Colliers International Group Inc (CIGI) 2012 Q1 法說會逐字稿

Welcome to the FirstService Corporation's quarterly earnings conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ in those forward-looking statements is contained in the Company's Annual Information Form as filed with the Canadian securities administrators and in the Company's annual report on Form 40-F as filed with the US Securities and Exchange Commission.

As a reminder, today's call is being recorded. Today is Tuesday, April 24, 2012, and at this time for opening remarks and introductions, I would like to turn over the call to Founder and Chief Executive Officer, Mr. Jay Hennick. Go ahead, sir.

Thank you, operator. Good morning, everyone, and thanks for joining us for today's conference call.

With me is Scott Patterson, President and Chief Operating Officer, and John Friedrichsen, Senior Vice President and CFO. This morning FirstService reported mixed results for the seasonally slow first quarter, although we remain confident that we are on track to generate solid revenue, EBITDA and earnings per share growth for the full year. Revenues at Colliers were nicely overall with very strong performance in the US where revenues were up almost 25% as we begun to realize the benefits of our investment in recruiting and corporate solutions over the past 18 months.

Colliers International is one of the top brands in global real estate services. In the 2012 annual survey conducted by Lipsey & Company, Colliers was ranked the second most recognized real estate brand in the world for the eight consecutive year, and Euromoney Magazine rated it the fastest-growing commercial real estate firm in the world. These and other third-party acknowledgments demonstrate the excellent momentum we have built in this rapidly growing segment of our Company.

Owning a highly regarded and globally recognized brand name like Colliers International is a valuable asset, one that will become more valuable as we continue to execute on our plan to create value for our shareholders.

FirstService residential again contributed solid revenue and EBITDA growth, while continuing to advance its position as North America's largest manager of multifamily residential communities. Over the last two years, FirstService Residential Management has expanded aggressively in the US and in Canada and has continued to build its market share by delivering highly differentiated services, including those that leverage the combined purchasing power of our customer base.

And finally, in Property Services, although our FirstService Brands' franchise operations achieved solid results for their seasonally slow first quarter, revenue and EBITDA in Property Services declined significantly as volumes at our Field Asset Services, our distressed asset management operations, came in below prior-year levels and below expectations, but generally in line with the overall decline in foreclosure repossessions in the US.

As one of the leading players in the industry, we are obviously very affected by how the foreclosure repossessions numbers flow stateside. Scott and John will have much more to say about this and other things in their operational and financial reports in just a few minutes.

Late in the quarter, we announced a very important acquisition, the addition of Colliers International operations in the UK, Ireland and Spain. In total we added 14 offices and more than 700 employees and a business that generated more than $100 million in revenues last year. This acquisition more than doubles the revenues we generate from Company-owned operations in Europe, and more importantly it provides us with a solid platform in the UK from which to build. London is one of the world's most important financial centers and is obviously a very key center for real estate services. Now that Colliers UK is owned by FirstService, it has the financial clout and global reach to attract top clients that require specialized real estate services that can be delivered both locally and globally.

And from a FirstService perspective, this acquisition demonstrates once again our disciplined approach to growth, prudently allocating our capital when the opportunity is right. Our Colliers team is very excited about the potential for this new business. They are hard at work integrating operations into our global footprint, eliminating overlap with our other operations in Europe and introducing our spirit of enterprise and way of doing business to our new team.

In summary, even though the seasonally slow first quarter came in below expectations, the early growth at Colliers, FirstService Residential and FirstService Brands is very encouraging and gives us an excellent start for the year. We are all confident that FirstService is on track to generate solid year-over-year revenue, EBITDA and earnings growth for the full fiscal year.

Now let me ask John to take you through the financial details for the quarter. Scott will then provide his operational report, and then we will open up the call to questions. John?

Thank you, Jay. As announced earlier this morning and noted by Jay in his opening remarks, FirstService reported financial results which were mixed but overall below expectations in our first quarter of 2012.

Consistent with our first quarter in each of the last two years, Colliers International, our commercial real estate operation, was the main driver of growth in our consolidated revenues, while our Property Services division reported a significant decline in its results with Field Asset Services down sharply, more than offsetting from FirstService brands in its seasonally weak first quarter. Scott will have more to say on this in a few minutes after I address our overall consolidated financial results for the quarter and then provide comments on our capital usage and balance sheet.

For the first quarter of fiscal 2012, consolidated revenues increased to $490 million, up 2% from $478 million in the first quarter of last year. This growth was attributable to acquisitions while internal growth was flat for the quarter, and there was no impact to foreign exchange. Adjusted EBITDA came in at $10.8 million, down significantly compared to $22.6 million reported in Q1 of last year, and adjusted earnings per share came in at a loss of $0.10 per share compared to the $0.14 per share profit reported in the first quarter last year.

Our adjustments to GAAP EPS and arriving at adjusted earnings per share are fully disclosed in our press release issued this morning and include adjustments that have been outlined in the past. Of note, we recorded acquisition-related charges totaling $6.5 million relating to acquisitions completed in our commercial real estate operations, and that equated to $0.21 per share, most of which relates to the Colliers UK acquisition completed just prior to the end of the first quarter.

Turning to our cash flow and investing activities during the first quarter, cash flow from operations before working capital changes decreased to a negative $4.5 million, down from a positive $13 million of cash flow in Q1 last year. Inclusive of working capital changes, cash flow from operations was negative $54.3 million compared to negative $49.2 million last year in our seasonally weak first quarter.

During the quarter, we invested $12.7 million in acquisition activities, all of which was attributable to Colliers UK. This compared to $1.2 million invested in two small acquisitions completed in Q1 last year. Meanwhile, our capital expenditures amounted to $6.9 million in Q1 compared to $5.3 million last year.

Turning to our balance sheet, our net debt position stood at about $381 million at the end of the quarter compared to $296 million at our December 31 year-end with the increase primarily attributable to the working capital usage and capital investment noted previously. Our leverage ratio expressed as net debt to EBITDA stood at 2.6 times up from 1.8 times at year-end. Though elevated from levels we have reported during the last several years, it remains well below our maximum financial covenant of 3.5 times.

Furthermore, assuming the conversion of our $77 million of convertible debentures into common shares, our pro forma leverage was just over 2 times at the end of the first quarter.

In terms of our financial capacity, with cash on hand and committed availability under our revolver, we have about $150 million of liquidity, a level ample to fund our operations and make investments that will deliver long-term returns to our shareholders.

Now over to Scott for the operational highlights. Scott?

Thank you, John, and good morning. Let me start my divisional review with Commercial Real Estate where revenues for the quarter were $213.3 million, up 9% from the first quarter of 2011. Divisional growth in the quarter was almost entirely due to growth in our Americas region and more specifically strong year-over-year performance from our US business. Revenues from our AsiaPac and Central and Eastern Europe regions were approximately flat year over year. By service line, our growth was driven by a 9% increase in investment sales, a 13% increase in leasing and a 13% increase in appraisal revenues. Other revenues, including property management and project management, were on balance flat year over year.

Taking a closer look at our Americas region, revenues were up 12%, driven by very strong 25% growth in the US, tempered by slight revenue declines in Canada and flat year-over-year results in Latin America.

In the US we generated solid gains across the country, especially from our major markets, and in particular Chicago, Los Angeles and San Francisco. Results in the US were also buoyed by the continued momentum of our Corporate Solutions group.

The strong growth in our US brokerage operations of 30% plus in both investment sales and leasing is especially gratifying in a market that was at best flat in Q1 compared to the prior year in terms of total transaction volumes and absorption. Our market share gains in the quarter are primarily the result of the successful and opportunistic recruiting campaign we undertook over the last 18 months and strong traction in our Corporate Solutions business. We are now starting to see the returns in our investment in both of these areas.

In Canada brokerage revenues, both sales and leasing, were down slightly from a very strong first quarter of 2011, which was up by 30% over 2010. In Latin America total revenues were flat versus the prior year with double-digit increases in property management, offset by declines in brokerage, again off a very tough 2011 comparative. We generated a low single-digit margin in the Americas during the seasonally weak quarter, down approximately 100 basis points from the prior year, primarily as a result of the decline in the higher-margin brokerage revenues in Canada and Latin America. The US business improved to a breakeven result from a loss in the prior year quarter.

Our pipelines at quarter-end across the Americas were healthy, and we expect to show continued solid year-over-year revenue gains for the balance of the year led by our US operations. And Canada and Latin America are expected to bounce back from soft first quarters, which will help secure solid year-over-year margin improvement for the region, beginning in the second quarter.

In our AsiaPac region, revenues were up marginally, the result of a mid-single-digit increase in Australia, offset in part by a 10% decline in our China operation. Our other major operations in the region including New Zealand, Hong Kong, India and Singapore were on balance, approximately flat year over year. Across the region, leasing, property management and appraisal were all up approximately 10%, while sales commissions were down by a like amount.

For the quarter in AsiaPac, we generated a mid-single-digit margin, down approximately 200 basis points from the prior year, due primarily to reduced margins in China and India, two countries where we have invested over the last six months in building out the property and project management infrastructure and opening new offices, including a just opened fully staffed office in Shenzhen, China. These costs have diluted the total margin in the region and have a larger impact in the seasonally weak first quarter for the higher-margin brokerage operation.

Looking forward in AsiaPac, we are expecting similar results for the balance of the year, single-digit growth driven by solid results out of Australia but tempered by flat to down numbers from our China operations. We believe our margins will improve beginning in the second quarter and will be flat to slightly up for the year as compared to 2011.

In our Europe region, revenues were flat with strong growth in Poland, offset by weak year-over-year results in Russia. The balance of our operations in Central and Eastern Europe were on balance flat year over year. The acquisition of Colliers UK occurred at the end of the quarter. We incurred negative EBITDA of $2.2 million for the quarter compared to a breakeven result in the prior year. The loss is largely due to the weak quarter in Russia. Revenues were off by 20% due to a market slowdown in the lead up to the general election in that country, and with a largely fixed compensation scheme, the revenue decline significantly impacted the bottom line.

Looking forward for our legacy Europe business, although there remains a high level of uncertainty in the region, activity levels and pipelines are moderate to healthy, and we expect to post approximately flat year-over-year results for the balance of the year. Incorporated in this is the expectation that Russia will report solidly profitable results through year-end.

The second quarter will be our first reporting quarter consolidating the results of our new UK Colliers operation. In 2011 this business generated approximately $100 million in revenues, but incurred negative EBITDA of $9 million. Over the last six months, headcount and cost structure have been reduced significantly, and this restructuring effort has continued into the second quarter under our ownership.

The total headcount has been reduced by 15%, including a 10% reduction in the number of producers, some terminated, some leaving on their own. A reasonable view of revenues for the balance of 2012 would be the 2011 level annualized for the nine-month period and impacted pro rata for the reduction in the number of producers.

In terms of the bottom line for 2012, our goal is to generate a modest EBITDA from this business operationally after adjusting for one-time severance costs and investments in recruiting. Before adjustment, we expect to report a small loss.

In summary for our Commercial Real Estate division, we reported a solid top line in the first quarter but a lower-than-expected margin. Looking to the balance of the year, we are quite optimistic that we will report robust year-over-year comparisons for both revenue and EBITDA.

Looking at Residential Property Management, revenues were $191.9 million for the quarter, up 14% over the prior year, half organic and half resulting from the five acquisitions completed over the last 12 months. The organic growth in the quarter is driven by new contract wins and increases in management fee revenue supported by related increases in ancillary fee revenue, including transfer and disclosure fees, collections and other. The gains were spread evenly across North America.

Our EBITDA margin in the quarter was 6.3%, down 50 basis points from the prior year quarter and flat sequentially relative to the December quarter. The margin decline was due to certain acquisition integration costs and continuing price compression, primarily in Florida and Las Vegas.

Looking forward in Residential Property Management, we expect to continue to show solid year-over-year revenue gains through year-end with improving margin comparisons as the year progresses.

In our Property Services division, which comprises Field Asset Services and our franchise brands, revenues were $84.8 million, down 25% from the prior year, as a result of dramatic volume and revenue declines at FAS. FAS revenues were down 34% from the prior year quarter and 22% sequentially compared to the December quarter.

As we indicated in our third- and fourth-quarter calls, foreclosure activity was down significantly in 2011 compared to 2010. Property repossessions by mortgage lenders were down 28% in 2011. As a reminder, FAS generates revenue once a property is repossessed and vacant. We are currently managing each property for an average of 11 months prior to resale. So during 2011, we were servicing a much higher level of repossessed properties from 2010. The steep decline in 2011 repossessions is hitting our revenues now.

FAS REO volume declines were largely in line with the market volume declines, but were compounded somewhat by the termination of one customer contract. There is intense pricing pressure in the market currently. Reduced foreclosure volumes have resulted in servicing over capacity.

In addition, mortgage lenders and servicers are looking for ways to minimize preservation costs, while at the same time driving to maintain our REO properties to a higher standard. This pricing pressure, scope creep and overcapacity created a very competitive environment around renewals and have also impacted our margins.

On the positive side, FAS has recently renewed contracts with its largest customers and has also won several smaller contracts that will start to impact revenues over the next six months.

Looking forward for FAS, we expect similar volume and revenue levels for the next couple of quarters. The first quarter has seen an increase in first-time default notices, the initial step in their foreclosure process, but the time between this initial step and actual repossession is now generally between 18 months and two years. It is widely expected that this timeline will compress, but realistically the uptick in first-time default notices will not benefit FAS until the fourth quarter at the earliest. It is, however, a positive indicator that mortgage lenders are finally starting to move the shadow inventory through the foreclosure pipeline. The number of mortgages in default or some stage of foreclosure is close to 6 million, and the good news for FAS is that this represents multiple years of inventory at the strong 2010 repossession volume levels. Most observers believe that volumes will begin to pick up later in 2012 and sustain for several years.

Turning to our franchise systems, revenues were up 8% organically versus the prior year, continuing a trend of five consecutive quarters of solid high single digit growth. This growth has been in the face of flat to down consumer confidence trends over the same period.

Growth in the quarter was driven by strong results at CertaPro Painters and California Closets and tempered by flat year-over-year results at Paul Davis Restoration. The mild winter temperatures and lack of snow has benefited CertaPro Painters and other of the franchise businesses with an early start to the production season, but it has negatively impacted Paul Davis, which normally drives substantial restoration work for normal course of winter damage.

Looking forward, we expect more of the same for our franchise businesses. We are very encouraged across all the systems by year-over-year increases in leads and average job size, and we see high single-digit growth or better continuing through the end of the year.

The overall margin in Property Services for the quarter was 3.4%, down from 9.8% in the prior year, entirely due to margin contraction at Field Asset Services. The seasonal loss across our franchise systems was in line with expectation in prior years. The margin decline at FAS was the result of significantly reduced revenues and operative leverage and increases in the scope of services required by its major customers relative to the prior year. While FAS has taken aggressive steps to reduce its cost structure coming into 2012, further action was taken during the first quarter to align costs with revenues and efforts continue. With the current customer and revenue mix and at current volume levels, a go forward margin expectation for FAS is in the high single-digit range.

I would now ask the operator to open the line to questions.

(Operator Instructions). Frederic Bastien, Raymond James Canada.

We have seen a gradual small gradual erosion in the RPM margins in the past couple of years. Is this the new norm that we should expect going forward, or should we actually anticipate margins to recover to historical norms?

Margins are certainly down, primarily from pricing pressure over the last two to three years. There is very little development to speak of, and our clients are often cash constrained.

Renewals, we are succeeding in renewing our clients. Our retention rate is high, but we are getting very little in the way of price increase while our costs continue to increase.

So to answer your question, our margins will -- we believe they will start to increase, but it will be slow and gradual, and it is unclear whether we will get back to our historicals for a 9.5% to 10% range. It will be a few years.

Okay. Thanks for that clarification. Turning to, I guess, Colliers, you highlighted in the press release two reasons for sort of the softness, one coming from the revenue mix and the other one connected with further investments in the new offices and the like. I'm wondering what impact these two items would have had on your margin in the quarter.

Well, our margin in the Americas I indicated was down 100 basis points, and that was primarily due to mix. We have a mature high-margin business in Canada. In our brokerage operations in Canada, we have a reduction in revenue. We had a very, very strong quarter in 2011. So that was the primary reason for the reduction in the Americas. Our US revenues were up, but I think, as we have indicated before, on average we have a higher compensation cost in the US, higher broker splits, and the operating leverage is not the same as we enjoy in Canada or Latin America for that matter.

The new offices in Asia and the investment in our property -- project management business was not material, but it did dilute our margin in the region. We expect that as the year continues, that will -- the impact of that, and as revenues build in those business, the impact of that will be negligible.

Okay. Maybe I can re-word it, would you have broken even on an EBITDA basis at Colliers had it not been for those two items? You lost $2 million in EBITDA.

Yes, or better. Yes, absolutely.

All right. Last one, what kind of changes can you now affect to Colliers CRE now that you have full control of it? I mean obviously it sounds like you did not have much control when you have your initial investments. Now the game has obviously changed.

Yes, I mean the UK acquisition is obviously very exciting. It is something that we have been working on for a long period of time. We had virtually no control before. We had two seats on the Board, and it was a small public company that should not have been public and run in a way that is, I think it is fair to say, a little bit old-school.

And so we are incredibly excited about the opportunity. We think we bought it at the right time, and it gives us the ability to go to market with a clear vision about a significantly large global business backed by a significant public company with lots of depth and financial clout, which is important when you are pitching major clients in an attempt to win large business.

It also has a big impact on the types of professionals that would be attracted to a platform like this.

I guess finally and maybe most importantly, London is such a driver market. It is very similar to New York. So the opportunity to drive Corporate Services, which the previous platform really did not have and really win clients in London for fulfillment of real estate services across Europe and around the world, was just nonexistent before.

So we are knee-deep in integrating those operations and building out one or two additional service lines. So, as John and Scott indicated, we don't expect much contribution for the current year, but I think over the next two or three years we will find this to be a very significant move for FirstService and for Colliers.

Stephen MacLeod, BMO Capital Markets.

Just on the FAS side of the business, Scott, you mentioned that you have taken some action continuing into the first quarter about aligning costs with revenues. At the AGM last week, you talked a little bit about some revenue diversification opportunities, and we also talked about this on the last call. Can you just get give a sense as to whether those revenue diversification opportunities are near-term, or is it a longer-term opportunity to leverage all those costs?

Well, I think you are referring to the REO to rental?

Yes.

And just for other folks on the call, there is currently a high level of activity and momentum around the bulk sale of REO properties for rental. Fannie Mae, Freddie Mac, the large banks, they are all looking at completing bulk sales on the receiving end. There are at least a dozen high-profile investment funds that are reviewing bulk acquisition.

Separately, Bank of America announced an initiative to convert mortgages in default into leases, so the occupants can remain in their homes. So there is lots of activity, and it is all very beneficial for FirstService. With our combination of Residential Property Management and distressed asset preservation, we are in a strong position to service these rental properties.

We have not secured any contracts as yet. We expect that there will be several pilots in 2012 that we will participate in, and we think that this opportunity, the larger opportunity, is 2013 and beyond. As rental portfolios start to build, the outlook I gave you for revenues at FAS to continue at first-quarter levels does not include anything from the REO to rental initiative, but we are optimistic and hopeful that it will impact this year.

Okay. So you think there might be some opportunity towards the late end of 2012?

Perhaps.

And is that typically a lower margin business, or do you expect it to be a lower margin business?

It will be in line, we expect, with the FAS margin indication that I gave, so a high single-digit area.

I would not mind adding a few things to that, Scott, if you don't mind. This initiative of converting foreclosed properties to rental is something that we have all been reading about for the past 12 months, and it has really accelerated, I would say, in the last eight months, maybe six months. It could be a very significant opportunity for us if we are successful in winning some of the portfolios. And, as Scott said, we are in a unique position because not only can we preserve these properties and manage them in a certain way, we also have the ability and feet on the street in virtually every market in the US to manage the whole rental process, which, on a management basis, will be a long-term management contract.

So in all the discussions that we have participated in with Fannie Mae and Freddie Mac, these are going to be five-year management contracts. But also importantly, before any contract is -- before any house is turned over to a lease, it needs to be upgraded in accordance with industry code, and that is something that FAS does exceptionally well.

And so as soon as Fannie Mae puts or allocates their first portfolio, which is in the market now, we will start to see hopefully some of the results of that. But it is a little bit of a balancing act in terms of staffing FAS because, if this opens up, it could be significant, and as Scott says, we estimate it is around the same margin levels as we are generating today. And that is one opportunity.

And the other is, as we get through the election here in the US, we think that this huge inventory or shadow inventory will start coming through the system, and we have to be ready for that to serve our clients.

So we are in a very interesting position. That is one of the great things at FirstService I would say. Field assets participated very well in the early days and really shored up some of our other divisions, particularly Commercial Real Estate, that was not as strong, and now it's a little weak for the present time. But it will come back, and we have got some interesting irons in the fire. We are quite excited about it, but one step at a time.

Okay. And actually along those lines, you mentioned the staffing requirements at FAS. Are you able to, if the foreclosure inventory starts to make its way through the process, is it easy enough to find the contractors that you need to basically meet the demand?

Yes, we believe so.

Will Marks, JMP Securities.

I guess the first question I had, on the UK acquisition, so because it closed by the end of the quarter, I'm wondering how much on the balance sheet; how much did you spend of the $22 million?

It was $12 million we spent to date.

And when should we expect the remaining $10 million?

It will be spent on a measured basis go forward. I mean there is no defined timeframe. Obviously there will the cost to right-size, to recruit, etc., and that will be this year and perhaps in the next.

Okay. But the big large lump sum is already on the balance sheet?

Yes.

Okay. And looking at the big picture, where are you now in terms of control or not control, but ownership of Colliers, the whole network's revenues and offices?

Well, we represent about 90% of Colliers' global revenues, and we own something like 75%, 73% to 75% of the holdco of the brand. As you know well, the brand is held in one single company, and every other country is owned individually by the participants. But FirstService represents about 90% of the revenues globally and 75%, say, of the ownership of the Company that owns the Colliers brand.

And then just my other question, a clarification. So when you were given some trends of Commercial Real Estate services, I believe you said sales and leasing in the Americas or maybe US were up 30%, both lines, is that correct?

Yes.

Sorry, but that was in the US?

Yes.

Okay. And I know it seemed like really strong numbers versus what we have been hearing from just not other players necessarily, but just the industry in general. Do you see any slowing? How much of that was from market share gains? I know you cannot give exact the years but thoughts?

Well, I mean our research shows that the market in total was flat. So it is essentially all market share gains, and in my prepared comments, I really spoke about two areas in particular. One is the recruiting. We have brought on some exceptional high-volume brokers over the last 18 months, and our average productivity -- it is driving our average productivity up. And then the other piece is our Corporate Solutions group, which has gradually gained momentum over the last couple of years and contributed significantly during the quarter.

(multiple speakers). I was going to say the dislocation in the marketplace, as we all know, has been a real benefit for us. Colliers has tried to stay under the radar screen, but be very aggressive in its both recruiting efforts and its development of its Corporate Solution practice, and we have been, we believe, the biggest beneficiary of all the dislocation.

Valerie Blume, RBC Capital Markets.

I think most of my questions have been answered, but I just have a few follow-ups just for Colliers. So are you done investing in the buildout of services in AsiaPac, or do we have more to see of that in the coming quarters?

There will be more, but it is not something that should be noticeable in the results. It is the offices that were opened are now open. There are no plans to open additional offices in 2012.

Okay. So no further expansion plans into other geographies?

No.

Okay. Just on the residential, you said you expect improving margins as the year progresses. Is this beginning in Q2, or how do you see that trending?

It will be more obvious in Q3 and Q4 -- (multiple speakers)

Just on a year-over-year basis? Is that what you mean?

Yes.

Okay. Thanks. And then just on FAS, I know volumes were down in the quarter in line with the market, but you also said there was some -- loss of a major contract. Are there any other major contracts up for renewal this year that we should know about?

I did not say it was a major contract.

Oh, sorry.

But it did contribute to our year-over-year decline in the quarter. And no, our largest customers, we have they are all under contract through much of 2013. So we don't have any business at risk currently certainly that we are aware of. And we have been successful in signing new business, new contracts, and we expect that that will gradually start to be additive as we get into the third and fourth quarter.

Okay. And just also on FAS, I know the metrics to look at are like bank repossessions, but should we be concentrating on certain states versus other ones, or are you more widely spread across states?

There is a big difference between judicial states and non-judicial states in terms of the timing. But we are spread across both, so there is no real clarity that I can offer you.

Stephanie Price, CIBC World Markets.

In terms of the Corporate Services, we have chatted about that quite a bit on the call. Could you let us know how much the revenue cost you saw in that business in the US year over year?

I don't think we have that number.

I don't have that number close.

We can get it, but we don't have it.

We have not broken out our Corporate Solutions separately in the past, but it was a -- looking at it, it grew and it grew materially, and on a flat market, it was material for us.

Okay. And sticking with Colliers US, you talked a bit about the margins that we should see going forward. What do you need to get margins to a Canada and Latin America level in the brokerage business?

I missed that last part.

So Colliers US, what do you need to get margins to a Canada/Latin America level? What do you need to see besides volumes improving?

Structurally that is going to be very difficult certainly in the near-term. The compensation schemes, the split levels, are at a -- simply at a different level. And, as well, we have in Canada and in Latin America also, we have fewer offices that are deep and have significant operating leverage.

In the US we are spread across a greater geography. Our offices are not as mature. They are not as deep. So it is a building process in the US. We will be in the mid-single-digit range margin-wise this year, and we will look to improve that every year and drive that to the 10% level.

Okay. So it is a multiyear process?

Right.

Okay. And in terms of Property Services, could you remind us in FAS how much of your cost base is fixed versus variable?

I don't have that specifically, but we are talking based on the current margins and current cost base probably 15% to 20% would be the number.

In terms of fixed?

No, in terms of the variable.

Okay.

No, it is fixed.

Sorry, that is fixed. I had it backwards.

No worries. And then in terms of your net debt level, it crept up a bit this quarter. Can you talk about your comfort with current levels or were you expect the leverage ratio to net out?

Well, it should naturally de-leverage. We are in a range what we have been before. As I said in my comments, we have not been at 2.5 times for a few years. But based on expected performance this year, our cash flow generation, factoring in the capital expenditures, etc., we would naturally deleverage from where we are today down to around 2 times by the end of the year. So (multiple speakers)

And you are comfortable with that level?

Yes, so we are comfortable with where we are.

David Gold, Sidoti & Co.

Just really a quick one. At the end of the day on field asset, what can you do there by way of maybe winning costs a little bit, obviously being conscious of the fact that I think from where we sit, there is a good shot that that business picks back up later in the year, and you want to be positioned for it.

The margin is under pressure and being compressed really driven by the market and our customers. We are looking to align costs with revenues, but really our main focus is on the top line, supporting this team as we explore new opportunities, and ensure that we are in a good position for the REO to rental initiative and ensure that we are in an optimal position to win new business and be nimble enough to respond to volume increases in the market. So we are sensitive to the cost structure, but certainly for the balance of this year, our focus is going to be on the top line.

All right and then -- sorry, one other. When you think about Colliers and you have done a good job of building it out, and obviously the UK adds another element of late. Going forward from a "buildout perspective," still opening offices in Asia Pacific, between AsiaPac and US, where do you put the most attention by way of growth investment, let's say, for 2012?

I think Scott's point on Asia is, that he made earlier, is right, we are done in Asia in terms of new offices for the next period of time. There was one or two offices we had to add and/or service lines to service clients there, and that is largely behind us.

The US we are spending a lot of time focusing on the US. Although margins there will not reach the margins we are enjoying in some of the other markets, there is huge opportunity for us, which adds huge EBITDA to us, and by focusing our efforts in the US, we think that we are going to bring up the overall margin of our business significantly.

And lastly, the UK acquisition really did open up a whole new world for us. We had a business that was largely in hard places, and adding the UK business was very significant. And perhaps there will be one or two other moves that we will make there in the coming year, 18 months, that will strengthen that platform even further.

We like the fact that that market is under distress right now, and it could create an opportunity for us to make another move when the timing is right. But we are going to be very prudent in the way we did it as we did in the UK, and so we are feeling actually very bullish about Colliers across the board.

Brandon Dobell, William Blair & Co.

I will not take up the last nine minutes. I will try to keep it short. So one quick one on FAS.

I would imagine you have got some internal idea of what market expectations would be and then how that relates to what your revenue in FAS will be. Do you expect to take share? Do you think you can take share if you are right-sizing the business, i.e. can you get new clients as you are trying to get that stuff squared away? How should we think about the interplay between your internal efforts versus what the market is going through?

Well, I think absent the REO to rental initiative, the share is probably stable, I would say. But we do expect to be a significant player in the REO to rental world, and effectively that enables us to manage a property from the current 11 months and takes it out to, as Jay indicated, up to five years. And, in addition, we would be getting many of the properties that are being preserved by other services perhaps as they go to -- as portfolios build. Not everyone is capable of participating in this market.

Right. Have you already had initial discussions with some of the big commercial banks that led you to believe that that scenario plays out in your favor, or is it still too early with those kind of discussions?

We have been involved in discussions for months now, but with not necessarily the banks, but rather the acquirers, which will be large investment funds.

Okay. Turning to Colliers for a second, it feels like from your commentary that you are pleased at least thus far with retention of the Colliers brokers in and around London. Is that the case? Have you had to make any compensation changes to keep those guys? I guess part of that question is, in looking at margins in Europe relative to the US based on the brokers split, do you think you can maintain your European margins with the influx of the brokers from Colliers UK?

Well, we are sort of forecasting that. With the additional revenue generated there this year, we are going to be flat on an EBITDA line at best.

We had some changes in the broker channel there. Remember, in the UK, most brokers are not on a commission basis like they are in the US; they are salary plus commission based on their production.

So one of the great things we think we will enjoy is that we now offer a very strong platform in the third largest global player in Commercial Real Estate. We are already receiving inbound calls from leaders in the UK marketplace wanting to talk to us about coming across. They could not do it before because Colliers did not have the financial backing and strength of FirstService. So clients were not going to retain them to handle mandates for them.

So we feel that we are in a good position. It is going to take time to build the broker channel up there, but it is quite an interesting opportunity in that market right now given the weakness of all the other players or most of the other players, as well as the marketplace itself.

Okay. A similar question. In the US, the strong performance you saw this quarter it sounds like decent expectations for the transaction businesses this year as well. Are those driven by -- should we expect a continuation of hiring of new people, or is this just you have got the guys you need so now it is productivity that is going to drive it? And maybe within that, in the first quarter, was it more because you had a lot more people than last year, or are you seeing good productivity increases from the guys you do have?

Primarily productivity. The net number is certainly up, but the more important figure is the average productivity, high-volume brokers effectively replacing lower producers that leave or are coaxed out.

Recruiting will continue to be important, but it certainly will not be at the same levels this year that it was last year. It was more opportunistic in 2010 and 2011. We did recruit a couple of teams in the first quarter and several one-offs, particularly in LA and New York City. But -- and we will continue to do -- be active at those kinds of levels for 2012.

Okay. And then final question, as you look at the Corporate Services or Property Services business, I guess globally but particularly the US, are those deals or contracts coming from customers that you already serve on the transaction side, or are they really just new relationship that you have not served any real capacity either through sales or leasing?

Corporate Services, again, one of the very good things about Colliers and the momentum it is gaining is it is being invited to the party and many more pitches in Corporate Services, and we have been increasingly very successful in winning those mandates. Some come internally from relationships that a broker may have in a particular market, but most come directly from our Corporate Services team that are pursuing clients that are already outsourcing their corporate service needs. And many are looking for an alternative from the traditional players, and it gives us an opportunity to pick some -- pick up some share there that we never had before, and clients are responding in very interesting numbers. We hope to continue that momentum for the balance of the year and beyond. We think that that is a big growth opportunity for us.

That was the last question in the queue. Thank you.

Okay. Thank you, everyone, for joining us, and we will see you on the second-quarter conference call. Thank you.

Ladies and gentlemen, this concludes the FirstService Corp. quarterly earnings conference call. Thank you for your participation, and have a great day.