Colliers International Group Inc (CIGI) 2016 Q3 法說會逐字稿

Welcome to the third quarter investor conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussions scheduled to take place today may con take forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance or achievements contemplated in the forward-looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company's annual information form as filed with the Canadian Securities Administrators and in the Company's annual report on form 40-F as filed with the US Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is Friday, October 28, 2016. This time for opening remarks and introductions I would like to turn the call over to Chairman and Chief Executive Officer Mr. Jay Hennick. Please, go ahead.

Thank you, Operator. Good morning, everyone, and thanks for joining us for the third quarter conference call. I'm Jay Hennick, Chairman and Chief Executive Officer. With me today is John Friedrichsen, Chief Financial Officer. The conference call is being web cast and is available on the Investor Relations section of our website. A presentation slide deck is also available there to accompany today's call. Earlier today Colliers International reported solid results for the third quarter.

Despite challenging market conditions in the UK and Europe and very strong comparative results in the third quarter of 2015 when revenues were up an exceptional 25% over the prior year. Revenues for this third quarter were up a further 10% over last year while adjusted EBITDA was down 13% and adjusted earnings per share was $0.40 compared to $0.52 last year. The difference was very straight forward.

Significantly lower sales brokerage in the UK and Europe as a result of the slowdowns surrounding Brexit as you might have expected. Putting things into context, year-to-date for the nine-month period ended September 30, our consolidated revenues were up a total of 13% or 16% in local currency over a very strong 2015, while EBITDA was up 10% and earnings per share up 1%. During the quarter, we completed three acquisitions, two in the Americas, one in the EMEA and immediately after the quarter end, we added a fourth in the UK where we remain committed to investing for the future in this important local marketplace.

Although none were material, each was strategically important, strengthening our operations, adding service lines, and extending our geographic reach. We also appointed a new Board member adding Canada's former Prime Minister Stephen Harper. Prime Minister Harper brings a wealth of experience as a former G-7 leader and will add important insights and relationships to Colliers globally.

We look forward to the Prime Minister's contribution in the years to come. Operationally during the quarter, the main story as I mentioned was the significant slow-down at lease brokerage in the UK and Europe, as you might have expected as I mentioned earlier. This was largely offset by lower margin outsourcing advisory which was still up 15% and lease brokerage was up 8%. Uncertainty has historically created excellent strategic opportunities for our Company and we took advantage once again adding significant asset management and advisory services operations in France with more than $2 billion of assets under management and we doubled the size of our Project Management and Building Consultancy practice in the UK.

Both of these strengthened our global platform especially in the EMEA, a market that we continue to see excellent growth opportunities. In the Americas, growth was relatively flat during the quarter versus a comparative strong quarter in 2015. But we continue to see lots of activity in the marketplace. Lending remains robust, foreign and institutional interest in real estate assets remains strong and yields on real estate assets continues to exceed other investment vehicles.

Most importantly, we remain focused on creating value for Colliers shareholders over the long term. Let's all remember one quarter does not a company make. Our enterprise 2020 plan is designed to double the size of our business over the next five years. We intend to accomplish this by continuing to grow our business annually at about 5% on average per year and augmenting our internal growth with prudent acquisitions in an industry that continues to be ripe for consolidation.

With almost 25% of the equity of our Company owned by our senior leadership key professionals, we are highly engaged and committed as a management team and perhaps most importantly have a lot of our own money on the table. Over the past 12 years, Colliers has been the fastest growing top tier global real estate services company, returning more than 20% annually to our shareholders. Our proven and long-term track record is unique among our peers and it speaks volumes about the ability that we have to execute.

Looking ahead to the balance of 2016, assuming no material changes in the market, and with the strong pipelines we currently have in place, we fully expect to exceed the record results we reported last year in the fourth quarter of 2015 and to finish the year well ahead of last year as well. Let me now turn things over to John to review our financial results for the quarter. I will then open things up for questions. John?

Thank you, Jay. As announced in our press release earlier this morning and highlighted by Jay in his opening remarks, Colliers International Group reported solid financial results in our third quarter relative to an exceptionally strong comparative third quarter of 2015 in which consolidated revenue growth in local currencies was up 25%. I will address our overall consolidated financial results for the quarter, our operating results by region as well as our capital usage and financial position.

So for our third quarter, 2016, consolidated revenues increased to $462 million, up 11% local currencies from $420 million in the third quarter of 2015. With 1% of our growth generated internally and the balance from acquisitions. Total revenue growth for the quarter in US dollar reporting currency was 10%. Adjusted EBITDA for the quarter totaled $37.6 million versus $43 million reported in Q3 last year, a decline of 13% while the margins declined 8.1% compared to 10.2% last year. And adjusted earnings per share came at $0.40, down from $0.52 in our third quarter of last year.

Our adjustments to GAAP EPS and arriving at adjusted EPS outlined in our press release issued this morning and are comprised primarily of non-cash charges that we view as largely unrelated to our operating results and are consistent with those outlined historically. Also, please note that the year-over-year percentage changes in the following are in reference to local currency.

Turning to our operating results, revenue of $462 million for the quarter was comprised of $134 million in sales in sales brokerage versus $129 million last year, up 3% while lease brokerage revenue came in at $148 million compared to $137 million in Q3, 2015, up 9%. Meanwhile, we regenerated $180 million in revenue from outsourcing advisory services compared with $154 million last year, up 18%. The more recurring revenues generated by our outsourcing advisory services segment represented 39% of our overall revenues, up from 37% in Q3 of last year.

Geographically, both revenues and adjusted EBITDA remain well balanced with 56% of each being generated in the Americas compared to 53% and 51% respectively in Q3 of last year. Turning to regions in the Americas, revenues were $257 million, up 15% with all of the increase from acquisitions in a flat internal performance over a tough prior year comparison. Our sales brokerage and lease brokerage revenues were up 19% and 7%, attributable to recent acquisitions. Outsourcing advisor revenues were up 21%, led by a strong internal growth project management in both the US and Canada as well as property management and valuation and appraisal services in the US.

Adjusted EBITDA came in at $22.6 million versus $22.8 million last year in a margin of 8.8% versus 10.2% last years, negatively impacted by lower productivity and brokerage in the US with smaller average transaction sizes and a shift in revenue mix towards lower margins with more stable outsourcing and advisory revenue. Moving to EMEA, revenues came in at $107 million, up 4% versus last year with 5% from acquisitions and a decline of 1% internally. Against an exceptionally strong comparative quarter in which revenue grew 67% with 30% of that internally generated.

Sales brokerage in our third quarter was down 40% with our US sales brokerage operation negatively impacted by uncertainty following the recent Brexit referendum while our German sales brokerage operations also saw a decline owing to a strong comparative last year and some time which should reverse as we finish out the year. Lease brokerage was up 15% including a more than respectable 11% increase in the UK.

Finally outsourcing advisory revenues were up 19% and led by strong growth and workplace solutions primarily in France with solid growth and valuation in the UK and property management in both the Netherlands and UK. Adjusted EBITDA was $4.5 million, down sharply from $13.2 million generated in Q3 last year and due primarily to the drop in higher margin sales brokerage revenue and a shift in the quarter to a lower margin outsourcing advisory services revenue.

Finally, in our Asia-Pacific region, revenues came in at $99 million, up 9%. Revenue growth was all generated internally, contributions across all service lines. With leasing sales and leasing brokerage revenues up 14% and 5% respectively while outsourcing and advisory services revenues were up 10%. Adjusted EBITDA was $13.2 million, up from $8.7 million last year with margin rate 13.3% versus 9.8%. Turning to our capital deployment and balance sheet, in our third quarter, capital expenditures totaled $5.6 million up from $4.5 million last year bringing our year-to-date CapEx to $16 million, flat with the prior period.

Our estimated CapEx spend for 2016 is now in the $29 million to $32 million range. We invested $36 million in acquisition activities during our quarter, during our third quarter, more than double the $16 million last year and bringing our year-to-date investment with acquisitions to $87 million versus $40 million for the nine month period last year. Our net debt position stood at $227 million at the end of the quarter and our leverage ratio expressed net debt to adjusted EBITDA was 1.1 times, compared to 1.3 times at the end of the third quarter last year.

Subject to any additional investments and acquisitions of significance, we expect leverage to trend down during the fourth quarter to well below one time. In terms of our financial capacity, with cash on hand and committed availability under our revolver, we had over $250 million of liquidity quarter end, a level ample to fund operations in other capital investments including acquisitions needed to execute our growth strategy.

Looking across our global operations, our pipeline to most markets which we operate currently reflect solid commercial real estate activity which we expect to continue into Q4 with some degree of elevated risks impacting sales brokerage activity in regions such as the UK and the US where Brexit and the pending US election continue to generate some market level uncertainty. We expect year-over-year FX head winds to moderate in Q4 with the exception of the pound sterling which will likely continue to be down 20% versus the prior year. Despite these factors, and a tough comparative based on a very strong Q4 2015, we expect our fourth quarter results to exceed those reported last year.

That concludes our prepared remarks. I would now like to ask our Operator to open up the call to questions.

Thank you. (Operator Instructions) Our first question comes from Brandon Dobell. Please, go ahead.

I want to focus on the Americas for a second. The mix of revenues this quarter versus last year third quarter was a little different but not too different yet the margins came off 140 bases points which seems like a little much given not much of a change in the mix of revenues. Is there something else going on under the surface there? Investments, maybe not much contributions from acquisitions but the expense side of it?

Just trying to get a feel for why the variance, you know, revenue mix versus margins as opposed to EMEA where there's a clear mix shift towards out sourcing so that would explain the margins better, I guess.

Yes, there's a few things happening. We spoke about certainly lower transaction size, absence of large transactions which generally tends to be more profitable so we saw that during the quarter. We did have a bit of a shift towards more (inaudible) advisory which is lower margin as well. And just general lower productivity, some elevated expenses on commission.

Okay. Are you guys seeing M&A multiples step up, or I guess sellers be a little bit more bold until their expectations for what kind of numbers, selling out would generate?

M&A multiples are very interesting because there's sort of a level between large deals and smaller deals, and we're finding a bit of a tick-up on smaller deals but not materially. But what we are seeing is a lot of interest, our pipelines for acquisitions are significant. But what we're doing is we're structuring our acquisitions a little differently with more back end downside protection so that we as we have historically gotten what we paid for. So I would say acquisitions in the sub let's call it $50 million revenue range are maybe up a quarter of a turn of EBITDA, not to say that people don't ask for higher acquisition prices.

Right.

But the larger deals are definitely up. And especially those that are fully marketed and the expectations there are significantly higher than we have a seen historically but Colliers has never really been a business that has chased that marketplace. Maybe we'll get there at some point in the future but we just see countless opportunities globally in the sub $50 million acquisition space. And so if we look at our average acquisition multiples, say for 2016, versus 2015, it might be up a quarter turn.

And then John, a couple of numbers questions. Just to confirm how you guys are positions things. You said revenues and profits 4Q would exceed last year's. I'm assuming that's an adjusted EBITDA and adjusted EPS basis? I just want to make sure we're on the same page there.

Yes.

Perfect. Some of the harder to model items, stock competency and the tax rate, any commentary where Q4 may come in relative to Q3 on some of those below the line items?

I won't comment specifically on the quarter but a general comment. The only thing that may be slightly elevated versus prior year would be our tax rate and just thinking about the composition of earnings and we've been investing heavily in the US, and with a slightly higher amount of US revenues in our mix and the profitability (inaudible) tax rate where it is, it would tend to have potential small increases in our overall tax rate by maybe 1% over the prior year.

Got it. All right. Thanks. I'll turn it back.

Okay. Thank you. Our next question comes from Stephen Macleod. Please go ahead.

Thank you, good morning. I just wanted to just take a bit of a deeper look at the European margins. Can you just talk a little bit about why they were down so much? I know it was related to mix. Is the brokerage business that much more fixed cost relative to the Americas and Asia-Pacific? Is this is that the way to interpret that?

Yes. Different model in Europe, so we have very profitable brokerage revenues which were down as we pointed out and we did experience significant reverse operating leverage and fortunately that revenue was offset with lower margin outsourcing advisory revenue which we expect that to be more profitable as we finish out the year. So it was a combination of the two.

Okay. And then as you sort of exited Q3 and entered into Q4 is there any more visibility into what Brexit might hold for the back half of 2016 but more importantly heading into 2017?

I don't know if there's more visibility right now, Stephen. I would say that my recent time there in October, I think everybody continued to get used to the idea. It's getting lots of headlines. But there doesn't appear to be any real slow down in activity around general economic conditions. Certainly a pause in real estate activity which we saw. But we expect that to come back. But, again, at the end of the day, Q4 for us will be very heavily weighted towards the last month-and-a-half. As it usually is. It so at this point it's a little bit early to determine exactly what the outcome's going to be. But our pipelines reflect solid activity.

I would add a little bit there. Two things. Number one, it's interesting that lease revenues were up nicely in that region as were outsourcing and advisory. But sales brokerage was down. And it's down for a couple of reasons. One, the whole uncertainty around Brexit but I can the currency fluctuation of the pound is having a real big impact on decisioning on buying and/or selling real estate. And so that's another factor that I'm not sure we have been clear enough with today, but I think it will continue to have a bearing on the decisions going forward.

Two weeks ago there was a blip in the pound sterling. That impacts the desires for principally non-UK investor owners to buy or sell real estate. So it has been an interesting ride and we'll see what happens as the UK takes the next step in the process. But there's a lot of interest both ways as the currency falls, there's calls come from around the world, let's see what's available and transactions where people were considering are not going to generate the same level of US proceeds. They're slowing down their decision. There's uncertainty there for sure but it's nice to see that leasing and outsourcing is strong. But I think there's a lot of pregnant activity in the UK and Europe as a result of Brexit so we'll see over the next two quarters.

Okay. That's helpful. And then just finally on the outlook for 2017, I know of you haven't formally issued expectation or a target for 2017, but can you just comment a little bit about what we currently see today, what reasonable starting points expectations are for top line growth, earnings growth given, where we are in the commercial real estate cycle?

A lot of people ask that same question. It's very interesting. This year putting aside the isolated event relating to Brexit, there's lots of activity going on virtually everywhere in the world. It's just not as strong as it was last year. So internal growth across the board, not just among commercial real estate firms but other firms as well has been relatively flat. We think currently our economists, our market leaders all believe 2017 will be a growth year.

How much growth versus 2016, we don't know. But we are feeling bullish and we also believe that be there continues to be M&A opportunities, significant M&A opportunities out there which could augment our internal growth. We report both internal growth and acquisitions separately which is somewhat unlike some of our peers who report only growth quarter over quarter growth which is both internal growth and acquisitions. So we have a long-term plan. We are going to continue to subscribe to hit 5% on average over five years internal growth and we'll make up the difference through acquisition, 8%, 9% on average and I think we're in good shape on our long-term growth strategy.

Okay. That's great. Thank you.

Okay. Thank you. (Operator Instructions). Our next question comes from Anthony Zicha. Please go ahead.

Jay, with regard to the quarter's performance, is there any change in your thinking in terms of capital allocation for growth?

Yes, there is actually. We want to accelerate our capital allocation for growth.

Okay. And you're pretty confident about the pipeline and you'll be able to make those accretive acquisitions? You don't see any change in your road map going forward? Actually, you see accelerating?

As I just sort of alluded to, the only change, Anthony would be maybe more consolidation, more acquisition sort of next year, for example, than this year to make up for smaller internal growth. But, it's consolidation, it's integration and if we continue to strengthen our brand market-by-market, extend our service lives, extend our geographic reach, we just have countless opportunities to do that. Internally, around the world for Colliers is we have to accelerate our M&A activity just a little bit to make up for relatively flat growth in most markets.

Okay. And Jay, do you believe that the weakness in Europe and considering what's going on with Brexit that it did have any impact on the America's market? And also can you give us a bit of color on the competitive landscape in the US and are you happy with your market share growth?

I'm sorry, the first question I didn't get, Anthony.

Yes, Jay. Do you believe that there's any spillover from Europe and from the UK into the American markets kind of pushing it down, causing a bit more uncertainty? And the second part to that question is, what's the competitive landscape now in the US and are you still maintaining your market share growth or are you seeing some acceleration in certain markets in terms of share?

So its mean, the third quarter was a bit of a wake-up call in the sense that there's uncertainty in so many places around the world and you're seeing it in our peers results and you're seeing it in the number of other companies and related industries. You've got the US election coming up. We'll see what happens there. There always seems to be some things that's impacting overall results, and I think it's making investors more prudent in their investment decisions but because capital is available, because international investors are looking for safe havens for their capital because real estate generates a higher return than other investment vehicles, I think it bodes well for the services that we perform for our clients.

So yes, always worried about it. This is a long game and always as you know, more than most, this has been a long game for us. We're heavily invested in the business. It's very hard to find a business like commercial real estate where there's countless opportunities to grow and we continue to see countless opportunities to grow. So I think that's a healthy answer, fulsome answer to your first question. The second question is, we do monitor our peers' performance to the extent we can market-by-market. It is a little difficult where when we're showing internal growth, and acquisitions and our peers do not. So it's very difficult to check apples to apples.

But we believe we're increasing our market share by market. Some markets better than others. Other markets we continue to have to work on. Those are all opportunities as we see it. And it's being sort of the smaller of the players out there with the greater gaps, if you will, although we have a presence everywhere. We have just countless opportunities to build gaps and build service lines and stuff like that. It's a feel more than anything because the others don't provide us with clarity. But I believe we are increasing market share and I feel very good about business.

Okay, great. One last question. In terms of all M&A activity you plan, how high would you become comfortable in terms of leverage on your balance sheet?

That's a John question. Because he has a veto on that. John, why don't you answer that one?

Well, we've been pretty consistent with our perspective on leverage and we are certainly operating a low leverage right now which gives us the optionality if something larger was to come along. But, I think we would be comfortable and taking our leverage to the two to 2.5 times for something that was compelling. And of course having visibility at that point in being able to deleverage our balance sheet so we want to make sure that market conditions were such that we could deleverage to get back into sort of a sub two, sub one half-times range where we offer it generally

Okay. Thank you very much.

Thanks.

Thank you very much. Our next question comes from the Mitch Germain. Please, go ahead.

Good morning, guys. Jay, just curious. The deal that you just did in France, I mean is that something a segment that you're really looking to make a bigger push into? Asset management?

Sorry, France or did you say the Middle East?

No, the French deal in terms of a signal that maybe that's a segment that you're really looking to beef up more globally?

As you know we acquired that business two years ago. We've been expanding rapidly throughout Europe. Canada always had a very significant business and we have started to grow a new west business in workplace solutions. We see it at a big opportunity for us. France is a leader in that space and that's what attracted us to that business model. And we think with the recent acquisition in France, it helps to balance the business a little bit more.

That's for us an opportunity in France because the business is so heavily weighted towards workplace solution, this recent acquisition adds property management, adds asset management and we still have a way to go in terms of adding a bigger practice in sales and lease brokerage which is a very small part of its business. In the UK, we just added a very, very high quality business called Falling Brook. They virtually doubled the size of our project management and workplace solutions business. They've been around forever.

And many of their clients are clients that are paying European but they could really only provide the services in the UK. So there's a movement afoot now to extend services throughout Europe because we have that capability in virtually every market in western Europe. So again, another opportunity for us to continue to grow our business. It's a one step at a time approach. But the beauty is multiple different real estate services serving high end and advising high end clients.

Great. I appreciate that commentary. And then if I look at your M&A, the deals you've closed in the last twelve months and your most recent presentation. Now obviously focus is Americas. Is Asia-Pacific -- is that just really a market where the growth is going to be through hiring? Or do you think there will be some M&A opportunities to consolidate in that league?

That's a very good question, Mitch, because Asia-Pacific has been no, let's not say the Pacific portion. It's Asia in particular. Australia and New Zealand for us has been ripe opportunities for acquisition and there's a couple in our pipelines today, for example. But Asia has been more of an issue in terms of finding great prospects. First of all, there's not as many as we would have in more mature markets. Secondly, some of the ones that we've gone down the road with are not of the quality that we think will help us take our business to the next level.

There are some larger ones there that might be available but generally speaking, today our focus and our management team's direction drive internal growth and there's some very interesting opportunities for us to do that. And so until we find the right opportunity in Asia, we're going to just continue to drive internal growth. We had a good quarter this quarter relative to the quarter last year. Last year there was a little bit of noise around some management changes that we made there to strengthen our business, termination and recruiting costs. But, it's nice to see their margins up around 14% and good growth. The answer in a long winded way is, there are fewer opportunities in Asia of the quality we need.

And when I look at that region for you guys, is it really more of an Australia/New Zealand or do you have a really good presence across the Asia aspect as well?

We have a good presence but it's never good enough. We've got very strong operations in some important major market cities. We have gaps in others. And even in the markets where we're generating significant revenue and profitability, in markets like Shanghai and in Hong Kong and Singapore, there's still gaps in the service lines that we offer there which means further opportunity for us to grow our business. But, as you know, you've followed this industry for so many years, it doesn't matter whether it's Asia or the US, there's always a market that can use work. There's always a service line that can be expanded or extended. And so the role we have as managers is to continue to strengthen and strengthen and strengthen.

Great. And last for me, a couple of your peers had mentioned cost of hiring has grown. I know you mentioned on the M&A side, multiples up about a quarter. A, is that consistent with what you're seeing? And, B, is it slowing down your hiring efforts?

Cost of hiring is up. And we have a very disciplined way of looking at it. What we've been seeing in the last quarter or two, just don't pencil in terms of returns. So we've been relatively quiet there, although this year our net recruits is up materially over last year. I think 2016 will be a record year for us. And we're focusing a lot in terms of recruiting around the people and it's not and should not be about money. It should be about being on a platform that's enterprising and that's different and a platform somebody that is not slowed down because of bureaucracy or has to slit an important client one way or another and join a firm like Colliers and have a much more significant role in a growth of the market and client relationship or both.

Great, that's it for me. Thank you.

Thank you. Our next question comes from Michael Smith. Please, go ahead.

I'm just wondering on sales brokerage, are you seeing any delays in closings because of the US election in the month of October? Are there any issues with regards to that?

It's hard to measure it specifically against the US election. I did make a comment that we didn't have a lot of large transactions to close in the third quarter. Our pipelines do have some and whether it's specifically related to the US election or sort of tone or whether it's other factors, we don't really know. But, I think that the uncertainty that emanates from something like what we're going through, a US election year particularly one that has been this closely followed by the media as this one, it doesn't really help the market conditions. I think that, once things are done and we all know on November 8 or 9 or whenever the date is, that will take out at least some of the uncertainty and then we will deal with whatever the outcome is and whoever the winner is and whatever policies they have and so forth.

I can the backdrop remains, not outstanding the noise, a very healthy US economy and that well for transaction activity and all of the factors that tend to drive real estate activity, will it's on the sales side or leasing side are intact.

So basically if there's any uncertainty, or any delays, it's more of a macro backdrop is there, maybe some delays but you're not expecting any changes in the level of business?

Right. Correct.

So maybe I could just switch to the UK and Europe. Again on sales brokerage. So as I understand it, July was an okay month and August is a quiet month and I guess things sort of fell off in September. And I think you referred to your pipeline as being pretty full, your pipelines are full. So I'm just wondering, what level of -- are you confident that the pipeline will translate into revenue? Are deals starting to close?

I think we're confident. I think we're seeing some activity in October. The Q4 activity tends to be heavily weighted from mid November onto the end of the year so we don't have a lot of visibility right now around the bulk of transactions but we are seeing some activity. And, I think if market conditions are generally stable, and there isn't some type of aberration that comes out of these ongoing discussions around Brexit and negotiations and so forth, we would expect those transactions to close.

UK as well and we did indicate my comments in Germany which is obviously a very strong market for us and we have a very strong pipeline in Germany as well which we would expect would be less impacted by any of the Brexit, in fact could be a beneficiary although I don't think we'll see that for now.

So what happened in let's say Q3, is that more is the deals gone away or are they just delayed? If you had to sort of put it in the majority in that bucket?

Yes, based on our market intelligence, very few gone away. You could count them on one hand. Certainly many transactions have Brexit clauses in them and we've seen a lot that have used that just to extend their time for closing transactions.

Okay. Thank you. Very helpful.

You're welcome.

Thank you. Our next question comes from Marc Riddick. Please, go ahead.

Good morning. I just wanted to touch on maybe some of the general factors that could end up playing into the timing, the uncertainty and timing and wanted to get a sense of if some of the more traditional transactions that might take place at the very end of the fourth quarter, might end up sort of flowing into early next year and whether or not you're getting any feedback or greater level of concerns around interest rates? Or whether or not there's any -- and then maybe -- I'll have a follow-up after that. But why don't we start there?

I don't believe that we're getting any -- receiving any concern around the increased interest rates. I think that we are generally in a deflationary environment with the exception of the US and the US Federal Reserve's perhaps moving contrary to the rest of the world generally around interest rates. Albeit if there isn't an increase, I think everybody anticipates that it will be very, very slow. I think that's reflected in the market. I think that's baked in and reflective of current activity levels. So don't expect that to have any significant impact on velocity around transactions as we finish the year.

Okay. And I wanted to get a sense of some of the safe haven transactions, if you will, coming into the US and Canada that we saw so clearly in the second quarter. I wanted to get a sense of if you were getting any early indications as to what that type of mix might look like if you're getting sort of any early indications that that might continue going into early next year?

I think it's a little bit too early to tell whether that's sustainable or whether it's a bit of a knee-jerk reaction to what was happening in the UK and maybe a bit of risk management around those. You know, our international investors looking to have an alternative safe haven. I don't know whether that trends' going to continue or not. It's too early to indicate. We don't really have good intelligence on that

And as far as the revenue pipeline, I was wondering if you could share what your views were as to focus and interest on major markets versus maybe secondary markets if you can give some color on there and whether that's changed at all over the last few months? Thank you.

I think we have seen an increased interest in secondary markets. I think to some extent our results are reflective of that. You tend to have somewhat smaller transaction sizes in secondary markets. However as we know, particularly in the US, secondary markets are huge when you aggregate together. And I think it's indicative of the state of the US economy and maybe some the major markets where prices got a little bit extended and cap rates got depressed. I think some of that may be coming back in favor of better returns for investors. I would say that that trend has persisted through 2016 and I can it's indicative of the overall health of the US economy.

Okay, great. Thank you very much.

You're welcome.

Thank you. Our next question comes from Frederic Bastien. Please, go ahead.

Thanks, guys. Just to build on that last question and the comments you provided. Are you suggesting that demand for your brokerage services in the Americas is generally as strong in the tier one markets as it is in medium and smaller-sized markets?

Demand for our services. I would say that demand for our services is similar in each of these markets. I don't think that we're differentiating. Our market position in specific markets differs from market-to-market but I don't know if you could make a real delineation between sort of the largest of the markets and more secondary markets for demand for services.

The only thing I would add there is John sort of commented about it a couple of times. The average size of the transaction is lower in the US this year than it was last year which means that there are fewer bulk sales of portfolios and there are fewer large buildings that are being traded which would suggest that the larger, more major markets, New York, for example, the more trophy properties have already traded.

And what's happening now is the secondary properties whether in major markets or in secondary markets are now trading at a different velocity. So we don't report these numbers but the number of transactions is actually up for us. It's just the average size of those transactions is down. So, we are working harder to complete more transactions but there's still good volume out there.

Thanks. Yes, that's where I was getting at. And I mean what do you expect the related impact on margins to be on a go-forward basis? I mean if you're working harder, obviously spending more resources, should that put a bit of pressure on your margins in the Americas?

I guess, all things being equal, one would say yes but I think if we're looking at a change in activity around deal size and other things it's up to us to try to figure out how to be more productive and trying to streamline and adjust our cost base to recognize that. So I think that there is eventually some slight impact but it wouldn't be material.

Thank you. That's all I have.

Thank you.

Thank you. Our next question comes from Brandan Dobell.

Just a quick follow-up. The acquisition in France you talked about asset management advisory firm and I know that the industry kind of uses asset management in a variety of ways. Is that asset management like you're managing the actual facilities, the builds? Or is it asset management in terms of what we would think of obviously this company goes out and raises funds from institutions and then deploys those in to buying buildings or maybe it's the debt size of investment management? Just a little more color. That would be helpful.

It's the latter and it's a company that has that acquires real estate or institutional investors and manages them during the life of the ownership. Sometimes it's one institutional investor that will own a property. Sometimes it's three or four that own the property. But we will find the property, we will manage it, not property management, it's interesting in France, we can't property manage. So it's entirely asset managed. So we originate the transaction. We can't do leasing on it so there's a leverage opportunity there for us. But laws in France don't allow us to property manage a building that we're asset managing.

Got it. Okay. That's helpful. Thanks.

Thank you. We have no more questions in the queue for now. (Operator Instructions).

If there's no further questions, I want to thank everyone for joining us on the third quarter conference call and we are looking forward to a strong quarter, fourth quarter and finish to the year. So we'll speak to you then. Thank you.

Ladies and gentlemen, that concludes the third quarter investors conference call. Thank you for your participation. And have a nice day.