Colliers International Group Inc (CIGI) 2013 Q4 法說會逐字稿

Welcome to the fourth quarter year-end events 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 vary 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, February 12, 2014. 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, officer, and good morning, everyone. Thanks for joining our conference call.

With me today is Scott Patterson, our President and Chief Operating Officer, and John Friedrichsen, Senior Vice President and Chief Financial Officer.

This morning, FirstService reported it finished the year very strongly, posting record quarter and full-year results. For the quarter revenues were $692 million, up 16%; EBITDA was $73 million, up 28%; and earnings per share were up $0.97, up 26% over the prior-year quarter. For the year, revenues hit a record $2.34 billion, up 12%; EBITDA was $186 million, up 22%; and earnings per share came in at $2.15, up a total of 31% over the prior year.

Colliers International, one of the leading global players in commercial real estate, continued to bolster its global platform making excellent progress both operationally and financially with substantial growth in revenues and profits. Revenues for the quarter were up 20% with EBITDA up a total of 44%, a tremendous achievement by any measure.

We were especially pleased with our margins. For the year, EBITDA margins were up 200 basis points almost 9%, following a strong margin performance last year, and well on our way to our stated target of 10%. Based on our current mix of business we believe EBITDA margins of 10% are sustainable, allowing us to continue to grow our global real estate services platform aggressively while continuing to invest in our future.

Meanwhile, FirstService Residential delivered solidly year over year while dedicating considerable time, effort, and resources to its full re-branding initiative establishing a new chapter in the story of North America's largest manager of residential communities. FirstService brands also had robust growth in revenues and profits over the past year benefiting from increased consumer spending as the US economy continues to improve. John and Scott will have much more to say about all of this in their prepared remarks shortly.

2013 was the year of many successes and accomplishments. Here are some of the other highlights from the year. We continued to invest in the net promoter system to enhance our ability to measure and improve the customer experience and, of course, employee satisfaction. Increasing the net promoter system and team MPS, as we call it internally here at FirstService, are taking hold right across our entire organization and over time we continue to believe that MPS will become a key differentiator for all FirstService companies.

Early in the year we welcomed Chuck Fallon as the new CEO of FirstService Residential. Chuck's impressive track record and globally recognized Fortune 500 companies, and perhaps as importantly, his genuine commitment to delivering exceptional customer service is already paying huge dividends as we continue to expand our market-leading presence in residential property management.

During the year we successfully sold Field Asset Services, a business that provided us with very strong cash flows and earnings during the global financial crisis, but no longer fit our real estate services strategy. The addition of Colliers Germany was a major achievement and furthered our growth strategy in Europe in the same way as Colliers UK did last year.

As you know, one of the key elements of the FirstService growth strategy is to balance internal growth with acquisitions. And during the year we invested about $55 million to acquire a total of 11 companies, expanding our market share and getting services in existing and new markets. We continue to see interesting opportunities virtually across the board and expect to 2014 to be another active year on the acquisition front.

Corporately, we completed the private placement of $150 million of 3.84% senior notes with a 12-year term. Securing low cost and long-term capital is indicative of our investment-grade quality and a significant vote of confidence in our financial strength, diversification, and historical track record of performance. We also simplified our capital structure eliminating our preferred shares and calling our redemption -- our debentures for early redemption. And our balance sheet at the end of the year was a strong as it's ever been with low leverage and ample liquidity to continue to support our continued growth.

And, finally, for the first time in a time in our history we instituted the dividend on our common shares. This important step not only created a new source of income for our shareholders, but also introduced FirstService to a whole new universe of dividend-oriented investors. Looking forward to 2014 and beyond, we remain optimistic that we will continue to build on our momentum in each of our three service lines.

Earlier this week we announced our first acquisition in the UK since we acquired the business last year, adding Briant Champion Long, or BCL as it's referred to in the market, which is one of the leading retail property service specialists primarily focused in central London. This acquisition not only strengthens our capability in this important area, but it allows us to pursue expanded opportunities in the retail services sector across the UK and Europe, leveraging the Colliers International platform and adding BCL's impressive list of blue chip public, private, and institutional clients to our growing roster at Colliers. We welcome the entire BCL team into Colliers International.

The fact is FirstService is better positioned today than in any time in our history to continue to accomplish great things as we continue to follow our journey to deliver value to our shareholders, as we say, one step at a time, and our results to date speak for themselves. $100,000 investment in the shares of FirstService when we first listed on NASDAQ is worth about $2.8 million today, that's more than a 20% annualized return over 18 years.

If we continue to follow the FirstService way, carefully building our operations, seeking out new growth opportunities when they become available, and prudently deploying our capital, we further expect to continue to deliver strong returns for our shareholders for many years to come.

And now, let me ask John to take you through the financial details for the quarter, and then Scott will provide his operational report. Following that, we will open things up for questions.

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 record operating results in our fourth quarter 2013 and the full year. Results were solid across the board, lead by the strong performance at Colliers and Commercial Real Estate, accompanied by significant contributions from residential management and franchise property services businesses.

Here are the highlights from our consolidated results from continuing operations of the fourth quarter and the full year. Revenues totaled $692 million in the quarter, up 16% on a local currency basis, compared to $604 million in our fourth quarter last year, with internal growth up 12% on a consolidated basis. For the full year, in 2013 revenues totaled $2.34 billion versus $2.11 billion last year, up 12% on a local currency basis, 8% of which was generated internally and the balance from acquisitions.

Adjusted EBITDA for the quarter with $73 million, up 28% from $57 million in Q4 last year and for the full year, adjusted EBITDA totaled $185 million, up 22% from the $152 million reported last year. And, finally, adjusted EPS came in at $0.97 per share in the fourth quarter, an increase of 26% over the $0.77 posted last year. For the full-year adjusted EPS was $2.15, up 31% compared to $1.64 for 2012.

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 the past reporting periods.

FirstService ended 2013 with strong growth in cash from operations and at all-time highs, generating $39 million in Q4, up 16% before working capital exchanges, and $98 million for the year, up 22% over 2012. Net of working capital investment related to our strong finish to the year, cash flow from operations totaled $116 million versus $103 million last year, up 13%.

Investment and financing activity during 2013 included $38 million net of cash acquired to fund the upfront investment in acquisitions and $6 billion to increase our stake in existing businesses, compared to about $19 million and $6 billion respectively last year. CapEx for 2013 came in lower than expected at $35 million, primarily due to timing around the spend related to our new office for Colliers in New York, which will occur in Q1 2014, and which will amount to approximately $10 million. For 2014, we anticipate our CapEx across all of our operations to be approximately $50 million inclusive of the Colliers New York office improvements and a similar investment later this year expected in Sydney, Australia.

Other significant cash flow items in 2013 included just under $50 million in cash proceeds upon disposal of our foreclosure services business completed at the end of Q3, and just over $39 million of cash usage to complete the cash redemption portion related to the elimination of our preferred shares. Finally, we paid out $9 million in preferred and common dividends last year and with the preferred shares redeemed, dividends in our common share at the current annual rate of $0.40 per share will amount to about $14 million in 2014.

Turning to our balance sheet, our net debt position at the end of year was $230 million, down significantly from the $306 million at the end of 2012, while our leverage ratio expressed in terms of net debt trailing 12-month adjusted EBITDA was 1.2 times, down from 1.9 times when year ago. Needless to say, our leverage is now at a very moderate level and below our range over the last six years of 1.5 to 2.8 times. Our leverage level will increase somewhat back to the lower end of this range at the end of Q1 based on seasonal cash requirements and contingent payments to be made that relate to previously completed acquisitions.

But with combined cash on hand and availability under our revolving credit facility at the end of 2013 of over $300 million and our low leverage, our balance sheet and liquidity has never been stronger, an enviable position to say the least, and we continue to carefully and strategically deploy capital to execute on our growth initiatives.

We have finished 2013 not only with a strong balance sheet, but as Jay said earlier, a simpler capital structure as well, having eliminated both our 7% preferred shares and 6.5% convertible debentures, laying a strong financial foundation for the road ahead. And with a simpler capital structure, also a lower cost debt finishing last year and entering 2014 with a weighted average cost of debt of about 2.3%.

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

Thank you, John.

Let me start my division review with Colliers and I will focus my comments on the fourth quarter operating performance. We can cover our full-year metrics in the Q&A or separately.

As you heard from Jay and John, we had a very strong finish to the year at Colliers. Q4 performance in every region exceeded expectation. Total revenues were $437 million, up 21% over the prior year in local currency, driven by very strong organic growth of 14% with a balance coming from the acquisition of Colliers Germany. Organic growth was driven by particularly strong results in Asia-PAC, in Europe, and supported by double-digit growth in the US.

By service line, our global growth for the quarter was led by leasing, which was up 20% over the prior year quarter while investment sales were up a strong 13%. A shift relative to the first three quarters of the year when investment sales accounted for the bulk of our growth, and a sign the leasing environment is improving in most of our markets.

Revenues for our Americas region or $233 million, up 11% driven by solid digit double-digit growth in the US and Latin America. Canada performance was flat with the year-ago Canadian dollars and down 4% in US dollars due to the year-over-year decline in the Canadian dollar. Our growth in the US was led by sharp 20% plus increases in leasing revenues due primarily to strong results in our major markets, particularly New York City where we closed several large leasing transactions towards the end of the year.

The strong results in Latin America were driven largely by investment sales and appraisal activity in Mexico, where we have a leading market position. Economic reforms in Mexico serve to accelerate deal momentum during the quarter. Activity was also buoyant in most of our other markets in Latin America.

In our Asia-PAC region, revenues were up 21% in local currency, driven by very strong brokerage activity in Australia and New Zealand, where year-over-year investment sales revenues were up over 20% and leasing revenues were up near 20%. Revenues for the rest of Asia were up almost 10%, led by a strong quarterly performance in China driven by investment sales and appraisal activity.

Turning to our Europe region, revenues were up 65% year-over-year, including Germany and 28% organically excluding the acquisition. Organic growth was primarily driven by our UK business, which saw significant growth in investment sales, double prior year, supported by appraisal revenues which were up over 20%.

When we acquired this business in early 2012, a top priority for our regional executive team was to deepen our service operating in London through recruiting. We started to see the results of these efforts in the fourth quarter with several large transactions contributing to our strong performance. As Jay already mentioned, we further strengthened our business in London with the acquisition of Briant Champion Long and expect to continue to focus investment on this important market over the next several years.

The rest of Central and Eastern Europe also posted solid year-over-year gains for the quarter led by Poland and the Netherlands. Our German operations had a strong Q4 and met expectation for the first nine months of ownership.

Colliers generated fourth quarter EBITDA at $61.7 million, or 14.1% of revenues, up from 11.6% in the prior year. The increase is primarily due to operating leverage in the US and Asia-PAC. We also benefited from a positive impact of adding the higher margin German business to the mix.

In summary, we are very pleased with the Colliers performance for the quarter. As I said earlier, we have exceeded expectation in each of our three regions. The tone in the market has improved and the enterprise building investments we have made over the last several years, particularly in our major markets, enabled us to more fully leverage the market momentum during the quarter. Looking forward, we expect stable to improving markets in all regions, our pipelines are healthy, we had a strong recruiting year in 2013, and we feel optimistic about the momentum we have heading into 2014.

Turning now to Residential Property Management. Revenues were $219 million for the quarter, up 9% over the prior year, 8% organically. Organic growth was driven by new contract wins, which led to 10% increases in management fee revenue, offset in part by modest declines in ancillary fee revenue.

Each of our four regions had strong quarters in terms of contract wins and contributed equally to the 10% increase in management fees. New development continues to strengthen in most regions and contribute to our organic growth, particularly in Toronto, New York City, south Florida, California, and Texas.

Offsetting our growth in management fees with a decline in ancillary fee revenue, including collections and transfer and disclosure income, in Arizona and Nevada particularly, where home sales in our communities were down 10% year over year. Our EBITDA margin in the quarter was 5.4%, down slightly from prior year. Improved margins in our core management business for the quarter from operating leverage were offset by declines and higher margins ancillary revenue and increased investment in technology and customer care centers relative to a year ago.

Looking forward in Residential Property Management, we are quite optimistic about 2014. North American re-branding effort is firmly behind us. It's been extremely well received internally and in the marketplace, and we are confident it is contributing to our increasing momentum. We expect to continue to generate high single-digit organic growth through a combination of new development, wins from competitors, and the transition by communities from self-management to professional management, and we expect to show margin improvement in 2014.

If you add back one-time costs associated with re-branding and the restructuring of our collection business, our margin in 2013 would've been close to 7.5%. This is our target for the current year. We expect to generate increases through operating leverage, but these will be offset by continuing investment in technology and centralized shared services infrastructure. We expect steady incremental margin increases thereafter for the next several years.

Let me now turn to our Property Services Division, which consists of our FirstService brands businesses. As expected, we had a strong finish to the year in this business, with 8% organic growth for the quarter. California Closets and CertaPro Painters continue to lead the way in terms of growth, but each of the five other franchise systems and every one of the nine company-owned operations contributed solid single-digit year-over-year growth for the quarter.

Home improvement spending and remodeling in the US was strong throughout 2013 and we certainly benefited as a result, but we know we are also gaining share in most of our markets which is a positive reflection on our brands and the strategies our teams have developed.

The leading research indices point to continued strength in the home improvement market through 2014 and suggest that we are still in early stages of over US economic recovery, which bodes well for this division and gives us confidence that our healthy pipeline of leads and job bookings will continue. Margin for the quarter was 19.6%, up from 18% in the prior year due to operating leverage. The margin for the year was over 20% for the first time since 2007 in this division.

That concludes our prepared comments and I would like to ask -- now ask the operator to open up the call to questions.

(Operator Instructions)

Sami Abboud from Scotiabank.

Good morning, gentlemen I'm speaking on behalf of Anthony Zicha. My first question would be regarding the residential rental operations that are now being held for sale. If you could please provide more color on the impact of both financial and non-financial that you would expect to that segment going forward?

Right. Okay. So there's a small rental business that is in the process of being sold and classified as a discontinued operation for the quarter and it's been pulled out of our divisional numbers. Historically, that business has been included in the residential property management division. It has provided rental management services for the REO market primarily, but also some multi-family management and single-family management for institutions and private investors. The REO business accounted for over half of the revenue in this operation. And similar to our experience with Field Assets, that has declined significantly over the last several years.

This business shared many of the same customers as Field Assets and we made a decision during the quarter to terminate certain of the REO clients. It was very difficult to us to downsize and lock step with the declining revenues, and then to sell the remaining multi-family and single family piece of the business to management and we expect to close the sale of that business this quarter. Revenues for the year 2013 were $25 million or thereabouts and the business lost $2 million, much of that in the fourth quarter. On a go-forward basis, this business will be about half the size it was after terminating those customers.

Okay. Thanks. Given the recent acquisition of Briant Champion Long, can we expect Colliers to be more focused on this type of higher margin business in 2014 and beyond even, and when can we expect this type of service to represent say approximately 20% of Colliers' revenues?

That I will quickly answer and then I will pass it over to Jay who is more involved in that acquisition and that strategy in London. That business was specific to our UK business in central London. It's been a focus of ours since acquiring Colliers UK to bolster our office and retail sales and leasing in central London and this acquisition goes a long way towards that. Jay, do you want to add?

Yes. There's no magic to this. We do retail specialty in virtually every market across the world. The business in London was a decent retail business, but Briant Champion are the undisputed leaders in central London and so it was a tremendous opportunity for both organizations, frankly, to bring them together as one under the leadership of the CEO of Briant Champion and integrate the operations together making us one of the leading players not just in London but also in the UK. So, our focus, as Scott has mentioned and we mentioned several times before, is to continue to build our major markets -- New York, London, and a variety of others -- and we can do that by adding services, strengthening our core business, and adding market share which is the way we see Briant Champion fitting into the Colliers UK business.

Thanks. And it's a good segue to maybe my last question on the acquisition pipeline. You mentioned that 2014 looks good and there will be some acquisitions there. If you could please maybe give us more color on the size of the acquisition, maybe what geographies you expect to focus on in 2014?

One of the great things about FirstService now and Colliers in particular is that our growth opportunities are virtually global, so we're looking at opportunities in so many different parts of the world. Again focused on major markets and there's never guarantees with acquisitions, it's always a strategic from the standpoint of whether it makes sense from our perspective and it makes sense from the perspective of the principles of the target. But one of the great things -- another great thing that we have going for us is we're one of the few global platforms out there. So, using Briant Champion as an example because it's before us, the principals there have enjoyed tremendous success in their business over a long period of time, but the business got to the point where they were very local in the UK market and wanted to have access to a global platform like Colliers provides.

So, we believe that we have a significant enhanced value to deliver to the professionals that become part of Colliers and we have been leveraging that in virtually every market as we continue to grow. So, we're hopeful that we can continue to add primarily smaller tuck-under acquisitions which has been our core secret sauce at FirstService, always looking to add a larger platform or two when the time is right as we did with Germany this year. But if we can continue to add smaller tuck-under acquisitions our way where we can enhance the operations after the fact, they are just the perfect addition to our platform and do a lot in the way of enhancing shareholder value for our shareholders.

Okay. Thank you very much, gentlemen and congratulations on a solid quarter.

Thank you.

Stephen MacLeod.

The Colliers business, as you mentioned, had a very strong margin in the quarter, partially attributable to operating leverage. I'm just wondering, what's different in the business or what are you doing in the business to generate that operating leverage? Is there a change in the mix of business that you're taking in or what's the driver of the leverage?

It's not a change in the mix on an annualized basis, but the strong finish was driven primarily by brokerage which included many large deals and that results in higher margins and strong operating leverage through that three-month period. As you know, this is a seasonal business and we generally show higher margins in our fourth quarter and the strong, strong finish we had drove those up even higher. But I think, Stephen, in general our margins are on track with expectation, maybe a year ahead of where we thought we'd be, but generally on track.

Okay, great. So would you expect to close the gap to 10% on an equal -- equally over the next two years?

I think that's fair.

Yes. Okay. Great. And then on the FirstService Residential business you mentioned that you're looking for a flat margin outlook for 2014 on the [7.4%] excluding the cost. What -- how do you get back to the 9% margin profile that you had on a relatively consistent basis in the mid-2000s?

Well, the 2013, 2014, 2015 are going to be different years in the sense that while we will continue to add contracts and drive operating leverage, at the same time we are investing to really support the brand and the biggest area is in IT and shared services infrastructure. There are certain back-office functions and administrative functions that are or were being done in 20 different locations and there were opportunities to create efficiencies and service improvements by regionalizing or centralizing these functions, but we have to create the capability and invest in infrastructure to do that.

Customer care centers are one example. That was a 2013 initiative. There are many others that we will be working on in 2014 and 2015. We will balance the investment carefully with organic growth and our expectation is flat to slightly up in 2014 and then incremental margin improvement from there, and we certainly expect that to get back to 9% and the goal is to drive to 10% over the next several years.

I would like to add something to that, Scott. The beautiful thing about this business is the retention rates are extremely high and the net promoter scores continue to climb across the Company. So, we're enjoying nice internal growth, we're keeping our clients happy and happier, and the retention rates are demonstrating that and if we can continue to refine our business model behind the scenes without impacting clients other than in a positive way, we have a phenomenal business here that will pay great dividends over many years in the future.

Great. And on those investments that you're talking about over the next two years, does that strengthen the platform to complete tuck-in acquisitions? Is it easier to plug and play at that point?

It will be. Certainly it will accelerate our ability to integrate and positively impact the businesses, the margin at the acquired businesses.

Okay. That's great. Thank you very much.

David Gold.

Good morning.

Good morning.

Just a little bit of follow-up on the trends that you see at Colliers. First, a couple of things. Can you break down or give a sense for the strength that you saw in the quarter between say capital markets and the leasing businesses and maybe talk a little bit more on what you see in leasing if you see the same pick up that some of the competitors have pointed to?

Well globally our leasing was up 20% and our investment sales were up 13%. The momentum we have in investment sales is really coming out of Australia, Germany, the UK, and the US heading into 2014 and really the leasing environment improved in all of our regions. As you would expect with improved economic [conditions] in most of our regions. The one exception perhaps on the leasing front would be Asia where China, Hong Kong, India, Singapore are all somewhat more cautious and I would describe this market as flat with the year ago in terms of pipeline activity and momentum.

Got you. So, broadly speaking in the other geographies as you look at your pipelines, presumably the momentum that we saw in the fourth quarter continues?

Well, we had a very strong quarter in terms of leasing, but we had a weak comp generally in terms of leasing in our prior year. It's also somewhat reflective of our recruiting in our major markets which is focused on office leasing, but we expect investment sales and appraisal which generally go hand-in-hand to be a driver of growth in 2014 and we expect leasing to be up in most of our regions modestly in 2014.

Got you. And then one other silly and obvious question but I'm curious on your view. As we think about at least domestically interest rates starting to move and presumably 2013 wasn't nearly as bad a year as some had hypothesized given the movement in rates, how sensitive do think business in 2014 is to any increases on the interest rate side? In other words, do we think -- is 50 basis points not an issue but 100 starts to slow things down or is it not that simple?

I won't comment on specific numbers or amounts. I will say that in talking to our team at Colliers, interest rates in and of themselves are not seen necessarily as an indicator of momentum, it's really the gap between the bid and ask and whether or not returns to investors are better than alternative investment opportunities. And currently commercial real estate is a favorite asset class, risk adjusted returns are attractive, and we don't see that changing any time soon.

Perfect. And then just one last. You've made some transformational changes over the last few years really in all three of the businesses I'd say to some degree. Can you give us a sense for today what you think the peak margins are in each of the three business lines?

Well, we're driving to 10% and 10% in Colliers and Residential Property Management, and the margin in our brands business hit 20% this year and there is a mix issue going forward there that we will experience some leverage from the franchise businesses and increases in system-wide sales, but at the same time we are very focused on growing our Company-owned businesses which carry a lower margin. So, that story will unfold over the next several years.

Got you. Is 20% a good benchmark then?

Is for 2014.

Okay. Perfect. Thanks so much.

Stephanie Price.

Just on your balance sheet, obviously a lot stronger than we've seen for several years. Can you talk a bit about at this point what your uses of cash are going to be your focus? Are you thinking about paying down more debt? Are you looking at increasing the dividend? Where are you going at this point?

Stephanie, it's John. First and foremost we're focused on deploying our capital to acquisition opportunities which will enhance our businesses. Jay has already spoken about it, so that is absolute a top priority and if we can execute those correctly, obviously the returns to our shareholders are significant. In the meantime, because some of those tend to be a little bit opportunistic, we will pay debt down to the extent that we have significant free cash flow. Obviously, we have internal investment, we continue to make capital asset replenishment and some related to growth, and then of course our common dividend. But first and foremost we're focused on growing our business and we are going to be patient about it. In the meantime, we'll just pay down our debt.

Okay. Great. And on the RPM division, can you talk a bit about the ancillary revenue? So it was down modestly and it sounds like you're expecting it to be flat next year. Given the improving housing markets, I would've expected maybe it would've been up next year. Can you talk about that a bit?

I think generally our ancillary revenues will grow with contract wins in unit growth. Collection is the one exception and I think we'll see the bottom in that business in terms of our year-over-year comparisons probably midway through 2014. This quarter we did have a reduction in transfer and disclosure income in Arizona and Nevada where home sales in those markets were down in the fourth quarter versus the prior year which we see as a bit of an anomaly. So I would expect that are ancillaries, if I said they would be flat, I don't recall that but I would expect them to be up in 2014 modestly.

Okay. Great. And in terms of the investments that you are making in the business in the technology and the customer care centers, et cetera, can you quantify -- is there any way to quantify how much of an impact that is going to be to the RPM margins next year and what, X that, the margins could have been -- or would have been?

I think we are looking to grow that business through leverage over the next several years at close to 50 basis points a year. So, that would give you a sense for next year.

Okay. Great. Thank you very much.

Brandon Dobell.

A couple of quick ones. John, maybe the fourth quarter build out in Sydney, should we expect any P&L impact or is that all going to be capitalized?

Predominantly capitalized or maybe a little bit of P&L but that will be CapEx for the most part.

Okay. Got you. And now with Field Asset out of the mix, how do we think about the seasonality of the profits in property management given that Basel is such a big impact on the profitability? A reminder on how that business should look quarter to quarter as you go through the year.

You talking about Property Services?

Yes. Correct.

Well, FAS had some funny things going on but Property Services will continue to be largely a quarter two, quarter three business because there is certain operations and certain services they provide that are driven by seasons. So Q2 and Q3 will continue to be the strongest by far and I think we will see a reversion to the pattern that you would've seen a few years ago pre-Field Asset Services. I don't think that's changed dramatically. Having said that, growing the California Closet business, which we have been doing, probably maybe a little bit less seasonality as a result of the growth in that business.

Okay. Fair enough. Within residential, maybe a sense of how important new development has been in the past couple years as a driver for unit growth as opposed to organic wins maybe?

Development accounted for about 25% of our wins this year and that ramped up through the year, and we expect it to be a big contributor in 2014, 2015.

Okay. And then turning to Colliers, finally. As we think about headcount growth in the three geographic regions, a couple questions there. One, how should we think about headcount growth in 2014 compared to 2013, and is there any particular region where you feel you've got a service line hold that can be filled by recruiting or maybe there's a special focus on a particular service line where you think you've got an opportunity to better leverage the office footprint?

Recruiting continues to be a focus in the US, Europe, and Asia in particular. In the fourth quarter it was the US and Europe and it was primarily our major markets, so London, New York, LA, Chicago. And I think that's going to be a similar theme in the next few years -- major market focus and filling in the gaps. They're different in every market for us, but we're focused on filling in service lines and gaps.

Okay. And then the final one within Colliers. The trajectory towards 10% EBITDA margins, can you give us a sense of what assumptions are in there for either a geographic mix or a service line mix and, in particular, given that your businesses is more skewed towards the brokerage side than property management within commercial, what's the risk that property management accelerates its growth and becomes a bit of a drag on EBITDA margins in the next couple of years?

I don't think it's a risk within Colliers. However, recruiting focus is primarily brokerage and major market driven. So, in terms of getting from 8.8% to 10%, it's important to continue to drive revenues and improve broker productivity which we've been doing, and I think continuing to drive New York City and London which are two markets we've invested in and our investment in cost structure are probably a little out in front of our revenues right now. So, when that catches up, it will help drive us to 10%.

And the Property Management business for us, margin-wise, virtually across the board is pretty good. It's not the same as it is in brokerage but it's pretty good and it leads to other services that we take advantage of in other real estate advisory areas. So, I think property management is going to continue to be a focus for us, although it does dampen margins slightly as does facility management which we don't currently do, others do do, but at margins that are considerably below traditional property management margins that we've enjoyed so far.

So, Property Management is a great growth opportunity for us, but we are going to be looking at that whole sector as well over the next couple of years and see if there is other areas in which we can strengthen our recurring revenue base even further. We've done I think a pretty admirable job over the past couple of years, but I think there's more work that we can do in terms of stabilizing. I'm now just talking core Colliers as opposed to all of FirstService together which has a very high percentage of recurring revenue.

Okay. Perfect. Thanks, guys.

Brian Hikisch.

Congratulations on the good year. I was just wondering, are you able to provide any update on what is going on with Colliers Japan as a potential acquisition candidate? Are you guys still considering them at all or have circumstances changed there?

We are always open to acquisition opportunities in geographic regions that make sense. That's surely a major market for us and would be something that we would look at if that affiliate is open-minded to doing something. Right now there's nothing imminent and we're focusing on the other 44 countries around the world that we own, which are mostly the major markets around the world.

Okay, thanks. And then one other question just for FirstService brands, it seems that the margins dip a bit in the fourth quarter each year and I'm just wondering what drives the seasonality in that? Is it simply the operating leverage?

The revenues come down. There are some businesses [painting] primarily and others that come up in the fourth quarter and those are high-margin businesses in season.

Okay. Thanks a lot.

Stephen MacLeod.

Thank you. I just had one follow-up question regarding the BCL acquisition. Can you just talk about the margin profile and where it is relative to Colliers on a consolidated basis relative to the Colliers Germany acquisitions that you've done?

We really don't talk about margin by acquisitions, so I would say that it is consistent with margins in Colliers Germany and fits beautifully into our Colliers UK business, and I don't think the margins are materially different than they are in the Colliers UK business currently.

Right. Okay. Great. Thank you.

Thank you. We have no more questions for now.

Okay. Thank you, everyone, for joining us and we look forward to the next conference call during the first quarter and hopefully we can continue to deliver strong results as we have this year. So, thanks for joining us.

Ladies and gentlemen, this concludes the fourth-quarter year-end investor conference call. They give for your participation and have a nice day.