Colliers International Group Inc (CIGI) 2014 Q2 法說會逐字稿

Welcome to the second 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 details 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 Tuesday, July 29, 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 operator and good morning everyone. As the operator said, I'm Jay Hennick, Founder and Chief Executive Officer of the company and with me today is Scott Patterson, President and Chief Operating Officer, and John Friedrichsen, Senior Vice President and Chief Financial Officer.

Once again, FirstService reported outstanding results for the second quarter, results that were clearly above expectations. Revenues were up 16% to $661 million. EBITDA increased 32% to $60 million and earnings per share came in at $0.74 per share, up 30% versus the same quarter last year.

Across the board, each of our real estate service lines reported strong growth, which we expect will continue for the balance of the year.

Here are some of the highlights. Colliers International had another exceptional quarter, following outstanding performance in the first quarter as well. In our estimation, Colliers continues to grow faster than the market, taking share from competitors and adding services that are essential to real estate professionals on a global basis.

What really stood out, however, was operating leverage, as EBITDA increased by 40% for the quarter. Scott will have more to say about this and the rest of our service lines in just a few minutes.

During the quarter we also completed several acquisitions. In New Zealand, we acquired Auckland-based Shore Commercial, strengthening our already leading market position in that market.

In the UK, we added one of London's independent commercial property specialists, H2SO Property Consultants, augmenting our investment office agency and asset management capabilities in the UK. H2SO complements the acquisition last quarter of Briant Champion Long, one of London's leading retail property specialists.

Both have been fully integrated into our operations. Both allow us to raise the bar in terms of service capability and both offer us the opportunity to leverage the power of the Colliers International brand in Europe and around the world.

Shortly after the quarter end, Colliers expanded again by acquiring a property management operation in Australia, with the acquisition of McKenzie Hall, one of the country's largest managers of retail shopping centers. Building our asset and property management operations in Australia was a priority for us and adding McKenzie Hall and its 45 large retail shopping centers to our management portfolio adds tremendous depth and opportunity to our entire business down under.

One of the other highlights for Colliers was being named as one of the top five outsourcers in the world by the Ontario Association of Outsource professionals. Up from 17 last year, Colliers was one of only two real estate companies in the top five, a great accomplishment for sure, but also another indication of the momentum we have earned in this industry.

First Service Residential also continued to show excellent internal growth, with multiple contract wins across the entire North American platform in residential property management. Margins were lower than expected but we remain very excited about the prospects for this business, given its highly recurring business model, scale and scope of our operations and the potential for growth in revenues and profits in the years to come.

FirstService Brands also had a stellar quarter, with revenues up 15% versus the prior year. This is another segment in which we are gaining market share every step of the way and profits are also up strongly, by more than 25% versus the prior year quarter.

At FirstService Brands, we were also pleased to be able to complete the acquisition of Paul Davis Canada during the quarter. Paul Davis Canada is one of the market leaders in the Canadian insurance restoration industry, but historically had been operated separately as a master franchisee. Bringing the two organizations together, integrating operations and realizing synergies will help us expand our presence and strengthen our leadership position in the entire industry across North America.

And finally, as you'll hear from John, our cash flow continues to strengthen, almost tripling, versus the same period last year. The cash generating potential of FirstService has always been one of our key attributes. Growing our business with considerable internally generated cash flow has allowed us to grow our business without having to dilute shareholders, resulting in tremendous growth in shareholder value over the long-term.

Looking forward, we expect to continue to deliver strong internal growth at Colliers. FirstService Residential should generate near double-digit growth in revenues and FirstService Brands should also finish the year especially well.

In terms of acquisitions, we also hope to remain active. The essence of the FirstService growth strategy has always been to grow internally, at or above industry average, while augmenting that growth with prudent tuck-under acquisitions that strengthen operations, add services or help us expand geographically. And of course, the necessary precondition for any acquisition is that it must generate an acceptable rate of return on our capital at least mid-teens or better.

And so, with strong operational results and cash flow, ample financial capacity and multiple growth opportunities, FirstService is better positioned than ever to continue to deliver outstanding results for the balance of the year and beyond.

And now, before I open things up for questions, let me turn things over to John for some financial details and then Scott will provide his operational report. John?

Thank you Jay. As announced in our press release earlier this morning and outlined by Jay in his opening remarks, FirstService reported better than expected consolidated operating results in our second quarter, with record results generated by Colliers and strong results posted by FirstService Residential and FirstService Brands. All supported by favorable market conditions in most markets in which we do business.

In summary for our second quarter, our results from continuing operations were as follows. Revenues increased to $660.7 million from $576.1 million last year, an increase of 16% in local currencies, with overall internal growth of 12%.

Adjusted EBITDA increased 32% to $59.7 million from $45.2 million last year and an overall margin of 9% compared to 7.8% last year. Adjusted EPS came in at $0.74, up 30%, versus the $0.57 per share reported in our second quarter of last year.

As outlined in our press release and summary of financial results released this morning, adjusted EPS includes certain adjustments to EPS, as determined under GAAP. We believe adjusted EPS is the most appropriate measure for investors, because it provides a clearer picture of the underlying operating performance of the business and enhances the comparability of operating results from period to period. This measure is outlined in detail in our release and consistent with our approach and disclosures in prior periods.

Turning to our cash flow, we reported $58 million in operating cash for the quarter, more than three times greater than the $18 million generated in our second quarter of last year. Cash flow in the quarter included a favorable reversal of the seasonal working capital usage we reported in Q1, but was otherwise attributable to the strong profit increase delivered by Colliers and FS Brands and steady contribution from FirstService Residential's core recurring revenue operations.

Consistent with last year and reflecting our expectations for our businesses during the next two quarters, we see our cash flow improving substantially in the second half of the year, as positive seasonal factors impact our operations and reported results.

During the quarter, we continued to allocate our capital diligently, with about $35 million of cash invested in acquisitions, including the acquisitions highlighted by Jay previously, and a further $21 million in capital expenditures. As indicated during our Q1 call, we expect an elevated level of CapEx in 2014, primarily due to new office fit-outs in several major markets and we remain on track to invest in the range of $45 million to $50 million in CapEx this year.

During the quarter, we also repaid $20 million in principal on our 544 notes issued in 2005 and currently we're operating with a weighted average cost of debt of just over 2%.

Moving to our balance sheet, our net debt position at quarter end was $384 million compared to $462 million at the end of the second quarter of last year. And our leverage, expressed in terms of net debt to trailing 12-month EBITDA, was 1.7 times compared to 2.6 times at the end of our second quarter last year.

And finally, during the second quarter we increased our revolver with our syndicate of banks, to $500 million from $350 million. This increased our financial capacity at the end of the quarter, including cash on hand and undrawn availability under our revolver to more than $250 million, a level ample to fund operations and invest in growth opportunities that will deliver above average returns to our shareholders in the future.

Now over to Scott for the operational highlights. Scott?

Thank you John. As you have heard from Jay and John, we generated very strong results at Colliers for the quarter, building on the record results we booked in Q1 to start the year.

Revenues were $368.5 million; up 22% in local currency, 16% organically driven by very strong brokerage activity across all three regions.

Globally, both sales commissions and leasing revenues were up well over 20% versus the prior year. Results were particularly strong in the US, the UK, Germany and Australia.

Taking a closer look at our Americas region; revenues were up 13%, led by increased brokerage results in the US and Canada, tempered by flat year-over-year revenues in Latin America.

Leasing revenues were very strong, up over 20% in both the US and Canada, led by our major markets, particularly New York, Los Angeles, Boston, San Francisco and Toronto.

Investment sales commissions were up 6% across the region, with a 30% increase in the US offset in part by flat results in Latin America and declines in Canada for the quarter, due primarily to a tough comparison quarter in 2013, when our Canadian business closed several large sales transactions.

Other revenues in the Americas region including property management, project management and valuations were up 5% in the aggregate for the quarter.

In our Asia Pac region, revenues were up 13% in local currency, driven by very strong brokerage activity in Australia and New Zealand, reflecting a continuation of the buoyant markets we have seen for the last three quarters. Revenues in A/NZ were up over 20% in local currency, driven by a 30% increase in sales commissions and supported by a 15% increase in leasing revenues.

Revenues for the balance of Asia Pac were up 6%, driven by solid year-over-year growth in sales commissions in China and Hong Kong. Leasing revenues were flat to down across our various markets in Asia, as a tepid economy continues to weaken business sentiment in the region.

Turning to our Europe region, revenues were up 43% year-over-year, driven by very robust brokerage results, both sales and leasing, particularly in the UK and Germany and supported by solid year-over-year growth in the Netherlands and Poland. The UK economy continues to outperform the rest of Western Europe, which is driving investment and leasing activity, as investors, developers and occupiers become more confident about improving property fundamentals.

As Jay said earlier, we acquired H2SO in June and integration is progressing very well. In combination with the recent acquisition of BCL, there is a real momentum with our UK operations across most service lines and we expect continued strong results for the balance of the year.

Our operations in Germany were up significantly during the quarter compared to the prior year, as we leveraged our market-leading positions in Munich, Stuttgart, Frankfurt and Dusseldorf to close several large investment sale transactions, in addition to several large office leasing deals.

One area of concern in the region is Russia and the Ukraine, due to the political turmoil and military unrest that has impacted both countries. Activity levels in Kiev have slowed considerably and we do not expect this to change until sometime after the political situation stabilizes, which means the fourth quarter at the earliest. We have implemented cost reductions and our downside is limited.

Our operations in Moscow and St. Petersburg had a reasonable finish to the second quarter and are actually up year-over-year for the first six months, but activity is slowing and we expect the last half of the year to be more difficult amid increasing global sanctions and weaker economic conditions. For the full year, we expect flat year-over-year results in Russia.

Global EBITDA for the quarter was $34.7 million or 9.4%, up 150 basis points over the prior year.

In summary, we had a great quarter at Colliers. We continue to exceed internal expectations in each of our regions. The market has remained strong and we expect to continue to deliver healthy results for the last half of the year.

Moving on to residential property management, revenues were $237 million for the quarter, up 9%. Growth was driven by new contract wins across North America. Each of our four regions experienced solid growth for the quarter, with particularly strong year-over-year results in Texas, Florida, the Carolinas and the Greater Toronto region. New development continues to enhance our market share gains.

Tempering our growth in management fees, was a decline in property transfer and disclosure revenue, which is a continuation of our experience from Q1. Our EBITDA margin in the quarter was 6.2%, approximately the same as the prior year quarter, but significantly lower, by 120 to 150 basis points than our internal budgets, due principally to two factors: reductions in higher margin property transfer and disclosure revenues and increased labor costs relating to escalating health benefits.

The first issue relating to transfer and disclosure revenue also impacted us in Q1. We earn fees for services provided when a unit in one of our managed communities is sold. These revenues were down by 7% in the second quarter and year to date, which is generally in line with the average decline across the US, which is attributed to increasing home prices. The impact to our EBITDA is skewed, due to the higher margins associated with this revenue, relative to management fees.

The second issue relates to the cost of health coverage provided to our associates. During 2013, in an initiative aligned with our rebranding and also to comply with US health care reform, we consolidated 16 different benefits plans to create a national, self-funded medical plan across FirstService Residential. Year to date and particularly in the second quarter, our utilization experience and actual costs have risen more quickly than expected, based on our previous experience in industry actuarial tables. These increases will be passed on to clients as contracts renew.

Looking forward, we expect increased health costs and reduced transfer and disclosure revenues to continue to negatively impact our margin through the balance of 2014. We have revised our internal margin estimates down from 7.5% to 6.5% to reflect this.

Let me now discuss property services, which consists of our FirstService Brands businesses and, effective this quarter, also includes Service America. We have transitioned the oversight and reporting lines for Service America from FirstService Residential to FirstService Brands and beginning this quarter, the divisional results will reflect this.

Service America is a full service air conditioning, appliance and plumbing service company based in Fort Lauderdale, Florida. It is primarily a B2C business model that is similar in many respects to our company-owned operations within FirstService Brands and we believe there is much to be gained through best practice sharing among other things.

In addition, we recently recruited a new CEO for Service America. David Crawford, formerly the President of American Home Shield, which is the national leader in home warranties and appliance servicing. David is a seasoned executive in this area and, together with the FirstService Brands' team, brings exciting new leadership that we think will accelerate the growth of this business in coming years. Service America currently has a revenue run rate of about $50 million and carries a high single-digit EBITDA margin.

So including Service America, revenues in this division were $55.5 million for the quarter, up 12% over the prior year results presented on the same basis. Organic growth was led by near 20% revenue increases at our company-owned California Closet operations, supported by solid double-digit growth at each of our six franchise systems.

Divisional growth was tempered by low single-digit year-over-year growth at Service America.

During the quarter, Paul Davis continued to benefit from the harsh winter conditions we experienced across North America, which resulted in significant damage and a high level of restoration claims that extended right through the second quarter. Also during the quarter, as Jay mentioned, we added Paul Davis Canada, with 63 franchisees and over $100 million in system wide sales.

The rest of our franchise systems and our company-owned operations continue to enjoy improved markets for home remodeling in general and we expect these conditions to continue through the balance of the year. Our margin for the second quarter was 21.9%, up 250 basis points from 19.4% in the prior year on operating leverage. As I have mentioned in the past, the leverage inherent in the franchise operating model that is based on royalty revenue is much higher than our more labor intensive service businesses.

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

(Operator Instructions) Anthony Zicha, Scotia Bank.

Congratulations on excellent results. Jay, could you give us some color here? Colliers had two quarters of impressive internal growth. How sustainable is this and could you also give us a bit more granular outlook in regions in North America?

I'm going to turn that one over to Scott. It's more appropriate from an operating standpoint, I think.

We had very strong half to the year, driven by sales commissions and leasing revenue, really all three regions. There were very few countries and operations that aren't clicking right now. The market's very strong. We see this continuing for the balance of the year.

Is there anything in particular or any areas in particular that you'd like to discuss or does that answer your question?

It answers. Maybe a bit of color on the East Coast and how does it compare on the West Coast in terms of activity? You mentioned the acceleration and profitability momentum, that's also valid for Europe?

Yes, absolutely. Our Europe region in particular, the UK and Western Europe is very strong and it is spreading to Central and Eastern Europe. Are you talking about North America in terms of the East Coast and West Coast?

Correct.

We had very, very broad-based strength, I would say. Our major markets were all strong and in terms of investment sales and leasing, our secondary markets, particularly those with exposure to technology or energy were also very strong. So it was very broad-based.

Are there specific regions where you would like to make an additional tuck-in acquisitions, same thing for Europe?

Obviously, part of our strategy has always been to continue to strengthen our market position, particularly in major markets. So we're always looking and yes, Europe is another area which we'd like to strengthen and one or two markets in the Far East as well, where we just don't have as strong a presence as we'd like to have. But we're actively balancing our internal growth with acquisitions across the board.

One last question with reference to the residential property management. In terms of the medical costs impacting margins, do you think that there will be some spillover into 2015? And also, if you can give us an update on IT implementation; where does it stand and how is it progressing?

There will be some spillover into 2015. The major impact is this year. But as we are able to pass on these increased costs to our clients over the next 12 to 18 months, it will dilute the impact. But that will take us into 2015.

In terms of our IT spend, I assume we're talking about the increased investment in our shared services infrastructure and IT and that is progressing and it will continue over the next 24 to 36 months.

Frederic Bastien, Raymond James.

I noticed that you sold the PKF Hospitality business on the Colliers side. Can you explain the motivation behind that?

It was a relatively small business and one that we did not see as core to our strategy in commercial real estate, particularly in the United States. And so we decided that we would sell the business to somebody who had grander plans for it.

Now, you've been telling us not to model 10% margin for Colliers for this year, but obviously you're tracking very nicely and I was wondering if you could provide some guidance there? It sounds like you might be able to attain that goal.

Well, we had 9.4% for the quarter. Our trailing 12 is close to 10%. I think after the strength we saw this quarter, we'll be at 10% or very close. To do that, we did have an outsized fourth quarter in 2013, so we need to match that. Based on pipeline activity levels, we expect to do that. I think hitting 10% also depends on continued strength out of New York City and London, where we have invested heavily. And again, we expect that to be the case, but it is dependent on those two things.

Just curious, last one for me, how needle-moving is this acquisition of Paul Davis Restoration in Canada? You mentioned $100 million of system-wide revenues; how much of that now falls into revenues for you guys?

Are you talking about contributions in terms of royalty revenues from the Paul Davis Restoration business?

Yes, correct. And I assume margins are similar to the rest of the business.

It was a relatively small business. It's around $4 million in royalty revenue. As you know, it's entirely a royalty-driven business, just like Paul Davis is. So it's important to us, obviously, but it's not material to the overall results. Margins would be in and around the same level of margins as FirstService Brands.

Stephen MacLeod, BMO Capital Markets.

Just circling back on Colliers, with respect to the margin in the quarter and the momentum you've had this quarter and last quarter and Q4, frankly, as well; is a lot of that leverage -- are you able to determine how much of that is driven by higher margin acquisitions that you've done versus leverage in the so-called base business?

The acquisitions have certainly impacted the mix, but certainly a larger proportion is being driven off of the revenue increases and the leverage we're getting that on. Fixed costs, largely fixed compensation; our comp line continues to come down, not necessarily at the variable piece, but the fixed piece.

Then when we look forward, and Scott, you sort of referenced that you're close to or at 10% for 2014 from a margin perspective; do you have a longer-term margin expectation you would expect for 2015, 2016 and beyond?

We don't. With increasing revenues, we will continue to get leverage. It will be very incremental as we get close to 10%. But we can certainly grow it beyond 10% and we'll revisit as we progress through the year.

I might add too; it's always a mix issue as well. If you look at some of the peers, they have significant real estate asset management operations that move their margins up a couple hundred basis points higher than what ours would be, but on a same-store basis or apples-to-apples basis, I think we're in the same ballpark.

Then just finally, Jay, you referenced cash having increased sort of three times. How do you think about the deployment of that capital in terms of M&A, organic growth and dividends or share buybacks?

It's John here. Let me take that one. Look, first and foremost, we are always looking for opportunities to add value to shareholders by making acquisitions that complement our existing businesses, that strengthen our existing market positions and can add some new services. There's a huge number of opportunities that we're pursuing. At the same time, we're mindful of ensuring that we're careful on the valuation side and being disciplined.

So, I think if you look at where we are now, in terms of leverage at 1.7, down considerably year-over-year. Having said that, a reasonably good pace of acquisitions year to date and certainly a pretty active pipeline. First and foremost, we're thinking about continuing to strengthen our business.

Dividends, as you know, the common dividend we introduced about a year ago, so I think we're quite pleased with the level of the dividend today. And this is something that will get revisited on an annual basis. So I think as we move towards the end of the year and see how we finish up 2014, we'll have to revisit whether or not the dividend level is appropriate, given whatever acquisition opportunities we have and what our balance sheet looks like.

Then finally, on share buybacks, we'll be opportunistic there and there may be a modest level. We do have an issuer bid that's in place. We have used that somewhat, but I think that that will sort of be a third level priority in terms of capital deployment.

Anthony Jin, RBC Capital Markets.

Just want to touch on Canada. Seems like there's a bit of an overall slowdown in the commercial real estate market and you did mention that you had a pretty tough quarter last quarter; tough comparable this quarter on Canada. Could you just talk about what you're seeing in Canada in terms of (inaudible) to outpace the market here?

I didn't catch the last part of that question, but I will speak about Canada and we'll see if we can answer it. Canada, our business was up year-over-year. Still a very, very healthy market. Leasing was quite strong. Investment sales were off; a tough comparison for us. I think that the investment market was off in the Canadian market as a whole.

The Canadian business and market has been quite strong for a period of time now and I think that on the investment sales side, the supply of attractive properties has tightened, after several strong quarters, but it still remains very healthy.

For us, we have a very strong market position that we think is getting better. Our pipelines are near all-time highs, so again, a very healthy situation. Particular strength in industrial, office, land sales. Is there anything else?

No, that's very helpful. Just switching over to the acquisitions you made; the mix of transactions seemed to be focused on the number of transactions focused or property management advisory. Is there an optimum mix of transaction revenues versus the more stable contractual revenues that you're aiming for?

I think in the acquisitions that we did this quarter, a very significant one was a property management operation in Australia which is entirely recurring revenue. There's a little bit of leasing revenue but it's primarily contractual revenue. And even the two that we've done in the UK, I would say are probably 60/40; transaction revenue versus recurring or outsource services. For a whole variety of reasons, these two firms do several services that are not brokerage related.

So we're always looking at that and factoring that into the potential purchase price of any of these acquisitions. But I think most importantly, we're focusing on gaps in particular major markets, where we want to fill or strengthen and that's what's really driving our activities.

Are there any particular verticals or do you remain focused on retail and industrial that you're targeting?

Sorry, I didn't catch that, Anthony.

Are there any particular types of properties that you're targeting or do you remain focused on retail and industrial?

I think we run the gamut of real estate services, those services that high-quality real estate professionals and institutions need every day to manage their portfolios. And that ranges from the traditional services to things like asset and property management, project management, valuation, specific tax work. So it really is a very wide category of commercial services that we can use to continue to diversify our revenue streams.

I'll just switch over to residential. Regarding your higher employee costs, Scott mentioned that the cost would be rolled into the customers as their contracts renew. What kind of pushback are you getting from your clients on this?

We have contracts today and as they renew, we will look to pass on some of these cost increases. But we're not alone in experiencing these cost increases. Our specific competitors and generally companies like us in the US are all experiencing the same thing. And so we don't expect it to be an issue.

David Gold; Sidoti & Company.

Just a couple of points to follow up. One, when you think about the pipelines that you see and the leasing versus the sales side on the brokerage business at Colliers; I'm curious if you can give some additional color on the pipelines and the outlook, obviously? The sales side has been strong for some time and leasing really seems like it started to pick up fourth quarter last year. But what you're seeing out there and what you sort of think for the next six to 12 months?

Well, investment sales has been strong and will continue to be strong. Conditions continue to be very conducive to investment sales activity. So those pipelines continue to be strong. Leasing is definitely picking up across most of the regions and so those pipelines continue to build.

I think if you're looking for relative strength, I would say that investment sales will continue to be the principle driver of our revenues. But leasing activity is strengthening, definitely, in North America and Europe in particular.

Perfect, thanks. Then I'm curious on pricing on the acquisition front. What are you seeing out there and are there still things that are sort of worth buying at appropriate pricing?

We're finding pricing maybe a touch higher than it has been historically, primarily because the transactions that we've been pursuing were and are transactions in different geographic regions and they'd be specifically focused on strengthening our business.

But we're also adjusting our structure of acquisitions to compensate. So there's a lot of downside protection in every acquisition that we've completed at a purchase price multiple that would be 5% or 10% higher than we would normally pay. So I'd say generally speaking, we feel very covered and the purchase price acquisitions are not materially higher overall. So I think we're comfortable with the moves that we've made and for sure the downside protection we continue to get.

One last one. John, some sense if you can on the appropriate run rate to be modeling for D&A?

We'll get you that.

Brandon Dobell, William Blair.

I want to focus on Colliers just for one second. How do you guys think about the back half of the year in Asia Pac given how, especially outside of Australia and New Zealand, how tough it's been? Are the comparisons any easier in the second half, so the [objects] of growth could change or it's still going to be a tough six-month run here?

I think it's going to be flattish, Brandon. Investment sales picked up a little bit in the quarter, particularly China and Hong Kong, but leasing environment remains difficult. So it's, I'd say more of the same.

You mentioned Colliers taking share and I know you guys have been adding to the headcount across the different regions, but is there a way to think about share gains from I guess three different points of view? One, just pure headcount?

Two, I guess would be productivity of the heads you're adding or maybe heads you're kind of trading in versus trading out? And then maybe it's a wallet share, where you're grabbing more leasing business from properties you manage or grabbing more investment sales opportunities from owners that you're doing the leasing work for. Any way to separate the different share drivers in any of those buckets?

It's hard to separate the third one. We don't have that information necessarily. But in terms of headcount and productivity, I think that definitely they are both very significant drivers for us in terms of market share. The market is very strong so it does get blurry but I would say that we are growing at a rate in excess of the market particularly in North America, the UK and Australia.

Elsewhere, I would say we're at least in line and our broker productivity, which is both a headcount and a productivity measure, is a big part of that. It's up 50% plus over the past few years. We're pulling in proven performers and at the same time pruning, so net net we have a stronger team. At the same time, we're adding headcount, as Jay talked about, filling gaps in service lines, with a particular focus on our major markets.

So I don't have specific breakdown in numbers for you, in terms of what our share gains are and how that might be split. But intuitively, we know that it's around the quality of our broker in large part.

Maybe as a segue from that; given how competitive the market is for good talent in investment sales and leasing these days, are you guys seeing any upward or I guess downward pressure on margins from that point of view or should we expect any going forward as you start to anniversary some of the initial deals that you gave people last year and this year, to bring them over from different firms?

No, there's no material impact on our margin. We are providing certain inducements but they're no higher this year than they were in the last couple of years. Again, with the strength in the market and the leverage we're achieving, it's not having an impact for us.

Final one for John; I know in the past, John, you've talked about kind of a comfort level on debt to EBITDA, to think about how much leverage you guys could deploy. Given how low the weighted average cost of debt is for you guys, does that change how you think about the upper band on what the capital structure may look like from a debt point of view?

I don't think it really changes the upper band. You're right, we're the beneficiaries of a very low current weighted average cost of debt. But I think we're also mindful that, notwithstanding the fact that our businesses probably have more recurring and repeat revenue today than they ever have certainly around Colliers. The reality is that there still remains a certain amount of revenue and profit contribution which is transaction related and cyclical. So that puts a bit of a lid on the upper band of our comfort zone around leverage.

We've been operating in this sort of 1.5 to 2.5 band and then slightly higher than 2.5 times over a considerable period of time. And for the right opportunity, to take leverage to 3 times; I don't think we would hesitate to do that, as long as we could see a relatively clear path to being able to deleverage that balance sheet over a reasonable period and not be continuing to operate with a leverage that would be at the 3 times level.

Stephanie Price, CIBC.

In terms of acquisitions, you made a couple in Australia and New Zealand recently. Can you talk about how you think about this geography going forward and are there more things that you'd like to grow in that geography?

Looking out in Australia and New Zealand, we're always in the market and looking to strengthen but I don't see anything for the balance of the year in that area. We're integrating the two or three moves we made down there, one of which, the property management one is quite significant for us. So the guys are spending their efforts on that.

And in terms of residential property management and the margin impact that you've seen there, can you kind of break it out a little bit and quantify the impact of the health costs versus the transfer and disclosure fees?

We're at 6.2% this year and last year. Adjusting for the rebranding last year, we would have been up around 8%. Our intention or expectation was we'd be lower than that this year, due to some of the spending that we talked about over the last few quarters in our shared services. And we were off of that by 120 to 150, as I said in my prepared comments. About a quarter of that was the transfer and disclosure piece and the balance was the medical costs.

Mitch Germain, JMP Securities.

It's Peter on for Mitch. Just one quick question for you. Any specific trends with regards to recruiting regionally?

No, no particular trend. The theme for us has been major markets; London, New York City have been areas of focus. That will continue. But as Jay has indicated, we're focused really globally in many areas to fill gaps in service lines and to upgrade quality.

There are no other questions at this time.

Okay ladies and gentlemen, thanks again for joining today's conference call and we look forward to the next conference call in September. Thanks again.

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