Colliers International Group Inc (CIGI) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter investors' 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 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 Friday, April 26, 2013.

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, operator. And good morning, everyone, and thanks for joining us. 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 better than anticipated results for the seasonally slow first quarter, as revenues at Colliers International, FirstService Residential, and FirstService Brands were all up strongly versus the prior-year quarter. Colliers International had particularly strong bottom-line performance, reflecting market share gains and continued growth in multi-market assignments, corporate services, investment, and capital market activities.

And as expected, results from Field Asset Services were down considerably from the prior year due to sharp declines in foreclosure volumes associated with the recovery in the US economy. Revenues from Field Assets during the quarter were down a full $41 million from last year, making the quarter a very tough comparison indeed.

Many will recall a few years ago during the financial crisis that Field Assets was generating exceptional cash flows for FirstService. Those earnings were very important at the time. They gave us the firepower we needed to invest in our businesses at a perfect time in the economic cycle, and now those investments are paying off handsomely as you will hear.

Scott and John will have more to say about our operational and financial highlights in just a few minutes. Looking forward, FirstService will continue to create value one step at a time through our three growth engines -- Colliers International, one of the top global players in commercial real estate; FirstService Residential, North America's largest residential property manager; and Property Services, a leading provider of essential services delivered through Company-owned operations, franchise systems, and contractor networks.

Just before the quarter ended, we announced the acquisition of Colliers Germany, adding market-leading players in Munich, Stuttgart, and Berlin and oversight of important relationships with affiliates in Dusseldorf and Frankfort. Having a leadership position, the anchor of the entire EU, not only accelerates our growth in the region but also reinforces our ability to serve clients in Europe and around the world.

Over the years, the FirstService partnership model has been an important competitive advantage for us, and it made all the difference in the world in the case of Colliers Germany. Our new partners are people who have a deep market knowledge and experience, and they have built their businesses slowly and carefully over many years. But they also understand that the market is changing, and now more than ever clients want service providers that are better capitalized and better able to deliver services seamlessly on a global basis.

Our new partners that Colliers Germany are not, however, all that new. You see, they have been with Colliers and have been Colliers affiliates now for ages. We have worked together with them on many engagements over the years, so coming together was just a natural step for both of us. I would like to formally welcome all of them into the FirstService family.

Before I turn things over to John I would like to comment briefly on our plans to simplify our capital structure and institute a dividend on our common shares. The plan involves eliminating our outstanding 7% preferred shares by way of a partial redemption for cash, followed by a conversion of the balance of the preferred shares into common shares.

Instituting a cash dividend on our common shares creates a new source of investment income for the holders of our common shares, in addition to their capital appreciation. But it also introduces FirstService to a new universe of dividend-oriented investors, which should help with our liquidity.

In summary, we are pleased with the results from our first quarter and confident we are on track to deliver strong year-over-year growth in revenue, EBITDA, and earnings per share for the balance of the year. Now let me ask John to take you through the financial details for the quarter. Scott will follow with his operational report, and then we will open things up to questions. John?

Thank you, Jay, and good morning. As announced in our press release earlier this morning and covered by Jay in his opening remarks, FirstService reported first-quarter financial results that included revenue and adjusted EBITDA that were better than our expectations. Consistent with our first quarter in each of the last three years, Colliers International's Commercial Real Estate operation was the main contributor to our growth in revenues, while our Property Services division reported another decline in its results, with Field Asset Services down sharply, more than offsetting growth in FirstService Brands in its seasonally weak first quarter. Scott will have more to say about each of the segment 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 2013, consolidated revenues increased to $498 million, up 2% from $490 million in the first quarter of 2012. This growth was attributable to acquisitions, while internal growth was down 3% for the quarter.

Adjusted EBITDA came in at $10.6 million, roughly flat with $10.8 million reported in the first quarter of last year. And adjusted earnings per share came in at a loss of $0.20 per share compared to a loss of $0.10 reported in the first quarter last year. The decline and adjusted earnings per share was attributable primarily to higher depreciation and interest expense. Our adjustments to GAAP EPS in arriving at adjusted EPS are outlined in our press release issued this morning and are consistent with those outlined in past quarters.

Turning to our cash flow and investing activities during the first quarter, cash flow from operations before working capital changes increased to $1.5 million, up from negative $4.5 million in our first quarter of last year. Inclusive of working capital changes, cash flow from operations was negative $66.8 million, compared to negative $54.3 million last year, where cash usage is heavy as broker commissions and variable compensation-related accruals from year-end are typically settled during the first three months of the year.

We invested $27.2 million in acquisition activities during the first quarter. All of this related to our Colliers Germany acquisition, compared to $12.7 million invested in the Colliers UK acquisition in first quarter of last year. Meanwhile, our capital expenditures amounted to $5.7 million, compared to $6.9 million last year.

Turning to our balance sheet, our net debt position stood at about $419 million at the end of the quarter, compared to $306 million at our December 31 year-end, and $381 million at the end of the first quarter of last year, with the increase from year-end attributable mainly to the working capital usage and capital investment noted previously.

Our leverage ratio, expressed as net debt to EBITDA, stood at 2.5 times, up from just under 2 times at year-end and similar to our leverage at the end of our first quarter of last year. Net debt includes $77 million in convertible debentures due in 2014. And adjusted for the conversion of the debentures into common shares, our pro forma leverage was 2 times at the end of the first quarter.

Regarding our debt capital structure, as previously announced with the release of our 2012 full-year results, in the early part of our first quarter we successfully completed the private placement of $150 million in senior notes with two major US LifeCos. These 12-year notes, which bear an attractive fixed interest rate of 3.84%, will amortize in five equal annual installments beginning in January of 2021. Proceeds of this financing were applied against our revolver and aligns our debt capital structure with the long-term nature of the investments we have in our operating businesses.

Finally, as Jay already outlined and announced, after the end of our first quarter we have decided to simplify our capital structure with the redemption and conversion of our 7% preferred shares. We expect to complete this transaction in early May and anticipate issuing approximately 2.9 million additional common shares as part of the conversion and a cash payment of $39.5 million to fund the portion of the shares being redeemed. Subsequent to the elimination of our preferred shares, FirstService intends to commence paying a quarterly dividend of $0.10 per share -- that is $0.40 per share annually -- with the first such dividend expected to be declared for the current second quarter ending June 30.

In terms of our financial capacity, with cash on hand and committed availability under our revolver, we had over $200 million of liquidity at quarter-end, a level ample to fund our operations and other capital requirements required to execute our growth strategy and create value for our shareholders. Now over to Scott for the operating highlights. Scott?

Thank you, John, and good morning. As you have heard, we had a very good quarter in commercial real estate, so let me start my divisional reviews there.

Revenues were up 16% over the prior year, 6% organic growth and the balance from the acquisition of Colliers UK at the end of March 2012. Every region performed ahead of prior year and contributed to the organic growth. Additionally, every region was in line or ahead of expectation.

By service line, our growth globally was driven by approximate 10% increases in sales commission and appraisal revenues, tempered by flat year-over-year revenues from leasing and other service lines. Colliers generated a positive EBITDA of $2.6 million during the seasonally weak first quarter, compared to a slight loss in the prior year. Healthy margin enhancement in the Americas and Australia more than offset the inclusion of the UK business, which traditionally loses money in the first quarter.

Taking a closer look at our Americas region, revenues were up 5%, the result of common trends in each of the US, Canada, and Latin America, with leasing revenues up over the prior year by mid single-digit percentages, supported by consulting and appraisal revenues, which were up by 10%-plus. Americas growth was tempered by flat year-over-year revenues from sales commissions and property and project management fees.

We generated a mid single-digit margin in the Americas for the quarter, up 200 basis points from the prior year, the result of operating leverage across the region. Notably, we generated a profit in Latin America during the first quarter, which has historically been a loss quarter due to seasonality. Our pipelines at quarter-end across the Americas remain healthy, and we expect to show continued but modest year-over-year revenue gains for the balance of the year.

In our Asia-Pac region, revenues were up close to 10%, driven by very strong investment sales in Australia, up over 20% from prior-year levels and supported by 15% growth in consulting and appraisal revenues across the region. Leasing revenues were down slightly while Property Management revenues and investment sales outside of Australia were approximately flat with the year-ago.

By country, we generated very strong results in Australia and New Zealand and solid results across Asia, with the exception of China and Hong Kong, which were both down over 10%. The first quarter is generally challenging in China and Hong Kong, and it was especially so this year, primarily the result of two factors. The Chinese New Year was two weeks later than in 2012, on February 10, which basically slowed activity from year-end through to mid February; and sales activity in the market was down as both China and Hong Kong have implemented cooling measures in the past year to temper speculation.

For the quarter in Asia-Pac, we generated a high single-digit margin, up from mid single-digit in the prior year due to the strength in operating leverage achieved in Australia and New Zealand. The margin in Asia outside of ANZ was up marginally over prior-year levels.

Looking forward in Asia-Pac we expect to show single-digit growth for the balance of the year, driven by solid results out of Australia and supported by modest growth in most of our markets in Asia. We expect results from our China and Hong Kong operations to be flat to down for the balance of the year.

In our Europe region, revenues were up by approximately $21 million due largely to the inclusion of the UK business in our results. The UK business performed well in a seasonally weaker quarter, above expectation and well above year-ago revenue levels under prior ownership. Excluding the UK, our revenues in Europe were up 5%, with increases in Russia, partially offset by modest declines in Central and Southeast Europe.

We incurred negative EBITDA in the quarter of $6 million, compared to negative EBITDA in the prior year of $2.2 million, the increase the result of the loss from the UK business for the quarter. Our compensation schemes across Europe tend to be largely fixed, which historically has led to losses in the first quarter. The extent of the loss is in line with our expectation.

Looking forward for our Europe business, we expect continued positive momentum from our UK operations and solid results from our recently acquired operations in Germany. We continue to be cautious about the rest of Europe and Russia, which we expect together will be flat with prior year.

The second quarter will be our first reporting quarter consolidating the results of our German operations in Munich, Stuttgart, and Berlin. In 2012, this business generated approximately $50 million in revenues and generated a strong double-digit margin. We expect to report to revenues of approximately $40 million for the remaining nine months of this year with an EBITDA margin about 10%.

In summary, for our Commercial Real Estate division, we are pleased with the first quarter. It exceeded internal expectation and has provided greater comfort around achieving our year-end targets. We are optimistic that we will show continued organic growth and margin enhancement through the balance of 2013.

Moving on to Residential Property Management. Revenues were $206.6 million for the quarter in this division, up 8% over the prior year, almost all organic, driven by new contract wins and increases in management fee revenue, partially offset by declines in revenues from certain ancillary services, particularly collection services and our swimming pool operations.

In our core Management business, every office in every region across North America reported year-over-year gains. The growth was spread very evenly across the organization.

Our EBITDA margin in the quarter was 5.3%, down 100 basis points from the prior year. Margin from our core Management business was up 30 basis points primarily due to operating leverage; but this was more than offset by three primary factors.

The first relates to rebranding. As I mentioned on the year-end call and last week at our AGM, we are rebranding on June 27 of this year, the end of next quarter. 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.

The investment in the rebranding and our technology platform to support it will approximate $6 million this year. During the first quarter, our investment was about $1.2 million, or 60 basis points.

Among other things, the rebrand will facilitate our ability to leverage our size, reduce our cost, and streamline our processes. We are confident the investment this quarter and over the balance of the year will yield significant long-term benefit.

The second factor impacting margin relates to collection and certain other ancillary services that, together, are countercyclical to the housing market and were off relative to the prior year. This accounted for about 30 basis points of the margin change. The housing market is showing slow and steady improvement, and we expect these ancillary services to continue to be soft in the near term.

Finally, lower margins at our swimming pool operations impacted the quarter by $800,000 or 40 basis points. The unusually warm weather last year drove pool construction and maintenance revenues; and the unusually cold weather this year has deferred activity, particularly in March.

This is timing only. Construction pipelines are strong, and we are confident we will make this up over the balance of the year.

Looking forward in Residential Property Management, we expect to continue to generate solid organic growth driven through market share gains and from new development. We are winning business across North America, and we are retaining it.

We expect EBITDA margin to continue to trend up through the year, after adjusting for the significant branding and technology spend. Net-net, including the investment, we expect our margin to be down slightly on the year.

Now on to Property Services, which comprises Field Asset Services and FirstService Brands, our franchise group. Revenues were $44.3 million for the quarter, down from $84.8 million in the prior-year quarter as a result of steep declines at FAS. FirstService Brands enjoyed a strong first quarter, up 13% year-over-year, while Field Assets posted revenue of slightly less than $20 million, which was approximately one-third of the prior-year level.

Looking more closely at Brands, most of our operations contributed to the quarterly growth, with California Closets being the main driver. All key metrics including leads, average job size, and bookings are up year-over-year and momentum continues.

The home-improvement market is expected to grow by 10% in 2013, the highest level since 2006. We expect this will lead to continued double-digit growth for our franchise group.

The falloff at FAS is due to the significant decline in national foreclosure activity, which is basically back to pre-housing crisis levels. FAS is repositioning itself to effectively compete in the new paradigm. We believe the company has developed a strong point of difference in the market, and there are signs supporting this, as several meaningful new clients have been added over the last six months.

In terms of margin, both FirstService Brands and FAS were approximately breakeven for the quarter. Brands was at a similar level to prior year for the seasonally weak quarter, while the FAS margin was down from the high single-digit level due to the steep decline in revenue and associated reduction in operating leverage.

Looking forward for Property Services, we will have another tough comparison in the second quarter but move into more relevant year-over-year comparisons for FAS in the third and fourth quarter. As I indicated in the year-end call, we expect FAS to continue at its current run rate level of around $80 million, with a margin of breakeven or slightly better for the next few quarters. As the market continues to stabilize, however, we are comfortable that Field Assets will be poised again to be become a meaningful contributor to our growth in earnings at FirstService.

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

(Operator Instructions) David Gold, Sidoti.

Hi, good morning. Just a couple of points to follow up. First, on the FAS side, are there other businesses or areas of things we can do to see if we can't restore growth there? Or is it really just a matter of they have a core competency and just business is slow and there aren't ancillary services that you could add in?

We have looked at diversifying their revenue and we continue to look, David. But they do have a core competency, and they are focusing on the market where they can make an impact. And we are here focused on stabilizing this business and growing from there. So, we are looking for this to be a solid contributor in the future, but not a high grower.

Got you. Okay. Then, broadly on the Commercial Real Estate side, and I know it is a broad question. Thoughts for 2013 on, let's say, the capital markets or the sales side versus the leasing side. Are you expecting acceleration on the leasing side?

No. It's -- I mean tenants and occupiers both remain cautious in -- really across all three of our regions. We are expecting growth, but it will be modest in each region. We really need, I think particularly in North America, more robust improvement in employment before we see any real growth in our leasing business.

Got you. And on the sales side?

Sales in the market were up in all three regions. We experienced at Colliers, principally in Australia -- we had, if you remember in North America, a very, very strong fourth quarter in sales, and I think it is part timing. Our activity is up, and we were flat in North America, up 10% globally. We expect our sales will be up over the balance of the year, and our growth in this division will be weighted toward the sales and appraisal side.

Got you. Perfect. And then just one last -- always love to ask the question. It is good to hear from Jay the update on the acquisition front. Obviously, you have done a little bit this year, but what else? Are there other pockets or holes that you want to fill in, both on the Commercial Real Estate side or in the other businesses?

Well, we have a full pipeline of acquisition activity, which is quite exciting. So far this year we have added quite a bit, and the pipeline continues to be there. As we have done in the past, we are focusing specifically in areas where we think we can generate the most value but at the same time strategically strengthen our business.

So Germany was a key component of that strategy. There is more to do, we think, in Europe to strengthen our platform there.

The German business was a first-class business, a great group of seasoned professionals there. So we believe there is more to do in terms of strengthening some of their business lines and augmenting their revenue streams with things like Property Management and other things that they do, but not in a way that is a significant contributor to a fully balanced business.

So in a market that should be a $200 million, $300 million, $400 million business over time, we see lots of growth, with lots of growth there. We are also seeing some nice -- they are small and not material, but small acquisitions in the Residential Property Management space and in a couple of other areas. But all to augment our internal growth and to continue to strengthen our franchises.

Perfect. Thank you.

Brandon Dobell, William Blair.

Thanks. Within Colliers now, with the acquisitions completed, what does the geographic mix look like within that business now?

What do you mean? Revenue split?

Yes, so EMEA, Americas, and Asia-Pac. How is that split up now with the most recent acquisitions being in the EMEA segment?

Let's see. Let me just grab that. On a revenue basis, Europe is running at about 14%. That will be higher as a result of the German acquisition, so that will be 20% going forward.

Okay. Then between Asia-Pac and the Americas, how does it split out?

Australia -- or Asia-Pac on a combined basis would be at about 20% and the balance in the Americas.

Got it. Should we expect you guys to grow headcount in Colliers, particularly in the US, through this year and into '14?

Well, recruiting is an ongoing exercise. In the first quarter we added 13 producers, some high-profile names in the US. So I think you will see it incrementally in that way, Brandon.

Okay. Okay. Then go back maybe 12, 18 months or so, one of the big initiatives was getting all the affiliates on the same system, the same platform, the same technology to try and drive some costs out of there.

Are we most of the way through that? Is there any kind of tail to that that we're going to see from a cost structure or margin point of view this year? Or [knocking] up, back to standard operating procedures?

Standard operating procedures. We are through that.

Okay. Then within the Property Management business, should we expect you guys to continue to make acquisitions there? Is that going to be a primary, I guess, use of capital?

The outlook for the ancillary services continues to be, I think, tougher than I would have thought. If the multifamily space slows down or if there is more churn in the tenants, does that change how those ancillary services could look for you guys? Or is it just more about the macro environment that needs to change to drive those service revenues up?

Let me deal with the ancillary services, and then Jay can talk about the acquisitions. I think this quarter in particular, we experienced a year-over-year decline primarily in collections, because we did have some strength last year in the first quarter, but you will remember that it did tail off for us last year. So the comparisons will improve over the balance of the year. And while it will continue to dilute our growth in our margin, it won't be significant.

Okay.

Yes, Brandon, in terms of acquisitions, we are enjoying some pretty good growth, internal growth as Scott outlined in that business. Every single division -- we have four divisions now of that business -- is actively pursuing tuck-under acquisitions, most of which are not material, but all of which help to drive internal growth -- or sorry, overall year-over-year growth up.

But the key focus for us this year is rebranding. It is a huge initiative for us. We're all very excited about it.

We have got all of our organizations, 20 different brands across North America, all going to evolve to FirstService Residential. It is a huge undertaking. So that is where we are really dedicating lots of our time and effort this year.

Okay.

We are also investigating the prospect of adding service lines that are complementary and maybe geographic areas that may be complementary. But that is really just a strategic thinking at this point.

Okay. Then kind of to dovetail that a little bit, given the strength in the multifamily or rental market in the US the past year, year and a half, the churn has gone way down, right? Vacancies are way down, but churn is also way down.

If churn picks back up, does that provide a tailwind for you guys? Or does that -- we shouldn't think of the revenue drivers that, I guess, correlate with that metric?

You know, for us, that has been a very interesting area. Obviously, we were -- primarily through FAS we were at the front seat of all of that activity.

Right.

I don't think it's settled yet. I don't think there is any clarity in the marketplace.

But what we do is we provide third-party Property Management services for these aggregators of homes. It is a very small part of our business, Brandon. I mean it is not even worth drawing your attention to it.

Got it. Okay. Appreciate it. Thanks a lot.

Stephen MacLeod, BMO Capital Markets.

Thank you. Good morning. I just wanted to follow up on the rebranding initiative that you have at the Residential Property Management business. In terms of the investments in rebranding and IT, how do you expect the balance of $6 million to flow out over the next three quarters?

The bulk of it will be in the second quarter. The date is June 27. So in terms of the signage, collateral, the investment in the website, and so on, that is all -- some in the first quarter, but heavily weighted to the second quarter.

Okay. You may have some that leaks into the third quarter as well?

Minor.

Minor? Okay. Then can you just talk -- I know you have touched a little bit about -- on what benefits having a consistent brand will bring. But can you just go into a little bit of detail as to what is driving the decision to brand the 20 different businesses as one? Is it something that you think customers have been looking for?

I mean practically, it will streamline our business and our systems, enable our people to work more efficiently. Again, examples would include collateral, moving from 20 websites to one; facilitating procurement; facilitating our ability to come together with one customer contact center, for example. It will accelerate our ability to consolidate our technology platform.

So there is all of the tactical stuff, but it is really much more than that, we believe. We are today 20 brands that comprise the largest residential property management company in North America by a factor of at least 2. So we have a very significant leadership position and it is a position that is unassailable. It is not going to change.

And with this leadership position comes a unique opportunity. We believe to fully leverage it, we need to come together as one North American brand with a single message.

And we believe that we can start to build brand equity, become recognized for our differentiators, become recognized for our service levels. And in time, FirstService Residential will stand for something unique, special, in the residential property management market. We have the size, capital, and people to make that happen.

Will it change your acquisition strategy at all in terms of integrating new businesses that would have built up brand equity in their respective markets?

No. No. I mean, we can continue with our philosophy and our acquisition structures under the new brand. It won't change significantly.

Okay, great. Then just turning to the Commercial Real Estate business, can you just provide an update, if you have one, with respect to your long-term 10% margin goal in that business?

Well, we are making progress this year. I mean we finished '12 close to 7%. We will be up this year, perhaps closer to 8%. We keep marching our way there.

Yes, okay. Great. thank you.

Stephanie Price, CIBC.

Morning, gentlemen. Assuming that the preferred shares are eliminated, can you talk a bit about your thoughts on the dividend policy going forward?

We are starting with what we believe to be a modest dividend and one that -- if you do the calculation -- roughly equates to the amount that we have been spending currently on dividends and other similar type things that are -- will be consistent the day after we do this. So that from the standpoint of growing FirstService, we are really not taking any incremental cash flow away from our operations to pay dividends.

So, step one is, let's get a dividend in place. Let's make sure that we are relatively flat with where we have been historically.

And step two would be to continue to strengthen our business and hopefully over time maybe move the dividend level up. But I think we're at a good start here, and we will take things one step at a time.

Okay. So you don't have any percentage of cash flow or anything like that, that you are targeting for the dividend?

We always look at that. But really at the end of the day, we can reinvest, especially with the activity we see in the next year or two, three, we can reinvest our available cash better in our own business and generate returns for shareholders, which is what we want to do.

Okay. In terms of Field Asset Services, can you talk a bit about how you see the margins rolling out in the next couple quarters? When do you see the margins in this division stabilizing?

In my prepared comments, Stephanie, I indicated that it would be breakeven to slightly better. We see that really for the balance of the year.

Okay. So you don't see it gradually getting there; you think Q2 you are going to start to see a breakeven result?

We expect to be breakeven in Q2, or better.

Okay. Then in terms of the franchise services business, as the market improves here, can you talk about a bit your plans for the business? Is this an area that you are actively looking to grow, or what are your plans for the franchise services side of the business?

Well, I mean organically, the growth we expect is double-digit really over the next several years, fueled by the improving home-improvement market, but also by the many initiatives and programs that are in place in this business that are driving franchisee productivity. So the organic growth will be strong. Jay, do you want to comment on acquisitions?

Well, I would actually add sort of base business first, because we have a renewed life in that business from a variety of perspectives. It's -- the market is coming back. We have strong market-leading brands, and each one of the brands have a growth strategy which is quite exciting, actually, and you are starting to see it in year-over-year growth.

So, over the next couple of years, we are going to continue to drive our existing brands. We may look to add more Company-owned operations strategically in a couple of different areas which is, in effect, built-in growth. When you have a franchise system of size with a strong brand that is a national brand, you are in a special situation, the special opportunity to go through -- to add Company-owned operations and do it in a way that generates a high return on invested capital.

In terms of acquisition growth, I would say that most of the acquisitions that we're looking at in this segment right now are internal-type acquisitions, like acquiring a significant franchise in an existing region that we think we can double or triple. So famous last words, I don't see us adding another franchise brand, but I do see us becoming much more Company-owned-oriented over the next two, three years.

Great. Thank you very much.

Brian Hikisch, Raymond James.

Hi, guys. Good morning. So, Frederic just apologizes; he couldn't be on the call today but sends his regards, and I will ask a few questions in his place. My first question, just with the acquisition of Colliers Germany, are there or will there be in the Q2 results any one-time costs related to the acquisition? And if so, what would you estimate the magnitude to be?

No significant one-time costs really associated with this. This is quite a different acquisition relative to, say, what we dealt with in the UK.

Okay, it sounds good. Great. Then I will just ask one more. Can you just give us an update on Colliers global corporate solutions? And in particular, have you brought in any more Fortune 500 companies as clients?

Continues to grow. Today it is a global business. We have dozens of clients that are contracts that are global, encompass multi-region or regional in nature. It is profitable. There are no significant wins this quarter that we publicized, and we tend not to with this business.

Okay, great. Thanks a lot.

Will Marks, JMP Securities.

Thank you. Good morning, Jay, Scott, John. A couple questions. One, can you give maybe a broad overview of Europe as it relates to Colliers and just the leasing and sales businesses in general?

I know Europe is a general term, because every country differs. But it seems like things are a little better there than anyone would have thought this year. Maybe it is just easy comps.

You know our legacy business, Will, is Central and Eastern Europe, Southeast Europe, and Russia. And those markets are not strong and they were not in the first quarter. So our leasing business was slightly down in those markets, but those markets were all weak last year also.

Our UK business was strong in the first quarter, up over prior year. But we did not own it. But it is -- it does have momentum in the UK.

And then we just acquired Germany, and business is solid in that, those operations.

Okay, thank you. One other question. We hear a lot from CBG and JLL on property and facility management, and their significant positions in those businesses, and how it drives leasing and sales. Can you just talk about your efforts to grow that business?

Yes, we watch the same thing and smile internally a little bit, because we do that in our Resi Property Management business in a big way. We understand property and facility management, which is a fancy way of saying janitorial and security. And those are generally low-margin businesses that can change on a dime. Insurance rates go up, minimum wage goes up, risk associated with those levels of -- those types of contracts are very significant.

Will, you might remember we had a very significant security business which we sold several years ago. So we do understand that space, and we are not pursuing it to the same degree as they might be, for those reasons.

Okay. That's very helpful. Thank you.

Tal Woolley, RBC.

Hi, good morning. Sorry, Jay, just to back up to something you said earlier in the call, you said that you believe that the acquisition in Germany could generate $300 million to $400 million in revenue; or is that the size of the market in Germany?

The size of the market in Germany.

Okay, perfect. That's what I thought. Then John, you had indicated too the acquisition closed this quarter; that cost was $21 million, all in?

I'm sorry, what costs are you referring to?

The cost for the acquisition in Germany.

Oh, $27 million.

Okay. Did the payment go this quarter, or will that come out --?

No, that was the end of the quarter we did it. It's on our cash flow statement. And that was, obviously, for a 60% interest.

Most of the consideration was paid on closing. There will be some residual earnout as well.

Okay. Again, just to switch back to Field Asset Services, you had said earlier in the call -- I just want to make sure I am clear on this -- that you expect breakeven margins for Field Asset Services over the long term?

Not for the long term.

Okay, so just --

This year.

Okay. When you look at the revenue declines at Field Asset Services right now, are you able to sense how much of this is contracts, the contracts you exited, and how much is cyclical right now?

Well, it is running at the same level it has for the last couple of quarters. So while it is a dramatic drop from the first quarter of last year, it is not necessarily new. And it is a result of both of the things you mentioned, the lost contract and the declining market.

But just to confirm, this business, the current run rate is about $80 million and the margin is breakeven to slightly better for the balance of this year. As this market continues to stabilize, we look to grow this business and enhance the margin one step at a time, as we usually do.

So I would like to add something to that. Let's put this into perspective, because there's lots of questions about Field Assets. And again, I smile.

Field Assets this quarter represented 3% of our overall revenues. On an annualized basis today, at the number Scott just talked about, it might be give or take 3% of our annualized revenues.

It was a business that generated huge, huge cash flows when the market was down. We used those cash flows to continue to grow our business.

The constant questions around FAS are laughable because from my perspective it is all about growing a business and adding value. And it is just -- I think we are getting distracted with FAS when you have got so many other great things happening in all of our other businesses -- Colliers, FirstService Resi, FirstService Brands all up materially over the prior year.

Yes. I think just from my perspective it sounded -- I appreciate the business earned a lot more previously. It's just we are just trying to assess that we have got our forecast in the right position. I think that is from where we are looking at it; it is not so much a concern about the business or the materiality of it.

I understood.

I think -- my last question, too, Jay, is just you talked maybe potentially about taking over more ownership of the Brands business and Property Services. You have in the past also looked at potentially divesting that business.

I am just wondering, given that prospects -- I think you left that option on the table because of where you were in the cycle. Now that the cycle looks like it may be starting to turn, is that also something you would maybe look at again?

You know, when we took it off the market -- I think it was three years ago now -- we made a commitment -- or two years ago, we made a commitment to the management team that we were going to continue to grow the business. It is up materially from the forecast that we made at that time. The new management team is doing an incredible job and growing both revenues and EBITDA in that business.

And we see lots of runway room in a business that generates a very high return on invested capital. This is a very low CapEx generative business.

So for the foreseeable future we are going to continue to grow the business, and I think that we can continue to add value to our shareholders. And there is a lot of crossover potential with our other Residential Management business for obvious reasons. So it is with us for the foreseeable future, for sure.

Okay, when you look at that, you talked about double-digit growth prospects there. Is that purely activity levels going up that would provide that? Or do you find new franchisees as the market upswings, too? I'm just trying to get a sense of where exactly the growth comes from.

Almost no new franchisees. This is a business of increasing productivity by franchise. So when we look across our franchise systems we are finding individual franchisees generating much higher revenues, making more money, which allows them to investment spend in better technology and some other marketing initiatives that are going to help drive their sales even further.

And it also makes them more sophisticated franchisees. When the average franchise in Paul Davis, for example, generates close to $3 million, $4 million a year, you've got a sophisticated group of managers driving that business, and it helps you as a franchisor because they are more open-minded to investing for the future.

Okay. That's great. Thanks very much, gentlemen.

Anthony Zicha, Scotiabank.

Hi, good morning, gentlemen. You mentioned that market share gains in the CRE, could we get some more color from which segments were the drivers and in which geographies?

My other part of the question would be when we look at North America, which geographies or cities hold the most promising potential for the Company? Thanks.

Market share gains? I'm not -- I don't recall us mentioning that. But I think that certainly over the last 12 months, particularly in leasing in North America, we believe we are taking share particularly in 2012. Our business was up 16% across the Americas in leasing while the markets were down.

So we are taking share on the leasing side, and generally believe we are just largely on our successful recruiting over the last three years and the high-profile producers that we brought in, again particularly in North America.

In terms of what markets we are particularly focused on, I mean it is a broad-based growth, but we are focused on our major markets. In North America those are New York, LA, Chicago, Boston; and they are obvious around the world. But our focus is on our major markets and having a full-service offering and driving that.

Okay. Well, thank you very much.

Okay. There are no other questions at this time.

Okay. Ladies and gentlemen, thank you very much for joining us and we look forward to the second-quarter conference call. Thanks again.

Ladies and gentlemen, this concludes the first quarter investors' conference call. Thank you for your participation and have a great day.