Colliers International Group Inc (CIGI) 2012 Q3 法說會逐字稿

Welcome to FirstService Corporation's third-quarter earnings conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussions 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 the future results, performance or achievements contemplated in the forward-looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company's annual information form as filed with the Canadian securities administrators and 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, Wednesday, October 24, 2012. 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. I am Jay Hennick, Founder and 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 third-quarter results reflecting another very strong year-over-year gains in revenue and EBITDA at Colliers International. FirstService Residential posted another quarter of solid growth and as expected, continued weakness in foreclosure services negatively impacted the results in Property Services.

Given our significant investment in Colliers International over the past few years, it is gratifying for us to see revenue and EBITDA margins up considerably for the quarter. Colliers USA was particularly strong with revenues up 24% over the prior quarter. And FirstService Residential continued to advance its position as North America's largest manager of multifamily residential properties on the strength of its comprehensive service offerings and it's highly predictable business model.

In a few minutes, John will provide details on our financial results and then Scott will provide his operational report. But before they do, let me give you a few brief comments about the quarter. As I said, Colliers International continues to perform very well despite operating in a challenging environment, particularly in Europe, but also in many parts of North America. Our recent acquisition of Colliers UK finished the quarter a little weaker than anticipated due primarily to seasonal summer slowdowns. We are confident that they will finish the year on plan and we remain excited about the growth prospects for this business in one of the most important markets in the world.

Acquisition activity in the commercial real estate services industry has accelerated in recent months. Smaller players with limited financial strength are looking to become part of stronger operations. Mid-size players are looking to be part of more global platforms so that they can serve clients on a worldwide basis. And even some of the larger players are experiencing significant changes in the way they do business causing some of their key people to look for new career opportunities with more enterprising and entrepreneurial companies like Colliers.

All of this bodes extremely well for FirstService and our disciplined approach to creating value one step at a time. Over the years, we have proven our ability to capitalize on opportunities in market conditions such as these. Growing Colliers International into one of the largest and most successful players in commercial real estate is an excellent example of the FirstService way in action. And frankly, we continue to see multiple opportunities to grow this platform in so many places in the years to come.

At FirstService Residential, our business is very stable with more than 85% of our revenues coming from recurring contracts. Revenues from core management services were up nicely as were revenues from newer services, but revenues from ancillary and other discretionary services continue to be challenged as clients continue to watch their expenses.

With more than 1.5 million residential units under management, and $6 billion in annual spend, actually $7 billion if you add the expenditures of our commercial management portfolio, FirstService Residential continues to find ways to leverage its scale, adding value to clients and creating competitive advantages for FirstService operations.

And finally, in Property Services, which provides property-related services to clients through franchise and contractor networks, revenues were down considerably all as a result of the reduction in revenues in our property preservation and foreclosure services operations.

Unfortunately, we are not out of the woods yet; though we are confident that as the market begins to normalize, we will start to rebound our business as well primarily on the strength of our superior technology and market-leading service delivery systems.

In terms of acquisitions, we have been very busy across the board in recent months, particularly in Commercial Real Estate and Property Management and we hope to be able to complete a number of smaller acquisitions in the next couple of months.

Looking forward to the fourth quarter, as market conditions remain stable, we expect to finish the year with higher revenues and EPS in line with the prior year.

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

Thank you, Jay. While we continue to operate in market conditions that include an elevated level of economic uncertainty in most of our major markets, FirstService once again reported respectable overall results in our third quarter. Here are the highlights of our consolidated results. Revenues were $589.8 million, up 1% from $585.4 million in our third quarter last year with an internal decline in revenues of 3%, a decline of 1% due to foreign exchange offset by 5% growth related to acquisitions. Adjusted EBITDA totaled $48.8 million, up from $47.6 million last year with our margin coming in at 8.3% versus 8.1% last year. Adjusted diluted earnings per share came in at $0.60, just shy of the $0.61 in EPS reported in Q3 of last year.

As outlined in our press release and the summary financial results released this morning, adjusted EPS includes certain adjustments to EPS determined under GAAP, which we believe are not indicative of the economic earnings from our operations, all of which are outlined in detail in our release and consistent with our approach on disclosures in prior periods.

Now turning to our cash flow statement, we saw solid results in our third quarter, generating over $55 million in cash flow from operations, which was up 16% over the $47.7 million reported in Q3 of last year. During the quarter, we invested only $1.1 million in new acquisitions and increased our investment in existing businesses by $3.2 million, in both cases down considerably from the same quarter of last year.

We also invested $8.3 million in CapEx, down from $10.9 million in the same quarter last year. Year-to-date, we have invested about $23 million in capital expenditures and expect to finish the year in the $36 million to $38 million range, an amount similar and consistent with prior year.

As noted in our press release this morning, during the quarter, we also repurchased 246,000 of our 7% preferred shares under our issuer bid at an average price of $25.25 per share.

Moving to our balance sheet, our net debt position at quarter-end was $349 million, down $29 million from $378 million at the end of our second quarter and our leverage ratio expressed in terms of net debt to trailing 12-month EBITDA declined at 2.4 times from 2.7 times at the end of the second quarter.

Excluding the $77 million in our unsecured convertible debentures maturing in 2014, our net debt stood at $272 million and our leverage ratio at about 1.9 times at the end of the quarter. Based on expectations for our fourth quarter, our leverage, inclusive of our convertible debentures, should decline to about 2 times at year-end.

With modest leverage and more than $150 million in available cash and undrawn credit under our bank lines, we have ample capacity to fund our operations and any attractive acquisition-related growth opportunities going forward.

Now I would like to turn things over to Scott for his comments.

Thank you, John and good morning. As you have heard, our Commercial Real Estate division was the primary driver of our growth for the quarter, so let me start there in terms of providing more divisional detail. Colliers revenue for the quarter totaled $295.6 million, up 17% over the prior year, 9% organic growth in local currency and the balance relating to the acquisition of Colliers UK at the end of March. Organic growth for the quarter was primarily the result of a 24% increase in our US operations.

By service line, our growth globally was driven by strong increases in leasing revenues, again primarily in the US. And investment sales commissions in total and leasing revenues in markets outside of the US were in the aggregate flat year-over-year. Other revenues globally, including appraisal, property management and project management, were up by approximately 7%. We reported EBITDA in this division of $20.3 million or 6.9% of revenues, up from $9 million and 3.6% in the prior year. Healthy margin enhancement in the Americas drove the increase.

Let's take a closer look at each of our three regions starting with the Americas where revenues were up 14% driven by a very strong 30% plus growth in our US brokerage operations and supported by strong growth in Latin America. America's growth was tempered by a 5% decline in revenues from our Canada brokerage operations.

US growth was driven by significant increases in leasing revenues in our major markets -- New York City, Boston, Chicago and LA. We closed several large transactions across these markets during the quarter.

Strong growth in Latin America was driven primarily by increases in investment sales commissions in Brazil, Mexico and Peru. We generated a high single digit margin in the Americas for the quarter, up from mid-single digit in the prior year, due primarily to operating leverage and resulting margin increases in the US.

Looking forward in the Americas, we expect to show strong year-over-year gains for the fourth quarter, again led by our US operations, but supported by improved performance from our Canada business where current pipelines are quite strong.

In our Asia-Pac region, total revenues were flat year-over-year with modest declines in sales commissions offset by increases in consulting and appraisal revenues. Across the region during the quarter, deal momentum was stalled due to the softening economy in China. The transactions are generally taking longer to close and several across the region were pushed into the fourth quarter. Our EBITDA margin in Asia-Pac for the quarter was low double digit, in line with the second quarter and up slightly from the prior year.

Looking forward in Asia-Pac to the fourth quarter, while markets in China remained somewhat challenging, we are expecting a solid year-over-year comparison enhanced by strength in Australia and several large deals that rolled from the third quarter.

In our Europe region, revenues more than doubled with the inclusion of Colliers UK, which generated revenues for the quarter of $20 million, down from the second quarter and as you heard from Jay, slightly off expectations primarily due to distractions associated with the Olympics and Diamond Jubilee celebrations.

Excluding the UK business, our revenues in Central and Eastern Europe, including Russia, were approximately flat with a year ago with solid increases in Russia offset by declines in Poland, which reported a very strong Q3 in 2011 and therefore a tough comparator. The lower revenues in the UK for the quarter resulted in an operating loss for that business and in the region as we achieved a breakeven result in Europe, excluding the UK.

Looking forward for our Europe business, we expect the UK to have a reasonable fourth quarter and to finish the year generally on track with the estimate that we set out earlier this year, $75 million to $80 million in revenue and a modest EBITDA contribution. In Central and Eastern Europe, our legacy business, we expect very difficult trading conditions to continue and a flat year-over-year comparison for the fourth quarter.

In summary, for our Commercial Real Estate division, we reported strong top-line growth in the third quarter driven by the US business. Our pipelines globally are generally solid and we expect a favorable year-over-year comparison in the fourth quarter.

Having said that, I will add that there is currently a great deal of uncertainty in the world economy and by extension, the global real estate market. While we feel confident about the fourth quarter, we are increasingly cautious about 2013 and we will provide more commentary in our year-end call in February.

Residential Property Management revenues were $226.6 million for the quarter, up 9% over the prior year, 6% organically. The trends in metrics continue from the first and second quarter of this year with organic growth driven by new contract wins and increases in management fee revenue, offset in part by a slight decline in ancillary fee revenue, primarily the result of reduced collection services relative to the prior year. Management fee growth was highest in Canada and the Northeast region of the US. Our EBITDA margin in the quarter was 9.5%, down 50 basis points from the prior-year quarter primarily due to a reduction in higher-margin ancillary fee revenue.

Looking forward in Residential Property Management, we expect to continue to show year-over-year revenue gains through year-end with margins that are comparable to prior year or slightly below.

In our Property Services division, which comprises Field Asset Services and our franchise brands, revenues were $67.4 million for the quarter, down 46% from the prior year as a result of steep volume and revenue declines at FAS, which was off 60% year-over-year.

Revenues from our franchise systems comprised approximately 55% of divisional revenues for the quarter and were down slightly from the prior year. Solid growth at California Closets was offset by relative weakness at Paul Davis Restoration, the result of generally lighter storm activity this year compared to 2011. The decline at FAS is primarily the result of our resigning from our largest contract at the end of the second quarter and which took effect in early August. The year-over-year revenue decline was also impacted by a contract termination at the end of 2011 and a significant decline in national foreclosure activity.

The margin in Property Services for the quarter was 14% down from 15.8% in the prior year due entirely to margin contraction at Field Assets. The FAS EBITDA margin for the quarter was slightly negative as a result of $2 million in severance and lease termination costs associated with the contract resignation.

Looking forward for this division, we expect our franchise group to again start showing favorable year-over-year revenue comparisons after two quarters of flat to slightly down performance. We have less visibility as it relates to FAS. Based on existing clients and volumes, the annual run rate for Field Assets is between $100 million and $120 million, but the foreclosure services industry end market is currently in flux and somewhat unpredictable. We expect the FAS margin to stabilize in the mid-single digits for the balance of the year moving towards 10% for 2013.

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

(Operator Instructions). Anthony Zicha, Scotia Bank.

Hi, good morning, gentlemen. Jay, you mentioned that assuming stable markets, the results for the year should be comparable to last year. Could you please provide us some more color on that statement? Is it revenues or adjusted EBITDA or EPS? And will the results be comparable net of the tax loss carryforward that was realized in Q4 '11?

Well, I will let John handle the last piece, but my thinking is that revenues will be up and earnings per share will be up and EBITDA is not as clear given fourth quarter is such a strong quarter for Colliers. And we'll have to see how pipelines unfold over the next couple of months. So we are a little uncertain in that EBITDA line.

Tony, with respect to the tax, you will recall, fourth quarter last year, we released a significant valuation allowance, which we had normalized out of our adjusted EPS. So if we are working with a -- which is now currently a more normalized tax rate, we would expect that to be somewhere around 30% for the full year and that would be incorporated into our perspective on EPS.

Okay, great. You have done a great job on the SG&A margins compared to what they were last year and quarter-over-quarter. What are the drivers behind that? And then can we expect further margin improvement going forward on the SG&A line?

Are you talking about Colliers in particular?

No, overall operations.

That would be driven primarily from the Colliers side.

Right.

It is operating leverage. I mean our revenues are increasing primarily in the US and we are generating higher margins as a result. It's primarily leverage and we have talked about this over the last several quarters as we have invested to create efficiencies, but we are driving up broker profitability and all that is leading to higher margins.

Okay. Awesome. And one last question. Given the recent increase in US home sales, could we expect or anticipate stronger internal growth going forward in the Residential Property Management segment?

The Residential Property Management piece I think is somewhat separate to what you are reading about on single-family homes. Remember, we are really not impacted in our residential management business by the number of homes that are bought and sold. Where it does impact our business is on the rental side of our business where we, for some banks and other financial institutions and some recent entrants in the market, offer a rental service where we will manage single-family dwelling units for institutions that may own portfolios of homes.

That is still not taking the kind of traction that we were hoping for. We are seeing more of it though, but I don't think it is going to be material in the next quarter. But potentially 2013 will start to see some movement there.

Okay, well, thank you very much, gentlemen.

Stephanie Price, CIBC.

Good morning, gentlemen. You talked quite a bit about acquisition activity on the call, which we haven't heard in the last couple of quarters. Could you kind of give us an idea of what you're thinking about and what regions potentially you could be looking at in terms of acquisitions, if there is additional acquisition activity in the industry?

Obviously, acquisitions are strategic. There is a couple of factors that are swirling around right now. One of which is the threat of a tax change in the US. And that is impacting some current business owners to evaluate or reevaluate their desire to sell or partner with us in a business, so that is creating some opportunity.

But I alluded to the point in Commercial Real Estate. There really is lots of movement in that space and we are right in the middle of it being very prudent and disciplined for a whole variety of reasons in part given the nature of the business. But we hope to be able to complete a couple of tuck-unders in that area as well over the next couple of months. And these are transactions that we have had with sellers that we have had relationships with over a long period of time and hopefully will be able to bring them home.

Okay. And on the Residential Property Management side, just going back to Anthony's question earlier, what about on the margin side for if the housing market is improving, theoretically homeowners associations should have more money to spend. Do you think you could see some margin improvement getting back to sort of traditional 9.5% margins in that business?

It is going to be a few years before we see 9.5%. It is still a very competitive environment. We don't expect to see any price increases as we head into our 2013 budgets with our communities and contract renewal process. So it will be a period of time.

Delinquencies are certainly down. We talked about our collection revenue being down and that translates into or means lower delinquencies. They are down 20% and in some regions, much higher than that, which translates into improved cash flow for our clients. So certainly that can only serve to relieve some of the pricing pressure going forward, but it is not going to happen very quickly.

And just in terms of FAS, so you had $2 million in costs associated with the transitioning of the GSE contract. Are there additional costs that you could be cutting in that division or should we expect more cost cuts going forward?

Nothing significant.

Okay, thank you very much.

David Gold, Sidoti.

Hey, good morning. So was hoping to just try and get a little bit more color or just make sure I'm understanding it properly on the sort of fourth-quarter outlook. So essentially I mean I think you couldn't be more clear on expecting EPS to match last year and revenue to be close, but I guess curious if -- essentially I guess on an EPS basis year-to-date you are running, what, about a $0.35 hole to fill and so curious if there is anything really big in there I guess that maybe has closed or any sort of one-time large deals that help you get there.

Also, if you can give color -- upside presumably is coming from Commercial Real Estate in the quarter, but if there is anything else we should be thinking about there too, that would be helpful.

I'll take that. Look, David, there is nothing unusual in terms of one-time impact, that is for sure. It really is -- we expect relatively consistent results from our Residential Property Management business and our Property Services business. It really comes down to Colliers and as you have seen before, and those that follow the Company know, fourth quarter is important in that business. And similar to last year, we would expect to see an increase and we expect an increase in results across the board in the fourth quarter at Colliers. So when we factor all of that in, that is where we basically derive our view at this point that our EPS will be comparable for the full year compared to last year.

Okay. And are there any -- I know you spoke about some geographies, but are there any particular geographies where you are seeing more, let's say, strength and then also to the extent that deals slipped, just confidence that they do close before year-end?

I guess the biggest year-over-year outperformance in terms of expectation would be in the Americas, US and Canada. They both have strong pipelines. We are confident that we are going to have strong quarters in both countries. So to the extent there is something politically economically that causes deals in those two countries to defer to next quarter, that would be where the variance would occur relative to expectations.

Okay. And then just lastly, Canada sounds like presumably was a little bit weak in the third quarter. Was that just deal slippage or something that -- obviously it seems like we expect it to reverse pretty quickly.

Deals are certainly taking longer to close. We are confident in the pipeline. The timing of closing the deals, there is a little less certainty around that.

Got you. Perfect. That is all I have.

Will Marks, JMP Securities.

Thank you. Good morning, everyone. I wanted to first ask on the Americas, I believe you said a 30% increase in US brokerage. Is that -- can you break that out into sales and leasing?

It is primarily leasing in major markets. Sales were up about 10%; leasing was up 50%-ish.

How do you -- I mean, in this environment, our understanding is that volumes for the industry were down in the quarter. And I don't want to take anything from your strong performance, but were there new offices included? I mean you are fairly representative of the US as a whole.

I think there is a few things, Will. First of all, our recruiting is definitely paying off. We recruited aggressively in '10, '11 and year-to-date in '12. And our new recruits account for a significant percentage of our outperformance. Broker productivity in general is way up. We have talked historically about investments in technology, investing in our brand, corporate solutions, global collaboration. All serving to drive up broker productivity and that is with our pre-2010 brokers and our new recruits. And our Corporate Solutions group continues to gain traction. Generally, global referrals are up significantly relative to prior years, so all of those things are making a difference.

I would add to that is we are actually in a fortunate position in many respects because, as you know, Will, our businesses have been very strong. In most places around the world, our weakest business for the past couple of years has been the US, having gained control of that business about 2.5 or three years ago. And so we have been spending lots of time strengthening operations, moving branches from breakeven to profitability. And if you look at margins in places like Canada, Australia, Asia and other places, they are strongly in line with comps. But if you look at margins in the US historically, they were well down.

So our focus has been on the US and as Scott said, strengthening the infrastructure, simplifying the way in which we do business, strong recruits, all of which we see is in our backyard and so that is starting to pay off nicely and we are seeing overall margins in the business pick up as a result, but primarily driven by a strong showing in the US.

Okay, great. That is very helpful. Thank you. Let me move to the other regions, just on APAC, you said, I believe, a modest decline in sales. Is that correct and then also how was leasing during the quarter?

Leasing was flat across that region. We had a pickup in appraisal and net net flat.

And then, in the fourth quarter, you said you expect solid year-over-year growth I guess in that region?

Yes, we expect a favorable comparison. Australia is looking for a good fourth quarter and we do have some deals that were pushed that we expect to close in the fourth quarter that will make some difference.

Okay, and then just on EMEA a bit, I think I understand the rest of Europe, as we call it, UK, did you give a number or how much of a disappointment really was it? Was it from sales or leasing or other businesses?

It wasn't significantly off expectation and it was more of a timing issue because of the things going on in London, the Olympics primarily. It was a deferral of transactions that we expect to see in the fourth quarter. So we expect to finish the year really right in line with what we set out when we made the acquisition.

You had said the rest of Europe flat in the fourth quarter UK. Would that imply a flat fourth quarter if you are in line with expectations?

Well, the [EPA], we didn't know it at the time, but it will be up over what it did in the previous year.

Okay. And then just my last question, you made one comment on '13 just saying you are cautious on '13 and you will comment more later next quarter. I mean how should we be reading into 2013? It sure seems as if things were, not for you, but for industries, for sales, leasing globally, were a little bit of a disappointment and some negative numbers for the industries this year.

I would say that we don't have the same visibility that we did at this time last year, which is causing us to be I guess extra cautious at this time.

Why would you not have visibility now versus then?

Just the level of activity across every region and the uncertainty, elections. Every region has something associated with it.

Okay, fair enough. Thank you for your help.

Stephen MacLeod, BMO Capital Markets.

Thank you, good morning, guys. Just on the Field Asset Services business, Scott, you mentioned a run rate of $100 million to $120 million. It seems like a bit lower than what it was after the last quarter. So is there some ongoing deterioration in the base business, excluding the contract exit?

No, just foreclosure activity is down more than we expected. It is the same client base; in fact, we have added clients. The level of activity has reduced since our last quarter call.

Okay. And you mentioned approaching a 10% margin heading into 2013. Maybe you can give some color on the timing. I mean is that something that you expect to approach as you end 2013 or is it something that maybe happens a bit sooner than that?

The goal is 10% for 2013.

So 2013 margin for the full year?

Yes.

Okay, great. And then you mentioned the CapEx spend still stays around $36 million, so that would imply a pretty big bump in Q4. Just curious where your CapEx investment is heading right now.

This is John. It consistently tends to be around, kind of infrastructure around our offices and systems that we use to deliver our services and support the delivery of our services, so certainly some ongoing investments in technology and there will be some investment in the UK related to an office relocation, a consolidation of offices in London, which have some CapEx attached to them, which is a little bit higher than usual. So that we expect to incur as we finish the year.

Okay. And then just turning to Colliers, obviously with Q4 being such a significant contributor, do you have any visibility into what kind of margin expectations you have for 2012 on both a base business, excluding Colliers UK, and a combined basis?

Well, let me give you the combined basis in Colliers UK where our expectations are modest in terms of the EBITDA contribution as we have indicated. But year-to-date we are up better than 100 basis points and we would expect to finish the year in that range.

Okay, that's great. And then just finally on Colliers, just circling around on another question that was asked earlier, with respect to M&A, Jay, you gave a pretty good overview of what kind of businesses you are looking at. But are there any geographic holes specifically that you would like to either fill or regions where you would like to bolster?

We are trying to be very strategic and in fact, we are looking at some of our existing markets that are small and won't be critically important to us long term and may, in fact, turn those markets into franchises in some of the smaller markets. But in terms of larger markets, there is very few that we don't own. We would like to expand in a couple of key markets in Western Europe. But other than that, we are in good shape from the standpoint of a platform.

And the strategy going forward would be to continue to strengthen our platform in every geographic region and every productline that we have opportunities to grow in, expanding things like corporate services, which cross every geographic region; capital markets, which is increasingly crossing regions and property management, which has always been a core competency for this Company. And for a variety of reasons, it is an area where we think we can add significant value to clients and that is translating into new business in that area as well.

So we are very comfortable with our platform. We would like to augment where possible, but do it strategically and then just continue to strengthen market by market.

Okay, great. Thank you very much.

Brandon Dobell, William Blair.

Thanks, good morning, guys. Going back to the US operations within Colliers, should we expect you guys to continue the pace of headcount additions through recruiting for the next couple of quarters or do you think you'll save for some of the markets you've mentioned where you want to kind of bulk up in particular? But, in general, how do you think you guys view headcount as opposed to kind of getting productivity up with the existing brokerage force?

I think 2010 and '11 were exceptional recruiting years based on the instability in the marketplace. The recruiting in '12 has been much less than that and it will continue at a measured pace. But we are continuing to recruit and in particular, we are recruiting in our major markets -- New York City, Chicago, LA and Boston.

Okay. Within the US leasing business, given the always kind of above-market performance there, tenant rep versus I guess representing owners of buildings, which way is the business tilted more and is there kind of a direction you would like to see that looking out a year or two? Do you want to be more tenant rep or do you want to focus more on working with the owners to line up the property management business side of it as well?

I can tell you office tenant rep drop the quarter and that is certainly becoming a strength of hours and again, a strength of ours in the major markets, so that is a trend. But similarly, industrial is a strength and we do have legacy strengths in the secondary markets in leasing tenant rep.

Okay. And then final one from me, looking at the UK business right now, how do you feel about the cost structure overall? I think you guys have had, what, six months or so with the Colliers UK business in the fold. Do you feel like you have got the offices in the right place, got your own real estate squared away, the right people there or is there still more to do to get those operations I guess more streamlined, kind of in line with where you would like to see them long term?

Well, I mean John made one comment. We are consolidating two offices into one. It is a major move for that business and it is going to enhance its stature in the marketplace and so on. So we are hoping to get that completed by this current calendar year-end. So they are knee-deep in that right now. London is a very -- I was just there two weeks ago. It is a very interesting place from a Commercial Real Estate standpoint right now and there are opportunities, but it is -- the market is very stagnant.

So there has been lots of talk I think, but limited movement. We are trying to focus our business on our core services, tenant rep, as Scott talked about, investment capital markets, corporate services primarily in major markets like London. There are several others in the UK. It is a very fragmented market that operate in multiple cities in the UK. It is not our first choice.

So the answer is we still need to strengthen that business. We do like the people that we have. We had an opportunity when we bought the business to streamline en masse, which is what we did and now we are in the process of strengthening and upgrading and topgrading the team.

Okay and a final one. I lied actually. In the FAS business, given just the nature of the market, the end markets right now and how unpredictable that business has become, and in the context of how you guys focus on returns on capital and sustainable returns on capital, has the business changed enough that you are reassessing what the value of that is or what the long-term opportunity may look like? Or is it just you keep pushing out volumes and eventually it is going to come back? Or -- and I guess I'm trying to figure out how you guys are thinking about the opportunity for that part of your business to create economic value at this point.

Well, I mean -- we all know we bought that business at a time when the business was smaller, significantly smaller than where it is even today and then enjoyed an amazing run-up where we generated huge profits for a number of years and those profits were reinvested in other parts of our business. The market is starting to normalize, stabilize, but still changing on an ongoing basis. But when it normalizes, it will be back to the business that we bought. Hopefully bigger, of course, but profitability wise, margin wise, it still made sense for us to continue to own that business for a variety of reasons. They have unique technology that we can transfer to other parts of our business.

So if we can stabilize it, there will always be foreclosures, there will always be pre-foreclosures. We have run numbers up, down and sideways on the basis of what a normalized and standardized-looking business model looks like and it is a business that we would buy today if it was a normal market. So is it long term for FirstService? Who knows? But right now, we are continuing to marshal forward.

Okay, great. Thanks, guys. I appreciate it.

Jim Fowler, Harvest Capital.

Hello, gentlemen. Jay, I think you have answered this a couple of different times to a certain degree, but I wanted to ask directly. I am wondering -- we have gone through the process now of the REO to rental. There is a lot of capital that has been allocated. And I am just wondering more strategically what you think the reason why you have been less involved than I otherwise thought you might be or whether you think that continues to be -- whether it is a marketing process and some of those folks that -- the investment funds and the like that bought those properties are now soon going to come to the conclusion that they need your Company's expertise in managing those properties.

More strategically thinking and just kind of assessing where you have been and where you think the opportunity lies from here. I mean you have handled everything else extremely well from what you can control, but that has been one element to the story that has had a little less traction than I would have thought given thematically the REO to rental program picking up some pace. Thanks for the help.

Well, it's Scott. Let me take a crack at what I believe your question was. We have been less involved with the buyers of REO property that are looking to create blocks of rental assets. There is a trend, buy these funds to build management capability internally and that really continues. And so this story still needs to be written. We know how difficult it is. We think it will be difficult for many of these institutions to create the capability internally. Some of them know that and we are servicing some of the funds and continuing to talk to them, but I think Jay said it earlier. This still needs to play out through '12 and well into '13 I think.

Thanks, guys. I appreciate it. Thanks, Scott.

(Operator Instructions). Tal Woolley, RBC capital.

Hi, good morning, everybody. Just wondering if you can talk a little bit -- you bought back a little bit of stock this quarter, if you can talk to me about how you are thinking about using the NCIB versus your acquisitions -- your acquisition plan versus buying back in some of the remaining interests on some of your existing businesses.

It's John. We are going to I guess continue to evaluate repurchasing stock in the market and as you indicated, balance that against deploying capital into acquisitions. First and foremost, we want to acquire and grow the business, but there will be times where, for whatever reason, acquisitions may not be available on the terms that are acceptable to us. That is not the situation right now, as Jay indicated earlier, so we are certainly looking at deploying capital on the acquisitions. I think we will have more clarity around that over the next couple of months. And again, we are standing by should there be any weakness in the stock. We think it is just unjustified. We will be on the normal course issuer bid repurchasing stock.

We did buy some preferred stock during the quarter. That is stock that is not heavily traded, so we had an opportunity to repurchase some under the normal course issuer bid and that, I think, was accretive to us given the after-tax 7% dividend, that yield on that security. So that is kind of the way we are looking at it.

So more of a tactical thing than sort of a consistent application then going forward at least on the common stock?

Yes.

Okay. And do you have a sense of just your purchases of non-controlling interest, what you might be looking -- what that might balance out towards the end of the year? I think you are running at just over slightly $4 million this year.

The non-controlling share of earnings?

No, like your purchases (multiple speakers).

Oh, the purchases. Sorry, sorry, sorry. We don't see a whole lot of significant repurchase activity in the next little while. We did go through higher amounts last year and then more modest amounts this year and I think we are in a very stable place right now with respect to the non-controlling interest.

Okay. Most of my other questions were answered, so thanks very much.

You are welcome.

There are no further questions at this time. I will turn the conference back to Mr. Hennick.

Thank you very much, everyone, for joining us and we look forward to hearing from you again on our year-end conference call. Thank you, operator.

You are welcome. Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your line and have a great day.