Colliers International Group Inc (CIGI) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen. 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 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 is Wednesday, February 13, 2013. At this time, for opening remarks and introductions, I would like to turn the call over to Founder and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, Sir.

Thank you, Operator, and good morning, everyone, and thanks for joining us today on this call. With me is Scott Patterson, President and Chief Operating Officer, and John Friedrichsen, Senior Vice President and Chief Financial Officer.

This morning, FirstService reported very strong fourth-quarter results. For the quarter, revenues were $633 million, up 6%. EBITDA was $55 million, up 23%, and earnings per share came in at $0.70, up 35% over the last year.

For the full year, revenues hit a record two point (technical difficulty) results from Colliers International, and strong performances from FirstService Residential and FirstService Brands, as you'll hear from Scott in a few minutes. Unfortunately, overall earnings declined from the previous year, as the results from Field Assets, our property preservation and distressed asset management operations, fell off significantly due to challenging market conditions. Strong performances from Field Assets during the financial crisis, together with ongoing and solid results from FirstService Residential and FirstService Brands, allowed us to strategically invest in our Colliers International commercial real estate services platform at the right time in the cycle, and those investments are paying off handsomely for FirstService shareholders.

During the quarter, we added a smaller, but important, addition to our property management business. Not only will Mar West Real Estate provide us with a new avenue for growth in the commercial property association management business, its clients will benefit from the combined resources of one of the world's largest property managers.

And, finally, just after year end, we completed $150 million private placement of 3.84% senior notes with a 12-year term. Securing this low-cost, long-term growth capital is indicative of our investment grade quality, but it's also a significant vote of confidence in our financial strength, diversification, and historical track record from two of America's most prominent life insurance companies. John will have more to say about this and our other financial results in his financial report shortly.

Here are some of the other highlights from the quarter. Colliers had a very strong finish to the year, as I mentioned, with revenues up 23% and EBITDA up 12% versus the prior year. As importantly, EBITDA margin increased to 11.6%, up 190 basis points over the prior year. And for the full year, EBITDA margins came in at about 7%, well on our way to our goal of 10% for this segment of our business.

In the United States, Colliers made excellent progress, with strong growth in revenues and profits, and significant growth in multi-city assignments, which were up over 108 -- 180% this year alone. Having clients retain us in one market to provide services in another not only demonstrates the power of the Colliers brand, but also strengthens the value proposition for our clients and professionals.

We are also pleased with the progress of our recent acquisition of Colliers UK. We are beginning to see the benefits of this transaction, not only in the UK alone, but also throughout Western Europe. Our practice groups are now better integrated with a stronger London hub, and we can leverage that presence throughout our global platform.

Looking forward at Colliers, we expect a solid 2013 on the strength of momentum generated in 2012. We expect to see further progress and margin enhancement by increasing broker productivity, leveraging our platform, and reducing back-office operating costs. And we also expect to complete a few acquisitions in 2013, especially in key markets that are strategically important to our overall business.

Turning to FirstService Residential, 2012 was another solid year for this essential service business. In the fourth quarter revenue was up 10%, all through internal growth. The business generates 85% of its revenue from long-term property management contracts, with 95% retention rates. FirstService Residential has consistently been a stable and predictable contributor to FirstService.

Our sustainability initiatives continue to expand with FS Energy leading the way. By tracking and measuring energy consumption and operating costs, we can continue to help our clients become more energy efficient and save costs, both of which are tremendous differentiators.

So, overall, at FirstService Residential, as I said, we expect to show another solid year of growth in 2013.

FirstService Brands also had a strong quarter, as EBITDA was up 21%, despite only modest increases in consumer spending across the board. As one of North America's largest providers of essential property services, delivered through company-owned and franchised networks, we generate the majority of our revenues from royalties that we earn from 1,800 franchisees that generate more than $1.1 billion in system-wide or total sales to ultimate consumers. So, as the consumer spends and increases their expenditure, so do the royalties that we earn on sales, putting us in an excellent position to benefit as the economy gets stronger.

But owning a franchise system, especially one that -- ones that are market leaders in service areas, like Paul Davis Restoration, CertaPro Painters, Pillar to Post Home Inspections, and CertaPro Painters -- and Service America, to name a few, offers us other growth opportunities as well. In the past, we've leveraged our ownership of California Closets and built a family of company-owned operations. Today, we have 10 such company-owned operations in key geographic markets, which together generate more than 25% of our overall sales at California Closets.

We provide company-owned operations in HVAC and plumbing through our Service America operations in the South. And, in the future, we expect to look for new opportunities to leverage our franchise systems and add company-owned operations when we believe we can generate a high rate of return for FirstService shareholders. There are countless internal growth opportunities to do this in our FirstService Brands business, and we believe we've just scratched the surface.

In summary, FirstService is, at its core, a property management and property services business that is global, and that generates in excess of 60% of overall revenues from recurring contracts. And with more than 2.5 billion square feet of commercial and residential property under management, we are one of the world's largest property managers. Having such a large percentage of revenue coming from recurring contracts not only provides FirstService with enormous stability in its business model, but it also takes away the cyclicality experienced by others. It's clearly one of the reasons we've been able to maintain an investment-grade balance sheet for such a long period of time.

There's another great advantage about being such a large player in property management. We have significant influence over how our clients spend their operating dollars. At FirstService, we've invested heavily to leverage the combined buying power of our client properties, which now exceeds $8 billion a year. We use that to help our clients save costs and become more efficient, while at the same time creating another important differentiator for FirstService companies.

In closing, we believe our successful track record, proven business model, strong financial position, and abundance of growth opportunities will continue to provide FirstService shareholders with significant potential stock appreciation in the years ahead.

Now, let me turn things over to Scott, who will take you through the financial details. Sorry -- John.

Thank you, Jay. As we reported in our press release issued earlier this morning, and Jay already covered in his opening remarks, FirstService reported strong operating results in our fourth quarter of 2012, led by strength at Colliers and Commercial Real Estate, and very solid contributions from our Residential Property Management and franchise Property Services businesses.

Here are the highlights of our consolidated results for the quarter and the full year. Revenues totaled $632.5 million in the quarter, up 6% compared to our fourth quarter 2011, with internal growth flat on a consolidated basis. For the full year in 2012, revenues totaled $2.31 billion versus $2.22 billion last year, up 4%, all of which was contributed by acquisitions, as internal growth on a consolidated basis was down 1% for the year.

Adjusted EBITDA for the quarter was $54.9 million, up 23%, from Q4 of last year. And for the full year, adjusted EBITDA totaled $155.7 million, a decline of 4% compared to 2011.

And, finally, adjusted diluted earnings per share came in at $0.68 in the fourth quarter, an increase of 31% over last year. For the full year, adjusted diluted earnings per share was $1.62, down 10% compared to 2011. As outlined in prior conference calls and detailed in our press release this morning, there are several adjustments made from GAAP earnings per share to determine our reported adjusted earnings per share, all of which are consistent with those disclosed in past reporting periods.

Moving on, FirstService ended 2012 with strong growth in cash flow from operations, generating $103 million for the year, up 28% over 2011. Investment and financing activity during 2012 included about $25 million invested in acquisitions, and in increasing our stake in existing businesses, compared to about $78 million last year.

During 2012, we invested $44 million in CapEx, versus $37 million in 2011, with $6 million of the excess due to expenditures in the fourth quarter that related to a new, long-term lease of office premises in central London for Colliers UK, which consolidated to two separate locations. For 2013, we anticipate our CapEx returning to historical levels relative to our annual EBITDA, so in the range of $35 million to $38 million in 2013.

Turning to our balance sheet, our net debt position at the end of the year, inclusive of our $77 million in convertible debentures, was about $306 million, up slightly from the $296 million at the end of 2011, while our leverage ratio, expressed in terms of net debt to EBITDA, was 1.95 times, up slightly from 1.84 times a year ago. Excluding the convertible debentures, which mature in 2014, our leverage ratio was 1.45 times. Needless to say, our leverage continues to be at a very moderate level, and well within our range over the past five years of 1.5 to 2.5 times.

With combined cash on hand, and availability at our revolving credit facility at the end of 2012 totaling more than $180 million, we continue to have ample liquidity and financial capacity to fund our current operations and growth initiatives.

In fact, as Jay already mentioned, we successfully completed the private placement of $150 million in senior notes with two major US LifeCos after year-end. These notes have an attractive fixed rate of interest of 3.84% and a 12-year term, maturing in January 2025, with amortization in five equal annual installments beginning in January 2021. Proceeds of this financing were applied against draws into our revolver, thereby providing an additional $150 million of availability.

More importantly, this long-term, fixed-rate financing, our first of this nature since 2005, better aligns our debt capital structure with the long-term nature of the investments we have in our operating businesses. This senior notes financing, combined with the renewal and increase in our revolver to $350 million, maturing in March 2017, which we completed in early 2012, puts our balance sheet and debt capital structure in great shape, and will provide ample capacity to support our growth requirements for the foreseeable future.

Now, I'd like to turn things over to Scott for his comments. Scott?

Thank you, John. Let me start my divisional review with the fourth-quarter operating performance and trends for Commercial Real Estate.

As you heard, we had a very strong finish to the year at Colliers, with Q4 revenues up 23%, to $370 million. Approximately half the growth was organic, and the balance related to the acquisition of Colliers UK at the end of March. Organic growth for the quarter was driven by double-digit increases in Asia-Pac and the Americas, tempered by flat year-over-year results in Europe.

By service line, our growth globally was driven by strong 20%-plus increases in investment sales, and supported by 10% year-over-year growth in consulting and appraisal, property management and project management. Leasing revenues were up only slightly across the regions.

Colliers generated fourth-quarter EBITDA of $42.8 million, or 11.6% of revenues, up from $29.2 million, and 9.7%, in the prior year. Healthy margin enhancement in the Americas and Asia-Pac drove the increase.

Let's take a closer look at each of our three regions, starting with the Americas, where revenues were up 11%, driven by solid 12% increases in both the US and Canada, offset in part by a 20% decline in Latin America, which is more reflective of an unusually strong comparative fourth quarter of 2011, which included several large investment sales transactions which were not matched this year. Looking at the full year, Latin America reported record results, which were up nicely over 2011.

The 12% revenue growth in the US for the quarter was driven by significant double-digit increases in investment sales activity and supported by strong growth in consulting and appraisal revenues, offset in part by 10% declines in leasing. Our US operations continue to outpace market growth, helped by successful recruiting efforts over the last three years, continued momentum of the Corporate Solutions Group, and significant increases in internal referrals and global collaboration. Year-over-year growth was particularly strong in our West Coast offices, including LA, Puget Sound, San Francisco, San Diego, and Phoenix.

We also reported 12% growth in Canada, but unlike the US, growth was spread approximately equally across service lines and geographically across the country.

We reported a low, double-digit margin in the Americas for the quarter, up approximately 100 basis points from the prior year, due primarily to operating leverage in the US and Canada. Looking forward in the Americas, we expect to show year-over-year gains in 2013 across the region, although somewhat cautious about Q1 and Q2, due to continued uncertainty in the US economy, which is serving to lengthen deal times and defer leasing transactions. I will say that pipelines are reasonably strong and generally improved over the prior year at this time.

In our Asia-Pac region, total revenues were up 18%, driven by particularly strong growth in Australia, China, and Hong Kong, and supported by some level of growth in every market. Sales, leasing, and appraisal revenues were up approximately 20% across the region, tempered by flat year-over-year results from other service lines, including property management and project management, among others.

Our EBITDA margin in Asia-Pac for the quarter was mid-teen, up over 100 basis points from the prior year, due primarily to operating leverage and margin increases across our China operations. Looking forward in Asia-Pac, sentiment is currently positive and has improved over the last two quarters, and we expect to show modest year-over-year gains in 2013 across the region.

In our Europe region, revenues were approximately $55 million, with the UK business comprising over 50% of the total. We finished slightly ahead of our expectations in the UK, reflecting favorably on the integration and restructuring work that our management team completed post-acquisition. Excluding the UK, our revenues in Europe were up 5%, with increases in Russia offset by declines in southeast Europe. Central Europe, including our market-leading operations in Poland, Romania, and Hungary, were together approximately flat with a year ago.

Our EBITDA margin was solid mid-teens, similar to the prior-year number, with strong margins generated from our UK business offsetting declines experienced in southeast Europe, where the market continues to be very weak.

Looking forward, for our Europe business, we expect continued positive momentum from our UK operations, but we continue to be very cautious about the rest of Europe and have modest expectations for 2013. Trading conditions continue to be difficult.

In summary, for our Commercial Real Estate division, we are very pleased with how we finished the year, generally exceeding expectation across the board. We are optimistic that we will show continued organic growth in 2013 and again show progress in our margin as we move towards our 10% goal.

Turning now to Residential Property Management, revenues were $206.6 million for the quarter, up 10% over the prior year, 9% organically. Organic growth was driven by new contract wins and increases in management fee revenue, continuing a trend we have seen throughout 2012. This growth was supported by solid increases in ancillary fee revenue during the quarter, which reverses a trend we have seen in recent quarters, in which steep declines in collection fee revenue year over year negated increases in our other ancillary revenue. Collection revenues were down during the quarter relative to prior year, but increases in insurance, transfer and disclosure, and other ancillary revenues more than offset the decline.

Management fee revenue was up 8% organically, while ancillary revenues were up 11%. For the year, management fee revenue grew 7% organically, while ancillary fee revenue was approximately flat.

Our growth for the quarter was strongest on the East Coast of the US, particularly Florida and New York City, where we continued to leverage our high-rise expertise and differentiators to win new business in these markets and take share. EBITDA margin in the quarter was 5.7%, down from 6.4% in the prior year. Our margin from management fees increased slightly, primarily due to operating leverage, but this was more than offset by unusual costs during the quarter relating to severance and a major branding initiative scheduled for June of the current year.

Looking forward in Residential Property Management, we expect to continue to generate solid organic growth. We are winning business across North America, and we are retaining it. We have an array of compelling differentiators that are unique, and that we continually refine and improve, and it is resulting in incremental market share gains quarter in and quarter out.

In terms of margin for 2013, we expect our operating EBITDA margin to trend up through the year, after adjusting for certain investments that we are budgeting around branding and technology, which will total approximately $6 million. In June of this year, our 20 separate local brands across North America are coming together as FirstService Residential -- one North American brand with a common purpose and a single marketing message, facilitating our ability to leverage our size, reduce our costs, and streamline our processes, while staying loyal to our strong local service delivery model. We believe the investment in 2013 will yield significant long-term benefit.

Property Services. In this division during the quarter, which comprises Field Asset Services and our franchise brands, revenues were $56 million, down from $106.6 million in the prior-year quarter, as a result of steep declines at FAS. Our franchise brands enjoyed a strong fourth quarter, up 20% year over year as a group, while FAS fell from $76 million to $23 million for the quarter.

Looking in our franchise group, all our systems contributed to strong quarterly results, with California Closets and CertaPro Painters in particular driving revenue increases. All key metrics, including leads, average job size, and bookings, are up year over year, and momentum has continued into the current year.

The decline at FAS is the result of several factors, which have been discussed on previous calls, and include a contract termination at the end of 2011, which impacted our year-over-year results throughout 2012; secondly, our resignation at the end of the second quarter from our largest contract; and then an overall significant decline in national foreclosure activity.

Our revenues were down 23% sequentially relative to the third quarter, which is due in part to seasonal slowdown of foreclosure activity, but also reflects a continuing decline in the market. EBITDA for Property Services was $3.2 million, compared to $9.7 million in the prior year. Improved margins year over year in the Franchise Group were more than offset by a significant decline in profitability at FAS, which reported a small loss for the quarter, compared to a 10% margin in the fourth quarter of 2011.

Looking forward, for our Property Services division, we expect continued momentum for our franchise systems and favorable year-over-year comparisons throughout 2013.

As it relates to FAS, there is little visibility. Our annual run rate revenues, based on existing clients and volumes, are now about $80 million, and the market for foreclosure services remains in flux. We continue to manage our costs aggressively to keep them in line with revenues, but our margin expectations are modest at current revenue levels. For 2013, we expect FAS will comprise less than 5% of FirstService revenues and generate a breakeven result or better. I would now like to ask the operator to open the line for questions.

(Operator Instructions)

Frederic Bastien, Raymond James.

A lot of the questions that I had were answered through the prepared comments, but I was wondering if you could provide a bit more color on the -- on Field Asset Services. I understand the previous guidance you had, you were closer to $100 million to $120 million in revenues, and obviously, now you're looking more at $80 million, and not a lot of visibility on the margin side. What really gets this business going, or is there -- just looking for catalysts as to what could drive that business a little higher?

I'm not sure you should be looking for a catalyst, Frederic. The foreclosure volumes are down significantly. The short sales and loan modifications continue to increase relative to foreclosures. Our clients are pushing short sales. The numbers we previously provided was from the same set of clients that we currently have, but volumes are down. And at current levels, we are telling you that we're in and around a run rate of $80 million, and breakeven it's -- and we don't expect it to be materially different from that in 2013.

Okay. Then switching then to Colliers, do you expect that the organic, the internal revenue growth and the margin expansion that you expect to get out of this year enough to offset any of the resulting impact from the foreclosure business? Should we see on a consolidated basis some good -- some growth out of FirstService this year?

Sure. On a consolidated basis we expect to be up, so all things considered, with the momentum we have in Colliers, which we expect to continue, yes, we expect to grow.

Okay. Thanks. And then, the last question I have is on the -- obviously, you mentioned the branding and technology efforts you are having right now with respect to Residential Property Management. Is that really what impacted the margins also on the fourth quarter?

In the fourth quarter our operating margin was up slightly year over year, and we did have some unusual one-time costs. Costs associated with the rebranding is part of that, and we also had some unusual severance relative to prior year.

And what do those severance relate to? Just streamlining the business, and --?

Yes.

Yes.

Thank you. I'll turn it over.

Will Marks, JMP Securities.

I wanted to first ask, just to -- further clarification on Field Asset Services. So the $80 million run rate, is that -- was the $80 million from fourth quarter, or was it the full year 2012? I'm just wondering if 2013 could match 2012 in that area, or would we expect a decline?

The $80 million reflects current run rate. For the year in 2012, we were about double that, in large part relating to six months of revenue from the client that we resigned from at the end of the second quarter.

Okay. So the comps from Property Services will be particularly difficult in the first half of the year, I would assume?

For the first two quarters, yes.

Okay. And it seems the same, just maybe across the whole business. I know you made one general comment on that. Or is it just that from that division where the first half is a tough comp?

Yes. I'd say that's correct. We're -- that's a particularly challenging comp, I would say. That situation does not exist in the other businesses.

Okay. And the 10% longer-term margin in -- for Commercial Real Estate Services. Is that -- how long term is that? I guess we have a way -- a few percentage points to get there. Can you get halfway there in 2013, or is that probably a stretch?

That's a stretch. But we made great progress this year. We expect to grow in '13, and I don't have a specific estimate for you, but we expect to enhance our margin again. But at -- to be at 10% in two years? Not likely.

Okay. Fair enough. And what in Commercial Real Estate Services, Colliers -- how much of that would be leasing and sales brokerage versus other areas, and maybe specifically, property and facility management?

It's coming from brokerage, the margin enhancement.

Actually -- sorry. I just meant of total revenues right now, what percent are brokerage?

65%.

65%. Okay. Thanks. And then, my last question on -- of the Colliers offices and revenues, I think, two separate items. What percent does your company control at this point?

On a global basis, or in the US? What are you asking?

Actually, I'd love to have both, but I don't want to make things too confusing. (laughter) Either way. Whatever you want to give me.

Today we represent in excess of 80% of the revenues of Colliers Global. And we do not own markets that we believe are -- with one or two exceptions -- that we believe are not essential top 20 markets globally, which is what our current focus on -- focus is. And so, we are focused -- are focusing our efforts on driving growth and profitability in the 22 top markets in the world.

Okay. Thank you all.

Stephen MacLeod, BMO Capital Markets.

Just wanted to follow up on the Residential Property Management business. Scott, you mentioned that you expect margins to tick higher after adjusting for branding and technology investments through the year. With the US economy and consumer spending slowly ticking higher, are you closer to getting back to the 9.5% to 10% margin run rate in the RPM business?

I don't think I would be that aspirational for 2013, but certainly volumes have stabilized -- ancillary volumes. The pricing is -- contract pricing -- renewal pricing is stabilized. And we're continuing to grow, so we are going to go get back to that quarter-in, quarter-out operating-leverage, incremental-expansion mode which we enjoyed for several years. I think we will get back to the 9% to 10% range, but we're probably a few years out.

Okay. Great. And then, on the Colliers business, you've made some pretty significant hires over the past 12 or 18 months. Can you just discuss some of the terms of those contracts? If the market does slowly pick up, can those brokers then be hired back to where they came from?

The brokers can always be hired back, is the simple answer. But they came to Colliers for a reason. And I think that we are delivering what we promised to those brokers. The brokers that we've hired in the last three years, on average, they are succeeding. It's working for us. It's working for them. So we certainly don't expect that.

Okay. That's great. And then finally, you guys mentioned M&A, both on the Colliers front and the FS Brands front. Are you willing to discuss which markets in Colliers you are looking to bolster your presence? And then, secondarily, on -- in FS Brands, were you talking specifically about some franchises becoming company-owned, or are you talking about building new verticals?

We're -- with Colliers, we're always very strategic, again focusing on the key markets that are going to help move our business to the next level.

Historically, the Colliers platform has been strong in a lot of markets, but some of those markets were not markets that would deliver business from one market to another. And that, obviously, helps our overall platform. So, we're going to be very strategic in terms of acquisitions on the Colliers front.

In terms of FirstService brands, we did very well in our California Closets Company-owned operations. We've expanded in our HVAC area as Company-owned operations through Service America. There are other franchise systems that are market leaders. Franchisees use our computer systems, ways of operating and franchise -- the actual, day-to-day operations of the franchise system. We have unique knowledge of not only the market, but also the players within that market.

We have, to date, not pursued Company-owned operations outside of California Closets and Service America. It's an area that we are looking at very closely now to see whether we can get -- generate some good returns for FirstService shareholders. We think we can. It's just another area of growth in a business we know, under a brand we know, using computer systems and technology that are our computer systems and technology. It's just another way of growing.

Okay. And then just one quick follow-up question on the RPM business. If you include the investments you're making in branding and technology, do you expect that margins will be flat to lower year over year?

Flat to down slightly.

Okay great. Thank you.

Tal Woolley, RBC.

Just to talk about Property Services again for a second. When the initial unwinding of the contract was discussed earlier this year, I think that the view was maybe -- you could expect to see a run rate EBITDA for the Property Services division of about $25 million to $30 million. Does that still seem like something that's achievable, or should that be something -- should we be reducing our expectations down further from that level?

Is he talking about the entire Property Services or field, I (multiple speakers)

Yes. I understand that anything --. So it certainly sounds like your expectations on the profitability of Field Asset Services will come down. And so I'm just trying to get a sense of -- in -- where the long -- longer-term, two, three years from now, where you would expect to see that Property Services division, given that you are seeing some pickup in the franchise business.

Look -- it will trend up. I don't want to get into specific guidance, Tal, but I know what you're trying to get at. Maybe the best way to characterize this is if you go back a few years, even before Field Asset Services, that group of businesses, back in pre-financial crisis, was generating in the low- to mid-$30 million of EBITDA. So, certainly going back to that area, we would expect that to certainly occur as the US economy continues to recover.

Okay. That's great. And then, for -- just a couple of accounting questions. I noticed the depreciation cost this quarter really ticked up. Was that on anything specific?

Yes. We just had a -- some catch-up on there. There is probably about $2.5 million of one-time adjustments, some reclassification of things that were previously recorded as operating leases. We had -- we did an evaluation of some other software, technology stuff, that just -- we had to make an adjustment in terms of the carrying costs of that.

So, bottom line is, when you look at our depreciation number it's mid-$30 million is a good number on an annual basis. It just ticked up there at the end of the year.

Okay, so mid-$30 million, or mid-$30 million, really. Okay. And under -- you had mentioned on the SG&A side, for the Corporate division, the elimination of performance-based comp this year. Just to be clear, that's not -- you haven't eliminated your performance-based comp program, it's that the accruals weren't made this year because of performance?

Yes. We didn't qualify.

And then -- but you did a fairly large stock-based comp expense --

Yes.

--within the quarter? So, can you explain the drivers that would have driven that?

That increase relates to the Colliers option plan -- stock-based comp plan. That was in existence, but was previously not in the money. And as a result of their strong performance, there is a charge related to that program.

Okay.

That increase entirely relates to Colliers, really.

Perfect. And then, just on the Mar West acquisition you announced earlier in the year, can you give us some sense of what the trailing revenue would be on that business?

Yes. It's about a $5 million, $6 million -- it's a small business. $5 million, $6 million management-fee business. So, as management fee revenue goes, it's a nice-sized business, but from a FirstService perspective, it's a relatively small business.

Okay. And even though that's a commercial -- I think it was a commercial property association business, that still falls under the Residential Property Management business?

Right.

Okay. I think that's all my questions. Thanks very much, guys.

Anthony Zicha, Scotiabank

Jay, could you give us some color on acquisitions in terms of size or range that you are currently looking at? And could we anticipate that some of these acquisitions takes us overseas to Europe or Asia?

Yes. I think those are definitely targets. There's very few key markets that we don't own. We still run as franchisees in the Colliers world, or affiliates, as they call them. And there are surely opportunities in those two areas that we continue to pursue.

And could we anticipate a transaction, possibly this year?

It's always strategic, and we'll see. (laughter)

Okay. And can you give us a size, like a low end and an upper bound?

Boy, you are really probing. They vary in size. They're probably, give or take, $50 million to $100 million in revenue. So, those types of size acquisitions are things that we are pursuing.

Okay. Well, thank you, Jay.

Brandon Dobell, William Blair.

Thanks. I want to come back to Colliers for a second, just so I understand your comments around margin seasonality. I would expect fourth quarter to show some good expansion, but I want to make sure I understand how you're talking about the first half of the year, given the comments about uncertainty in the US and Europe. How should we expect that to impact margins, especially given the impact of Colliers in the UK?

Well, we -- the UK, we will be bringing on a seasonally low quarter in the UK, which will serve to temper our margins somewhat. But we would expect the margin to be, I think, similar to prior year.

For the first half of the year?

For the first quarter, and then we'll start to tick up from there.

Start to improve? Okay. And then -- just want to give the same question for property management. Make sure, with the margins ticking up slightly through the year, I want to make sure how your comments around that $6 million investment number. Was some of that investment here in the fourth quarter, and that was part of the reason for the margin compression? Or is that $6 million going to show up in the middle of the year around that branding initiative to bring all the brands together?

Some was in the fourth quarter. The bulk of that will be in the first half of the year.

Okay. And should we expect any strategic changes that come along with that branding change? Organizational structure changes, or new service lines that you expect to add with the rebranding? Or was it really just about nameplates versus strategy?

It's both, but the strategy piece will not be visible, certainly, in '13. It's something that will take some time to develop. So, '13 we will see the name change, the marketing message, the coming together of 20 separate brands into one North American brand. But we do expect that it will impact our strategy and that we'll -- it will accelerate our growth in years to come.

Okay. And then a couple of quick numbers questions. Capital spending and tax rate for this year. John, how should we think about that relative to 2012?

Tax rate, I think, 30% -- 30% to 31% is our best estimate as to where we expect that to be. And CapEx would be in the $35 million to $37 million range, sort of mid- to upper $30 million. Obviously, we try and control that the best we can. But, we don't anticipate any particularly large expenditures out there like we face in the UK. So we'll be back to more of a normalized expenditure.

Okay. And then the final one big picture was, in the past you've talked about your level of comfort around leverage on the business. Should we still use those historical comments as the right framework? Or given the progress in Colliers and the cash flow coming out of there, is there any change in how we should think about what you may or may not do with the balance sheet from an -- either acquisition or a repurchase perspective? Thanks.

Well, I think the -- I think our long-term perspective around that range of 1.5 to 2.5 times continues to stand. We finished the year strong, well below two times -- just below two times. The business is a bit seasonal, and so we'll probably see a little uptick in our leverage be it facing the seasonal factors this year. And absent acquisitions, we would naturally deleverage with the significant amount of cash that we generate.

But we think that it's more likely than not that acquisitions will get completed. And with that, we would expect our leverage to remain in the plus or minus 2 times range over the course of the next year.

Okay. Thanks a lot. Appreciate it.

You're welcome.

Tal Woolley, RBC.

Hi, John. I was just wondering -- housekeeping side on the converts -- now that they've moved well into the money for some sustained period of time, how we should think about accounting for those this year?

I don't think there's any impact, really, at this point.

Those are exercisable now, or is that because they're not--

Well, they are. It would have to be a significant premium. The stock would have to be north at $35 or better for an extended period of time. Really, these are really probably a 2014 event, at which point, beginning January 1, 2014, we could force convert, as long as the stock was at $28, which obviously it is above that now. So, it's more of a next year, 2014 event.

Okay. And, the last thing, just for next year, too. Do you have a sense of what any repurchases of minority interests might be for next year, too, in addition to your CapEx? Or does your CapEx budget include that?

Yes, I mean --. Look, there's nothing anticipated. That can always change, but at this point, there's nothing really on the non-controlling interest side in terms of repurchase.

Okay. That's great. Thanks very much.

You're welcome.

There are no other questions at this time.

Okay. Thank you, everyone, for joining us, and we look forward to our first-quarter conference call coming up. Thanks again.

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