CBRE Group, Inc. (CBRE) Q2 2011 Earnings Report, Transcript and Summary

Thank you for standing by and welcome to CB Richard Ellis's second quarter earnings call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session; instructions will be given at that time. (Operator instructions) As a reminder this conference is being recorded and I would now like to turn the conference over to our host Mr. Nick Kormeluk.

Thank you and welcome to CB Richard Ellis's second quarter 2011 earnings conference call. Last night, we issued a press announcing our financial results. This release is available on the home page of our website at www.cbre.com. This conference call is being webcast live and is available on the Investor Relations section of our website. Also available is a presentation slide deck, which you can use to follow along with our prepared remarks. An archived audio of the webcast, a transcript, and a PDF version of the slide presentation will be posted to the website later today. Please turn to the slide labeled forward-looking statements. This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future growth momentum, operations, financial performance, business outlook and the ability to complete and integrate our announced acquisition of the ING REIM businesses in Europe and Asia. These statements should be considered as estimates only and actual results may ultimately differ from these estimates. Except to the extent required by applicable security system update or publically revise any of these forward looking statement that you may hear today. Please refer to our Second Quarter Earnings report filed on Form 8-K, our current Annual Report on Form 10-K, and our current quarterly report on form 10-Q. In particular any discussion of risk factors or forward-looking statements which are filed with the SEC and available at the SEC’s website at www.sec.gov for a full discussion of the risks and other factors that may impact any estimates that you may hear today. We may make certain statements during the course of this presentation, which include references to non-GAAP financial measures as defined by SEC regulations. As required by these regulations, we have provided reconciliations of these measures to what we believe are the most directly comparable GAAP measures which are attached to slide three. Our management team members participating with me today are Brett White, our Chief Executive Officer; and Gil Borok, I’ll now hand the call off to Brett.

Thank you, Nick and please turn to slide 4. We are very pleased with our revenue growth of 21% in the second quarter of 2011 versus the second quarter of 2010. This clearly demonstrates the underlying strength of the recovery of our business and our industry. Our revenue growth was strong across all geographies and was particularly notable in our leasing investment sales and outsourcing business. Routine revenues increased to 22% with each geography positing growth with at least 15% over the second quarter of 2010. This performance comes against a backdrop of gradually improving market conditions evidenced by falling vacancy and an uptick in rents in many parts of the World. These conditions have prompted more companies to lock in long-term occupancy at today’s relatively low market rents. Investment sales revenues increased 44% lead by the Americas and Asia specific. Market activity accelerated very strongly in the US during the quarter, due to increase demand for core assets in prime markets, a broadening of investor appetite for properties in secondary markets and improved access for low-cost financing. Outsourcing revenues increased 13% with double digit contributions from all geographies. We continued to see more and more companies embrace outsourcing solutions as a means of lowering cost and remaining competitive in a slow growth economic environment. Demand remains high for global mandates and is growing in Europe and Asia where outsourcing is a newer concept. Normalized EBITDA increased to $172 million from $165 million. It is important to note that in second quarter 2010, development services normalized EBITDA was $19 million greater than in the second quarter of 2011, predominantly resulting from outside gains from property sales. In addition, in the second quarter of 2011, we recorded $5.3 million of carried interest compensation expense, due to the expectations of future profits…

Thanks, Brett. Please advance to slide 6. Revenue was $1.4 billion for the second quarter of 2011, up 21% from last year. This increase resulted from improvement in nearly all business lines. Normalized EBITDA was up 4% to $172.4 million in the second quarter of 2011 from $165.2 million in the second quarter of 2010 delivering a normalized EBITDA margin of 12.1%. As Brett just mentioned, excluding the impact of the outsize development services gains in the prior year and the carried interest expense in the current year, normalized EBITA would have grown by 22% and normalized EBITA margin would have been approximately 12.5% in both years. Our cost of services as a percentage of revenue increased to 59.1% in the second quarter of 2011 as compared to 57.9% in the second quarter of 2010. This was primarily due to US based compensation re-instatements to previous session levels at the tail-end of the second quarter 2010, as well as select hiring predominantly in EMEA in 2010 and early 2011 in anticipation of improving transaction revenues and in support of new initiatives and recently won contracts. Despite an absolute increase in operating expenses and support of revenue growth, the impact of compensation re-instatements and the aforementioned carried interest expense; second quarter 2011 operating expenses as a percent of total revenue dropped by 130 basis points to 30.4% versus 31.7% in the second quarter of 2010. This is indicative of affective cost control in the indirect and support areas of our business. Interest expense decreased by $16.1 million in the second quarter of 2011 as compared to the second quarter of 2010, primarily due to a more than $600 million reduction in outstanding debts in the second half of 2010 and lower interest rate resulting from our re-financing activities in the fourth…

Thank you Gil and please turn to slide 18. This quarter demonstrated that the recovery in commercial real estate continues despite some bumps in the road to global economic recovery. Outsourcing fundamentals remain strong as evidence by our execution of the record number of contracts in the second quarter. We continued to look for double digit revenue growth from this part of our business. We expect our investments sales business in the Americas and Asia Pacific to continue to generate strong revenue growth throughout the year with somewhat less certainty in this regard in EMEA. Recent revenue growth should remain solid even in the phase of tougher comparisons later in the year. While individual transactions can often greatly implements quarter-to-quarter performance of our global investment management and development services segments. We are generally quite optimistic about the outlook for these businesses for the rest of this year. The carried interest compensation accruals taken in the investment management business are good indicators of future asset valuation increases and corresponding carried interest revenue for the company. We continue to target peak EBITDA margins of 20% for the company and we continue to expect earnings to be in the range of $0.95 to a $1.05 per share for full year in 2011. Operator, we will now take questions.

(Operator instructions) Our first question is from the line of Anthony Paolone with JPMorgan, please go ahead.

Thank your good morning.

Good morning.

Good morning.

The extra comp cost that you guys took on in Europe and then returning some of the comp levels to pre-recession levels, you mentioned you did a lot of these things in anticipation of a higher revenue base, I am just wondering if you think you are going to hit that higher revenue base or what that sort of return looks like on making these investments back in the costs.

Sure Anthony, I will take a stab at this and then Gill, you can round up what I neglect to mention. Your know Anthony when we set our budgets for the year, and we need to forecast not only the amount of aggravate revenues that the company will benefit from during the year but also their timing and their mix and that anticipation of revenues time in a mix, then determines the amount of expense that we will load into business for future growth. And the hiring that we have been doing across the business has been an anticipation of the type of the revenue growth that we are seeing right now. These really at the revenue line unprecedented numbers for services of industry firm in its space. So revenues are coming in at a level that are very close to what we expected, how they make it is a bit different and that mix that we are experience at this movement is rated a bit more heavily towards the outsourcing states and a bit less heavily in Europe towards the capital markets business, which is our highest margin business. Now withstanding that our view regarding the recovery in general and in the mid and long-term remains like what it has been all long, which is we are in the early stages of a cyclical recovery, it will be a good recovery and the hiring we have been doing the business is well timed and well placed for the revenues were both expressing today and what we will be experiencing down the road in the future, but quarter-to-quarter and the early stages of this recovery cycle it will not match perfectly and we saw a little bit of that in the second quarter results. Gil you want to add anything to that?

Yes, Brett the only thing I would say; I just reiterate that you know we do manage cost and philosophically manage costs relative to revenues but you don’t know what is in front of you and you certainly you do what is behind you and so seeing what we have seen this quarter in our conclusions regarding that, we can then make adjustments to our cost base to match - anticipate revenues based on the latest performance.

Is there anything that you seeing after that prompt you to may be take you further off the gas in terms of investing in some businesses and just watching things on the cross side a bit more at this point.

You know it is a great question Anthony, it is something that like I said it’s an art and so we feel very strong that our commitment to the market to our shareholders and to all of you is that we focus very, very heavily on margin and you know that about us. So we are probably more likely to make adjustments of the cost base quickly and relieve as opposed to standing on the idea that these investments should stand as they are and continue a pace for some future date of revenue increase, so all that to say that based on the mix of revenues that we have seen year-to-date and the derivations geographically there is revenues. We have already begun to address components of our cost structure and you should expect us to do whatever we need to do to deliver the margins and earnings that we talk about the last few quarters.

Okay, a question on the leasing side, and that part of the business, can you talk to just general activity levels over the last few months, like did you see much of a slowdown in May across the regions and are you seeing any sort of pickup in July, just how is the business felt and you know how this has been feeling over the just the last few months.

Well, let me first of all say that the kind of leasing growth we are seeing globally right now is unprecedented, it follows a year or we have a very strong growth as well and leasing was not hit anywhere near as hard day and capital market were during the down turn, so the leasing business generally speaking is in very good shape, now that means there is so much uncertainty out there in the market place and has been for a few months here, that it is very difficult to tell month to month what leasing revenues are going to look like and they can be very lumpy as well, you know few large transactions can really move the needle you way on you leasing business in any geography. I would say generally Anthony that leasing business looks quite good that our expectations are as it will remain quite good for a year and I guess, Anthony I would remind you and the other caller’s of what we talk about a lot in our investor day and we talk about on this phone call, which shocks to the capital market, such as we are seeing in Europe right now for sovereign debt concerns. What that does, it does not tend to have an immediate impact on the leasing. It tends to call a time out in our capital markets business. So, for instance, our investment properties performance in Europe was below what we had expected and that absolutely to be expected, when you have got these charts to the capital market system in Europe. It is a time out, it is certainly not a change of course and we remain very bullish on the capital markets both mid and long term, but these issues that we see in Europe, there is a spectacle is occurring in Washington right now. At the moment, we don’t seem to be having a material impact on leasing now if they continue for a for a protracted period of time that could change, but at the moment I would say leasing looks, looks quite good.

Okay, then just my last question. How much did you guys spend on those few acquisitions you made in the quarter and what were the EBTIDA multiples like.

I will give you the multiples and then Gil if you want to them out, you can. I do not think we will, but all we got is a (inaudible). In multiples in a market like this are going to be a bit higher than they will be later on this cycle, because we are buying off of trough EBITDA. So, the kind of multiples that we are looking at today, they vary by geography and they vary by business line. Generally speaking, I would say on the low-end they run probably four to five times and at the high-end we will probably getting into the eight range and again it really depends on what type of trough you guys are buying off of and the kind of churns that you can get around the measurement, but that would, be the range and that range is as you know Anthony, it is fairly typical for our acquisition program. Gil, you want to talk about any of the numbers there.

Yes, we already disclosed an aggregate, it was $45 million.

Thank you.

And we have a question from the line of Sloan Bohlen with Goldman Sachs. Please go ahead.

Hi, good morning guys. Not that I would beat a dead horse on the cost, but Brett your point on time out in certain markets. Do you think from a strategic standpoint that you are staffed appropriately for a time out meaning that do you think it’s temporary for this year or do you think that your points about managing costs going forward that you would manage more to a margin target for the end of the year or an earnings target for the end of the year.

Well, there is a lot in that question Sloan. I will start with we manage the business to a margin target and to an absolute earnings target and we expect the business to produce at both those metrics, according to the plan we set forth at the beginning of the year. Let me be clear about by what I mean by a time out. This can be a two week phenomena, it is not a year phenomena and these time outs tend to be, if you look at the performance of EMEA capital markets in the second quarter, we are at 9%, which I believe was the highest growth rate of industry in the second quarter. We had a very good performance there in the capital markets, but not the level performance that you would expect at this stage of recovery and that is because of these issues occurring, I believe these issues occurring across pan continental Europe, but that slowing of capital markets transactions can be a very short life phenomena and what it is Sloan, I think I talked about this before. It’s simply buyers pausing because they want to see what resolution of these specific issues in the market will be because that will allow them to set pricing, so it may be a two week phenomena, it may be a two month phenomena. I doubt it is a two quarter phenomena. It is definitely not a year phenomena and there are four, as we think about our business and we think about citing cost. Certainly, we are looking at those businesses in the capital markets, so we look at the entire business to make sure that - where we see the revenues coming from both by line of business and by geography that we can deliver at the EBITDA, the margin in the earnings line, the numbers that we - we believe are appropriate for the year so all that to say again and you are not beating a dead worse. I think you are asking right question Sloan. We really believe that delivering those metrics is important. I do not feel great about the performance of net income line this past quarter. I do not feel great about it at all. And we are not going to continue along at that kind of performance for the balance of the year. We will do whatever it takes to deliver the kind of numbers that we believe are appropriate for this firm in this and those for instance Sloan, to be specific our expectation remains that our full year EBITDA margins 2011 will be greater than our full EBITDA margin 2010 and, let that one sentence define for your lot or answer lot of questions you are going to ask.

Okay, that, that is fair enough , very helpful and then just a kind of follow up question with regard to what we are seeing from your competitors being a little bit more aggressive and trying to take share in parts of the world that you are the leaders in. Is that causing any pressure on cost with regard to retaining your own talent?

No, it isn’t. We are – first of all I would say that phenomena I do not know if it is any different today than it was last year or three years ago or five years ago. The competitive environment that we live in is fierce, but our ability to not only retain key talent (inaudible) to our competitors remains very, very high, for all the reasons that we have talked about before. In our industry, we employ a population of 31,000 people. We take enormous pride in our position in the market place and I believe in our business, having been in this business now close to 30 years, it really doesn’t matter where you set a lead table [ph] in this business. People take great pride in that. They think about it a lot and they believe that it brings meaningful business to the table being number one in these markets and it needs business lines. All that to say that we certainly see a lot of the recruiting going on in the market place, we haven’t lost any to my knowledge. We haven’t lost any significant revenue producing personnel or for that matter management in some time. In fact we are picking up, I believe we are picking up some pretty terrific of talent right now in all three of our major geographies.

Great, thank you guys.

Sure.

And we have a question from the line of Brandon Dobell with William Blair, please go ahead.

Hi, guys. Wonder if you could focus on headcount for a bit in two different ways. One in terms of brokerage professionals you are adding and investment sales and leasing. Can you give us a sense of what it may have looked like to finish out 2010 and where we are now and if any color by geography it would be helpful also. And the kind of a base within that to a certain extent - kind of support people that have come along with those broker hires. Just kind of trying to get a sense of how we think about the human capital and kind of fix a cost that is in the business now versus last year.

Yes, it’s a good question Brandon. Indeed, the headcount on revenue producing professionals in the transaction business probably has not moved much year-over-year and I will just remind you and the callers what we have talked about before a lot, which is the capacity of the business to onboard additional (inaudible) FTE position. We it is not unlimited; we have never yet shift that maximum amount that requires the hiring of additional revenue production people to accommodate the revenues. What does change as the markets begin to improve is spending in other areas and those other areas are things such as travel for marketing, its overall marketing expenses, its forward expenses will put into large capital markets dispositions or large letting assignments. Its - in this market, we are at one of big areas where cost has been on boarded is we are experiencing at the moment unprecedented levels of on boarding of very large corporate services and institutional assets versus client. These are huge, huge opportunities for us. you see some of them in our key win slides such as PRUPIM and others these are very, very big assignments and the fact of that matter is with 44 lease assignments this quarter, 41 the quarter before and we will well on board over a 100 major contracts issue probably close to 200 and those tend to be very, very heavily weighted front end with cost and tend to have very little if any profit for 10 to 12 to 14 months. So that, there is lot of cost there, that cost, we are not going to touch. Because that is directly associated with large accounts and revenues that we can see, but the marketing cost, some other production cost and the supportive cost in the business, if we do not see the revenue production in those business lines that we expect those are the areas we will pull back a bit on.

Okay and then taking a different track for a second. Given that most industries have seen some sort of price compression or commission compression, have you guys seen either in sales or leasing any pressure from your customers on the commission rates that they are paying to you guys and would you anticipate any if the economy remains kind of stagnant, weak globally does that put more pressure on you guys or doesn’t it because of sort it becomes more valuable.

Yes, it’s the latter so commission rates you know, we talked about this before, they do not tend too much, but the movement that does occur, commission rates tend to go up and capital markets – they tend to compress a little bit in better market. You know it is interesting as difficult as the macroeconomic environment is at the moment. The commercial real estate market is quite good and what we are seeing at the moment is showing no movement in our commission rate in any geography. We say some years ago, when it had stuck, a lowering of commission rates on the large capital markets transactions, but nothing has changed there in the last 24 months. I do not expect you are going to see much movement in commission rates are going forward for a few years either.

(inaudible) question from me. If you look at the larger services deals, facility management, property management deals which you on boarded during 2010, has those generated the types of - follow on the revenue either in a managing business sales process for facilities or managing the leasing around those facilities that is what you expected when you went into those contracts.

The answer is yes, but we know going into those contracts so those follow on revenues take quite a bit of time. I will give you an example, there is a terrific global engineering client of ours yet we took on as a global client three years ago. That account has embedded within it an enormous amount of follow on activities that we conduct at a high margin and that account did not really start spinning off those opportunities until two years into the account. It took that long to burn off, the legacy business with the prior incumbent had had their protection on deals that we are not yet done and for us to fully explore the opportunity with that client. So, all these wins that we are getting, last year all the wins that we are getting this year set us up for a very, very good long term picture in terms of picture in terms of cross selling within the business and ongoing additional revenues, but they take time. Unfortunately in the outsourcing business you can on board a client in January and you will bring all the cost on January 1, but the process maybe a year out and they tend to ramp up once they started coming in, so we are not surprised like in we are seeing but that’s the way that business works.

Okay, appreciate it thanks.

And our next question from the line of Bose George with KBW. Please go ahead.

Good morning, I want you to just switch to a more macro issue just the whole debates that are going on in Washington. Just curious about your thoughts and what would happen if there was a rating downgrade of sovereign debt just in terms of business confidence.

Well, I do not really know what was going to happen yet. The spectacles occurring in Washington, I do not know if that is going to end up, let us know because we do not. At the moment, I do not believe that it’s had any impact at all on business activity in the States. I think it certainly has worried a lot of our global partners to know and the outcome of all of these, you know, I suppose if we could follow up and we get a serious downgrade here. I suppose that should have a material impact on business confidence, but I think at the moment there is a law based expectations that a downgrade is going to occur no matter what the outcome is now and we are seeing that have a - at the moment a big impact, any impact at all in the business. It is just impossible to say that trying to judge what impact a change in (inaudible) is going to have on the business is very difficult, but I will stay in the commercial real estate world a different than perhaps consumer spending or some of the other metrics you might look at. In our world, we are doing with clients, who are generally making very long term decisions on the capital market side, as I mentioned earlier, those buying or selling investment properties they can be very, very nimble. They can pull a property from the market for a month and put it back on a month later, they can put a property under contract in a month, cancel a contract and put back in contract 6 weeks later and so that business tends to be a bit fickle with these types of issues in the market place because - by the way fairly quickly, but on the leasing side, on the outsourcing side, on the evaluation side, on the property management side, these business are very slow moving, big, long term oriented contracts - and these types day to day issues and issues we have here in the States and the secondary issues we have in Europe right now do not turn out a big impact on those businesses. These people are – if your firm has a lease coming up December of this year. It doesn’t matter if there is a vacancy downgraded, doesn’t matter what congressmen at the senate do next week. And you are going to get that space regardless, so you know as we watch all this play out. We are seeing the impact of the sovereign debt issues in Europe, play out in the capital markets in Europe you can see it. It’s a bit of a pause there as people wait for some certainty around these issues in the States so far, no impact but no way to tell.

Okay, great, thanks for that and then just wanted more company specific question. I was curious about the impact of currency adjustments on your reported numbers this quarter, is that something you would disclose.

Gil

Generally, we don’t say a lot of currency because it doesn’t have a very big impact on the EBITDA line; they all notably impact from each of revenue and cost lines. I would tell you though on the EBITDA line again this quarter, it is a little bit more notable that usual to the positive by low single digit million. Bose George – KBW: Okay, great, thank you.

Sure.

And we have the question from the line of Will Marks with JMP Securities. Please go ahead.

Thank you, good morning Brett, good morning Gil. First, I just want to ask Gil; do you have based on your guidance what interest expensive would be for the year, do you mind giving that.

,:

Yes sure. So well what we said in the first quarter right was that we are going to stop giving specific guidance on a large pot because a following along out of philosophy of matching cost to revenue, our revenues were coming at a faster pace than what we anticipated when we had the full - cost would come back, so I would turn to that trend continues in the second quarter meeting, the cost are coming back faster than we thought they would when we gave the original target, because the revenues are coming back faster, but I do not want to get into a specific numbers for the same reasons I did not want to in the first quarter which is a little difficult to judge and we are - doing all that we will continue to from a philosophical and practical standpoint continues to monitor them and monitor them in the context of revenue and mix of revenue.

Okay great and Brett back to your I think powerful comment about potential margin expansion this year. Should we think about this year as a year when you are doing some something is to ramp up or you got added cost that may be not the revenues and the next year the margin should expand more.

You know, it is a good question. I suppose the answer is a little bit a yes and a little bit of no. So, philosophically and generally speaking our approach has been to very carefully onboard cost that is supported by near term revenue, so we have really tried to stay away from the idea that we are going to get on these calls and say you we crushed margin this quarter, but in 2012you are going to see some great results - we try not to do that and we are not doing that this quarter. What we say in this quarter that the mixed – first of all we are going to compare issue that significant and if you know, we are not asking to do it, but if you normalize that this comparison we talked about we have 22% EBITDA growth in a flat margins year-over-year. That is pretty damn good. We consider to be a pretty acceptable performance; however, we think we can do better and the reason we think we can do better is the mix of the revenues that came in was different than had forecast late last year, when put the budgets together and because it is different, we are actually making some cost adjustments now, so what we are not saying to you is, hey look folks, this is what it is, we are going to spend these dollars today regardless of mix and regardless of what it does to margins and we are going to give you great performance in future years. We just don’t think that way and what we are saying to you is, we are not satisfied with the performance we put up in the second quarter. We know we can do better; we can do better by…

Okay. And then thank you for that full synopsis of that. One final question, on kind of related to ING free cash flow, your balance sheet. Looking at - I imagine if you had the opportunity around the ING announcement to issue some equity, I guess you always had that opportunity through an ATM or some sort of offering. Would you say that that is off the table, would you still consider issuing the equity or ever thinking about it?

Well, as Gil mentioned in his scripted comments earlier today. It is an option that remains available to us and we have also talked about sizing that option which is, I wouldn’t say it’s immaterial, but it is close to it. We thought about $ 250 million or something like that program. At this point, I don’t want to predict whether we will or won’t. I think it is was, something that we want you to know for large acquisitions we will keep it in our back pocket and if we feel that it is the proper use of the equity and it is economically the right decision then we are prepared to do it. We have chosen not to do it so far, but I don’t want to tell you conclusively we have decided not to do it around this field at all. I would say we are probably leaning that way, but I don’t want you to call-up angry if we end up issuing some equity later this year. I suspect it is becoming less likely, but that possibility remains.

Fair enough, okay. Thank you.

Thanks Will.

And we have a question from the line of David Ridley-Lane with Merrill Lynch, please go ahead.

Yes. Some questions on the US office market. My impression is that in a nationwide absorption is positive, vacancy rates are down, but the rents are still flat. So, first question, would you agree with that characterization and then the follow-on on that. You had spoken in the past about an acceleration in leasing when rents starts to rise and pick-up, but given how strong leasing is growing today with that will it still be the case in this cycle?

It is David. What you are seeing right now occurring both here in the States and outside the States is a real nice pick-up in activity among corporate clients. However, what they’re chewing through right now is a fairly significant amount of shadow space of sub-lease space that was out there were empty space that corporations just weren’t using so we have to choose through all of those shadow space in the market before we can start making a real dent on vacancies which will then make a real dent on rents. Our forecasts are that we are about there. The leasing strength is now good enough that we are forecasting increased rentals across all types of the commercial real estate asset class in the coming quarters and I think that is about right. I think we are at that point now where we are about it when of course and you are seeing David in some markets and yours is certainly one of them in Manhattan. We are seeing rent increase in the stronger markets right now.

Alright. Thank you. Did the movement of distress property sales in the second quarter did that accelerate or is it still very sluggish and maybe if you have any thoughts on the pipeline there in the second half of this year.

We have talked about this, plan every call for 3 years now and really nothing has changed there David. The distressed property market certainly exists. There has been trading in that market ever since really 2009, the trading has been heavily muted both because of the fact that lenders have been pre-exposed to work these issues out with their current borrowers rather than foreclosing the properties into the market and because the market is improving. The situation we are in now is that, I think there is a broad based consensus that the market is only getting better, not getting worse and therefore any people on the bubble with distressed property, we think that they are into position to hold on or to re-finance or to feed a little bit of equity to a property to keep it are going to do that and those folks who have been thinking about selling their property are encouraged because there is no other better days ahead, so the distressed property pipeline the distressed property market at the moment, I will not describe it as a material component of the business we operate in right now. The real action on the property trading side remains in the core asset class. The best properties in the best cities which are now trading their prices approximating or equal to peak pricings in 2007. The action there is unabated and notwithstanding the issues we see in Europe, notwithstanding nonsense in Washington at the moment. There is an enormous amount of capital out there that wants to buy commercial property right now, but one place that velocity really hasn’t moved much has been quite strong as in core, it is not in distress.

Alright, that is very helpful and then maybe a final question. We are seeing the first Euro CNBS [ph] since the recession this quarter, but we've also, as you have highlighted seen a lot of economic concerns and financial uncertainty there. In net-net is the availability of debts still improving on the margin or have we kind of seen that stabilized here in the second quarter.

I think it is improving; it’s the big metrics that you and I would watch is to determine the forecast help in the asset class all moving in the right direction. The underlying dynamics below the commercial real estate services business are very, very good right now. They have been good now for going on a year, they remain very good and the kind of numbers we are seeing in leasing and outsourcing a property management, capital markets in the States, these are impressive figures and so financing is getting a little bit easier every day. The CNBS issuance this year which we think will be $14 billion to $ 16 billion is a little improvement over last year and huge improvement over two years ago and that is just more liquidity into the financing of commercial real estate and that improvement that trend remained apace and we don’t expect it to be impacted day-to-day by the issues that are occurring in the market outside our sector. Pricing will move a bit that is for sure, but the availability is certainly getting better.

Alright, thank you very much.

Welcome.

And we have a follow-up from the line of Anthony Paolone, please go ahead with JP Morgan.

Thanks. In the investment sales business, what are margins look like for the big property trades versus more than $10 to $50 million type transactions, just curious as you start to see some of these bigger trades in these core markets starting to happen with more frequency right now.

It is a great question Anthony and it is one of those ironic data points of our industry, the margins are better on the little deals so on the smaller transactions there is very little decompression on the very, very large transactions the fees can get fairly skinny as a percent of the total consideration and the margins on the small transactions are quite high. The margins on the bigger transactions are still quite good, but they are not as good as the small ones. Now, on the big core deals your seeing going down out there. I would have to guess what kind of margins one of those deals based down at; every one of those deals is different. They are still quite good. They are certainly within or above the range we target for the firm on an annual basis, but as you compare that to a small deal say $5 million or $10 million deal, you could have a margin on one of those deals that is close to 30%, the bigger deals are something less than that. Gil, I know you look at this quite a bit, would you like to add anything or be more specific on that.

No, I think generally that is right, that is exactly the way it plays, that’s the larger the deal the smaller the return.

Does that suggest that even though we’re watching a lot of this core stuff and these big properties trade and that is all good that what we really need to see is maybe more broad spread across secondary and tertiary markets where you just on an average smaller trades to kind of help boost margins in that business.

I think it is a fair comment. I don’t want to leave with the impression that selling core properties business is a fantastic business because it is. It is still very large piece, it is very, very good for the business and in the core property trades which is also available there which is very interesting to us - most property trades tends to be an opportunity to sell through in a very significant way following products whether it is evaluation or property management or leasing and those matter. So, the tree of big core properties is very important and it is very good for the business. Certainly, as the capital markets continue to mature and we see buying, we are beginning to see that now and Gil mentioned it in his comments. As we see buying now spread away from just core property and getting some with the secondary markets and secondary product types all of these help with the margin, there is no doubt about it and when we get into a completely normal environment in the capital markets, margins will be above in that business where are they now, there is no doubt about that.

Okay, thank you and then just one thing maybe for Gil with the securities part of ING closing on July 01 looks like we got a full quarter of that in 3Q. Can you help us roll forward with some numbers maybe on how much of the billion dollars was allocated to securities and maybe what the multiple on that piece of it look like so we can try to pick that up properly?

Yes here is what we did, we disclosed that we spent $324 million on that piece of it and we spent $59 million on stepping into co-investments that came along with that business. So, I’ll make that statement, I am not going to get into multiples on the portion of the business, we previously disclosed that the multiple for the total and you saw that in what we presented we put out based on the Performa 2010. What I will say is, with that business coming in you are correct it will have two quarters of activity that will be for our books and records and will benefit through the RE, but we haven’t yet done the purchase price allocation and part of the purchase price will go to intangible that amortize which will be an offset to any of the EBITDA that that business has and frankly that the rest of the business has and off course there is an interest expense associated with the funds used to make the acquisition so what that does I would re-iterate what we have said before which is a modest positive impact in 2011 and it is likely better one in 2012. It takes quite a bit to move the dial relative to the earnings of the entire corporation.

I was just not on that topic, but I would comment Anthony and for the rest of the callers. We have covered a lot of very specific questions around cost what is going on with business today based on these issues though it is in Washington and in Europe. I think it is important that we let you know that notwithstanding what are seeing issues we are seeing in Europe notwithstanding the nonsense occurring in Washington right now our views around the strength and the durability to recover are not changed. These are kind of bumps that you will hit on the road from time-to-time, but none of those has in anyway shape or form modified our view about the strength durability and the duration of the recovery we believe we are in.

Thank you.

And we have no further questions in queue gentlemen. Please continue.

Great we appreciate everyone dialing in and will talk to you again in three months, thanks.

And ladies and gentlemen that does conclude our teleconference for this morning, thank you very much for your participation and for using the AT&T executive teleconference service, you may now disconnect.