Colliers International Group Inc (CIGI) 2009 Q1 法說會逐字稿

Welcome to FirstService Corporation's first quarter 2009 results conference call. Certain statements included herein constitute forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company or industry results to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements.

As a reminder, this conference is being recorded. Today is Wednesday, April 29, 2009. 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, and good morning, everyone. I'm Jay Hennick, Chief Executive Officer of the Company, and with me here today is Scott Patterson, our President and Chief Operating Officer, and John Friedrichsen, Senior Vice President and Chief Financial Officer.

This morning, FirstService reported very respectable financial results with strong performances from our Residential Property Management and Property Services division, and while we continue to face difficult market conditions in Commercial Real Estate, we're confident we're making all of the right moves to position us well for the future.

For the quarter, overall revenues were down 2%, but EBITDA was up $12 million over the prior year and adjusted earnings per share came in at $0.08 per share, up considerably from the loss of $0.19 per share last year. John will provide more details on our financial results for the quarter in just a few minutes.

Operationally, in Residential Property Management, we again posted a very strong quarter as we extended our leadership position as the largest and most respected name in residential property management in North America.

In Property Services, results were especially strong thanks largely to the excellent year-over-year performance at Paul Davis Restoration, the largest provider of insurance claims restoration services in America, and of course, to the exceptional results from Field Asset Services, one of the largest players in property preservation and foreclosure services. Helping banks and other mortgage lenders manage and service foreclosed properties is an excellent place to be right now and Field Assets is at the forefront of the industry with leading edge technology and a keen focus on customer service.

Unlike Property Management and Property Services, however, the global economic crisis significantly impacted our Colliers International Commercial Real Estate Services segment. Investment sales were down significantly and with little or no credit available in the market, we do not see them returning to normal for at least another nine months. However, revenues from non-transactional services like property management, consulting and appraisal, and project management all came in on target and we expect these to continue to generate positive results for the balance of the year and beyond.

With Commercial Real Estate, we recognize we are operating at the low point in the cycle, but we also recognize that this business is just not going away. Property owners and users will need high quality real estate professionals to help them buy, sell, lease, and manage commercial real estate assets for many years to come, and being an industry leader with a global platform puts us in an excellent position to capitalize once the markets return to normal. Scott will provide more color on this and our other service lines in just a few minutes.

Over the years, FirstService has built a strong platform and foundation to take advantage of strategic growth opportunities with confidence. Our proven track record and way of doing business didn't just happen. We built FirstService one step at a time over a long period of time with the care and discipline of a management team with a clear strategy and vision for the future.

Today, FirstService is a leader in global real estate services. FirstService Commercial Real Estate is the fourth largest global player in commercial real estate. FirstService Residential Management is the largest manager of residential communities in North America and TFC, the franchise company, is North America's largest provider of property services through franchise and contractor networks.

Each of our service lines have lots of recurring and repeat revenue streams. Almost 70% of our EBITDA came from contractual revenues over the past 12 months. Each of these service lines is led by a strong management team with a significant equity stake in the business and each of these service lines have unlimited growth opportunities on a global scale.

FirstService is diversified. We're diversified by service line, by geography, and by customer and even within service lines we look to diversify. Little more than two years ago we partnered with a management team of Field Asset Services at a time when the word foreclosure was just starting to appear on the national stage. Our reasoning, to back a talented management team who had a vision for their business over the long term? Yes, that was part of it, but also to counter balance our more consumer oriented franchise systems in our Property Services segment.

And ever since we entered the commercial real estate space, we set about diversifying its revenue streams by adding non-transactional revenue like property management, appraisal and consulting, and project management. Why? To add new services and growth opportunities for sure, but also to diversify revenues. Four years ago non-transactional revenue streams represented only about 18% of our revenue. Today, they represent 38%, more than double what they did when we acquired the business.

As our long-term shareholders know, the core of the FirstService growth strategy has always been to balance internal growth with acquisitions. And even though we've been a little bit more cautious with acquisitions recently, we are always ready to pounce when the opportunity is right. In November, we took a bold step with the acquisition of FirstService Williams in New York. This transaction put us squarely in New York in a major way and gave us an important hub to expand our global real estate services platform.

It was also a transaction that could not have been completed during normal market conditions, but having the fortitude to go forward with this transaction despite what was going on out there is just another reason why we continue to be successful.

Finally, with the proceeds from last year's sale of our security business, FirstService further reduced debt, strengthened its already strong balance sheet, and put us in an excellent financial position for the future. The bottom line of all of this is this. While we really can't control what's happening out there in the overall economy, we can control how we respond to it, something that I believe we have done extremely well at FirstService over the years.

Rest assured, our entrepreneurial spirit is alive and well and with our proven track record and market-leading service lines, we're in an excellent position to continue to grow and create value for our shareholders for many years to come.

Now let me ask John to take you through the financial details for the quarter. Then Scott will provide his operational review, and once both of them are finished, we'll open things up to questions. John?

Thank you, Jay. All things considered, FirstService reported more than respectable results from our operations for our first quarter ended March 31, 2009 with our diversification taking center stage once again and having a favorable impact on our overall results.

While quarterly revenues and EBITDA were up over the same period last year in our Residential Property Management and Property Services divisions, revenues in our Commercial Real Estate business were negatively impacted by reduced transaction volumes and brokerage, as well as the impact of foreign exchange on operation outside of the US. Despite revenue declines in this division, negative EBITDA before cost containment charges in the quarter was held to a level similar to last year largely due to the impact of cost management initiatives taken last year.

Scott will have more to say on each of our segments in a few minutes. I will address our overall consolidated results for the quarter, the goodwill impairment noted in our press release this morning, the impact of the new US GAAP requirements arising from FAS 160 on non-controlling interests, previously known as minority interests, and finally, give some comments on our capital usage and balance sheet.

For the first quarter of fiscal 2009, consolidated revenues declined slightly to $361 million or 2% from $369.1 million in the January to March quarter last year. The negative impact of FX of 4% plus an internal decline in revenues of 4% for the quarter were partially offset by revenue growth from acquisitions.

EBITDA was $12.4 million before one-time cost containment charges of $3.2 million and compared very favorably to the slightly better than breakeven EBITDA of $400,000 reported in the same quarter last year. And adjusted earnings per share was positive $0.08 versus a loss per share of $0.19 last year, their adjusted EPS in the current quarter computed before the additional tax valuation allowance equating to $0.39 per share. More on this later.

I'd like to point out that our adjustments to GAAP EPS in arriving at adjusted EPS are fully disclosed in our press release issued this morning. Adjusted EPS is intended to provide an alternative measure we believe is more indicative of the EPS generated by our ongoing operations.

Now I would like to turn to our balance sheet and first deal with a few GAAP matters that require commentary before speaking to our debt and liquidity levels. Firstly, as we reported in conjunction with our year-end results for the period ended December 31, 2008, we are required to record a tax valuation allowance with regard to the value of tax loss carry forwards relating to our Commercial Real Estate operations in the amount of $12.5 million or $0.39 per share.

Though these losses are available to offset future taxes payable far into the future, GAAP requires a full allowance against the value of these loss carryforwards at the present time. In our recent year-end in December, you will recall that we were required to record a tax valuation allowance of $15.6 million or $0.46 per share.

Secondly, FAS 160 and related guidance significantly changed the Company's accounting for non-controlling interests, or NCI, and which was formerly referred to as minority interests. NCI is now required to be recorded on the balance sheet at its redemption amount rather than just disclosed in the notes to the financial statements. This adjustment was required to be applied retroactively, or retrospectively, to prior periods and in the quarter it was recorded -- we recorded a $146.7 million increase in NCI, which sits in the mezzanine section of the balance sheet below liabilities and above equity, along with a corresponding decrease to shareholders' equity in completing this adjustment.

Going forward, changes in the redemption amount will impact GAAP earnings per share with increases in NCI, which almost always result from an improvement in EBITDA generated by our operating companies resulting in a charge to GAAP EPS and a decrease in NCI, usually due to a decline in EBITDA by our operating companies resulting in a pickup to GAAP EPS. These changes to both the NCI balance sheet amount and the resulting impact on GAAP EPS will occur on a quarterly basis in the future.

NCI is shown in two income statement accounts. First, the NCI share of earnings, which is the same as the minority interests we recorded in the past. And secondly, the NCI redemption increment, which captures the change in redemption amount on the balance sheet. Our adjusted EPS excludes the non-cash impact of the NCI redemption increment.

Lastly, during the quarter, we concluded that it was necessary to take a one-time non-cash goodwill impairment charge in the amount of $30 million, or $0.95 per share, in the Commercial Real Estate segment as a result of the operating performance of the North American and European reporting units. This amount is our best estimate at the current time and has been the subject of an extensive review process.

However, the amount has not yet been finalized and is subject to change. We expect to finalize the amount over the next week to ten days and it will be incorporated into our financial statements to be filed with the regulatory authorities in Canada and the U.S.

As we all know, commercial real estate is sensitive to economic cycles, and the current cycle has been more severe and widespread than most of us can remember. As such, a goodwill impairment charge was not unexpected given recent operating results, the persistence of difficult market conditions, and the resulting lack of visibility around operating results in the near term.

The impairment, which was isolated to our CRE segment, represents 20% of the CRE segment's goodwill and only 8.5% of our overall goodwill, both amounts before we have taken this impairment. On a percentage basis, the goodwill impairment charge is much lower than what some other industry players have reported or will likely report in the coming quarters, which speaks once again to our disciplined approach to acquisitions.

Notwithstanding the escalation of asking prices for acquisitions during the past up portion of the cycle, we remained disciplined in our approach to valuation and structure, utilizing reasonable valuation multiples and [earn-up] payments wherever possible. This disciplined approach to acquisitions is a key pillar of the FirstService way. Finally, I would like to reiterate that the impairment charge is non-cash in nature and does not affect the Company's liquidity, cash flow, or compliance with debt covenants.

Regarding our investment activity during the quarter, we invested $11.8 million in acquisitions during our first quarter, primarily investments to increase our ownership in certain of our subsidiaries. This investment was down 39% from the same quarter last year when we had invested $19.4 million. Our investment in capital assets also declined and was down 41% to $4.2 million from $7.1 million last year as we continued to manage our CapEx closely and carefully.

Turning back to our balance sheet, our net debt position stood at about $249 million at the end of the quarter compared to $187 million at our December 31 year end reflecting our investment activity that I already outlined.

Our leverage ratio expressed as net debt EBITDA was just over two times, up from about 1.8 times at our year end and still well below our historical operating range of 2.5 to 3 times and substantially below the 3.5 times in our debt covenants.

In terms of our financial capacity, with cash on hand and the undrawn amount of our $225 million revolving credit line both totaling about $150 million, we have an ample level of liquidity to fund operations and continue to make prudent long-term investments in our operations that will support our increased efficiency and growth.

Now over to Scott for the operating highlights. Scott?

Thank you, John, and good morning. As you have heard, our first quarter results were somewhat mixed, highlighting the diversified nature of our service lines. Strong growth and profitability in our Residential Property Management and Property Services divisions offset revenue declines and losses incurred in our Commercial Real Estate division, which continues to be negatively impacted by the global recession.

Our Residential Property Management business grew by 4.4% during the quarter. This growth was primarily organic and driven by 8% growth in property management, partially offset by revenue declines in ancillary services.

Regionally, our management revenue growth was driven by contract wins and market share gains in the Northeast and Southwest including Texas, Arizona, and California. New customer wins continue to primarily be in the form of high rise and larger active adult or master planned communities where we are able to demonstrate a clear competitive advantage.

In terms of ancillary service revenue, we experienced modest declines across the country as community boards continued to manage through the realities of maintenance fee delinquencies and reduced cash flows. As property manager, we are working closely with the boards to reduce costs wherever possible. In some cases, this may take the form of a deferral or reduction in certain of the ancillary services that we provide, including landscaping, HVAC, painting and pool maintenance. We experienced small declines in many of these services, primarily in Florida relative to the year-ago quarter.

The EBITDA margin for the quarter was 7.9%, up from 7.1% in the prior year. Our margin in the prior year quarter was negatively impacted by the write-off of costs associated with a Florida-specific insurance program that was developed for our high rise clients. The insurance market opened up in late '07 and early '08 and coverage became available and affordable for our clients reducing the need for our insurance product. After adjusting for these costs in the prior year, the margin is approximately the same year over year. Looking forward in residential property management, we expect to show continued growth in 2009 driven primarily by market share gains.

Let me now turn my attention to our Property Services division, which is comprised of Field Asset Services, our foreclosure services company, Paul Davis Restoration, a damage mitigation and restoration company serving the insurance industry, and several consumer franchise systems including California Closets, CertaPro Painters, Pillar to Post home inspection, Handyman Connection, and others. In the aggregate, revenues were up in this division by 60% driven primarily by Field Asset Services, but also by continuing strong results from Paul Davis Restoration.

FAS revenues were more than double levels reached in the prior year quarter and up 20% sequentially relative to December. Foreclosure volumes continue to grow in the current environment, and in addition, FAS has won several new clients. Paul Davis Restoration grew at a low double digit rate during the quarter, primarily as a result of several national contracts secured over the last 24 months. PDR continues to win share in their sector as the overall market is not growing.

In contrast to the strong results posted by FAS and PDR, our consumer franchise systems generated revenues that were off approximately 35% from prior year levels. Renovation and home improvement spending continues to decline, but these franchise systems are also negatively impacted as increasing numbers of laid off workers become competition or do-it-yourselfers. EBITDA in the division was up significantly to $13.5 million from $3.1 million in the previous year driven by the strong FAS results.

Looking forward, we expect FAS and PDR to continue to perform well and grow relative to prior year, and while we expect continued weakness in our consumer franchise systems, it is important to note that all these businesses are aggressively managing costs and we expect each of our franchise systems to be profitable in 2009.

In Commercial Real Estate, revenues for the quarter were $118 million, down 30% from a year ago. On a same-store basis after adjusting for foreign currency and for the acquisitions of Williams in New York and Colliers Netherlands, revenues were down 29%.

The recessionary environment continue to impact every one of our regions during the quarter. Although revenues were off considerably, the $11.5 million loss incurred during the seasonally low March quarter was approximately the same as prior year, reflecting the cost containment efforts in this division over the last 12 months.

Regionally, revenues were down 18% in the Americas, 30% after adjusting for the acquisition of FirstService Williams and foreign currency fluctuation. Similar to much of 2008, the revenue declines were entirely related to reduced sales and leasing activity, as ancillary service revenues, including property management, appraisal, and project management, were in the aggregate approximately at prior year levels.

Within the region, we experienced a 43% revenue decline in our US operations, 48% in Latin America, and 16% in Canada. The LatAm and Canadian results were negatively impacted by foreign currency fluctuation, and in local currency, LatAm revenues were down 37% while Canadian revenues were flat year over year. The Canadian results are noteworthy as the market is clearly off compared to year ago, suggesting continuing market share gains for our operation, which is already the largest player in the country. Our Americas region posted negative EBITDA of $2.8 million for the quarter, which is an improvement year over year.

In our Europe region, revenues were down significantly, 64% relative to prior year. Sales, leasing, and valuation activity in this market came to a virtual standstill in the March quarter with our operations in Romania, Hungary, and Poland suffering the steepest declines. The EBITDA loss in our Europe region was approximately $5 million, including $1.5 million of one time severance and lease exit costs. This is compared to our mid single-digit EBITDA margin generated in the previous year quarter.

In our Asia-Pac region, total revenues were down 38%, 22% after adjusting for the negative foreign currency swing. The year-over-year declines were similar in Australia and Asia and, like our North America operations, were driven by sales and leasing declines. Revenues for property management consulting and valuation services were flat with year ago. The negative EBITDA was $3.6 million, which is a considerable improvement from the prior year, again, reflective of the significant cost containment efforts over the last 12 months in this region.

As we look forward in our Commercial Real Estate division, we expect the challenging conditions to continue throughout 2009. March is historically our weakest quarter and while we do expect increased revenues in the June quarter and certainly in the second half of the year, there is still a great deal of uncertainty in every region.

Total severance and premises exit costs were $3.2 million during the March quarter, bringing the total to over $10 million over the last 15 months. Total annualized savings from these measures is approximately $40 million and we saw much of that reflected in our reduced cost structure this past quarter. We obviously continue to manage costs very aggressively, but our prime focus and that of our operating team is on our customer, doing whatever we can to help our clients manage through this market. This in turn will drive our revenues and improve our position for when the market turns.

I would now like to turn the call over to the operator and open it up for questions.

Thank you. (Operator instructions.) The first question on the line comes from Frederic Bastien with Raymond James. Please go ahead.

Good morning, gentlemen. On the Property Services, can you give us a sense of the margins that were generated by FAS in the quarter? It seems to be much higher than the low double digit numbers that you were -- you've been targeting or basically guiding for.

Fred, it's John. FAS is generating kind of mid-teens margins currently in the business, which is up relative to what they had been generating, so benefitting from some operating leverage in that business.

Okay. What's your outlook going forward on the foreclosure business? Do you still expect volumes to keep picking up, or do you expect some leveling off going forward?

Right now we expect volumes to continue to increase certainly for the second quarter. We've won new customers over the last six months and we're still experiencing an increase in revenues from the new customers. And several of the large financial institutions are on record as saying that their volumes continue to increase. Many of them were on temporary moratoriums over the last six months, so certainly second, third quarter we expect to see volumes continue to increase.

And with that you should have continuing operating leverage, correct?

Yes, in theory.

In theory? All right. On the RPM, Residential Property Management, do you believe that you can match the margins that were posted last year if we look at each quarters? I mean, you matched essentially -- adjusting for this insurance hit that you had last year -- your margins were in line in the quarter. What are your expectations going forward?

Our expectations are for our margins to be approximately the same year-over-year. Perhaps we'll see a slight uptick.

Okay, and in terms of, I guess, acquisitions or what you did in the quarter essentially by -- or increase your ownership in the existing operations, would you see yourself doing more of that if you see that the actual acquisition opportunities aren't around or aren't available going forward?

I think we're through most of it. Our minority interest acquisitions all reflected a year end calculation, so we've seen most of that, although there'll probably be a few more as the year goes on. But at the same time, we are actively looking at some acquisition opportunities in Residential Property Management, one or two things in Property Services, all acquisition opportunities that we think we can leverage with our existing infrastructure and resources, so we're hoping to be a little bit active on the acquisition front over the next couple quarters.

Okay, thanks. And lastly, with respect to the restructuring initiatives you've taken at Colliers, $10 million spent so far, do you expect more charges to be taken over the next couple quarters?

There will be some additional cost cutting in the second quarter, but we don't expect it to be significant.

All right. Thanks. I'll pass that onto others. Thank you.

Thank you. The next question on the phone lines comes from Sara O'Brien with RBC Capital Markets. Please go ahead.

Hi, guys. Just looking at Commercial Real Estate, just wondered if there's sort of a level of sales at which you would expect breakeven? I mean, it's hard for us gauge the operating leverage impact. I'm just wondering what do you -- I mean, is this clearly your lowest quarter seasonally. Would you expect a significant improvement in contribution going through the year?

This is the seasonal low quarter, and our expectation is that, as I said in my prepared comments, that our revenues in the June quarter will be higher. It feels like it is a -- we're in our seasonal rhythm. It doesn't feel like it's due to the market turning. It's not our belief at this point that the market is improving, but we do see a seasonal uptick, and we'll continue to see that in the second half of the year also.

Okay, and then just on the margin front though, would you expect for the full year to have a positive contribution on EBITDA from commercial real estate if things --

Certainly, that's our expectation, but there is a level of uncertainty at this point.

Okay. I just wondered, maybe, John, looking at your debt covenant ratio, your threshold of 3.5 times, I just wonder if things continue to drag with discontinued operations impacting your cash flow, etc., is it possible that you run into difficulties in the back half of the year and what can you do to mitigate that or have you had conversations with your lenders just to make sure that doesn't happen?

Well, we don't anticipate any issues at all, honestly, Sara. I mean, we've got our own internal modeling. We've looked at -- we modeled the Commercial Real Estate business being breakeven or even negative, and it just -- we don't come close to covenants. So we think we're in really solid shape with the business.

Okay, and acquisition-wise, you're comfortable going at it, I guess, tuck-in style or would you make a more bold move?

We're always open to bold moves, but candidly, we are being very, very cautious, and we're preserving our cash for obvious reasons. It's all related to commercial real estate and the lack of visibility in commercial real estate. So until we start to see our early warning signals move positive so we have extensive pipelines of transaction or hoped-for transactions, until we start seeing them start to fill and agreements of purchase and sales being entered into between buyers and sellers, we're going to continue to be very cautious.

Okay, and then just maybe on property improvement, you talked about ancillary services falling off a bit, how's the credit situation with your customers? Are you having any collection issues, and how do you sort of deal with that going forward? Also, just a question on the margin there, I thought ancillary might've been a bigger contributor to margin and just wondered how you get a slight improvement this year if that ancillary stuff is falling off a bit.

Let me answer the last question first. The slight improvement will really only come from operating leverage as the business continues to grow, but I think you should count on a similar margin to the prior year. And first question, accounts receivable is -- I think, John --

Yes, I mean, is there pressure? Nothing of note. We continue to work with our clients where there are collection issues. In fact, we proactively are assisting them in collections and have turned it into a service line really, which is contributing nicely to our results. Overall, we are just being very focused on collecting the amounts that are due to us from our management fees and we have not seen any significant issues. But we're staying close to it and making sure that we're close to our clients.

In Property Services, Sara, other than Field Assets, there's very little in the way of receivables, and so, we don't see, in Property Services, receivables being an issue at all.

Okay, great. Thanks a lot.

Thank you. The next question on the line comes from David Gold with Sidoti. Please go ahead.

Hey. Good morning.

Good morning.

More of a strategic question, Jay. Can you -- give some color, if you can, on sort of gelling the tough environment out there with the long-term goal of presumably increasing both market share and the positioning for your Commercial Real Estate business. What are you doing in this environment to that end? If folks -- the right teams become available, are we still adding at the same time we're pulling some costs out? What's sort of the thinking there?

Just sort of in a general way, as Scott commented in his comments, we think we've got the costs of our Commercial Real Estate business pretty much on line. We've really right-sized our business to current and/or expected revenue streams. Not to say that there won't be additional containment costs in subsequent quarters, but as Scott said, I think it will be a lot less than it has been historically.

We're really turning our attentions to growth, and our management teams have done a terrific job. They're on the road all the time shoring up troops, making sure that we're in front of clients. There's lots of activity, interestingly, now in many markets, primarily with banks and lenders and the FDIC and government agencies all looking at the real estate assets they have or the real estate assets they will take over. And there is a whole variety of services around that, consulting with clients, valuing property, selling the property, managing the property, and we're all over that. It's a lot of activity now. Hasn't translated into significant revenue streams, although our ancillary service revenues in that business are at our targets and some of them better. So we see some growth in property management and valuations coming over the next couple of quarters.

So I'm rambling a bit, but our general view is we are turning our attentions to revenue and client and getting a greater share of client. And I think we're ahead of some of our competitors in that respect and that is energizing a lot of our guys. So that's sort of our current thinking in Commercial Real Estate, and I think that permeates not just our North American operations, but also our operations overseas.

To that end, if interesting teams become available, are you still talking to them and hiring?

Oh, absolutely, absolutely, but very cautious, David. I said in previous conference calls, in these times, especially in this segment, it has to be a table pounder. If there was a great opportunity in Property Services or in Property Management, a large one, we'd be all over it, but I think in Property Services right now we have to be very cautious.

Got you. And then just one last one. John, I'm not sure if you gave the numbers, but can you give a sense for the declines in business and commercial real estate sales activity, or capital markets activity, versus leasing?

Yes. I mean, we're down pretty significantly on the transaction side versus previous year. Just looking at gross numbers, we're on the sales and leasing side, sales would be investment sales down about 55%, leasing not as significant as you would expect, down about 12% over last year and the balance sort of a mixed story there.

Got you. Very good. Thank you both.

Thank you. The next question on the line comes from Bill MacKenzie with TD Newcrest. Please go ahead.

Thanks. First question just on the cash flows, John, I was wondering if you could address the working capital swing in the quarter is pretty big and it looks like a lot of that had to do sort of payables coming down, but can see the same sort of decrease in receivables. I was just wondering sort of what's happening there and the outlook for the balance of the year. Is that somewhat timing issues? Is that going to reverse or was there anything unusual in there?

There should be a reversal of that. Coming off of our year-end, we certainly were managing working capital closely, deferring certain payables, so some of that reversed. And we've got in this quarter, it's lower accruals around commission and compensation expenses, which last year were higher, so that's reversed, as well, impacting working capital.

So, should we expect that the majority of that to reverse as we go through the year?

Oh, yes. That should reverse. A lot of that should reverse out over the balance of the year.

Okay, great. And then in terms of the non-controlling interest, is it possible to get a breakout of that by the three different segments?

I don't have that with me, but we can follow up on that.

Okay. And then in terms of the acquisitions in the quarter, the buyouts of minority interest, could you comment at all on how much of that was you guys approaching -- you guys being the sort of the catalysts to doing that as opposed to minority interests putting their interests to you. Was it more the latter or the former or a bit of mix?

It's a mix. About half and half.

Okay, great. And then just in terms of the Commercial Real Estate business, I think in the past you guys had talked about Australia as being one of the first markets kind of into the downturn and I'm just wondering what you're seeing there. When you look at your mix from a regional perspective, would you expect that region to potentially be sort of first in, first out and are you seeing any sign of stabilization there or is it continuing to deteriorate or what's the story down there?

We would expect to see Australia come out of it first, and I think if there's one region with a light at the end of the tunnel, it is Australia right now in terms of increased activity levels. And our expectations are for a better June quarter and strength, more strength for the balance of the year.

Okay, great. And then just one final question. Last quarter you guys had provided some guidance on Residential Property Management and Property Services in terms of the outlook for the full year suggesting that you are continuing to expect growth in those segments. You haven't actually said that directly, but my impression based on the comments that that's still the view. Is that the case?

That is the case. I made those comments; perhaps you didn't catch them. But certainly we expect our Residential Property Management to continue on its track with organic growth primarily taking customers from competitors and FAS and Paul Davis Restoration continuing their strong performance.

But [net-net] in Property Services? That'll offset the declines in the consumer businesses on the full year basis?

That's right.

Okay. Okay, sorry I missed that. Thanks very much, guys.

You're welcome.

Thank you. The next question on the line comes from Stephanie Price with CIBC World Markets. Please go ahead.

Good morning, guys.

Good morning.

In the Commercial Real Estate division, can you talk a bit about the brokerage versus services revenue breakdown? I think, Jay, you might have mentioned 38%, and I wasn't sure if that was consolidated or if that was in CRE?

That's just in Commercial Real Estate; 38% roughly is non-transactional services in the aggregate.

Okay, and can you talk a bit about where you're seeing growth in those ancillary services? What areas?

You mean the non-transactional services?

Yes.

Property management, we expect it to continue to grow. Valuation, real estate appraisal and consulting is expected to grow very nicely. And project management also had a great year last year, continues to grow at nice internal growth rates. So all three of those areas, which were virtually non-existent when we acquired the business, are really driving our internal growth there and also creating some interesting opportunities for the transaction side of the business.

Okay, and do you have a target sort of revenue percentage that you're hoping to get to with the ancillary services or non-transaction services as a percentage of divisional revenues?

No, but -- we don't have a specific target in mind, but we are going to continue to accelerate the growth in those areas. We see this business very similar to the way we saw our Residential Property Management business way back when when we acquired it, that there's a tremendous opportunity to leverage the customer into providing additional services. And we've gone about that over the course of time and I would expect we'll continue to do that in the years to come.

Okay, and just in terms of the Commercial Real Estate division breakdown by geography, do you have that handy in terms of revenues?

Sure. I mean, I can give you the -- let me just give you the at least the North American split. It was about 66% --

Okay.

-- of revenues this year versus about 54% last year.

Okay, and the remainder is mostly -- ?

Remainder is spread amongst the Asia Pacific and Australia markets. LatAm is a very small percentage, only about $3 million of revenue and the balance would be Europe at about $10 million.

Okay. Okay. Thanks, guys.

Thank you. The next question comes from Brandon Dobell with William Blair. Please go ahead.

Thanks. John, quick housekeeping one for you. Any expectation for what or how we should model CapEx this year? Not including acquisition, just regular PP&E CapEx.

Our target is to ensure that CapEx is below $20 million.

Okay.

So, we're going to manage to that number and hopefully better.

Okay.

So, we would see, having just spent over $4 million, it'll go up a little bit through the year, but we're watching that very closely.

Okay. In the consumer business, any concerns about some of your franchises being in tough shape or any opportunities to -- can I take a branchise approach and buy somebody out who just feels that this environment is just too tough to manage through? Or is that not part of the strategy that you would think of as a use of acquisition cash?

This is Scott. It's certainly part of our strategy. It has been. Historically, we've grown our branchise operation every year. Some of our franchisees will -- are and will continue to struggle in this environment, but they are very entrepreneurial. They're small business owners and we don't expect a significant number to falter in 2009. But we are working closely with all of our franchisees to make sure we're supporting them and helping them through. And that may result in us taking an ownership position in certain cases.

How much -- I guess, how much transparency or visibility do you have around what kind of valuations you'd have to pay for that to happen? Is there something in the franchise agreements that specifies that or is it more of a negotiation?

A negotiation.

Okay. Over in Commercial Real Estate, the leasing actually looked a lot better than I thought you guys would post. Is there anything specific you can talk about that kind of differentiated you guys from what we saw from [Jones Lam] this morning? It seems like your leasing revenues were quite a bit better than what they had talked about.

I think internationally we continue to do reasonably well in leasing, specifically on the tenant rep side in Europe and Asia. We are very aggressive about the tenant rep business and this is an opportune time to revisit with your landlord and renegotiate. And so we're consulting with a lot of our clients in that respect. But, clearly we see revenues are declining. There are -- the lower transaction volume, shorter term leases generally and lower rates all result in lower revenues to us and so we're right in the middle of that. We expect that to continue.

And final question for you. Just lost my -- lost my train of thought here. Sorry. I will follow up afterwards. I just forgot what I was going to ask. Sorry about that, guys.

Thank you. The next question on the line comes from Bill MacKenzie with TD Newcrest. Please go ahead.

(Technical difficulty) the operations, so I was wondering if you could give a bit of an update in terms of how things are progressing in terms of getting rid of those? And just in terms of the cash flow statement, [it's about] $8 million related specifically to discontinued operations, which I thought was a little bit high. I was wondering if you could comment at all on that.

Yes, well, I mean, the discontinued operations, you're right, we had about $8 million there. We were -- most of that was an unwind of a hedge that we had had in our Canadian mortgage operation, which has been dealt with now in the quarter, so that was a hit. That's been cleaned up. It's gone and will not repeat going forward. So, I mean, that operation we still have [about] $9 million of mortgages, which we are slowly but surely liquidating at -- for face value. There's no other operations there. And on the US side, we're continuing to look at disposal of that business.

Okay, great. Thanks.

Operator?

Sorry. The next question comes from Sara O'Brien with RBC Capital Markets. Go ahead.

Hi, yes, just a follow-up on the US discontinued operations. Can you just tell us what's left of -- is it Cohen Financial that's still there?

On the US side?

Yes.

Yes.

I mean, is that -- is that just -- I always thought it was sort of more of an origination business and you wouldn't actually have any mortgages on balance sheet from that. Can you just clarify that for me and is it --

Yes, there are no mortgages on balance sheet. The mortgages are in Canada. Cohen is a mortgage brokerage operation. It's still in business and quite significant in size. And it's discontinued for all the reasons we've discussed. We hope to have an announcement on that during the quarter.

Okay. So, I mean, it's not a cash drain at this point? This is something that's got value to it?

Yes. No, it's got some value to it, of course.

Okay. Great. Thanks.

Thank you. The next question comes from Brandon Dobell with William Blair. Please go ahead.

Yes, sorry. My brain started working again there.

Found it.

Yes, it's not easy. As you look at the Colliers network, has the environment changed how some of those participants would view their historical perspective on the overall network? Is it going to make it easier for you guys to kind of push forward with that overall goal of having a little more control, a little more consistency across the network? Or is it changing how you interact with some of the, let's call them non-affiliates, or guys that aren't part of your organization?

Well, it's an excellent question. The global affiliation is first class. As you can see, we're in every market but the US. There's one owner and we're the market leader in so many markets outside of the US. The US continues to be, in effect, a sub affiliation.

Right.

And the US affiliates are working closely with us. Our CEO of that business was recently elected chairman of Colliers USA. He's also chairman of Colliers globally. So we are working closely with them, but it is still an affiliation and until we become much more aligned with the various pieces of the US affiliation, it's going to continue to be a little bit more problematic delivering a consistent service model across every market in the US. So, we're working on that. Doug Frye is, as chairman, working on that and bringing everybody together and aligning this market. I'm not sure it's helping one way or the other. It makes some people work closer together and other people a little bit more [disparate], so we'll see how things work. We're continuing to manage that as best we can.

All right. Great. Thanks, guys.

Thank you, and there are no further questions at this time. Please continue.

Okay, ladies and gentlemen, thanks for joining us for the first quarter conference call, and we look forward to the next conference call with our June quarter. Thanks for participating. Bye now.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation. You may now disconnect your lines and have a great rest of the day.