Colliers International Group Inc (CIGI) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter investors 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 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 Wednesday, October 23, 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, and good morning, everyone. As the Operator said, I'm Jay Hennick, Founder 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 strong year-over-year results, with revenue up 9%, EBITDA up 11%, and earnings per share up 8%, all in what was another very busy quarter for our company on many levels.

Each of our service lines reported strong revenue growth. Both Colliers International and FirstService Brands grew EBITDA by more than 30%. We completed the rebranding at FirstService Residential and we redeemed all of our outstanding convertible debentures. And also, we successfully completed the sale of Field Asset Services. With so much accomplished, FirstService is better positioned today than at any other time in its history to deliver strong growth in revenue and profits in the years ahead.

In terms of Field Asset Services, we sold the business to insurance company Assurant, Inc. at the quarter end. While Field Assets was successfully repositioned for future growth, the changing environment in the US residential mortgage market currently favors service providers like Assurant, who can offer clients a more comprehensive suite of services.

I would like to take this opportunity to thank our former management team for all of their efforts during our years of ownership, and wish them well as part of Assurant.

Needless to say, from FirstService's perspective investing in Field Assets back in 2007 was very fortuitous, indeed. The strong cash flow generated during the US housing and financial crisis proved to be countercyclical to some of our other service lines, and the substantial earnings that we generated provided us with the fire power we needed to capitalize on opportunities at the right time in the economic cycle.

As you know, Colliers International is one of the top three global players in commercial real estate, and it continues to show momentum as we strengthen our platform one step at a time. During the quarter EBITDA grew by 31%, with margins up almost 130 basis points versus the prior year. Growth came both internally and from recent acquisitions, and higher margins from our concentrated efforts to refine and strengthen our global platform.

During the quarter Colliers was also named Best Overall Real Estate Advisory Firm in Asia, China, Singapore and several other markets in the Far East by the Euromoney annual survey, which demonstrates once again the strength of our market presence and the experience we have in the region.

And Colliers continues to make progress, winning new mandates from large corporate clients. So far this year, Colliers was selected by British Telecom to be its exclusive global service solutions provider, and has won major mandates from large clients, such as AON, NBC Universal, Adobe, Siemens, Sanofi, just to name a few.

We continue to receive outstanding feedback on our Colliers 360 portfolio analytic and business intelligence tools, which is turning into a real big differentiator for Colliers, as one of the few commercial real estate firms who can truly offer services to clients on a global basis.

Revenues at FirstService Residential were also up by 8% during the quarter, all from internal growth. We're pleased to have completed the rebranding of all of our property management operations across North America to the FirstService Residential brand name. Bringing the FirstService brand to the forefront was a natural step for us. It allowed us to deliver a consistent brand message and service delivery model across the board, and it positions us well to continue leveraging the more than 1.6 million units we manage across North America.

In terms of acquisitions, we completed a small but important acquisition, adding Curry Association Management just after quarter end. Curry is that city's largest residential management company and it will be rebranded as FirstService Residential Kansas City over the coming months. Having such a large presence in "The Show Me State" will allow us bring our unique business model for this growing market and show our new clients there some of the many differentiators we offer as the largest residential management firm in North America.

Property Services also had a very strong quarter, with EBITDA up 31% and margins up almost 500 basis points in the seasonally strong third quarter. All of our service brands, including Paul Davis Restoration, California Closets, CertaPro Painters, and Pillar to Post Home Inspections, are showing increased momentum as customers begin spending again as house values continue to recover.

So all in all, the third quarter was an excellent quarter all around, and we look forward to the balance of the year with great confidence. We expect to finish well ahead of last year in virtually every category.

Now, before we open things up to questions, let me turn things over to John for some of the financial details from the quarter, and then Scott will provide his operational report. John?

Thank you, Jay.

As already reported earlier this morning in our press release and highlighted by Jay in his opening remarks, FirstService reported strong results in our third quarter, building on the momentum seen through the first half of the year, and a noticeable improvement over the more constrained results reported in Q3 last year.

Our results are a function of the focused efforts and investment decisions made by FirstService and our operating teams over the last few years and, generally, a continuing improvement in market conditions, though recent political rancor and discord in the US related to its fiscal situation did elevate uncertainty during the last half of the quarter.

Despite this uncertainty and ongoing challenges in certain other markets, our operations performed exceedingly well. The following results are those from continuing operations, reflecting the sale of Field Asset Services at the end of the quarter.

Revenues were $608.3 million, up 9% from $559 million in our third quarter last year, with internal growth in local currency revenues of 8%, or about 6% in US dollars, factoring in the negative impact of FX in the quarter.

Adjusted EBITDA totaled $55.4 million, up 11% from $49.7 million last year, with our margin coming in at 9.1% versus 8.9% last year. Adjusted diluted earnings per share came in at $0.68, up 8% over the $0.63 reported from continuing operations in Q3 last year.

As outlined in our press release and summary financial statements released this morning, adjusted EPS includes certain adjustments to earnings per share 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 and disclosures in prior periods.

Before commenting on our cash flow statement and balance sheet, I have some comments on the divesture of Field Asset Services to follow up on Jay's opening remarks. During the fourth quarter of 2007, when FAS was acquired by FirstService, to the end of our just completed third quarter, this business generated in excess of $100 million in after-tax cash flow for FirstService, of which about $20 million was reinvested in CapEx, primarily (inaudible) in the rate of infrastructure to support the operations of FAS.

So, despite recording a small after-tax loss on the sale of FAS, the real economics were very favorable to FirstService during the past six years, culminating in additional after-tax sale proceeds of more than $50 million, validating Field Asset Services as the preeminent preservation services platform in the US mortgage default industry.

Turning now to our cash flow statement, we saw strong results in our third quarter, generating $35 million in cash flow from operations before working capital, up 29% compared to Q3 of last year. [As well,] after factoring in changes to working capital, our cash flow from operations totaled $64.9 million, up 18% over the $55.2 million reported in Q3 of last year.

During the quarter our investment in new acquisitions was negligible, coming off of the heavy investment in Colliers Germany in the first half of the year. We continued to invest in our operations, with $9.7 million expended in capital expenditures, up from $8.3 million in the same quarter last year. Year to date we have invested about $22 million in CapEx, on par with last year.

We do expect to finish the year with elevated CapEx compared to more normalized levels, mainly on account of significant CapEx that will be required to fit out Colliers' new premises in New York City, which will total approximately $10 million once completed in early 2014, about half of which will be incurred in Q4. While the new landlord will be funding much of the fit-out and tenant inducements, we expect to record incremental spend on a GAAP basis that will result in CapEx of between $40 million and $42 million for the full year 2013 compared to the $44 million in CapEx invested in 2012 which, as you may recall, included $6 million related to Colliers UK's new office in London.

Moving to our balance sheet, our net debt position at quarter end was $300 million compared to $462 million at the end of our second quarter, with both the cash proceeds from the sale of FAS and the early conversion of our $77 million in 6.5% convertible debentures contributing significantly to this reduction.

Our leverage, expressed in terms of net debt to trailing-12-month EBITDA, was 1.6 times, down from 2.6 times at the end of Q2 in the current year and 2.4 times at the end of Q3 last year. With significantly lower leverage and close to $250 million in available cash and undrawn credit under our bank lines, we have ample financial capacity to augment our strong cash flow from operations in funding additional investments to help fuel the growth of our businesses and also support the quarterly dividend on our common shares.

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

Thank you, John, and good morning.

As you heard from Jay, we generated solid results in our commercial real estate division for the quarter, up 9%, 5% organic growth, with the balance coming from the acquisition of Colliers Germany. Organic growth globally was led by gains in Australia, Canada, the UK, and Central and Eastern Europe.

In local currency, organic growth was even stronger at 8%. Declines in the Canadian and Australian dollar over the last 12 months negatively impacted reported revenue growth.

By service line, growth was driven by 20%-plus increases in sales commission revenues, supported by 10% increases in appraisal revenues, offset in part by a 7% decline in leasing, primarily coming out of North America. Property management, project management and other revenues were approximately flat year over year.

Revenues for our Americas region, which comprises over 50% of our total, were flat. High-single-digit growth in Canada was offset by declines in Latin America, which reported a very strong third quarter in 2002 (sic), and revenues from our US operations were approximately flat year over year.

By service line, strong increases in sales commission revenue, up greater than 25% in the US and Canada, were offset by 16% declines in leasing revenue. Leasing activity was down year over year across the Americas region, particularly in our major markets.

In our Asia-Pac region, revenues were up by 5%, driven by very strong results in Australia and New Zealand, which grew approximately 15% year over year in local currency, 7% when translated into US dollars. Sales commission and leasing revenues contributed equally to the strong results in ANZ, which were tempered by flat results in the aggregate from the rest of Asia.

Turning to our Europe region, revenues were up 62%, largely due to the addition of Colliers Germany earlier this year. But organic growth for the rest of Europe was a very healthy 19%. The growth was primarily driven by strong results out of the UK relative to prior year, and supported by solid single-digit growth across Central and Eastern Europe. Regional revenues from sales, leasing, and appraisal were all up approximately equally year over year.

In terms of profitability, Colliers generated an EBITDA margin of 8.2% for the quarter, up from 6.9% in the prior year, primarily due to improved profitability in our Europe region, driven by two factors. Firstly, strong revenue growth in the UK led to a solidly profitable result compared to our reported loss in the prior year; and, secondly, the addition of the German business enhances our overall margin.

Looking to the fourth quarter for Colliers, we believe we have sufficient pipeline activity and momentum to support a strong finish to 2013, with Q4 year-over-year organic growth and margin improvement in each of our three regions.

Our primary concern around Q4 performance relates to the US economy, which continued to slow in the third quarter. The recent government shutdown and lack of any sustainable agreement has deferred uncertainty into 2014, which could further mute leasing activity in particular. The leasing environment is currently very cautious and is likely to remain this way for the foreseeable future.

In our residential property management division, revenues were $243.9 million for the quarter, up 7% organically, driven by new contract wins and increases in management fee revenue. We experienced solid growth in each of our four regions across North America, with particular strength in Florida and our North region, including our Canadian offices in Minneapolis. Our new client wins continue to be somewhat balanced between new development, wins from competitors, and the transition from self management to professional management.

Our growth this quarter came entirely from new contract wins, as ancillary revenues were flat with the year-ago period, continuing a trend we have seen for several quarters now. Increases in transfer and disclosure revenues, financial services, landscaping and other revenues were offset by declines in collection services and related revenues.

Our collection business has been in decline, in line with the market, for well over a year now and we made a decision during the quarter to aggressively downsize our service offering and, as a result, exit several markets and incur a charge of $2 million. The charge primarily reflects an increase to the receivables provision, but also includes lease termination and severance costs.

We have exited the Texas, Florida, and Arizona markets, but still have portfolios of delinquent files in these markets that need to be worked through to collection or write-off. As a result, we have partnered with local law firms to continue to work the existing portfolios and to service our clients on new delinquencies. The increased receivables provision reflects the unsecured nature of our receivable and the reliance being placed on outside parties to collect on our behalf.

Our EBITDA margin in the quarter was 8.2% compared to 9.5% in the prior year, the decline primarily the result of the $2 million collections charge plus the final $700,000 of rebranding and related IT expenses. The margin was approximately in line with the prior year after adjustment for these two amounts.

Looking forward at FirstService Residential to the fourth quarter, we expect to see continued organic growth with a margin that is in line or slightly better than prior year.

Looking now at property services, and with the sale of Field Assets this division now consists of our FirstService Brands businesses. As a reminder, this group comprises seven franchise systems, the largest of which are California Closets, Paul Davis Restoration, and CertaPro Painters, plus nine Company-owned California Closet franchises.

FirstService Brands has enjoyed a very strong 2013, which continued through the third quarter. Revenues were up 12% year over year, all organic, driven by very strong growth at California Closets and CertaPro Painters, but supported by year-over-year growth in each of the franchise systems and every one of the Company-owed operations.

Home improvement spending and remodeling in the US continues to be very strong, and we are benefiting as a result. But, we believe we are also gaining share through our aggressive brand marketing and lead generation. Leads, bookings, and average job size continue to trend up, and we expect a strong finish to the year in this division.

The margin for the seasonally strong third quarter was 33.2%, up from 28.3% in the prior year, the increase reflective of the strong leverage inherent in the franchise operating model and the royalty-generated revenues relative to our other more labor-intensive service businesses.

That concludes our prepared comments. I would now like to ask the Operator to take questions.

(Operator Instructions) Frederic Bastien; Raymond James.

Your franchise operations recorded EBITDA margins of 33% during the quarter, which is -- really that's as good as I've seen the business deliver. Yet I think we're only in the early stages of a recovery in consumer discretionary spending. So I was wondering, how much more leverage do you think you can squeeze out of that business?

In terms of the margins, I think that that margin is close to a high-water mark for us. There is a significant amount of operating leverage in this business. So, as revenues increase we would see some improvement, but unlikely to see the 500 basis point kind of move that we saw year over year this past quarter.

And obviously this is, I guess, your seasonally strongest quarter for that particular business. Where would that bring you on an annualized basis in terms of margin?

Annualized it will be up from last year and it will be high teens, close to 20%.

Okay, thanks. Now, moving on to Colliers, if I recall, you had a very strong fourth quarter last year. Do you think you can match the EBITDA that you produced last year in the fourth quarter this year?

Our pipelines in North America are approximately the same as prior year, but they are up in our other regions. We think that, based on what we know today, we will match or exceed fourth quarter last year, revenue and margin.

Okay. That's good to hear. Lastly, so your balance sheet has improved dramatically as well. How do you, or where do you, redeploy that capital?

Well, I think it's the same old story, Frederic. First and foremost we're looking for attractive, accretive acquisition opportunities, which obviously fit with our strategy and will help strengthen our businesses. That's first and foremost where we'll go.

We'll continue to manage carefully our capital expenditures. I did speak about some extra CapEx that we will have with respect to New York, which is an expensive place to build an office, but something that's needed and I think will really support our business going forward there. That's first and foremost where it's going to go.

And as I'm sure we'll get into later on, there's lots of acquisition opportunities out there to pursue. But it's a great position to be in, having a very strong balance sheet at this time in the cycle. And we're very pleased to be where we are today.

Is the focus going to be on continuing to build your current businesses, or are we looking at another vertical?

It's Jay here. We have so much opportunity in all three of our businesses, but principally Colliers and FirstService Residential because of the breadth and scope of both of those businesses. So our current focus from an acquisition standpoint is strengthening those two businesses on a global basis, adding service lines that might enhance our overall product offering to clients. So that's where our focus is.

Perfect. Thanks a lot, guys, (inaudible).

Sami Abboud; Scotiabank.

I'm speaking on behalf of Anthony Zicha. My first question would be related to, I guess, the acquisitions. Your balance sheet is relatively -- is very healthy, actually, compared to past years. Would you consider relevering your balance sheet to make acquisitions of material size? Or are you aiming to keep the balance sheet less than 2 times?

Well, the balance sheet is strong this quarter and, as John might confirm, our seasonally strong balance sheet quarter is actually year end. So we expect it to get much stronger by year end. ] The second part of your questions is -- no. We have always been opportunistic in terms of acquisitions and careful in the way we spend our capital. So if a great opportunity presented itself, we would be there. We always believed we had the fire power regardless of where our balance sheet was. We now are in a much more fortunate position that way. But it is all going to be can we find accretive acquisitions that could be integrated well into our existing platform and add value to FirstService shareholders.

So I hate to sound like a broken record, but it's been the same since sort of Day One for us on that.

Okay. And my last question would be regarding FS Brands. Now, I know Colliers and FirstService Residential mainly may be through those acquisition opportunities out there, but FS Brands growth opportunities, can you talk about those, please?

I think it's essentially organic growth that we're focused on with this division. Home improvement spending continues to increase, and we continue to take advantage of that. And that's our focus. There are many internal initiatives that we're working on and we believe we're growing at a rate that's greater than the market. But we think we've got lots of room for growth here.

Just to add something to what Scott said, if we can continue to find organic growth in the 12%-plus range, why wouldn't we just stay focused there? That's our current thinking.

Okay. And that would not include opening up more franchise locations, or would that include that as well?

One of the things that we're working on is territory remediation. And it's where territories are perhaps too big or otherwise not being fully capitalized on. We are buying that turf back or slicing and dicing that, creating new franchises. So that is something that we've been working on the last year in particular and will be for the next couple of years. And that provides us with incremental growth.

Thank you very much, gentlemen.

Tal Woolley; RBC Capital Markets.

Just wondering, with rates starting to move back up, I'm wondering if you can talk about with the commercial -- within the Colliers business, are there certain lines that we should think about being more sensitive to that move in rates? I'm just wondering, if you're seeing healthy growth in sales do you think some of that is people trying to get a jump on the higher rates and trying to refinance now?

I'm not sure we see that. The investment sales market has been buoyant all year and it's really capital looking to take advantage of the real estate sector and yields relative to where the rates are. As long as the gap exists between rates and cap rates and available yield, I think that we'll see continued health in investment sales. Our pipelines are not declining.

I would add to that that I think really only recently, within the last year to 18 months, the bank lending, particularly as it relates to commercial real estate, has really started to increase. It's still far below it was during the last cycle and it's now just recovering. So additional liquidity in the market will help with those volumes.

Okay. And then, just at the corporate level, any change in view on financing strategy for new acquisitions? You've definitely cleaned up the balance sheet but, with rates moving, any thoughts about the way you'd look at financing acquisitions going forward, or just steady as she goes?

I think the short answer is steady as she goes. We have a very defined way that we complete acquisitions, with lots of downside protection, to the extent we can structure them that way. And we'll continue to structure our deals in the same way.

Okay. And then, in the residential business, it sounds like you did a fairly thorough review of the business lines that you wanted to be in and the geographies. Is there any more retooling of that business that we should expect going forward?

No, not the -- I mean, it was just -- it was one service line. I wouldn't call it a retooling. It was very focused on one specific service. And we think that we have -- that business will be small for us on a go-forward basis. And we don't see anything else in the future.

And that question -- I think you had called that business out as being -- that was a fairly substantial revenue, or pardon me, substantial margin business.

Yes.

Okay. And then, John, just wondering, could we get the full current share count, with the preferred, the converts removed and net of any repurchasing right now? Where would the current share count stand?

We're about almost 36 -- 35.6 million shares. That's the absolute number at the end of the quarter.

Perfect. Thanks very much, guys.

Whitney Stevenson; JMP Securities.

Hey, guys, this is Mitch here with Whitney. Just curious about the FAS sale, Field Asset Services. Maybe if you can provide some history in terms of what you guys paid for that and what your total investment was and maybe the IRR around that business and sale?

Total dollars in was just over $60 million and change, which included our initial investment plus the residual. And our IRR [ramp] on that in terms of overall after-tax cash was about 15%.

Great. I think Whitney has one, too. Thank you.

I just wanted to ask if you could get a little more specific on the Colliers business domestically. I know that you gave the sales up 25% and the leasing down 16% for US and Canada combined. Are those numbers significantly different if we pull out Canada?

No, they're not. They're actually pretty similar, both countries.

Okay. Perfect. And then, just if you have any thoughts or if you could talk a little bit about the domestic leasing environment and maybe your thoughts on why the segment continues to lag with sales in the recovery?

Well, I think the occupiers increasingly have become cautious through 2013. At this time last year we were seeing many large, long-term lease transactions in our major markets. And this year we're seeing, in terms of activity, perhaps a similar number of deals, but they are trending towards sublease and short-term renewals. And it's uncertainty in the economy that's driving it. And we think it's going to extend through to 2014 now with the lack of any real solution at the government level.

We would need to see stronger economic growth and stronger employment numbers, I think, before we see a return to a healthy leasing environment.

Okay. And then, just one follow-up. And not to harp on the issue too much, but you got the rates question and I'm just wondering if there's anything that you see in the dynamic that's allowing the investment sales to continue on such a strong trajectory despite the fact that owners and sellers are subjected to the same macro issues in the US right now that occupiers are.

I think that globally there's a great deal of capital that is still seeking out safe haven yield. And so, that capital is finding its way to North America as well, particularly, I think, from Asia. And, as John pointed out, the financing environment is much better, much improved, and it is helping also.

Okay. Great. Thank you very much.

David Gold; Sidoti.

Just a couple points of follow-up. One is, when we think about the commercial real estate business domestically -- and I know there have been some questions -- but when we think about flat in the quarter, how much of that do you attribute to, broadly speaking, the economy as it's been? And how much of it do you think was a little bit of maybe slowdown with the rate increase, and now that that's sort of settled in and folks have adjusted to it, we presumably see some offset and maybe that gets us the growth that we see in the fourth quarter? Or is it hard to quantify?

I think it's the economy in general that's creating caution and uncertainty and deferral of decisions around upgrading and increasing space.

And that it's more lease related. If you take a look at the numbers -- let's just speak of our numbers last year versus this year. The leasing numbers are down, whereas the investment sales numbers are up, which would support what Scott's saying.

Right. But I guess, Jay, if you looked at maybe where you landed for the quarter versus where you thought you'd be, say, go back to April, May, as rates started to spike, was there much change there? Or presumably -- because obviously the economy issue has been with us for some time. So if there's a variance there maybe that would be more related to the interest rate step-up? Or no such thing? In other words, did your expectations change much from, say, May, before the rates started to spike?

David, we are very close to our internal expectations.

Perfect. And then, one other. Strategically -- I know you've given us some color on this, but when we think about with the sale of Field, presumably you have an opportunity to do a little bit more, let's say, repositioning around real estate. [We know] in many businesses you're quite happy. But are there other areas not that you'd like to get into, but maybe other ways that you'd like to reposition the business a little bit if we looked out over the next few months or couple of years?

Well, again, looking out over the next couple of years, we are dead focused on Colliers and FirstService Resi in terms of continuing our growth. The Brands business is got a great story around internal growth. They've got some very aggressive plans around doubling their size over an extended period of time, which is exciting. But I think from our perspective, if we can maintain a very solid level of growth in Colliers -- and I just have to emphasize we have the opportunity in FirstService Residential to do it on a North American basis growth, add service lines underneath a very strong brand. We have the same opportunity to do it globally under the Colliers brand.

So the example that I've used historically is, in Germany as an example, we do not provide property management services of any sort or of any magnitude. We may do it in one market or the other. And it's a huge opportunity for Colliers Germany. We don't do valuations in Colliers Germany. So those are two areas of our business that we can very easily, over the course of the next couple of years, strengthen under a very strong Colliers brand in that marketplace. And there's countless examples like that in different geographic regions that we consider to be strong and growth oriented for our company.

So if we can allocate our capital under two very strong brands that have global growth proportions, it's the safest form of growth for us, number one. And acquisition cost is much more modest than adding a new service line which would have to be significant and obviously at a higher valuation than we would otherwise be comfortable with.

Perfect. Perfect. That's helpful. Thank you all.

Brandon Dobell; William Blair.

I want to touch on Colliers first. Aside from the New York expenditures here in the fourth quarter, anything we should expect in the next several quarters in terms of build-out or things that would change the cost structure all that much? Or should we expect that the dollars of operating expenses will look pretty similar in 2014 to what they look like in 2013?

Similar, Brandon. No real change. I mean, we've set the course and, aside from the CapEx I mentioned, that really should pretty much do it. I don't anticipate any larger similar expenditures down the road at this point. We're good.

Okay. And then, sticking with Colliers, in the face of the kind of continuing weakness in US leasing. And there's two ways you guys could go, right? You sit there and try and take share with the people you have in a market that's a little sluggish. Or, you go out and you get more aggressive on hiring people to drive share, regardless of what the market's doing. How do we think about those two choices for you guys? And I guess stick with the US, but if applies more globally, especially on the leasing side, maybe address that as well.

Well, recruiting continues to be a focus, particularly in the US. We added 30 net new producers in the US. A big chunk of those would be major-market office leasing. So it is a continued focus of ours. It's very competitive, the recruiting environment right now. Certainly in the US that's the case. But we have had success in the last two years, 2011 and 2012. We're having great results out of those recruiting classes. And so it's working for us and we're -- the plan is to continue.

Okay. Any kind of early read on how we should think about capital needs for 2014, given all the puts and takes the past couple of years around the branding and now the expenses here for the New York build? Should CapEx be lower in 2014 than 2013?

Well, yes, 2014 will have a little bit of a carryover as relates to this New York CapEx, which will be, in the aggregate, about $10 million. So that will be added on to what I would have expected to be kind of a mid-to-high $30 millions. So we'll probably end up north of $40 million again next year.

And then, beyond that, normalize that to the upper $30 millions to $40 million. I guess as we grow the business overall, we'll expect it to continue. I think on the sort of medium term we would look at CapEx as being approximately 20% of our overall EBITDA. And we're running a little bit higher than that right now, but as we grow the business that percentage should decline slightly.

Okay. And looking into the fourth quarter, maybe even the first quarter, any expectations for further either charges or adjustments as you exit that collections business? Or, anything within that part of the segment that we should be thinking of as a charge or a hit to operating profit for the segment? Or anything else that you think might crop up as you try and work through some of those issues in the fourth quarter?

Based on what we know today, Brandon, nothing.

Okay. And then, final one for me, within FirstService Residential, now that you've got the branding all done, I guess two-part question. Sounds as if we shouldn't expect any more expenses in the fourth quarter related to branding. I just want to make sure I understand that correctly.

And then, second, how do you get the synergies out of the acquisitions, like an acquisition you just did, the Curry deal, in kind of association management versus property management? How do those two things fit together? Is there one that serves the bigger growth opportunity or better business to be in? I just want to make sure I understand the strategy there.

In terms of branding, as I understand it -- John, correct me if I'm wrong -- we're done on branding. It was a major undertaking and we're really quite happy with the results, for all kinds of reasons.

In terms of acquisitions and using Curry as an example, Curry didn't have the advantages that we did in many areas. They were an extremely well managed business, but didn't have shared services, didn't have many of the ancillaries that we have, insurance, lock box, and a variety of other things, all of which we are now deep with them in terms of implementing them.

So we have been successful over the years at enhancing the EBITDA that we acquire by adding some unique products and services to clients, but also reducing overall operating costs at the branch level.

There's a difference, obviously, between high-rise management and low-rise management, although we're seeing -- and Scott may want to add a little bit here. But we're seeing lots more high-rise, mid-rise construction happening again in various parts of the US, primarily in major markets, which is all good for us. And so, that is the area of business where we believe we can add more value in terms of energy procurement and a variety of other things, which makes us more essential to our clients in those markets.

Scott, did you --

Does that answer your question, Brandon?

Yes, perfect. Appreciate it. Thanks, guys.

Stephen MacLeod; BMO Capital Markets.

Just looking out beyond Q4, Scott, you gave a good overview of what you expect for the fourth quarter. When we look to 2014, can you just talk a little bit about the margin expectations in the Colliers business, given all the puts and takes that you discussed and, in addition, to the residential property management business?

Well, we've talked for some time, Stephen, about our goal of getting to 10% at Colliers. That remains the goal. Our margin will definitely be up this year over prior. And the goal is to increase that in 2014. We believe it will be up in 2014. I don't have a number for you, but we continue on our march to 10%. Let me put it to you that way.

And it's a similar story in FirstService Residential. The collections business was a drag on us this year in terms of our margin. We continued to have some pricing pressure and, of course, we had the rebranding. Some of those things we're working through in 2013. And we expect to see our margin up in 2014. It will be a longer road to 10% in FirstService Residential, but 2014 will be big years for both those divisions in that regard.

Okay, great. And on the Colliers side, do you have all the pieces in place in terms of getting that margin to 10%? Obviously there's incremental work to do, but I'm just trying to get a sense of how far out that target is.

I think we need some help from the market in North America, particularly the US. But, essentially, we have the pieces in place. Yes.

Okay. Great. And then just finally, can you talk a little bit about the benefits you've seen from the FirstService Residential rebranding that you've completed over the last couple quarters?

Well I think, in particular, it's created great energy and engagement internally amongst the different offices and teams. It's definitely impacting the culture and it's improving the connectivity across the Company. We're surprised at how quickly it has taken internally, and externally in the marketplace.

But it's still early. And I think we feel very good about it, absolutely the right thing to do at the right time. But it is still early in terms of seeing any tangible or economic benefit.

Okay. Great. Thank you.

There are no other questions at this time.

Okay. Ladies and gentlemen, thanks for joining us on this conference call. We look forward to hearing from you again at our year-end conference call coming up in February. So thank you for participating.

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