CBRE Group, Inc. (CBRE) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the CBRE Third Quarter Earnings Conference Call. [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 in Investor Relations. Please go ahead.

Thank you, and welcome to CBRE's Third Quarter 2013 Earnings Conference Call. About an hour ago, we issued a press release announcing our Q3 financial results. This release is available on the home page of our website at 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 archived 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 and business outlook. 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 third quarter earnings report filed on Form 8-K, our current annual report filed 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, 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 3. Participating with me today are Bob Sulentic, our President and Chief Executive Officer; Gil Borok, our Chief Financial Officer; and Mike Strong, our EMEA Chairman and Chief Executive Officer. I'll now turn the call over to Bob.

Thanks, Nick. Please turn to Slide 4. The third quarter was another period of strong growth for CBRE. Before we review this quarter in detail, I'd like take you back to our Second Quarter Earnings Conference Call in July. As we looked ahead to the rest of 2013, we said we expected that property sales would remain strong despite modestly higher interest rates and anxieties over the U.S. Federal Reserve's policies. Occupier outsourcing would sustain steady low-double-digit growth rates. Leasing would gain momentum as a result of our increased focus and slowly improving market fundamentals. Investment Management would benefit from significant carried interest revenue, much of which was anticipated in our initial expectation for 2013. EBITDA margin would expand by around 50 basis points in the full year driven by increased contributions from Investment Management as well as the normal increase in transaction activity during second half of the year. The third quarter overall played out much as we expected. Our performance relative to our 3 primary financial metrics: revenue, normalized EBITDA and earnings per share was consistent with our plan. Importantly, we achieved solid top and bottom line growth while continuing to make very important strategic investments as previously announced in people and technology. These investments are strengthening our abilities for our professionals and serve our clients while positioning us for future success. Gil will provide more details on these efforts. Our growth in this quarter came amid highly variable global market conditions caused by a soft economic recovery and ongoing U.S. fiscal and monetary policy uncertainty underlined by the extreme policy discord in Washington, D.C. in recent weeks. Despite all of this, there were many areas of significant strength along with a few weak spots which added up to healthy growth for the quarter. In fact, in a market like this, we benefit significantly from our well-balanced business and lean position we hold across business lines and markets around the world. Regionally, our growth was paced by very strong performance in EMEA. Mike Strong will join us shortly to discuss how we have strengthened this business and how we are benefiting from the beginning of an economic recovery in Europe. We also achieved a number -- another strong quarter of double-digit revenue growth in the Americas, our largest business segment. Looking at Asia-Pacific, in U.S. dollar terms, revenue rose only 1%, however, this result was impacted materially by weaker foreign currencies, notably the Australian dollar, the rupee and the yen. In local currencies, Asia-Pacific revenue grew solidly rising 13% when compared to a year earlier. Please turn to Slide 5. You can see that we experienced strong growth in most service lines. Property sales again set the base for growth. Globally, revenue from this business line rose 29% led by resurgent activity in the EMEA, while Asia-Pacific and the Americas also produced double-digit growth. Global Leasing revenue grew by 11%, our best performance in 8 quarters. Notably, we saw a 12% increase in the Americas, reflecting our ability to take market share. As you know, we've been focused on growing this business line and we are especially pleased with the result this quarter. Demand for occupier outsourcing services also remains strong. This business, called Global Corporate Services or GCS, signed 54 total contracts during the quarter, including 20 with new clients. Globally, GCS revenue was 14%. This led to 9% improvement overall in our property facilities and project management revenue line. Appraisal & Valuation revenue rose 7% led by EMEA. Our results in the third quarter were further bolstered by our Global Investment Management business. As we noted last quarter, we have been capitalizing on the favorable property sales environment to harvest gains in our Investment Management portfolio. As a result, we realized outsized carried interest revenue during the quarter, reflecting incremental revenue for exceeding performance hurdles and leading to an 11% revenue increase. Since we have already recognized all of the compensation expense associated with this revenue under GAAP accounting rules, we also saw an outsized impact on the bottom line with normalized EBITDA rising approximately 52% from a year ago. Generating carried interest revenue is integral to our strategy of having a highly diversified business mix and to achieving success for the investors and the funds we manage. Gil will discuss this in more detail shortly. One business line that was a cause of concern in the quarter was U.S. Commercial Mortgage Brokerage. Revenue dropped meaningfully, which caused downward pressure on the results in the quarter. This business line felt the effects of the government-sponsored enterprises' or GSEs' efforts to scale back their lending activity as mandated by the regulators. This acutely affected the profits associated with mortgage servicing work we performed for these entities. Gil will take you through the bottom line impact of this situation. As our third quarter results demonstrate, CBRE continues to perform for our clients and their shareholders. This is a tribute to our people who are collaborating effectively and leveraging our brand, product offerings and geographic footprint to create solutions for our clients and capture opportunity for CBRE. Now, I'll turn the call over to Gil for our financial review.

Thank you, Bob. Please advance to Slide 6. Revenue totaled approximately $1.73 billion, up 11% from the third quarter of 2012. Recurring revenue comprise approximately 62% of total revenue for the third quarter of 2013, consistent with the third quarter of 2012. This included Leasing commissions from existing clients, property facilities and project management fees, asset management fees and loan servicing fees, which are all largely recurring. Cost of services totaled 59.5% of revenue in the third quarter of 2013 versus 58.8% in the third quarter of 2012. The increase was primarily attributable to a concentration of commissions among higher-producing professionals in the U.S. and Asia-Pacific. In addition, the higher recruitment costs associated with the client-facing professionals increased this ratio. We continue to manage operating expenses prudently while making necessary strategic investments in our company. During the quarter, we added senior executive leaders in marketing, IT and research, increased our sales management depth and added marketing support for our brokers and other professionals. We also continued our escalated efforts which is [ph] several strategic IT initiatives. The majority of these investments were in the Americas given the size of that business. Even with these investments, global operating expenses totaled 28.6% of revenue compared to 31% of revenue in the third quarter of 2012. The prior year quarter included $24.8 million of acquisition-related and cost-containment expenses. Excluding these costs for the third quarter of 2012, operating expenses still declined 80 basis points for the current quarter. In the third quarter of 2013, we benefited from a 36% decline in interest expense. This was the result of the refinancing activities we completed earlier this year, particularly the early redemption of our 11.625% senior subordinated notes in June. With our restructured balance sheet, the annualized interest expense savings is expected to be approximately $50 million. Depreciation and amortization expense rose by approximately $7.4 million to $47.5 million, driven by increased capital expenditures in facilities and technology that are further strengthening CBRE's competitive position in the marketplace. Amortization of previously capitalized amounts related to GSE mortgage servicing also contributed to this increase. Our tax rate was 37% for the third quarter of 2013 versus 31% in last year's third quarter. The third quarter of 2012 benefited significantly from a favorable discrete item. In addition, there was a shift in earnings to higher tax jurisdictions in the third quarter of 2013. As we have previously noted, we continue to work hard to improve the tax efficiency of our legal entities and operating structure. Given these efforts, we expect the full year 2013 tax rates to be approximately 35% or slightly higher. Normalized EBITDA grew by 15% over the prior year quarter. This resulted in a 13% normalized EBITDA margin for the quarter, a 50 basis-point expansion over the third quarter of 2012. Adjusted earnings per share also rose 15% to $0.30, while GAAP earnings per share more than doubled to $0.28 due to higher selected charges in last year's third quarter related to the ING REIM acquisition, cost containment expenses and a write-down of a trade name that is no longer in use. The increase in adjusted earnings per share was muted primarily as a result of the impact of the elevated tax rate. Please turn to Slide 7. Strong growth was evident in much of our Americas operations in the third quarter of 2013. Overall revenue grew 11%, marking our fourth consecutive quarter of double-digit growth in this, our largest business segment. Sales revenue rose 26%. This robust growth came amid concerns about how the rise in interest rates and, more generally, speculation about when the U.S. Federal Reserve will begin to curtail its bucket [ph] bond purchases would affect property investment. Clearly, the affect in the third quarter was negligible. Leasing revenue growth of 12% was a very satisfying performance. Leasing markets generally remained sluggish with weak demand and rent growth. We estimate that gross office leasing activities declined during the third quarter of 2013. That CBRE would achieve double-digit revenue growth in such an environment, is evidence of our continued success in taking market share. Property facilities and project management overall continued to show steady growth of 9%. GCS, our occupier outsourcing business grew revenue by 18% in the Americas during the third quarter of 2013, reflecting occupier's growing appetite for outsourcing their real estate management functions. We also completed an acquisition in the Americas in the third quarter of 2013. FAMECO, a specialty retail firm serving parts of Pennsylvania, New Jersey and Delaware, gives us a market-leading presence in retail real estate services in those areas. I now want elaborate further on the 10% revenue decline in U.S. Commercial Mortgage Brokerage. When the GSEs were required to curb their lending during the quarter, we saw life insurance companies and others quickly fill the void for multifamily financing. Indeed, our loan origination volume was up strongly from virtually all major debt sources except the GSEs. Overall, our U.S. loan originations rose 16%. However, where our mortgage business was especially impacted was in the origination and servicing work we do for the GSEs. We are a large originator of GSE multifamily loans in the U.S. While this is a relatively small business for us, it has a disproportionately large impact on our income statement due to GAAP accounting requirements. The profit associated with servicing work for the GSEs is recognized upfront as loans are originated and the related assets are amortized over the life of the servicing contracts. The unexpected decline in GSE originations drove our third quarter year-over-year decrease in earnings of approximately $15 million. Excluding the impact of upfront GSE servicing profits in both the third quarter of 2013 and the third quarter of 2012, the Americas normalized EBITDA margin would have improved modestly. Please turn to Slide 8. Our quarterly market statistics also highlight the fact that CBRE's strong performance is coming against the backdrop of slowly improving fundamentals. As you can see, the U.S. market recovery continues to progress with a steady fall in vacancy rates and generally positive absorption. CBRE economists expect this trend to continue over the next 24 months. Average national cap rates are largely stable compared with a year ago, although they came down a bit for office properties over the past 3 months. Year-over-year volumes continue to improve in all 3 properties sectors, most notably in office. Please turn to Slide 9. An overall revenue increase of 1%, understates the strength of CBRE's growth in Asia-Pacific during the third quarter of 2013. While slowing economic activity in much of the region has not been helpful, CBRE nevertheless improved revenue 13% in local currencies with several countries showing growth, particularly Australia, India and Japan. Investment markets in the region continue to recover from a soft 2012. CBRE's property sales business performed roughly in step with that improvement, with revenue rising 15% or 30% in local currencies. Japan was once again the biggest growth catalyst as the country's improving economic fortunes continue to grow more foreign and domestic capital to its real estate markets. A Leasing decline of 3% in the U.S., in U.S. dollar terms, masks underlying improvement in Leasing performance during the quarter. In local currencies, the leasing revenue was up 6%, a very good result considering that Leasing market across the region remains subdued. Greater China and India paced the performance. Like Leasing, underlying strength in Property, facilities and project management was offset by negative foreign exchange, which translated a healthy 10% revenue gain in local currencies into flat growth in U.S. dollar terms. While the region exhibited good top line growth in local currency, EBITDA was impacted by continued investment in the platform, including headcount additions in certain markets to drive future growth, a concentration of property sales commissions among higher-producing professionals and foreign currency movements. Now, I'll turn the call over to Mike who will discuss our EMEA business.

Thanks, Gil. Please turn to Slide 10. As Bob mentioned, the third quarter was strong for CBRE in EMEA, with revenues up 25% on the same period in 2012. Unlike Asia-Pacific, there was no material impact from foreign currency. This improved performance is also reflected in a 146% increase in normalized EBITDA during the period. The quarter builds on a strong overall performance for the region this year. Through the first 9 months of 2013, revenues were up $110 million or 16% compared to this point in 2012, and with an impressive level of EBITDA growth. Please turn to Slide 11. Our growth in EMEA in Q3 was broad-based. Every one of the major business lines recorded double-digit revenue increases. Our biggest advance was seen in property sales, where we achieved a 50% increase year-on-year with notable performances in several countries, but particularly in Germany and the U.K. Our sales revenue growth exceeded the market which delivered a 21% increase overall in sales volume for the quarter. Leasing revenue growth of 20% was equally impressive, especially given the leasing markets have yet to respond to improved sentiment with overall market activity down year-on-year. France, the Netherlands and the U.K., led our growth in Q3. We also saw positive upside in our outsourcing businesses, property, facilities and property management revenue rose 19% on the back, capturing more opportunities from both occupier and invested clients. Please turn to Slide 12. Our strategy over the past few years has been to diversify our offering, to first, to provide our clients with a comprehensive set of services that can meet all of their needs and secondly, to reduce the impact of market cycles in our business. As recently as 2007, we were far more dependent on our transactional-based service lines, but these businesses now account for 50% of the total EMEA revenues, having reduced from 67% in 2007. With market activity increasing, all business lines are growing, and we continue to increase market shares. Please turn to Slide 13. We have a 3-pronged strategy for sustaining our growth across EMEA. The first is to get our core traditional business lines through market share gains. Our market analysis reveals that there is significant headroom to continue building market share in every line of business and geographical market in which we operate, and our senior management teams have been challenged to grow the organization organically right across the business. The next is to acquire best in class firms to further develop our geographic and service line footprints and to help build scale. For example, prominent openings remain in the Property Management sector, which we have been actively filling through M&A, something I will touch on later. Finally, we have the opportunity to expand new and high-margin service lines such as a real estate finance, where we see a particular opportunity in debt and equity finance and loan servicing. That is in addition to our fast-growing prime residential business in London. Please turn to Slide 14. Looking in more depth to some of our core service lines. One of the highlights for Q3 was, without doubt, the share gains achieved by our transactional businesses. The third quarter of 2013 was the European investment markets' strongest third quarter since 2007. With higher activity levels from both local and international capital sources. Our international market coverage and footprint is particularly well-suited to today's more global capital markets and we continue to achieve significant transaction wins across the region. You can see on the slide 3 examples of large investment transactions we completed in the United Kingdom, France and Germany, during Q3. Once again, we also achieved the #1 market position in investment sales in the U.K. during the quarter. We expect capital markets activity to remain strong due to returning investment -- investor confidence, more debt availability, and the fact that the institutional additional funds are increasing the amount of capital they apportion to real estate. Please turn to Slide 15. As just noted, we also successfully grew the Leasing revenues by 20% year-on-year in Q3 largely through market share gains. This growth was achieved despite the continued weakness in the overall leasing market. We do expect that the market will grow and will resume its growth as we move into 2014 on the back of an improving economic environment. In more detail -- in more developed markets such as London and Paris, we have further expanded our market leadership position. In Q3, 2013, we again achieved the highest market share in the London leasing market. The 2 large deals shown on the slide are indicative of the type of prominent leasing transactions we are currently completing in Paris and in London. We are also focused on improving our market position in developing markets, such as Warsaw where we have just taken market leadership. Please turn to Slide 16. Here, you can see some of our EMEA and global wins in the GCS business. In EMEA, corporate outsourcing is in its infancy. European-based companies are increasingly recognizing the benefits of relying on outside service providers to manage their real estate. CBRE is well-positioned to capitalize on this trend. Our global corporate services business is a premier global platform with a growing pool of professional expertise in EMEA. Our client roster is also growing. This year, we have brought 8 new clients on board, our client satisfaction scores are up and we are recruiting to strengthen teams and grow the service line across the region. As a result, we have also expanded or renewed our contracts with 9 existing customers. Please turn to Slide 17. Asset services sustained large-scale changes over recent years with our talent pools and on-site expertise increasing dramatically through a combination of multiple acquisitions and organic expansion. Acquisitions we have completed this year include firms in the Czech Republic, Belgium and Sweden. This area of our business has gathered real momentum with our latest win being a premier London property, 30 St. Mary Axe, better known as The Gherkin. Our footprint in the shopping center sector also goes from strength-to-strength with CBRE now managing 198 centers across EMEA. Two recent and significant new mandates are shown here in Sicily and in Bucharest. We are now the largest independent manager of shopping centers in the EMEA region. In closing, we are optimistic about the future prospects for this business line as we are for our entire portfolio of services in EMEA. With that, I'll turn the call back over to Gil.

Thanks, Mike. Please turn to Slide 18. Global Investment Management revenue rose 11% in the third quarter of 2013 to $127.3 million from $114.3 million in the third quarter of 2012. All of the growth was attributable to a carried interest which reflects CBRE's incremental revenue earned as portfolios are liquidated at values that exceed return thresholds. Asset management fees and rental revenue from consolidated real estate assets were lower largely because we have been selling assets in the portfolio and because of the internalization of management of a non-traded REIT. Our fees associated with those REITs ended in the second quarter of 2013. Under U.S. GAAP accounting, we have already expensed the compensation cost for our fund employees associated with carried interest revenue. As a consequence, the carried interest revenue we generated had an outsized positive impact on EBITDA during the third quarter of 2013. This impact was partly offset by the previously mentioned lowered asset management fees and rental revenue due to the asset sales and the REIT internationalization. Carried interest is integral to our Investment Management business and is a byproduct of the success of our investment programs. As you can see, we have earned carried interest in more than half of the year since 2005. However, carried interest is not realized in regular intervals as the timing is dictated by the macro market environment and fund life cycles. These 2 factors are now conspiring positively to produce significant carried interest revenue, approximately $30 million in the third quarter of 2013. We expect similarly sizable carried interest revenue in the fourth quarter of 2013, some of which might have been spread over future years, but for the strong current market environment. As a result, carried interest revenue will diminish significantly in 2014, reducing year-over-year EBITDA comparisons in this business. Our EBITDA reconciliation table for the Investment Management business is on Slide 19. As of September 30, 2013, we maintained a cumulative accrual of carried interest compensation expense of approximately $42 million, $36 million of which pertains to anticipated future carried interest revenue. For the third quarter of 2013, we recognized a net carried interest incentive compensation expense reversal of $2.3 million. In the third quarter -- in the second quarter of 2013, we started to normalize carried interest competition expense for new funds where the related carried interest revenue has yet to be recognized. During this quarter and 9 months ended September 30, 2013, we normalized $800,000 and $3.5 million, respectively. We will continue this practice for new funds going forward. However, there were $3.1 million of carried interest compensation expense reversal in the quarter that we did not normalize because it pertained to an existing front [ph] for which carried interest competition expense have been previously recorded. Please turn to Slide 20. Global Investment Management Assets Under Management or AUM totaled $87.6 billion at the end of the third quarter of 2013, a decrease of $4.4 billion from year-end 2012. Included in the current AUM is $22 billion of listed securities. The decrease from year-end 2012 was primarily driven by the aforementioned property sales. Property dispositions totaled $7.4 billion due to first 9 months of 2013. This was partly offset by acquisitions of $3 billion and positive foreign currency effects of $500 million. The value of the investment portfolios, including net outflows in the securities business, decreased by $500 million. Year-to-date 2013, we have raised new equity capital of approximately $2.5 billion in the direct real estate business and had approximately $3.2 billion of equity capital to deploy at the end of the quarter. Our core investment in this business at the end of the quarter totaled $183.1 million. Please turn to Slide 21. Revenue for the Development Services segment totaled $12.6 million in the third quarter of 2013 versus $17.8 million in third quarter of 2012. The lower amount resulted from property dispositions which reduced rental revenue. However, normalized EBIT improved to $6 million due to higher earnings from property sales, primarily reflected in equity earnings. Development project and process totaled $5.2 billion, up $500 million from the second quarter and $1 billion from year-end 2012. This is the highest level of combined activity since the fourth quarter of 2008, reflecting gradually improving fundamentals. The inventory of pipeline deals totaled $1.6 billion, down $100 million from the second quarter of 2013 and $500 million from year-end 2012. Our equity core investments at the end of the third quarter of 2013 in the Development Services business totaled $80.8 million and our recourse debt stood at $17 million. Please turn to Slide 22, which shows our liquidity position at September 30, 2013, as well as our amortization and debt maturities scheduled for all outstanding corporate debt. Our March 2013 refinancing transactions included amending our credit agreement to provide for $715 million of the term loans and to establish a $1.2 billion revolving credit facility. We also sold $800 million of new 10-year 5% fixed rate senior unsecured notes. In June 2013, we paid down our $450 million, 11.625% senior subordinated notes, which was due in 2017. We can see here the benefit of these actions. We have extended maturities far into the future with little debt coming due for 3 years. We also reduced total corporate debt by about $500 million. We believe that these actions leave us well-positioned to make strategic investments, to drive further growth, with increased financial flexibility, to be opportunistic and continue navigating an uncertain recovery. Please turn to Slide 23. Excluding cash within consolidated funds and other entities not available for company use, and excluding our non-recourse real estate loans and our mortgage brokerage warehouse facilities, our total net debt at the end of the third quarter of 2013 was approximately $1.5 billion. Net debt is down $309 million from the third quarter of 2012. At the end of the third quarter of 2013, our weighted average interest rate was approximately 5%. This is about 60 basis points down from year-end 2012. Our leverage ratio on a covenant basis as of the end of the third quarter of 2013 stood at 1.46x on a trailing 12-month basis. Our total company net debt to trailing 12-month normalized EBITDA stood at 1.5x. This is a marked improvement from 2.1x at the end of the third quarter of 2012. I will now turn the call back over to Bob for closing remarks.

Thanks, Gil. Please turn to Slide 24. All in all, we are very pleased with our performance in the third quarter and through the first 9 months of the year. Like in everyone in business, we would like to see a more robust global economic expansion and our policymakers in Washington, D.C. finally unite around a pro-growth agenda. Nevertheless, CBRE remains well-positioned to continue driving strong revenue growth in the sector's best margins while making major strategic investments in people and technology, 2 critical components of our long-term success plan, as well as in continued in-fill M&A. We expect the revenue improvement we achieved in the third quarter to continue through year-end. Property sales activity should continue to be healthy. Global capital flows into real estate remain strong and, increasingly, investors are expanding their horizon into secondary markets and secondary assets in search of yield. This is very good for us given the breadth of our market coverage. Steady double-digit growth should sustain in our occupier outsourcing business where we see a robust pipeline of corporate and healthcare space users turning over their real estate work to outside service providers. Reflecting this, last week, we signed one of our largest ever outsourcing engagements with JPMorgan Chase. CBRE will provide the bank with facilities, management and brokerage services across of the U.S., Canada and Latin America, as well as project management services in the U.S. and Asia-Pacific. We expect improved Leasing performance, fueled by combination of market lift and share gains resulting from our increased focus on this business. And further significant carried interest contributions will underpin growth in Investment Management during the fourth quarter. In terms of challenges, tempered economic growth and the resulting occupier caution, along with foreign currency effects will continue to contain our performance in Asia-Pacific, and the mortgage servicing business in the Americas will remain under pressure as a result of the new regulatory limits on GSE lending. Considering all of this, we continue to expect normal -- normalized EBITDA margin improvement for the full year. We also anticipate that we will achieve full year adjusted earnings per share of between $1.40 and $1.45, consistent with our overall outlook at the beginning of the year. Before we take your questions, I would like to take a moment for a few brief announcements. The first is the opening a month ago of our new global headquarters at 400 South Hope Street in downtown Los Angeles. The office has been designed based on alternative workplace strategy principles and sets a new standard for collaborative work environments in our industry. Congratulations to our work-play strategy and L.A. area teams. Next, I want to acknowledge Nick Kormeluk, who has served as our Vice President of Investor Relations since 2007. Nick will be ending his association with CBRE effective at the end of the year. As many of you may know, Nick transitioned from employee to consultant in early 2009 and he now plans to focus 100% of his energies on is growing consulting practice. We thank Nick for his service to CBRE and wish him the best of luck with his future endeavors. Going forward, Steve Iaco, our Director of Corporate Communications, will serve as our liaison along with Gil to the financial community. Steve is a 20-year veteran of CBRE and its predecessor companies who possesses deep knowledge of our operations and strong relationships up and down the organization. I know that you'll enjoy interacting with Steve. Finally, I would like to remind all of you that our annual business review day will be held at our New York City office on November 21. If you have not received the details, please get in touch with Nick or Steve. I look forward to seeing you there. With that, operator, we'll open the lines for questions.

[Operator Instructions] And our first question from the line of Anthony Paolone with JPMorgan. Anthony Paolone - JP Morgan Chase & Co, Research Division: I was wondering if you could tie together -- you mentioned in your comments the end, mid-to high single-digit revenue growth if you look at your number for the first 9 months, you're already at 9% to 10%. So it suggests a little bit of a slowdown, perhaps, in the fourth quarter, implicitly is what I'm gathering. But when I look at what your guidance is, it suggests about a $0.10 year-over-year pickup in earnings. So I'm just trying to tie those together.

Anthony, it's Gil. I think you're reading too much into it. Mid- to single-high-digits is exactly what it says. So we've got a range of mid- to high single digits, right? I think that hasn't changed. So I wouldn't be concerned about that.

Definitely, we don't expect a slowdown in the fourth quarter. Anthony Paolone - JP Morgan Chase & Co, Research Division: Okay. So then, in terms of the pickup though, year-over-year in bottom [ph] on EPS, how much do you think you'll get in carried interests in 4Q?

Anthony, we're not going to disclose the number. But what we will say is that what is it in the prepared remarks was similar sizable. So that means at least as much as in the third quarter. Anthony Paolone - JP Morgan Chase & Co, Research Division: Okay. And then can you talk about just the cost structure and just how much these technology initiatives and the people and so forth that you're investing in are adding, or put differently, maybe what the impact on your EBITDA margins are? Can you put some parameters around that?

Yes, certainly. So what we said, and I need to put a bit of context around this. As we said at the beginning of the year or earlier in the year, we gave an indication that we expected net spend to be around $40 million. The actual spend on investment would be greater than that, offset by savings in other areas that we knew we would get. So in essence, we were substituting lesser quality spend, if you will, for higher quality spend, i.e., for investment. So it was very programmatic and we were not free spending in terms of investment but rather self-funding at least some of that investment. That all would net to a investment amount of $40 million for the year. We've not gotten into tracking against that $40 million, but what I will say qualitatively is, through the 9 months, we're probably a little bit behind. Meaning, not behind on our investment but actually a little bit ahead on our savings. But I don't want to get into exactly what those numbers are because then we'll be in a situation like we've been in the past where we're chasing our tail. So I will just tell you that qualitatively, I think we're doing just fine relative to that net bogey. Anthony Paolone - JP Morgan Chase & Co, Research Division: But if -- and just -- maybe I'm trying to oversimplify, but if I were to just take the $40 million and look at sort of your annual -- your rough annual revenues, is it simple as saying it's, call it, roughly, 60 -- 60 basis point drag on EBITDA margins?

50 to 60. Yes. Anthony Paolone - JP Morgan Chase & Co, Research Division: Okay. And then as we look out, does that go away or is this money that you expect to get a return on up in revenue or do actual, like, OpEx go down?

So you said a lot there. Clearly we were investing -- we're expecting a return. So clearly, there will be some revenue. Again we're not talking, as you know, about a very major effort -- at $40 million on a significant -- significant business is not that much. But we do expect a return. A good portion of that will then be in the run rate, right? So if investment in people, for example, will stay, there are some items that are onetime in nature on systems and so forth that once they're spent they won't recur. So not the full $40 million in and of itself will be run rate. A good portion of it will be. But we have not yet completed our budgets for 2014. And when we do, and we know what that number is, run rate plus perhaps additional onetime for next year, perhaps not. We'll give you a clear number probably on the next earnings call as to what we expect that equivalent number to be for 2014.

Anthony, this is Bob. Let me add a little bit to what Gil said. In general, I think that you should expect to see us on kind of an ongoing basis escalate our investments in technology and people relative to where we've been, not to the point where we're going to yield on our priority of having the industry's best margins. And in this environment, as you know, this year, we expect to expand those margins by 50 basis points. We'll see how next year goes. We may expand it again next year. But we are, with regard to technology, and certain targeted expenses with people, we are escalating our expenses. And that's on a net basis, by the way. We've also got, as Gil said, a targeted program that we put together for some cost savings to offset a portion of that. Anthony Paolone - JP Morgan Chase & Co, Research Division: Okay. And just last question on Investment Management. I think it was $90.8 million, I don't have the slide in front of me, in terms of your base fees, Is that a decent run rate at this AUM going forward or is there any more impact from some of the sales or I think you said you had internalized management, in one of the private REITS or something?

There are no additional privatizations or internalizations that we're aware of. So I'm not going to go to so far to say it's a decent run rate, because we expect and hopefully and ultimately AUM growth. But it is a more normalized fee, so assets under management. We have a comparable quarter Q3 '13 versus Q3 '12, which was not the case prior to.

And I'm going to add to that, Anthony. We now expect -- we've gone through an aggressive disposition program. We have a sizable value-added business. We also have the sizable core asset business in these gateway markets where we thought it was particularly opportunity to sell assets. So the combination of those 2 led us to dispositions of $7 billion-plus during the course of this year. We think that activity will taper off now and that in fact that we'll start net investing next year. Our capital raise activity in the third quarter was 50% higher than the first and second quarters combined. We expect that capital raise activity to increase again in the fourth quarter and we expect next year to be significantly higher than this year. So we're going to have a lot of dry powder. We will work through that disposition phase and we feel like that there's an opportunity to grow that base [ph] of AUM next year.

Our next question from the line of Brandon Dobell with William Blair. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Maybe I'm splitting hairs a little bit too thin here, but last quarter I felt like the language around the EPS range was a little more maybe bullish, i.e. exceeding the top end, given the impact to carried interest. It sounds like you backed off that a little bit or maybe I'm splitting hairs too much or is it just the GSE stuff was unintended dilution to profits?

Yes. The way I would answer that, Brandon, is we don't foresee an upside to the full year range of $1.40 to $1.45, mostly because of the GSE servicing slow down. And so all we're doing is returning to our additional and unqualified guidance. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Got it. That makes sense. So maybe as a transition there, given that the GSEs are still trying to figure out what they're doing from a number of perspectives, but in particular what the scorecards are going to look like for next year. How do we think about the impact during the fourth quarter? Or maybe in a longer-term basis, could this be a headwind for 2 quarters, 4 quarters, any sense of how that GSE scorecard may come up?

Yes, I can comment on the fourth quarter, but you said it, we don't know the picture for 2014. It's really not determined at this point. We'll be better qualified to talk about that obviously on the next call or maybe even prior to once the government themselves figure out what they're going to do. But in terms of the fourth quarter, if we -- based on what we know right now and based on the mandate of reducing volumes by 10%, we expect that we'll have an impact of maybe a little bit less than this quarter, but in that $10 million to $15 million range year-over-year. So a similar slightly lower negative impact versus Q4 2012. And we know that because the mandate is to reduce volumes by 10% on the year. We were over that through June 30 and we were perhaps under that in the third quarter and we do know that Fannie and Freddie have said that they maybe have overshot the market a bit in the third quarter, would ease up in the fourth such that they don't get to volumes that are greater than 10% less than the full year 2012. So there's perhaps a little bit of upside which leads me to say that I think the impact on that quarter negative will be a little better than it was in Q3. Hopefully that's clear.

But to be redundant here, Brandon, you weren't splitting hairs. And that was contemplated in the way we gave guidance and our release. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Got it. That makes sense. Given the -- what feels like a pretty decent rebound in growth rates in EMEA, maybe some thoughts on investing in more systems, more people, more support people. I would imagine you guys, in the past year, 1.5 years, even maybe 2 years, have been a little reluctant to put any capital work there given how little growth was going on. But with growth recovery, any thoughts of getting a little more aggressive in terms of going after market share? And then I guess at the sideline of that is, there must be an assumption within that answer of sustainability of these kind of growth rates out EMEA the next several quarters, if not longer?

Brandon, obviously, we're going to have Mike Strong answer that question. But I want to comment on something globally in response to what you just said. Under the leadership of our Global President of Brokerage, Jack Durburg, and our Global President of Capital Markets, Chris Ludeman, we have an aggressive program in place in all regions of the world to add talent to our businesses. So we haven't been sitting back waiting for the markets to get to a certain point before we did that. We believe we have headroom for growth organically in all regions of the world. We think it's starting to come through pretty nicely in the numbers. And that decision was made by our Global Operating Committee that Gil, Mike Strong and myself all sit on independent of the comings and goings of results in the current quarter or current year.

If I may make a more general comment about Europe. If you look what's happening in economies, you'll see that of the more established such as Germany and the U.K., the growth, the consensus growth rates being put against those countries are now increasing and have increased a lot over the last quarter. And if you look forward, the view of the next 3 to 4 years is that those countries will grow 2%, possibly even 3%. If you look at the growing areas of the Nordics, CEE, Turkey, their estimates around growth rates of 3% to 4%. And even in the more troubled places, such as Italy, Spain, Netherlands and France, they're all turning positive with 1% to 1.5% to 2% growth assumptions estimates over the next 3 to 4 years. So we've lived with declining economic environments for 5 years, declining demand for space, and obviously a relatively weak investment market. So I think we're now seeing -- you can see from the numbers that the level of investment in capital coming into the European market has materially increased. Whilst it was originally focused on London and some of the German cities, it is now much more broadly based. The U.K. regional markets have improved. There is much better demand for the southern European markets, Italy and Spain. And we do foresee that, with the weight of capital coming in, that there's -- every prospect of that will continue. And with recovering economic environment, we do see the demand for space will turn positive. As you'll see it's -- we think it's probably hit a low point and will turn positive with vacancy rates coming in. So against that, to answer your question, we have been investing quite materially over the last 1 to 2 years in headcount. We've put substantial numbers of people into the -- into several of our markets. We're continuing to do that as Bob referenced. We're also expanding in the non-transaction areas in Property Management particularly and in the outsourcing businesses, both of which are growing at a brisk pace. So yes, we're out there hiring the very best people we get our hands on, selectively doing M&A. and we'll see every prospect for that will continue. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Okay. And then final one for me. I think last quarter you called out Brazil as a bit of an issue just from an operating leverage perspective. Maybe scale the headwind, if there was one this quarter, relative to what it was last, and what the outlook for that part of your business becoming a, let's call it not a headwind, or potentially a tailwind from a margin perspective.

Yes, Brandon. So in the third quarter, we did not have issues that we had in Q2. I think it was anomalous to Q2; 1 and 3 were good quarters for us in Brazil, 2 was not. Year-to-date, we're a little better and the forecast for the year on Brazil in particular, I would say, is flat to slightly better. It's highly dependent on transactions and there are large capital markets transactions that happen in that market. And if one flips, that can have an impact on that particular market. And in fact, as we saw even on our overall results, that bakes [ph] some of those transactions.

We have a question from David Ridley-Lane with Bank of America Merrill Lynch.

I was just wondering how sustainable you think the acceleration you're seeing in Americas leasing is. Just wondering that because we haven't seen a -- certainly an uptick from the property owners in terms of rents and that sort of thing.

David, I'll answer that. We have really focused on growing our Leasing business around the world and specifically in the Americas. And we expect to see good momentum, a momentum ahead of the market certainly through the balance of this year. And we're putting our plan together for next year. And my guess is, when that plan is all said and done, we will have expected ourselves to grow market share again next year. So that area is receiving a lot of focus from us.

Maybe give us [ph] a rough idea maybe what your headcount is up?

Yes. Those numbers -- we don't publish our headcount numbers.

But safe to say you're adding net new people to grow ahead of the market in America's Leasing?

We are adding a significant number of people and we are doing 2 things: we're adding people in and we're switching out people in a number of markets that where we had the opportunity to bring in better talent.

Got it. And if you had to -- maybe, it's particularly in -- maybe not to get too detailed, but Americas leasing in terms of the vacancy rate, it continues to tick down. Absorptions continue to be pretty positive, when do we hit an inflection point where occupiers feel the need to take that additional year, or take that additional amount of square footage?

Well, I think we're already seeing some of that now. The fact of the matter is, there's -- rates are coming up, occupancies are coming up and sophisticated users, and we advise a lot of them, are attuned to that. And they believe that the space is going to get more expensive, particularly the better space. And there's some aggressive action to secure space in the environment we're in today.

And we have a question from Mitch Germain with JMP Securities.

Bob, you guys made a strategic acquisition in the U.S. in the retail segment. I'm curious if that's one of your offerings you're looking to targeting for growth now?

Mitch, this is going to sound glib and I apologize for that, but retail is one of the product lines we offer and we have very pointedly said that we expect to be able to grow organically and through M&A all of our product lines in all our geographies. We like the businesses we're in, we like the geographies we're in and we're aggressive about growing all those businesses in all those geographies. We happen to think we have an exceptional opportunity in retail in the United States. We have a very good leader in that business. We have a bunch of regional leaders geographic leaders, who have identified opportunities for us to grow. And the situation in Philadelphia with FAMECO was really a nice example of that kind of opportunity.

Great. And just curious about year-over-year trends and investment sales. I think more so domestically, obviously, we had some benefit of tax-motivated selling. Are you still pretty positive on the abilities to sustain that growth rate in 4Q?

We think there's going to be solid growth opportunity in investment sales in all 3 regions of the world in the fourth quarter.

[Operator Instructions] And we'll go to Todd Lukasik with Morningstar.

Just a couple of questions. First on leasing in Europe. You mentioned that sentiment there is improving and the outlook for economic growth is improving. Is that something you think is going to show up in increased leasing volumes in general in the market perhaps as early as the next quarter or is that something that's going to take longer to play out there? And then just as a follow-up, are there any particular factors to which you would attribute your share gains in Europe?

Values being volume as opposed to value price? Yes?

Yes, the leasing volume.

I think what we're seeing in the prime markets of, say, London and Paris and the German cities, and for prime retail and prime logistics, is the leasing demand has picked up quite materially. We're starting to see that moving into some of the markets that have been more depressed in turn economically. There's the status [ph] -- you're seeing signs of demand in Spain, some of the Italian cities, the Netherlands and Belgium. So generally, demand is picking up. And against the backdrop of historically low supply, some markets are also now coming under pressure in terms of pricing pressure upwards. And that's particularly true in parts of London and some of the German cities as well. So I think to that degree, it happened. In terms of how we secured increased market share, I think it's fundamentally -- it's all down to the people we have and the teams of people we have in the markets in which they operate, and their ability to connect up the region and connect up globally to make sure that we can access national, international tenants. And that's something we concentrate on a great deal right across our organization.

Okay. And then just a question on investment sales in the U.S. and the potential impact of higher interest rates. Obviously there's been a rise in rates this year, that hasn't really seem to affect sales volumes yet. But I'm wondering, from your perspective, if maybe there's a threshold level of interest rates or a magnitude of change in those rates over a short time period that might kind of put the brakes on investment sales where both sides of the transaction are waiting to figure out where the price settles and what your thoughts are on that in terms of sustaining strong investment sales volumes in the U.S. in particular?

Yes. There's probably a threshold out there somewhere, but we're not foreseeing it anytime soon. We think the more likely situation is, if interest rates tick up, it will be because the economy has gotten better. As the economy gets better, what will -- what we've already started to see and what we'll see more of is that activity picks up on property sales in what are typically called second-tier markets and second-tier assets, which by the way, still very, very substantial business centers and very substantial assets that, up to this point, had not yet been captured in that kind of activity. So we think that kind of circumstance will offset any impact of higher interest rates based on anything we foresee now. Now there could be again a threshold out there somewhere that we're not seeing. The other thing that is always worth keeping in mind when you think about real estate assets now is the liquidity and the transparency associated with real estate assets is appealing in the market environment we're in today. And also the fact that they're considered to be a hedge against inflation, which everybody knows. So we're not concerned about the circumstance that you're describing as possible. And obviously, we and the market haven't seen that playing out at all.

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

If that's all the questions, we appreciate everybody joining us today. And we will talk to you again when we release our year-end information. Thank you very much.

Thank you. And ladies and gentlemen, this will conclude our conference call for today. Thank you for your participation, and for using AT&T's executive teleconference. You may now disconnect.