Colliers International Group Inc (CIGI) 2010 Q3 法說會逐字稿

Welcome to FirstService Corporation's third-quarter earnings 2010 conference call.

Legal counsel requires us to advise that the discussion scheduled to take place may contain forward-looking statements that involve risks and uncertainties. Actual results may be materially different from those contained in these forward-looking statements. Additional information concerning 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 US securities commissions.

As a reminder, today's call is being recorded and today is Wednesday, October 27, 2010. 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. As the operator said, I am Jay Hennick, the Chief Executive Officer of the Company. With me today is Scott Patterson, President and Chief Operating Officer and John Friedrichsen, Senior Vice President and Chief Financial Officer.

This morning, FirstService reported very solid third-quarter results. Revenues were up 18% for the quarter, adjusted EBITDA up 5% and adjusted earnings per share was up slightly versus the prior-year quarter.

For the nine-month period, revenues were up 16%; adjusted EBITDA up 14%; and adjusted earnings per share up 7%.

And finally, our cash flow, another very important indicator of our success, continued to be very strong, up 32% versus the prior-year quarter. John will provide full details on our financial results in a few minutes.

Overall, as I said, we are pleased with our third-quarter results. Colliers International demonstrated very strong revenue growth in the United States, Canada, Australia, and Asia while continuing to invest in its brand and in its global platform.

Revenues in Residential Property Management and Property Services also grew relative to the prior-year period, despite more difficult market conditions. Scott will expand on all of this in his operational report following shortly.

Since gaining control of Colliers at the end of 2009, FirstService initiated a massive rebranding effort to create brand consistency on a worldwide basis. Many of you will recall seeing Colliers signage cobranded with many different local names in many different markets. We are in the process of transitioning away from this to one uniform Colliers International name brand, providing singular and consistent branding in all 61 countries where we operate.

We decided to undertake this initiative because we believe that Colliers International brand offers tremendous potential for the future. Colliers International is not only the third most recognized Commercial Real Estate brand in the world, in fact, some say the second most recognized, but it also conveys an immediate sense of integrity and experience to clients globally; it's truly an institutional brand in the industry, something that's very hard to replicate.

During the quarter, Colliers also entered into a new licensing agreement in the Research Triangle area, otherwise known as Raleigh-Durham. Anthony & Company, widely regarded as the best firm in the area, has become Colliers International, and we are pleased to add the new Colliers Raleigh-Durham to our global organization.

There are two or three more licenses being contemplated in secondary markets in the coming months, none of which is material, but each will help strengthen our service capabilities throughout our US platform.

And finally, as you will recall, FirstService acquired a 29.9% interest in publicly traded Colliers UK at the end of last year. We made the investment to help stabilize the business, upgrade operating systems, and strengthen the management team. Like New York, London is an important market that drives business to other markets. During the quarter, Colliers UK continued to show some progress, although slower than we would have liked, as market conditions in Western Europe remain weaker than expected.

FirstService Residential is the largest manager of residential properties in North America. We currently manage more than 4100 properties, low, medium and high-rise residential buildings, gated communities, active adult communities, and a variety of other properties that comprise over 1.2 million homes where more than 3.5 million Americans live. This is a core business for FirstService, and it has many similarities to our commercial property management business we operate under the Colliers International banner.

As I said earlier, revenues were up relative to the prior quarter, but the real story in this segment was on the acquisition front.

Early in the quarter, we acquired highly respected Goodstein property management in New York City. FirstService Residential now manages more than 85,000 residential units in the greater New York area, making us the largest player in the market by a wide margin.

And then in September, we also announced our first Canadian acquisition, adding Condominium First, the market leader in Calgary, Alberta. We are in the process of integrating Condominium First, adding operating systems, and introducing new programs that will provide greater value to our new clients in the Alberta market.

The other area of our Residential Property Management business that continues to see volume increases is our national accounts business. Providing property management and rental services to large government agencies and financial institutions that repossess residential assets or buy them in the aftermarket in bulk for future resale, is a growing part of our business.

Given our national footprint and the ability to service these clients throughout the United States, we have a real advantage, and that is translating into incremental revenue and profit opportunities for our local offices.

In Property Services, revenues were also up relative to the prior year, as Scott will explain in more detail in a minute. But one of the characteristics of this business that is often overlooked by our shareholders is the diversification. That diversification is the reason Property Services continues to deliver solid results year after year regardless of the state of the economy.

For example, some of our franchise systems are consumer-oriented like California Closets, CertaPro Painters, and Pillar to Post Home Inspections. Each has been affected by the economy. Each continues to pick up share relative to smaller competitors, and each will rebound nicely when the markets do. That gives FirstService built-in revenue and profit growth potential as the economy strengthens, even though we still think -- we still feel like we're bumping along the bottom a little bit too slowly.

Some of our franchise systems are market neutral like Paul Davis Restoration. Paul Davis will continue to serve insurance companies and their clients when there is a fire or a flood, again, regardless of the state of the economy. Over the past 24 months, despite what has been going on everywhere, Paul Davis continues to grow one step at a time, adding revenue and earnings along the way. It's been a great growth story over many years for FirstService.

And of course, field assets is the ultimate in counter-cyclicality. The more foreclosures and properties in distress, the better our business will be. And that's what's going on in the industry right now with all the delays and the uncertainty, one thing remains very clear. The number of homes in the US under water on their mortgages, the so-called shadow inventory, continues to grow quarter after quarter. Based on industry forecasts, it will now take until 2014 for the shadow inventory to clear the market and for foreclosures to return to normal.

There might be lots of starts and stops along the way, but with this kind of data in the marketplace and this size of shadow inventory, we are confident that field assets will be busy for a long time to come.

So in summary, with Commercial Real Estate gaining strength and with the continued solid results coming from our Residential Property Management and Property Services division, FirstService is in excellent shape operationally. And with our strong balance sheet, low leverage ratios and significant financing capacity, we are also well positioned to continue to generate strong returns for our shareholders for the balance of the year and beyond.

Now let me turn things over to John to provide his financial report. Scott will follow with his operational review, and then we will open things up to questions. John?

Thank you, Jay. Despite an elevated level of continuing economic uncertainty in most of our major markets, FirstService reported solid overall results in our third quarter ended September 30.

Our service line diversification continues to provide us with an edge in dealing with this uncertainty, while also allowing us to take advantage of the varied pace of economic recovery and improve our market positions.

True to our long-term track record and entrepreneurial culture, we continue to make decisions that balance short-term results with creating long-term value. Here are the highlights of our consolidated results for the quarter. Revenues were $530.4 million, up 18% from $451.1 million in our third quarter last year with internal growth of 13%; 2% are related to foreign exchange and 3% on account of acquisitions.

Adjusted EBITDA totaled $45.7 million, up from $43.5 million last year with our margin coming in at 8.6% versus 9.6% last year.

And our adjusted diluted earnings per share came in at $0.61 versus $0.60 last year.

GAAP EPS for the quarter was $0.18 compared to $0.16 for the same quarter last year with the difference between GAAP and adjusted EPS predominantly related to the change in value of our non-controlling interests, charges related to acquisition accounting and amortization of intangibles, and a further tax valuation allowance relating to tax loss carry-forwards in our Colliers International operations in the US and Central and Eastern Europe, all of which are outlined in our press release issued this morning.

Before commenting on our quarterly cash flow and balance sheet, I would like to make a couple of additional comments relating to our consolidated operating results. Firstly, in regard to our adjusted EBITDA, our results for the quarter were negatively impacted by $2 million relating to rebranding costs in our Colliers business. And if not for these charges, adjusted consolidated EBITDA would have been $47.7 million, generating an EBITDA margin of 9%.

Secondly, our reported adjusted EBITDA of $45.7 million in the third quarter was up 5% over last year, yet our adjusted EPS was up less than 2%. The main contributors to the lag in adjusted EPS growth were higher interest costs associated with our $77 million convertible debenture financing completed in Q4 last year, amounting to $0.02 per share, and the share of the loss arising from our equity pickup of certain Colliers International operations in which we have less than a 50% ownership interest, which negatively impacted adjusted EPS in the quarter by $0.03 per share.

Turning now to our cash flow statement, we saw strong results in our third quarter following similarly strong cash flow reported in our prior quarters this year. We generated over $44 million in cash flow from operations, up over 30% compared to $33 million in Q3 last year, excluding discontinued operations.

During the quarter, we invested about $9 million in acquisitions, which Jay already mentioned, compared to a nominal investment in this area in our third quarter last year. Meanwhile, we invested $8 million in CapEx, up slightly from $7.2 million last quarter -- or in the quarter last year, most of which has been earmarked for upgrades in our information technology across our three service platforms, which is consistent with our prior quarters this year.

Year to date, we have invested about $23 million in CapEx and expect to finish the year in the $30 million to $32 million range, which we expect will be in our historical range relative to our annual revenues and EBITDA.

Turning to our balance sheet, we were able to utilize our free cash flow to reduce debt levels during the quarter with our net debt position at the end of the quarter totaling $215 million, down from $236 million at our last quarter ended June 30.

Our leverage, expressed in terms of net debt to trailing 12-month EBITDA, was 1.5 times, down from 1.7 times at June 30 and just over 2 times at the end of Q3 last year.

We continue to manage our leverage at the lower end of our historical operating range over the past 10 years of 1.5 to 3 times, and of course, far below our debt covenant of 3.5 times. With low leverage and well over $200 million of cash on hand and undrawn availability on our $225 million revolver, we are well positioned to fund a significant level of growth opportunities while supporting our operations during a recovery that reflects a higher than usual level of uncertainty. Now I would like to turn things over to Scott for his comments. Scott?

Thank you, John. Let me start my review with our largest division, Commercial Real Estate, where revenues for the quarter were $222.7 million, up 42.8% from the third quarter of 2009. Adjusting for FX, fluctuation in revenues were up 36%, 32% organically.

The strong results were driven by significant gains in the US, Canada, Asia, and Australia tempered by flat results in Latin America and modest net declines in Europe. Improved market conditions and transaction activity in most regions that we operate led to dramatic increases in brokerage revenues relative to the soft third quarter of 2009.

In the aggregate, sales and leasing revenues were up approximately equally, both over 50%. We also experienced strong increases in appraisal and property management revenues in all our major markets. Let me now spend a minute focusing on each of our major regions.

In the Americas, revenues were up 48% driven by very strong year-over-year gains in the US of close to 60%. Canada also posted strong growth of 40% while as mentioned above, Latin America was approximately flat with the year ago.

Growth in the US was driven primarily by an increase in brokerage activity, particularly in New York City, Boston and our West Coast offices.

Consistent with our June quarter, each of our US offices showed some level of growth relative to the prior year.

In Canada, the strong results were led by growth in our major markets, Toronto, Vancouver and Calgary. Our margin in the Americas for the third quarter was mid-single-digit, similar to the prior-year quarter. There were several factors during the quarter which offset the operating leverage that we would normally expect to see with a 48% revenue increase.

Most significant is that on average in the US and Canada, our brokers were hitting higher commissions splits compared to the prior-year quarter, which increased total commission expense by 4% of revenue. In addition, we continue to invest in the US in several areas, including recruiting, building out a corporate services platform, opening new offices and technology, investments that are critical for us long term and yet we expect will start to yield a return beginning in 2011.

Finally, as John and Jay both mentioned, the rebranding costs were a significant number in the Americas during the quarter. Looking forward in this region, we expect to see continued strong year-over-year growth in the fourth quarter.

In our Asia Pac region, year-over-year revenues were up 40% in US dollars and approximately 31% in local currency, driven by strong increases in Australia, China, India, and Singapore. And continuing the trend we saw in the first six months of this year, we showed a solid level of growth in each of the other 11 countries that we operate in across Asia Pac.

Strong increases in leasing activity in our major markets, principally office leasing, was the main growth driver during the quarter in Asia Pac, but we also experienced a significant year-over-year increase in property management revenues in the region.

We generated a low double-digit EBITDA margin in Asia Pac for the quarter, up from the June quarter and from the prior year.

Looking forward in Asia Pac, we expect to see continued year-over-year gains in the fourth quarter, but at a more modest level than that experienced this quarter, reflective of the strong fourth quarter of 2009, which was up almost 50% over 2008.

In our Central and Eastern Europe region, including Russia, revenues were down 11% in US dollars, and approximately 6% in local currency, as modest increases in Central Europe, led by our operation in Poland, were more than offset by declines in Southeast Europe, including Greece and Bulgaria.

Despite the year-over-year decline in revenue, we generated a small profit in Europe for the quarter compared to aid $2.5 million loss incurred in the prior-year quarter, a positive reflection of the cost containment efforts in the region over the last 24 months.

Looking forward in Central and Eastern Europe, we expect current trends to continue through the fourth quarter and into early 2011. We are seeing some signs of improvement in the region, but our expectation is for a very slow recovery.

In the aggregate for our Commercial Real Estate division, we expect to show a solid fourth-quarter comparison led by continuing year-over-year improvement in North America. We will provide some general outlook comments on 2011 during our fourth quarter and year-end conference call in February.

Let me now turn my attention to Residential Property Management, where we generated revenues of $181.6 million for the quarter, up 4% over the prior year, 1% organically. Consistent with our first six months, we achieved growth in management fee revenue of approximately 4%, but this was almost entirely offset by declines in ancillary service revenue, primarily landscaping in Florida.

The growth in management fee revenue was driven by contract wins in Dallas, Las Vegas, and the Northeast and supported by continued growth in our rental management business.

I reported in our last quarterly call that we had won three contracts to provide rental management services to mortgage lenders interested in earning a cash return on foreclosed property as an alternative to resale. This is still a small business for us in relative terms, but it is growing rapidly. And in the current environment, we expect it to continue to grow over the next few quarters.

As mentioned, declines in our ancillary fee revenue offset much of the growth we experienced in our management fee revenue. This was almost entirely due to continuing declines in our landscaping business in Florida, which is up over 10% compared to the prior year as a result of several lost contracts.

The competitive environment remains very difficult in Florida, and particularly as it relates to ancillary services such as landscaping and pool maintenance, where high unemployment has driven up the number of competitors by a significant number.

Our EBITDA margin in the quarter was 10.7%, up 60 basis points from the prior year.

Looking forward in Residential Property Management, we expect to see modest growth in the fourth quarter, primarily from acquisitions completed over the last 12 months.

In our Property Services division, both Field Asset Services and our franchise group grew approximately 5% over the prior year, taking divisional revenues to $126 million for the quarter.

As you heard from us in the first two quarters of this year, activity levels at FAS and foreclosures in general remain flat while mortgage delinquencies and the foreclosure shadow inventory continue to build.

Our customers have been advising us to expect increases in the foreclosure numbers for some time, and in August and September in particular, we began to see more activity. Revenues for the quarter finished 9% higher than the June quarter. And September revenues represented the highest monthly total since June of 2009. All indications pointed to a breakthrough in terms of reducing the enormous shadow inventory of delinquent mortgages.

This momentum was interrupted in late September with the announcement by GMAC, JPMorgan and Bank of America, among others, that there may have been errors in their foreclosure filings and further, that employees may have executed affidavits without confirming their accuracy.

Many of our customers temporarily halted their foreclosure operations while they conducted a review of their documentation and processes. We are feeling this now. Foreclosure filings continue, but volumes are down considerably. Our clients advised us that the delay will last anywhere from 30 to 60 days. They all believe they have resolved their documentation and process issues, but the foreclosures need to be re-filed with municipalities and process which will take some time.

Adding to the uncertainty is the upcoming holiday season beginning the third week of November, which has historically been a quiet period for foreclosure filings. This could effectively extend the delay to early 2011.

Based on the information we have today, we believe our fourth-quarter revenue will be down 10% to 20% sequentially from the September quarter, and at or slightly above prior-year levels.

Stepping back, as Jay indicated in his comments, the bigger picture remains the same. The backlog of mortgage delinquencies is still there, and our clients still need to work their way through it. We hope to be in a position to provide more clarity on our year-end call.

Looking at our franchise systems, as I mentioned, revenues for the quarter were up approximately 5% as a group. Growth was spread evenly across the eight different systems as they each continue to track the positive year-over-year trend that started for us in the first quarter.

Our expectation is that the year-over-year results from our franchise systems will continue to improve slowly and consistently in the coming quarters.

EBITDA margins for this division were 17.6%, down from 20.1% in the prior year due to reduced margins at FAS. As I mentioned in the first- and second-quarter calls, we invested in our operating infrastructure through the last half of 2009, adding space and increasing the headcount to a level that we believe is necessary to service existing volumes.

The margins generated by FAS in the third quarter are similar to those reported for the last three quarters and indicative of what we expect to report in this business longer term.

That concludes our prepared comments. I would now ask the operator to open the call to questions.

(Operator Instructions). Sara O'Brien, RBC Capital Markets.

Commercial Real Estate margins, you had mentioned there is the $2 million in rebranding costs. But, in terms of operating leverage, given that the volumes were up so much, can we see that margin tick up in either the back half or I guess the last quarter of this year into FY '11? Or do we have to wait into sort of an FY '11 late timeframe to see that pick up?

Well, I made the comment that this quarter we're also impacted by increased splits in Canada and the US as a result of the significant revenue increase. We will see that to a certain extent in the fourth quarter, but we will also see another large increase in revenues that we expect we'll realize leverage on. So our margins in the fourth quarter will be higher than the third and, comparable to prior year. In 2011, we will definitely see higher margins than in 2010.

Okay, great. Just wondered, on the Field Asset Service, you mentioned volumes would be down sort of 10% to 20% in the last quarter. How much operating leverage do you gain in that? Should we expect the margin in the segment to come down significantly because of those delays?

No. We're expecting that our margins will remain comparable to the September quarter. That business has quite a bit of variability in it right now. They've set themselves up to respond to increasing volumes and declines based on what they have experienced the last three quarters.

Okay, great. And just wondered, in terms of corporate expenses, a little higher than I would have expected at $5.4 million. What kind of a run rate do you expect going forward into FY 2011 for that?

Well, I think -- we should see actually probably a bit of a reduction, Sara. Next year, we are at an elevated level right now based on kind of year-over-year EPS gains. Going into next year, hard to stay, but we would expect it to normalize back to closer to historical levels, which would be in the lower teens on an annual basis.

Okay.

Dave Gold, Sidoti.

Good morning. So, a couple of things. One, was hoping on field, you can give a little bit more of a sense then for -- essentially the way things have stopped. I understand you think of 30 to 60 days or maybe a little longer based on your end. But basically, if they have to start over, what -- how does that truly affect [then] basically confidence in it just being a 30- to 60-day delay?

Well, David, the comments that we are providing today are really from our clients. We are asking them, staying very close to them. There's clearly a great deal of uncertainty right now around this issue. But, we are providing the best information that we have and the best information that they have.

They have restarted their foreclosure process. And, our expectation is that saving except for the holiday season, we would be back into it full bore in December. The holiday season will likely temper that, but -- so at this point, we're expecting to start 2011 at higher levels. But again, we will know better in our year-end call, and we will provide more clarity if we have it.

Okay. Can you give a better sense or remind me at what point in the process usually they hire you.

When they have foreclosed.

Okay. So at the end.

And when the owners are out of the home.

I see. I see. Okay. Got you. And then, I guess the other question in there, on the branding that's still left to be done on the Colliers side, what work is left to be done there? And what are magnitude, as we talk about this running into the first half of next year, is this a good run rate -- the $2 million a quarter?

I think that's a number you can use going into -- for the balance of this year and into the first half of next year which would I guess, in aggregate, total about $6 million. That would be a good number. It will be in the $5 million to $6 million range, and it's being rolled out globally. So it's sort of region by region.

Got you. Okay. That does it for me. Thanks.

Frederic Bastien, Raymond James.

Just wondering if you expect to have any growth on a year-over-year basis with respect to the franchise businesses.

In the fourth quarter, yes. And I think we expect there will be continued year-over-year growth for the foreseeable future, slow and consistent.

So that should offset some of the losses you are expecting from FAS? I guess that will offset anyways.

Well, Frederic, our fourth quarter, we still believe our revenues, based on the information we have today, will be comparable to our last year, 2009 fourth quarter at FAS.

Okay, thanks. And, my other question relates to Colliers. Are there any other -- are there any key markets in the US where you are still not -- do you still not have a presence and whether you expect to be moving in that direction in the short term?

Well, we are very active, obviously in all activities in the US. We are now present. Chicago was the last key market, and that's come on board two quarters ago. So we are strongly represented virtually everywhere in every major market. There are some secondary market that we want to fill out just to provide consistent service delivery across the board. And, we are going to do that through licensing as opposed to actually owning those markets because long-term, it's probably the best way to operate them.

There may be one or two interesting additional opportunities to add a key market as a company owned operation. We will see how things transpire over the next couple of quarters, but, we are covered everywhere now.

And would you mind providing a little bit more color on the key markets you would like to improve or enhance your presence in?

No, that's not something I'd like to do.

I thought I would try. Thank you.

Stephen MacLeod, BMO Capital Markets.

Thanks. Good morning, guys. Just a couple questions for you. On the Colliers side, you have this brand reinvestment that you are -- not reinvestment -- brand investment that you are doing right now. Can you just clarify sort of what the numbers are expected to be over the next three quarters? You said it's $2 million a quarter, that's probably a good run rate?

Yes.

Okay. And, what -- are you able to talk a little bit about what kind of positive impacts you are beginning to see from the rebranding investment that you've already put through?

Good question. It has actually been a huge momentum gain. You can see by the results this past quarter in the US relative to our peers, I think we are gaining share in many markets. The consistent Colliers branding is helping considerably with recruiting.

It's helping us with client -- new client wins because it's a clear and consistent story, and that's one of the reasons why we decided that we would incur the expenditures that we have on upgrading the branding company-wide.

We are talking a lot about the branding, but branding also includes marketing materials. It includes online presence. It includes a whole variety of things that help to create a one Colliers. And, we really started, to some degree, a step behind everyone else as I said in my comments, because up until now, in the US, there were some markets that we didn't own that carried on business using the local name. So, it was Colliers X or Colliers Y. And so, creating one Colliers with a consistent platform has made a big difference in all the areas I mentioned. And, I think it's going to continue to make a big difference in the quarters ahead. So we are really looking forward to continuing to generate significant revenue growth quarter after quarter, particularly in the US over the next year or so. And, stay tuned, and hopefully we can deliver that.

Okay. And regionally, do you see the Collier's rebranding getting more traction in different markets relative to others?

Well, in most cases, in -- not in most cases -- in all cases where we owned the market, and we own Colliers now in 42 countries, it always carried on business as Colliers International. So, the rebranding in the US, the benefits there, and of course we only own 29.9% of the UK.

Both the US and the UK market are markets that drive business to other global regions. And so, as we continued to have a uniform presence and market ourselves in the US and the UK under a common brand, we hope that that will translate into additional business for us in some of our other offices around the world. And it is now.

Okay. That's great. And, continuing on the Colliers business, Scott, you mentioned that in the US and Canada, you saw higher broker commission splits. Is that something that is expected to change over the next 12 to 18 months or sooner?

No, it's a trend that we normally see from the first to second to third quarter. As brokers achieve higher revenue thresholds, they generally hurt -- achieve higher splits in their favor. We saw it from prior-year third quarter to this year because of the significant revenue increase. So we had a much higher number of brokers achieving higher splits this year. So it's not going to change over the next year. The trends will remain the same, and they're really dependent on revenue volume.

Okay. So it accumulates through the year.

Right.

Okay. And then, finally, looking at the Property Services business, FAS specifically, if you have a stoppage in foreclosure volumes that are coming into the system right now, can you talk about some of the other services that you are providing? Are you able to continue to maintain a level of revenues through maintenance and ongoing services to the property?

Well, if the homes aren't selling, the foreclosed homes that we currently manage don't sell we'll continue to earn revenue on managing those properties, but ultimately we need new files. And that's what drives the business. So, if the files stop, then, slowly our revenue will decline as our homes are sold.

Okay. Thanks. I'll get back in line.

Brandon Dobell, William Blair.

Thanks. You may have touched on this before I hopped on because I got on late, but any commentary about the pipeline of new contracts in the Residential Property services business? Like managing those communities? Haven't heard much about that beyond those two acquisitions you guys made. Is there any commentary about organic growth in that business?

The market really isn't growing in Residential Property Management. There has been no new development to speak of for the last couple of years. So, the growth has slowed, and it becomes a marketshare gain. We are certainly winning new contracts, particularly larger associations and high-rise, more complex properties where we bring a competitive advantage.

But, it's also become a very, very competitive market, and we are losing contracts at the same time, primarily due to price, and they tend to be smaller contracts. So, we continue to grow. You saw 1% this quarter. We expect organically 1%. Next quarter, we expect similar results. But, until the market starts to grow again, it will not increase significantly.

Any change in the tone of conversations with some of your subsidiaries about the option to put back the remaining ownership to you or for you guys to [purge] that remaining ownership, just given the health or relative lack of health in some of these business segments that you guys have? Or is it just kind of business as usual with the manager and the run of those businesses these days?

You will recall 18 months ago, we had a larger number of minority shareholders all in the Commercial Real Estate segment wanting to monetize some of their investment. The way our deals are all structured, as you know, Brandon, you can only put one-third of your equity to us at any given time.

But, generally speaking, our business other than Commercial Real Estate, are so recurring and they have grown year over year, and they are such cash flow-generating businesses, share value consistently grows year after year. So unless somebody needs additional capital to do something, their best investment is to leave it right here in their operating business.

It's very interesting to note that we've had multiple calls from others in our Commercial Real Estate space looking for opportunities to increase their equity stake in Commercial Real Estate, which may send some messages to us all that things seem to be changing. But, I would say that the ownership of the various businesses will remain pretty much the way they are unless we take some alternate steps. But, I would say it will remain the same.

Okay, fair enough. And then I want to go back to the broker commission split question for a second. I understand that there's a kind of year -- through the year increase based on volumes and multipliers. But, is there a structural change in those splits? So at -- as the cycle improves, do you see the top level of those splits go up? Has it changed? With the rebranding efforts and the consolidation efforts, do you see any major changes in how you are paying a majority of the brokers, especially here in the US, but also in Europe?

No, there's no structural change. All our deals, particularly with all the new recruits, are consistent. And they cap at a certain level. There are some legacy deals that remain at higher levels, but I think when the market comes back, we will see our commission expense will be lower than it was in 2007, for example. So, we are managing it down. And there is no structural changes in the market increases.

Okay. And the final question, within Colliers, is the kind of consolidation of the branding effort, do you think that's a necessary condition for you guys to have in place before you take a look at the investment management business, maybe a bigger stake or a bigger presence in property management? Or do you think you can explore those opportunities, either through acquisition or through recruiting, without having all the Colliers Brands kind of all squared away kind of mid next year?

Well, you are saying a lot of things and I agree with each one of them. The branding is critical. It's had a huge -- it's made a huge difference to us in terms of recruiting and new client wins. We think it will continue to do that. It's also helped us with acquisition opportunities.

There is some licensing in some secondary markets which would love to be owned operations as opposed to license operations. And, so, we think that from the standpoint of having a stronger, more consistent brand, we win on all those areas.

Property Management is core to what we do. If you look at property management FirstService wide, we probably do pretty close to $1 billion in property management, which is more recurring than most of our peers, and, if you add both our resi and our commercial management operations together. So, we understand property management.

We think having a stronger brand is accelerating the growth on the commercial side of our property management, notwithstanding the comments earlier on the resi side. So, I think that's a benefit.

Investment management is an interesting area of discussion. It's strategic. It's something that we talk about all the time. The reality is, our clients don't want us to be in asset management. They see it as a massive conflict. And it is, frankly, a conflict, and it could mean a conflict that could be managed, but it's a conflict notwithstanding. In our current thinking, although we are always looking at strategic options, our current thinking is that's one of the differentiators of Colliers versus its peers. It is not in the investment business. It is not going to be a competitor to our clients. And, I think that's a differentiator that the more we communicate to our potential clients, will translate into additional opportunities for us.

Okay, fair enough. Thanks, guys.

Sara O'Brien, RBC Capital Markets.

Just wondered, Scott, maybe if you can talk on the Commercial Real Estate platform, what are your expectations for growth going forward? I know it's a little early to talk about F'11, but I guess my sense was you guys were still a little bit cautious going into the next year. Wonder how that plays out in terms of your acquisition appetite going forward from here.

Well I won't comment on acquisitions; I will let Jay do that. But I think that we have positive trends in most of our regions. We are waiting for Central and Eastern Europe to match some of the growth we are seeing in our other regions. But we would expect that to continue into 2011. But, I think we would expect the level of growth to be much more modest than we are seeing this year.

Okay. Perfect.

Which still translates into we are quite -- or it's early days, but 2011 should be a much better year overall in Commercial Real Estate than 2010. At least that's our hope.

And in terms of acquisitions, look, our leverage ratios are extremely low. We are ready, willing and able to find the right opportunity. We have always operated on a one step at a time kind of philosophy. And so, there's lots of activity out there. And, we will capitalize when the time is right. In the meantime, we will use our cash flow to continue to pay down our debt as John indicated. And, having leverage ratios in the low 1's are pretty low. So, we are quite excited about having the capital and strength to capitalize if there's the right opportunity there.

Okay, great. And then just a couple of small nitpicky ones. But tax rate, it's been in sort of the high 40's the past couple of quarters. I guess when we take out the valuation allowance, it's down to about 21%. What do you guys use or what should we use in our models for kind of a regular or normalized tax rate going forward?

Probably about 28% -- 28% to 30%. I wish we could put a finer point on it, but that range would be consistent with where we see it this year and going forward.

Okay, great. And then one last one, just on property management, I'm not sure if you addressed it, but the 100 basis point lift in margin, any reason for that? Is that national accounts or what gave you the lift in this quarter? And is it sustainable?

It wasn't quite 100. It was 60, but it was good to see. Just a little mix; some of the landscaping business that we are losing, frankly, is low margin and, provides some favorable mix change. And, we do continue to expand our collection business, which is a higher-margin business for us.

Okay. Great. Thanks a lot.

Stephanie Price, CIBC.

Good morning. You announced a major corporate Real Estate services contract at the end of July with a restaurant chain. Could you kind of talk about why Colliers was chosen and who you were competing against and what you are seeing in that market?

Oh boy, Stephanie, why do you have to talk about that restaurant chain?

I didn't name it by name.

Can we talk about AT Kearney? Can we talk about (multiple speakers)? Can we talk about some of the thought leaders that we've been successful winning over the past couple of quarters? No, we have to talk about Hooters.

Actually, it's -- I'm demeaning it a little bit only because it creates a laugh for people, but, Hooters is growing exponentially outside of the US. It's creating great opportunities for us in markets that really value US brands. Happens to be a subject matter that is always appealing to at least half of the population out there. So, we are excited about winning that business, and we are excited about working with the Hooters people who are very aggressively trying to grow their business.

And can you give us sort of an indication of who you are competing against or why Colliers was chosen?

Well, I think it was chosen primarily because when you look at the global footprint of Colliers, and you compare it to others, we have consistently stronger operations in some of the markets where Hooters wants to go to. Asia, extremely strong in so many Asian markets. And Eastern Europe and southeastern Europe also, and having a presence there, dots on the map, have made a big difference I think in the selection of us versus others.

Okay. And moving onto Residential Property Management, in terms of the national accounts part of it, is there any process cross-sell opportunities between that and FAS?

There is cross opportunities between that and FAS. And the -- it's not material in the overall scheme of things, but, what FAS does for our properties that we rent on behalf of the banks is it does some of the Field services. So it will do, through its contractor network, it will do some of the landscaping. It will do some of the swimming pool service, and inspections to some degree as well on a monthly basis.

So, there is some crossover of revenue. And, it's been very helpful I think to the property management guys having feet on the street in so many markets and so many independent contractors through FAS that we can call on to get the job done.

And just sticking on the Residential Property Management, I noticed that Grubb & Ellis announced they also are putting forward a national residential property management offering. Can you kind of talk about the impact on FAS and maybe a bit broadly to Brandon's question just on competition in the market?

I'm sorry, I didn't hear all of that. Could you give me that question again?

No problem. So Grub & Ellis announced a national residential property management offering during Q3. And, I'm just wondering about the impact on FirstService, and also just more broadly competition in that market.

Well, we are the market leader in that space. It's nice to see that they have decided that residential property management is a good area for them to pursue.

Their focus from our perspective -- from what we understand is more on the rental apartment side of the business, which we do also, but I think theirs is an initiative focused primarily on managing and renting apartments for institutions.

Okay. Great. Thank you very much.

Stephen MacLeod, BMO Capital Markets.

Thanks. I just wanted to clarify one thing. John, when you were talking about the tax rate, you mentioned 28% to 30%. So is that a normalized tax rate excluding the deferred tax valuation allowance?

Yes, that's right.

Okay. And what is your outlook for the deferred tax valuation allowance going forward?

Well, our effort is to get rid of that thing, obviously, and utilize these losses. And once we have sustainable taxable income, which isn't always the same as accounting income, but when we have sustainable taxable income, we will be in a position to utilize the losses, and then also to remove this allowance. So that's something that is out there. Whether or not it's 2011 or into 2012 we don't know, but certainly if Colliers continues to deliver and participate in this recovery, we would expect to be able to utilize and get rid of that in 2011 or probably 2012.

Okay. And until that time, what kind of number do you look at on a yearly or quarterly basis? Or does it just bounce around?

It's just going to -- it will bounce around. I wish there was more certainty around this, but it's a relatively complex exercise, especially with all the moving parts here. And, it's going to probably range say closer to 40% would be kind of the number that we would expect, but it could move plus or minus that.

So that's a 40% tax rate you mean.

Yes, without getting the benefit of these tax loss carry forwards.

Right. Okay and then just one final question, the non-controlling interest share of earnings, how do you sort of see that moving around going forward?

Well, we tend to use the 20% to 22%, in that range. I think that's good for now unless there's any dramatic change to the NCI component in our businesses. Jay I think addressed that earlier. We don't expect there to be any, but, you know, you never know. But for now, the 20%, 22% is probably a good number.

Okay, great. Thank you.

Damir Gunja, TD Securities.

Thanks very much. Just on the FAS, assuming I guess in early 2011, you have a nice return to higher activity levels, is there an opportunity there to perhaps expand margins? Or should we be expecting sort of a consistent experience as you have had in recent quarters?

Our expectation is that the margins that we have earned in the last three quarters are the margins that we expect longer term.

Okay. Thanks very much.

Thank you. There are no further questions at this time.

Okay, ladies and gentlemen, thanks for joining us on this conference call. We look forward to having you join us again on our fourth quarter. Thank you.

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.