CBRE Group, Inc. (CBRE) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the CBRE first quarter earnings call. At this time, all participants will be in a listen-only mode. Later we will conduct a question-and-answer session. The instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Nick Kormeluk. Please go ahead.

First quarter 2012 earnings conference call. About an hour ago, we issued a press release announcing our Q1 financial results. This release is available on the home page of our website at www.cbre.com. This conference call is being webcast 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 archive audio of the webcast and a PDF version of the slide presentation will be posted to the website later today and a transcript of our call will be posted tomorrow. 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 our ability to integrate the ING REIM businesses. These statements should be considered as estimates only and actual results may ultimately differ from these estimates. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that you may hear today. Please refer to our first quarter earnings report, filed on Form 8-K and our current annual report on Form 10-K, in particular any discussion of risk factors or forward-looking statements, which are filed with the SEC and available at the SEC’s website (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 hereto within the appendix. Please turn to slide three. Participating with me today are Brett White, our Chief Executive Officer, Mike Lafitte, President of our Americas region, and Gil Borok, our Chief Financial Officer. I will now turn the call over to Brett.

Thanks, Nick, and good afternoon everybody. Please turn to slide four. The macro market trends that have prevailed for most of 2011 have generally continued in the first quarter of 2012. The market is recovering, but at an incremental and uneven pace. While no two recoveries are identical, this current one is marked by mixed performance across geographies and market sectors. That being said, our highly productive market-leading and diversified platform helped us deliver a strong opening quarter for 2012. We especially benefited from strong performance in the Americas, and in a moment Mike Lafitte, our president of the Americas, will describe our integrated Americas business platform in a bit more detail. Not unexpectedly, EMEA performance weakened versus the prior year first quarter, as transaction activity has slowed against tough economic conditions. In Asia Pacific, while there was overall revenue growth, investment sales in the region cooled a bit. We also saw material and immediate contributions from the addition of the ING Real Estate Investment Management people, programs and platform to our investment management business. We expect these positive contributions to continue as we complete our integration process. Our global outsourcing business continued to make strong gains, with revenue growing by double digits for the sixth consecutive quarter. Both total contracts signed and new wins set records, and we surpassed the 3 billion square foot managed milestone. In our transaction businesses, leasing resumed growth with a 3% gain over the first quarter of 2011. Investment sales revenue increased 10%, and also deserving special mention is commercial mortgage brokerage, which jumped 46%. As a result of all this, we posted solid 14% revenue growth and even stronger, 25%, normalized EBITDA growth, during the quarter. And I am particularly pleased to report that our EBITDA margin expanded 90 BPs, to 11.1%. Some of the most notable transactions we completed during or immediately following the quarter are shown on slide five. As is our practice, I will not go through them individually but we have included them here for your review. With that, I’d like to turn the call over to Mike Lafitte, our president of the Americas, to discuss his real strong performance in the Americas business. Mike?

Thank you Brett. Please advance to slide six if you will. As you have read in our earnings release and as Brett mentioned, our Americas business had excellent performance in the first quarter of 2012. We are very pleased to achieve 13% revenue growth and 29% normalized EBITDA growth in a sluggish economic environment. Credit for this goes to our nearly 21,000 Americas employees, who are intensely focused on providing superior service to our clients and maintaining disciplined expense control. We took tough actions in 2011 to align our cost base to the difficult operating environment, and we are now seeing some benefits from those actions. In the Americas, we have built a very large, deep, diverse, highly-integrated and arguably unparalleled platform. It took many years and considerable investment to build this robust platform and to integrate its component parts so they worked together cohesively. We are focused on continuous improvement of our platform to stay ahead of our evolving client needs. Our financial business statistics for 2011 shown here were just published late last week. They underscore the magnitude of our platform. Even in a lukewarm market environment, we closed more than 38,000 sales and lease transactions in the Americas, valued at approximately $92 billion. You can see this activity was evenly split between sales and leasing. Our people specialize in each of the major product segments: office, industrial, retail and the multi-housing space. This specialization provides unique expertise and insight, which positions us very well to capture market opportunities. Our valuation platform is also robust. We maintain the largest market position in this space, serving financial institutions, corporations and special servicers, and there is great synergy with both our capital markets and our outsourcing business in the valuation space. Our commercial mortgage brokerage business involves loan origination and…

Thank you Mike. Please advance to slide 10. Total revenue was approximately $1.35 billion for the first quarter of 2012, up 14% from last year. This increase was driven by growth in outsourcing, investment sales, investment management, commercial mortgage brokerage and to a lesser degree, leasing. Normalized EBITDA grew at a stronger pace than revenue, up 25%, to $150.5 million in the first quarter of 2012, from $120.6 million in the first quarter of 2011, delivering a normalized EBITDA margin of 11.1% or an increase of 90 basis points over the first quarter of 2011. Our cost of services decreased to 58% of total revenue in the first quarter of 2012, as compared to 60.2% in the first quarter of 2011. First quarter 2012 operating expenses were 32.6% of total revenue, versus 31.8% in the first quarter of 2011. This offsetting impact on the cost of services and operating expenses resulted from the inclusion of ING REIM expenses, all of which flowed through the operating expense line as opposed to cost of services. Interest expense increased by $10.3 million in the first quarter of 2012, as compared to the first quarter of 2011, primarily due to the ING REIM and Sterling Term Loan A-1 financings, which occurred after the first quarter of 2011. Our first quarter 2012 tax rate was approximately 42%. Consistent with prior years, this is seasonally higher than the anticipated full-year tax rate. We expect the full-year 2012 tax rate to be a little below 40%. First quarter 2012 GAAP diluted earnings per share was $.08 versus $.11 last year, and adjusted diluted earnings per share was $.14 versus $.13 in the first quarter of 2011. Please turn to slide 11. Property and facilities management was our largest service line in the first quarter of 2012, representing…

Thank you Gil. And please turn to slide 21. While the commercial real estate market recovery continues to be incremental and uneven, it is recovering nonetheless. Updates on our view for the year are that outsourcing is likely to continue strong growth. Recent growth rates across the globe will track job creation, and should continue to be modest for the time being. Investment sales growth is going to be dependent on specific regional market dynamics, noting that the economic climate in EMEA is challenged and there has been a recent cooling in Asia Pacific. And finally the investment management will benefit from a full-year contribution from the acquired ING Real Estate Investment Management businesses. With the first quarter now behind us, we are maintaining our view from year-end 2011. First, that our EPS guidance remains unchanged, and second, that we should see solid EBITDA margin expansion. And with that, Operator, we’d be happy to take questions.

(Operator instructions). We have a question from the line of Anthony Paolone with JPMorgan. Please go ahead.

Thanks, and good afternoon. Your gross margins in the first quarter were a lot higher than they were in the year-ago quarters. Just curious what drove that, because it seemed like throughout 2011, in each of those quarters, the gross margin actually declined year over year, so I’m just wondering what changed there?

Are you looking at the gross margin on the press release where they’ve normalized or not? What you’ll see is the comment that we made, that I made was with regard to ING. And all the cuts from ING are flowing through OpEx, and not to cost of services. So the mix of what flows through cost of services versus what flows through OpEx is now changed. Of course, it’s against the same denominator when you do the math. The revenue’s in the revenue number, we’ve had a shift, a fundamental shift in what flows through cost of services and OpEx because of the acquisition.

Should we assume that, I guess on the year, as the next few quarters play out that we’ll continue to see, you know, a pretty big pop? I guess it may be minimized a little bit in the latter part of the year because you had some ING last year, but it was a 200 to 300 basis point pick up on that gross margin safe to assume?

You’ve had about a 200 basis point impact on cost of services, and I think it is safe to assume, I don’t know that it will be that every quarter, but it is safe to assume that we’ll have the shift between the two, yes.

And the roughly $17 million of transaction, do you use in investment management in the quarter. Do those more or less drop right down to EBITDA or are there any real cost that have to get accrued against those?

No, there are costs against them, there’s compensation costs that go against it for sure.

But that wouldn’t be carried interest compensation, because it didn’t seem like you accrued much there.

It’s not carried interest, its other incentive fees.

Okay. On the facilities business, the revenue was actually down a little bit sequentially from 4Q. I was under the impression that that business is not quite as seasonal as some of the others, and you know, you picked up a lot of contracts in 4Q and you picked up a whole bunch more in 1Q, so I’m just wondering kind of how that declined sequentially?

Anthony its Brett. You utilize me on that question. First of all, the facility business is growing very, very rapidly. There are a lot of cats and dogs that flow through that revenue line, and I would look at this more of an aberration than any sort of trend to be concerned about. The bottom line dynamic in the facilities business right now is it’s going through historic growth at the moment, and you should expect to see generally going forward.

And then, just in terms of your key lines, like sales and leasing, Brett or maybe Michael, can you comment on just the competitive landscape for brokers and just some of your larger competitors out there. I think last quarter Brett, you’d mentioned that. You did feel that some of the competitors out there were nipping at your heels, but you felt good about your positioning. I’m just wondering if you can give us some updated thoughts on that.

Sure, let me give you a short-term answer, kind of quarter to quarter, but what’s much more important is the long-term answer. It’s funny in the fourth quarter, we had a soft compare against one competitor on leasing numbers in a quarter. And we spent some time talking about that and letting all of you know that this is a very big, very powerful, integrated business, and we focus on lots of things all the time. And any time we see a competitor for our competitive position at risk, or a competitor coming in and, as you said “nipping at our heels”, we redouble our efforts to correct that situation. Now, ironically or not, the bell of the ball this quarter is guess what? Americas. And by the way, that’s why we brought Michael Lafitte in, because that business is so much more than U.S. leasing. There’s no competitor even close to what we do in our U.S. integrated business, and that’s why we had Mike talk about it. In terms of the competitive landscape on sales and leasing, you know this industry is, and we’ve been talking about this for so many years I can’t even remember when we started. But this industry is rapidly consolidating down to two groups of players and we’ve got on the global landscape, I think we’ve got two big, high-quality, multinational integrated companies out there. And we’ve got thousands of boutique firms out there that do whatever they do really, really well in single markets or single business lines. And we’ve got these folks stuck in the middle, they’re going away so fast it’s almost hard to keep tract of it at this point. By the way, we love that dynamic. We love it because every day more and more of the accounts that we want to own, that we want to do business with, are turning to use for their services. The competitive landscape on lease and sales in the U.S. and globally is really a tale of two stories, or two tales. The first is, that in the U.S. the leasing landscape is a very, very competitive marketplace. We are dominant in that marketplace and expect to remain so. However, the competitors that we had just three years ago, some of them are gone, and that share is going to be spread among other competitors in the business, and you should expect to see that going forward. On the sale side, that marketplace is one we’ve dominated for many, many years and our competitive position in the sale space, if any, just gets better and better. So, we like where we sit. As I said last quarter, we also like having a couple competitors nip a little bit at our heels, it makes us better, it gives us more focus. And as Mike talked about in his comments, it’s a good dynamic, and we welcome them to the party.

Do you see any advantage, or do you think there’s anything behind, you know, New Mark was purchased by a financial services firm, and they also picked up Grub and Ellis, and do you see anything behind being backed by a financial services firm going into real estate services, or anything emerging there that makes you think about, you know, just being integrated on your on platform?

I think it’s all interesting, and we welcome to the dance these new players. It sounds to me like the BCG, I think that’s right, it sounds like these players are sophisticated, they’re smart, they report to be well capitalized. I think that’s great. And I think that this elimination of this middle group of firms, it’s just inevitable, it’s absolutely – it’s going to get done. We’re watching it get done. And the way that that’s going to happen is, there’s only a few choices. They either go bankrupt and just disappear off the face of the earth, but these businesses have people in them. And so, if a good well-heeled company like BCG or another can come in and pick up the pieces of these failed firms, I think that’s great. I know a lot of people inside those businesses, particularly Grub and Ellis, these are high-quality good people and the fact that they’ve found a home with an owner that’s excited about the industry, I think is a plus for everybody. I don’t think being owned by one type of owner or another is necessarily an advantage or a disadvantage. It all comes down to leadership, it all comes down to the people, and it all comes down to platform. There’s a very, very long wave that any of these aggregators need the distance to go to, to get to the level where I think these couple big multinational firms are, is a huge distance. But you know what? Having folks that want to be there, having folks that are aspirational, having folks that are putting capital into this industry is a net benefit for everybody, they make us all better, and we welcome them to the dance. It’s all good. And by the way, it’s way better, that these firms that have gone through these horrible problems that they’ve had, again it’s way better that the good things inside those firms, which is the people, have found a place to land and do business and stay in the business in the marketplace. That benefits all of us.

Thanks, and nice quarter.

Thank you.

And we have a question from the line of Will Marks with JMP Securities, please go ahead. Will Marks – JMP Securities: Thanks, hello Brad, and Gil, and Mike.

Hey, Will.

Hey, Will. Will Marks – JMP Securities: Let’s see, I have a few questions here. First we’ll start with the DNA level, and I’m wondering if you could give us an amount of visibility in terms of run rate? It was, I think, higher in the quarter, but is there some one-time cost in there?

Will, can you just repeat the first part, it was a little hard to hear you, sorry. Will Marks – JMP Securities: Sure, on the depreciation of the amortization of – I think, the quarter was 46 million or so, I’m just wondering what we should be looking for on a quarterly basis for the rest of the year?

Yes, sure. So, and that is a GAAP number off the press release, so again, we have a little bit of noise in the numbers. I think the increase year-over-year on a GAAP basis was 23 million, all of which 16 million was normalized. I’ll come back to that normalized number in a moment. That will not be the same each quarter, but what we’re dealing with non-normalized, if you will, then is about a $7 million increase, and there are two components to that. One is – and it’s about 50/50 – one is amortization of servicing rights and our mortgage brokerage business. We get to capitalize those up front and then we have to amortize them over the service period. So one is from the mortgage brokerage business servicing rights, one part of it is. The other part of is the intangibles that we acquired in the ING acquisition for which we cannot normalize. So we are – we have on a normalized basis about a $7 million increase year-over-year, and then on a GAAP basis it’s the 23 million and of that 16 million, about 10 of it is the result of incentive fees that we received during the quarter in the ING REIM business, so the normalization will go down as the year progresses. Will Marks – JMP Securities: Okay, so it’s closer to 30 million for the quarter.

Correct. Will Marks – JMP Securities: Okay. All right, I think I got it.

Exactly. Will Marks – JMP Securities: Okay. Looking at investment management specifically, how should we think about revenue seasonality in that business?

You know, let me – Will, let me just give you a general answer on this. It’s becoming a lot less seasonal then it used to be. And that is a combination of a number of different dynamics, but I think you should think about the investment management business now as a very large business that has a high proportion of core funds and assets within it and the way in which we’re paid for that business is now a lot smoother than it used to be. Gil, you want to add anything to that?

I think that’s right on, because we have more – much more poor funds in it, so it’s much more readable. Will Marks – JMP Securities: Okay, and then just a couple other things. One, on – in looking at the guidance, can you just remind us what that would assume? I think you said in the past – in normal years it was with development gains.

You mean in terms of what the guidance implies? Will Marks – JMP Securities: Yes, thank you.

Well, you know, it’s all in Will, right? So we don’t and – you know, we’ve never really broken out component pieces, we are certainly in the third year of a recovery, and I think the most I can say to you is the guidance anticipated that, and we haven’t changed our view at the moment. Will Marks – JMP Securities: Okay, and last question, anything in terms of the next three quarters – should we look at any of as having more difficult comp than another?

Well, again the guidance would incorporate that and we’ve talked about that in terms of a full year, but of course, and maybe you’re getting back at the developing it, you’ve got to – I don’t recall them off the top of my head which quarter they necessarily hit. And maybe this is what you were alluding to. We did call out $32 million of development gains in the fourth quarter as being out sized, but that business has gains every year, and the guidance that we have this year would incorporate the gains that we think would be reoccurring. So we had an outsided number, you know, in the 50 millions, but it’s not going to be that this year, and we said that on the last call, but there will be some runway of gains – that’s what that business does and that’s incorporated in the guidance. So it would only – the only things that would really stand out, and you really have to go back and analyze it quarter by quarter, I can’t do that on the call here, we could one-on-one if you need to, but is when the gains hit and when carried into it hits into the good and to the bad, those are the biggest things that would be [inaudible] to a quarter. Will Marks – JMP Securities: Okay, that’s helpful. Thank you very much.

And we have a question from the line of David Ridley-Lane with Bank of America/Merrill Lynch, please go ahead. David Ridley-Lane – Bank of America Merrill/Lynch: Sure, I wanted to get an update on the four drivers of US leasing, you know, average term length, average rent, average square footage per deal, and then deal velocity if I could.

You know, David, let me do this. We are fortunate to have Mike Lafitte on the phone call, actually dialing in from Dallas. And on that specific question, I want to come back to that in a minute, but Mike, I would like to take you back for a moment to the question on the competitive landscape, maybe you could add a couple of comments on how that landscape feels to you at the moment in both sale and leasing. And then Mike, I’ve got some things here I could give to David on the velocity and so forth, but you want to talk about it just the way it feel to you Mike, I think that would fine as well.

Sure, I would be happy to do that – you know, obviously the leasing and the sale businesses is a very competitive marketplace, it always has been. The distress that we have seen with some of our competitors over the last couple of years has frankly benefited us. We’ve been able to attract talent from some of those that were experiencing distress. So nothing has really changed, I think, as it relates to the playing field that we see in the America on the – in terms of just the industry dynamics. Certainly some of the names are emerging in that middle tear – you know, there really is a fight for three, and four, and five kind of those places in the space – you know, all good brands, and all good people, and all of that, but it’s really interesting kind of watching it all play out and how those – and Brett commented on that. And I think about some of the – and Brett, you may comment on some of those specific metrics that we do follow.

Sure.

As it relates to the leasing drivers, I would say, David, a couple of things that I think about that are bigger drivers than some of those metrics ultimately that drive, you know, the vouchers and revenues and commissions in that business. The first is our customers, you know, just landing new customers – we’re very active on that, both for on our investor side of our business as well as our occupiers. We’re deep in mid-cash, we’re deep in healthcare, so, we’re very focused on landing new customers, and we’re doing that a lot. The second I would say is productivity advances that we’re focused on around our leasing professionals; training, specialty practice groups that are raising up in very specific niches, they are really take us into new areas, they can actually expand our own business. Certainly strategic hiring is part of it, and we’ve continued to remain very active on the hiring front through all of the down turn, we are always in the marketplace for great talent. Through ’08, and ’09, and ’10, and ’11, we were adding and retracting great talent to our company at the mid and the higher levels for the most parts – always with a program to grow our own. And then, lastly, is improving fundamentals that I think will – that are ahead of us in some of those metrics that you asked about, and now Gil and Brett, you may want to comment on those metrics that we do track. But then the fundamentals are improving and that is, I think, good news ahead, although it’s slower growth on the leasing side of what we are seeing certainly on the sales side.

Well, well said Mike, thank you. And David, just on the numbers, let me fill in some numbers that Mike was referencing. First, on the fundamentals, as you saw from the deck, what we’re seeing in marketplaces, not surprising at all – we’re in, again, I think, early innings of a protract to a recovery, all though it’s uneven and incremental. So they can see rates are very slowly coming down. We’re seeing absorption, positive absorption bounce around, but it is positive. And we’re seeing CAP rates on slowly coming down as well. All of that, of course, is what Mike is referring to, and it augers towards an improving recovery as we look forward. On the actual sale and lease numbers for the U.S., I’ll give you a few numbers. On the sale side, what we had was a fairly strong pick up in number of transactions first quarter 2011, or first quarter ’12, and in the U.S., for instance, that was 11% higher. On the average transaction side, and again this is just U.S., it’s not Americas, what we saw there was a 25% increase in transaction size, and these together produce a 37% increase in reported sales revenue first-quarter-over-first-quarter, year-over-year. Now, I want you to be careful, these numbers bounce around, because we are the early stages of recovery, but that’s what sales was for the first quarter. On the leasing side, it was generally flat year-over-year, and we look at office leasing and where the real pick up was, was actually in retail and industrial. And those together gave us, in the U.S. at least, a 5% increase in reported leasing revenue year-over-year. Again, these numbers bounce around because that’s where we are at this point in the cycle, but as Mike said, and as we’ve mentioned in our deck here, the leasing business is all about job growth, and job growth has been true net job growth has not been anything to write home about for a while. When that picks up and it will, leasing numbers will pick up along with it, and sometimes they pick up in an outsized way when you see real job growth. The sale side actually is chugging along in the U.S. pretty well, and we talk about the slowness in Europe and Asia. David Ridley-Lane – Bank of America Merrill/Lynch : All right, great. And one more question on different topic – European investment sales volumes, I’m sure you’ve been getting assignments, but I’ve been reading that a couple of European banks have suspended their commercial real estate operations, altogether. I’m just wondering, you know, from your perspective how are lending conditions in Europe now, and – you know, how you see that affecting you over the next couple of quarters?

You know, it’s all – you know, usually we get these questions about New York, so, one reason the headline in New York, and they extrapolate that that’s the world. And I – the point that I’m trying to make, and not very well, is that in Europe you do have a couple of banks that are out – more than a couple that are out of the commercial real estate lending market. There’s lots of capital flowing around the world that can support the purchase of high quality, investment grade, commercial real estate. Now that having been said, you know, the real issue at the moment in Europe is just uncertainty, and it’s – you know, whenever we talk about this, we talk about it in 2008, 2009, 2010, and last year. When you have uncertainty in a market place it makes it hard to find pricing, and – so, when there’s uncertainty in the market place, people just slow down and they take their time and they do a lot more work to make sure that they have got a view on pricing, and right now in Europe, I think the story is more about uncertainty in the market place which slows down transaction volume, if it is a lack of financing to buy an asset. If you and I want to go out to London, or to Paris, or to Amsterdam, or for that matter New York, or Huston, or L.A., and buy a high quality asset, we’ll get the financing to do it. It’s – that’s not really the major driver of the slowing that we’re seeing – it’s a piece of it.

(Operator Instructions). And our next question is from the line of Brandon Dobell with William, Blair. Please go ahead. Brandon Dobell – William, Blair & Co. : Hi, thanks. First question, given the pace of wins in new space you guys are riding in the corporate business, how do we think about the – I guess the margin dilution near term? And when or at what point should we see I guess those margin comparisons get easier; i.e. where the income margins from the existing contracts are strong enough to offset the upfront spend on the new wins you guys are putting on?

Right. I’m going to let Gil and I both take this question. I just wanted, personally, it’s a very good question. It’s one that we talked about at the Q4 2011 call. And we’re in an interesting environment in that we’re winning so much business right now that it’s actually hurting the margin a bit because these are big, big accounts and they come in, you know, depending on the account, they could turn run rate margin level and profitable six months in, but more likely, it might be a year in or even a bit more. So it’s an interesting – it’s a high-class problem to have that we’re winning so much new business that this now is impactful in a negative way on the margins. And as I said on the fourth quarter call, if you just kind of do the math in your head, if you want the margins to move up nicely, you actually stop winning new business and then you’d get there in 8 to 12 months. We’re not going to stop winning new business. But I do think that this pace of winning, it’s unprecedented. I’ve never seen anything like it. And I think that that will normalize and become a steadier process for us in the last couple of years. But the margins will get back to a number that I think is more typical for us; part of it will be these accounts, these big, big accounts we’re getting, seasoning in, part will be just a change in marketplace. Again, we’ve got an expert on the phone that might want to speak with us. Mike, you understand the question well, and this is the issue of we bring in these huge accounts, we don’t necessarily lose money on them in the early days, but we certainly aren’t making a lot of money. And the question, I think, the analyst-investors are trying to get their head around is, you know, how does that play out in the midterm? And the answer you heard what we’re saying. Any opinions on this, Mike?

Well, I guess the other thing I would add is the other lines of business are growing at equal or even some of the lines of business, capital markets, has been growing at a faster rate. So when you consider the margins of the entire business and you think about our higher margin business lines, certainly investment management, certainly capital markets when it is stabilized and going into markets like we’re in today, which we’re still operating at 60 to 70% of where we were in peek of ’07. I would submit to you that the overall margins of the business, again, and the diversification of the entire pie really don’t dilute. Yes, on the front end, there’s transition costs on these GSC accounts, but we’ve been able to manage that year after year into the business, we plan for it. It’s the investments that then also fuel the growth of our business. So we are investing back into our platform in a big way; in people and in technology and all those things. I would submit to you that our corporate services professionals would say yes, the more GCS business we’re going to add in overall relative to all of our lines of business may not be the highest margin business, but I would submit that they’re all still – you know, have night trajectories – trajectory of growth. And our margins are pretty consistent year over year in that business. It’s not a loss leader by any stretch. We’re in that business to make money and find new ways to serve our clients in the higher-end margin pieces too. So if we land an FM account, it’s not unusual to find ourselves in a consulting role, doing capital markets transactions, doing sale leaseback transactions and adding on other services that can bolt onto those relationships. So often times they are the gateway to just tremendous activity down the road with very, very long, 15-20 year, relationships.

And Mike makes a good point here. I just want to stress it for our callers, which is the way in which we account within our P&L the various revenues that flow off of various business can be a little tricky. And so when you look at a single line and you look at the outsourcing business, for instance, and you all know this on the phone call. It is not the entire picture. Lots of the higher margin revenues that flow off these accounts aren’t captured in that segment. They’re captured in leasing, they’re captured in – as Mike just said, they’re captured in sales, they’re captured in valuation. And so just to paraphrase or say a different way from what Mike said, when we tell you that in 2012, in a very tricky global economic environment, that our margins will see solid growth, part of the story there is higher margin work flowing from these corporate accounts, even though the corporate account segment you’re looking at, but it looked like the margins went down a bit because these businesses came in, transient costs, et cetera. So I think Mike makes a very good point. The big picture story here is that this business, the other businesses we have all play a role in a firm that’s been able to grow margins quarter, over quarter, over quarter in up cycles and we intend to continue that going forward. And by the way, you know, if having growth like this in the outsourcing business is one of the things we take massive pride in. These are the absolute best in class world corporations who are trusting with us the facilities they work in. This is great, great stuff we’re seeing here. Brandon Dobell – William, Blair & Co. : I think Gil touched a little bit on secondary market activity and kind of a twofold question there. One would be, you know, pace of a recovery in the secondary markets for investment sales and Gil, did your comment also include leasing or should we not assume that secondary markets are showing the same kind of trajectory for recovery and leasing or growth and leasing as they are for the [inaudible] business now?

Yes, Gil’s going to let me catch this one. I can’t help myself. But here’s what I would say. Again, I want to go back to the same thing, which is we’re in the early quarters of what I think is going to be a very exciting attractive recovery in the asset class. And this is a particularly rocky, uneven recovery. So – and you know this as well as anyone on the phone call, where we saw recovery start was in the safest places, whether it was leasing or sales, what we saw when the recover was people begin to make investments whether they’re owners or occupiers in those places they thought were bulletproof. If they’re buying an asset, it was made in Manhattan, you’re going to open a data center or you were going to expand a corporate office, you were doing it in the places where you felt most certain about your business. As this recovery seasons, that recovery, and Gil referenced this earlier, that recovery begins to move a bit up the risk spectrum. And so what you see is, you see assets and you’ve probably seen this personally, you’ve seen assets begin to trade in areas outside of Main and Main in Manhattan. You see corporate, whether it’s retailer or industrial logistics firms, or big office clients, they begin to do things in markets outside of the major world financial centers. It’s absolutely typical for an early-stage recovery and what we said a couple quarters ago, I just want to remind you again is, let’s look forward a year from now, or whether it’s three quarters or five quarters or whatever it’s going to be, this – the strength you see in the major markets in both leasing and sales will have spread out to the secondary and even some of the tertiary markets. That’s just a cycle this business goes through and will go through for a very long time, I think. Brandon Dobell – William, Blair & Co. : And final question for me; I guess the conversion of the pipeline in I guess the three major segments; sales, leasing and outsourcing appropriate services, I guess pace or the kind of feel of conversation as you work through the first quarter, how did that compare to either what it felt like last year’s first quarter or what it felt like in the fourth quarter? Was there more predictability, less predictability, good things happening or, you know, out of the blue, or deals getting pushed kind of out of the blue? I guess I'm just trying to get a sense of how to compare your kind of costs of optimism shown with what we would have seen the past several quarters.

So I think the answer lies in the results. And what you saw in the results was that we saw in Europe and Asia accruing of the investment property markets. So definitionally what – let me translate that for you. What you saw was hesitancy in closings. What you saw was protracted closings. What you saw was canceled closings. When you see an investment – capital market cool down, that’s what’s going on. On the leasing side, it’s a little bit different. On the leasing side, generally speaking, when occupiers launch a property search and they get into a negotiation to lease 20,000 square feet of retail or 100,000 square feet of office, they don’t generally collapse negotiations and walk away. It’s a little more – I guess it’s a little more sticky and that’s why, by the way, the leafing – if you look over the last 20 years, just look at the deltas in leasing revenues, they are much, much less volatile than what you see in the capital markets and it’s a lot about that. I think anecdotally, what I would say to you is that for the last eight quarters, what we’ve seen is [inaudible] and starts. And you and I have talked about it, it’s, you know, you get some traction going in the spring of 2011 and people feel that things are a lot better and then there’s a shock to the system, the euro sovereign debt issue. And the suddenly the brakes are put on again. And then you get some traction again and then there’s China housing bubble issue. I think that we’re going to continue to see these kinds of things through the business until this recovery really gets it’s sea legs and it’s not there. It’s getting incrementally better every quarter. The fundamentals that Mike Lafitte referenced are getting better every quarter. But it’s going to be a bumpy ride I think for a bit. But again, I want to put that in context. You know, if I’m describing a bumpy ride and revenues are up 14% for the quarter and EBITDA is up 25% for the quarter and we’re reaffirming guidance, we’re telling you our margins are going to expand, I’ll take that bumpy ride all day long. Brandon Dobell – William, Blair & Co. : Yes. I appreciate the commentary. Thanks, Brett.

You bet.

And we have a question from the line of Anthony Paolone with JPMorgan. Please go ahead. Anthony Paolone – JPMorgan: Thanks. Your cash balance declined from year end as expected. You guys paid bonuses and so forth. But if you look at where – your guidance and so forth is, if you hit numbers, it seems like your cash balance would start to go back up to close to a billion dollars. I’m just wondering how you’re thinking about use of that cash and just perhaps acquisition opportunities that might be out there.

Good question. You’re absolutely right on the first quarter activity, obviously with the seasonality of the business, the balance will come down and then it ought to build as the year progresses. The top of mind for us is de-levering. I’ll remind you that we do have – we don’t have debt coming due, but we do have callable debt in June of 2013. And that is like expensive at 11.625% debt. So I won’t give a definitive, but I think logic would suggest that we need to look at that very carefully. M&A is always something that we look at, you know we do it and we do it well. And it is, again, something that is on the menu of items. But short of something that is going to be accretive and very positive for us and strategic, de-levering is really the order of the day. And we’ve got a reason to do it with expensive debt coming due in June of ’13. But at the moment, we’re in a bit of wait-and-see, that is looming and we are still in early days in terms of the cycle, so there may be opportunities, nothing definitive enough that we are going to talk about. It’s just a function of where we are in the cycle that we’ve got these two opportunities I suppose to utilize cash. But de-levering is top of mind.

I’m just going to add to that, Anthony, and I agree 100% with what Gil just said. I’ll just add to this that at – in a market environment like we’re in, M&A is something that, first of all, it’s dial tone for us. So we’re always looking at what’s out there and available. You’re just going to see probably a little bit less of it in a marketplace like this. If Gil said, you know, de-levering is certainly at the top of our list, there’s a lot of movement in the market right now in terms of very small M&A, but not much is very attractive. And we have our priorities at the moment that are not really built around doing 100 M&A deals this year. We’ve got this world class platform now, top business line in every business line we’re in and really leveraging the synergies of this business lines and growing our business now with this great platform, it’s a very, very exciting proposition. If an opportunity arises out in the marketplace, as we’ve always said before, you know, in a good market or bad, and this I would describe as a pretty good market, we’re going to look at it. But the high-quality opportunities are few and far between at the moment. Anthony Paolone – JPMorgan: Okay. Thank you.

Sure.

And I’ll turn it back to our speakers for any closing remarks.

Great. Well, thanks, everybody. We’ll talk to you in another quarter. Bye.

Ladies and gentlemen, this will conclude our conference call for today. We thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.