terms of mix today. And in our emerging markets we're more heavily broker centric, and that for us is an opportunity to add additional services.

Okay. Thanks. And in the U.S. what is the split roughly now, between sales and leasing versus maybe a year ago?

I think the split is roughly the same, 65/35.

65% sales?

65% both sales and leasing.

No, but sorry, the split within-- between sales and leasing, like 50/50?

Sales would be about 60%, and leasing would be about 40%.

Okay. And then, can you just maybe give us a bit of an update if you look at the commercial real estate segments, globally, like what does-- can you give us a breakdown on where the mix currently stands, between U.S., Canada, Europe, Asia Pacific, in terms of the percentage of revenue coming from if geographic markets, or however you want to split it out?

I will let John take you through that.

So basically for the last 12 months we're looking at Canada, U.S. in combination of about 55%. And then the balance coming from different markets. Most of that is in the Australia and New Zealand market. If you look at those two they combine for just over 20%. The rest of Asia would add in about another 70%. Then you have Europe somewhere around 15%.

Okay, great and then, Scott, in your comments you indicated that you're expecting commercial real estate to improve the next couple of quarters vs. what you did this quarter. I mean, can you guys be positive EBITDA the next couple of quarters? Or do you still expect to be negative EBITDA?

We believe we will be positive EBITDA.

All right. Great. And then, in terms of the acquisitions pipeline, in the past you guys have given some guidance, some color on targeted EBITDA that you would like to acquire. Can you give any commentary on roughly how much EBITDA that you would-- given the pipeline you're looking at right now, how much opportunity you think is out there over the next 12 months for acquisitions?

I don't think we have ever given any view, forward of EBITDA that we would like to acquire, but there is-- we have a very full pipeline of opportunity. The question is what are the right ones for us. This year we had a very busy year. I'm not sure we will be as busy this fiscal year, but, we surely have the capacity to be that busy if we want to.

And bill I think you know in the context of that, perhaps you're also talking about a 5 year plan, where we have made some assumptions around sort of acquiring Colliers EBITDA at an average of 15%.

Right.

That's a good number. It may not be each and every year, but on the average that is kind of where we see the opportunities at that level.

I guess, yes. That is kind of the number I was looking at. I was just wondering if over the next 12 month is-- do you think you will be in line with that longer term target, above it or below it?

I think we will be in line with it, probably above it.

Okay. And then John, just in terms of the balance sheet, you provided some leverage ratios, net EBITDA just below two times, do you know what that number would be pro forma-- I guess I can do some math on that? But on pro forma for the securities sale, which is just get the proceeds in and strip out that EBITDA, what the leverage ratios would be sitting at?

Somewhere around one time.

Great. And is there-- I mean, do you guys have a comfort level in terms of how high you're willing to take that up? I mean obviously you wouldn't take it up as high as your covenants allow you to get up to, but is there sort of an internal threshold where you wouldn't want to see it get higher than?

I think historically, even though we've operated the last couple of years below 2.5 to 3 times range, that is still range we would be comfortable operating in. As you get out to where that 3 times threshold, you probably wouldn't want to stay there, for a whole long period of time but if we were there momentarily, for a short period, that's fine. But the2.5 to 3 times is a range we could be comfortable with.

Okay great. One last question on Russia specifically. I mean it sound like some of the issues there are somewhat seasonal. I mean, is that business-- is the outlook there still-- it sound like it lost EBITDA in the quarter. Is the outlook-- you still comfortable with the EBITDA targets you had when you acquired that business originally, or had things changed given the Q1 results? Or the Q4 results, rather.

We were expecting negative EBITDA in the market quarter out of Russia, but it was quite a bit higher than our expectation, because the revenue expectations weren't hit. But, they do have some very strong pipelines, and we still see a terrific opportunity in that market. We absolutely need to be there. And we expect to be profitable for the balance of the year there.

Okay, great, thanks.

We have one more question. From Sara O'Brein from RBC Capital Markets. Please proceed with your question.

Okay. Just following the split that you gave on the commercial real estate globally, I mean, how important is Russia overall? That is including your 15% for Europe?

Very small right now. Very small. But certainly growing significantly. Again, seasonally due to timing, it was down. But, it would be a significant part of our plan.

I think a split around the globe, it is included in eastern Europe.

Yeah, it is 25% to 30%, on annual basis. Let's say 25% would be Russia.

And it contributed to a about one-third of the EBITDA loss in the quarter in Q4?

Yes.

Okay. And Jay, you made a comment--

Sarah, just want to make sure we communicated properly around the Russian results. A third of the EBITDA loss, is not what I communicated about Russia. We had a negative EBITDA, but what I said was about one-sixth of the GAAP.

I'm sorry could you repeat that?

A third-- what I communicated was a third came from Russia, and the accounting change and increased expenditures of [cops] corporately, probably half of that was RUSSIA, so one-sixth.

And then just a follow-up on Jay's comment, that you may not be quite as busy in this calendar '08 versus last year acquisition wise. Are you able to firm up prices that you're comfortable with, or is the problem that we're still not sure where the bottom is, and you're not sure how much you're willing to pay, or is it on the seller's side, they are not willing to sell at a certain level these days?

Well, Sara as you know, our way of acquiring, ensures that we get what we pay for. So we're very concerned about what the forward forecast would be. And, if that's why when we acquire these businesses we do it with an (inaudible) and there is significant money held back for the target to hit their numbers over the next two to three years. So, yes, we do look forward, yes, we're concerned about what the EBITDA might be, but we feel that we have got more than enough coverage in the way that we acquire these businesses. And that's proved out over the years.

And sellers are willing to sell it on that basis with the year net percentage, the way you're looking to pay for it?

Yes because most of the sellers that we're talking to want to be part of our global brand. There is a very strong push to be strong regional players within a global platform. And that's why we keep focusing on building out the global service business platform, because once we're completed, we can then fill in in areas which gives us more growth opportunities, including some of the service that I mentioned.

Okay. Super, thanks.

We have one more question, our question is from Bill MacKenzie from TD Securities. Please proceed with your question.

Thanks. Just going back to the discussion on acquisitions versus buyback. If you look at the EBITDA that you generated over the last year, $112 million, if you were to do-- go out and acquire 15%, pay around kind of 5 times as an average multiple on those types of acquisitions, that would be-- you would be looking in the neighborhood of around $85 million or so of acquisitions. You have $300 million of availability. I guess I just wondered why not-- the stocks down on these results at pretty low levels. Why not be-- sort of complement the acquisition expenditures with buybacks.

Well, I think, Bill, it is-- I think Jay's comment was we wouldn't be aggressively repurchasing at this point. There are near term opportunities to deploy this capital. There are other opportunities that are more, maybe peripheral I would say, but could become real opportunities, soon. We just don't know, and we need to be in a very good position to realize on those. That's what our current thinking is right now.

Okay. Thanks.

At this time there are no further questions.

Okay. Ladies and gentlemen, thank you. And we look forward to seeing you on the next conference call. Goodbye.

This concludes the conference call. Thank you everyone for joining. You may now disconnect.