CBRE Group, Inc. (CBRE) Q4 2014 Earnings Report, Transcript and Summary

Greetings, and welcome to the CBRE Group Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Steve Iaco, Investor Relations. Thank you, Mr. Iaco, you may begin.

Thank you, and welcome to CBRE's Fourth Quarter 2014 Earnings Conference Call. About an hour ago, we issued a press release announcing our Q4 2014 financial results. This release is available on the home page of our website 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 audio archive of the webcast and a PDF version of the slide presentation will be posted on 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. These include statements regarding CBRE's future growth momentum, operations, financial performance and business outlook. These statements should be considered to be estimates only and actual results may ultimately differ from these estimates. Except to the extent required by securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements you may hear today. For a full discussion of the risks and other factors that may impact any forward-looking statements that you may hear today, please refer to our fourth quarter earnings report filed on Form 8-K, our most recent annual report on Form 10-K as amended, and our most recent quarterly report on Form 10-Q. These reports are filed with the SEC and are available at www.sec.gov. During the course of this presentation, we may make certain statements that refer to non-GAAP financial measures as defined by SEC regulations. Where required by these regulations, we have provided reconciliations of these measures to what we believe are the most directly comparable GAAP measures. These reconciliations can be found within the Appendix of this presentation or in our earnings report. Please turn to Slide 3. Participating on our call today are Bob Sulentic, our President and Chief Executive Officer; Jim Groch, our Chief Financial Officer and Director of Corporate Development; and Gil Borok, our Deputy Chief Financial Officer and Chief Accounting Officer. During our remarks, all references to percentage increase or decrease in revenue are in local currency, except for consolidated results or where otherwise noted. Now please turn to Slide 4 as I turn the call over to Bob.

Thank you, Steve, and welcome, everyone. 2014 was another year of strong growth and strategic gains for CBRE. The hard work we've done to grow our client base, improve and expand our service offering and invest in our people and operating platform paid off in a record year. Global revenue reached a record $9 billion, rising 26% for the year. Normalized EBITDA set a new high at $1.2 billion. And adjusted EPS of $1.68 improved 17%. This strong growth was achieved over 2013, a year in which EBITDA in our Investment Management business exceeded $200 million, with significant carried interest. In addition to record financial performance, we had other noteworthy achievements. These include material improvement in our operating platform, notably technology, research and specialized consulting services, allowing us to better serve our clients, and in turn, create opportunity for our people and growth for our shareholders. While investing in our operating platform, we achieved significant operating leverage in our regional services businesses before the contribution from Norland. We successfully integrated Norland, a significant acquisition which closed a few days before the start of the year, and then grew its revenue by approximately 20% to $869 million. Our clients benefited from the considerable expertise of the Norland professionals. We also integrated 11 infill acquisitions, bringing more of the industry's highest-quality resources to our clients. Finally, we took advantage of the liquidity and low rates available in the debt markets to further optimize balance sheet strength and flexibility. This performance is a direct result of our people's steadfast commitment to executing our strategy and creating distinct advantage for our clients. We thank them for their excellent performance in 2014. Now I'll turn the call over to Jim who will walk through our financial results in greater detail.

Thank you, Bob. Please turn to Slide 5. As Bob indicated, 2014 was an excellent year for CBRE. This is especially the case given that we earned $75 million less EBITDA relating to carried interest in 2014 than in 2013. If you exclude carried interest from both years, normalized EBITDA increased by 24% and adjusted EPS by 31% for the full year. Our 3 regional service segments achieved significant revenue growth and operating leverage in 2014. Together, these regions produced growth, without the contribution from Norland, of 21% in normalized EBITDA and 17% in revenue. Combined, margin improved 50 basis points for the year, again, without the contribution from Norland. CBRE global investors and development services exceeded our guidance of flat performance for the year x carried interest. Together, EBITDA, without carried interest, was up about 7% or approximately $12 million for the year. Bob mentioned our efforts to optimize the long-term strength and flexibility of our balance sheet. Towards this end, we continue to shift shorter-term fixed or floating rate debt to 10-year fixed rate bonds and to expand and refresh our revolver. In December, we issued an additional $125 million of 10.5-year bonds. Last month, we closed on an expanded $2.6 billion 5-year revolving credit facility and $500 million tranche A term loan facility. Proceeds from the financings, along with cash-on-hand, were used to pay off the balances of our shorter-maturity term loans and the outstanding revolver balance of approximately $5 million. Just prior to year-end, Standard & Poor's raised CBRE's corporate rating to investment grade. At year-end 2014, our net debt to normalized EBITDA ratio was 1.0. Please turn to Slide 6, which outlines our revenue growth by line of business for the full year. I'll make 2 observations on this slide. First, the 2 largest parts of our business achieved very strong top line growth, with leasing up 16% to approach $2.4 billion in revenue, and Global Corporate Services and Asset Services, up 51% or 16% without the addition of Norland to exceed $3.7 billion in revenue. Note that the leasing and capital markets revenues associated with corporate and asset services are accounted for under the Leasing and Capital Markets headings on the slide. Second is the profile of our business mix. Contractual revenue equals 51% of total revenue for the year. Contractual revenue and leasing revenue, which is largely recurring, totaled 77%. Property sales accounted for 17% of total revenue. Now please turn to Slide 7 for a discussion of our results for the fourth quarter. Performance in Q4 was strong. To understand the comparison to Q4 2013, it is important to remember that we realized $58 million of EBITDA from carried interest in last year's Q4. Excluding carried interest from both quarters, normalized EBITDA rose 20% from the prior year quarter and adjusted EPS increased 18%. Currency fluctuations reduced adjusted EPS by 2% to $0.68. Normalized amortization and depreciation expense in Q4 2014 increased approximately $11 million versus Q4 '13. Our normalized tax rate was 32% for the quarter, resulting in a 35% rate for the full year. Please turn to Slide 8, where we present our Q4 revenue performance by line of business. Global Property Leasing revenue rose by more than 20% as we continue to gain market share. Our occupier outsourcing business, which we call Global Corporate Services, continued to perform very well. Revenue, including related transaction revenues, increased 60% or 19% without the contribution from Norland. We signed a record number of outsourcing contracts with new customers during the quarter. Property sales revenues rose 17%. Strong revenue gains in property sales were notable in the U.S., France, Japan and Spain, with each exceeding 20% growth in the quarter. Commercial mortgage services was up 35% globally. Revenue growth was also strong in our global valuations business, up 21%. In the Americas, we saw a pickup in traditional appraisal activity, supplemented by acquisitions that complement our existing service offering. Our Development Services business continued to perform exceptionally well, while as expected, revenue declined in Global Investment Management. Capital raising activities in Investment Management were robust, reflecting strong performance for our clients. Now I'll turn to the Q4 results for our regional business segments, starting with our largest segment, the Americas, on Slide 9. Overall revenue for the Americas rose 20%, the ninth quarter in a row of double-digit revenue growth. This growth rate is particularly notable for a $5 billion business segment. Leasing turned in its best growth in 4 years, with revenue surging 25%. This robust growth is a product of the investments we've made in recent years to support our brokers as they serve our clients and to enhance our brokerage ranks through to recruiting and targeted infill M&A. We also benefited from steadily improving macro conditions. Property sales rose solidly driven by the U.S. where revenues rose by 20%. Commercial mortgage services revenues rose 26%. Combined, Global Corporate Services and Asset Services revenue increased 17%. Please turn to Slide 10, regarding EMEA. EMEA revenue grew vigorously across our entire suite of services. Overall revenue jumped 78% or 23% excluding Norland. Norland contributed $240 million of revenue for the quarter. Property sales revenue increased 23%. The U.K. continued to be a bellwether for the region and we achieved significant growth in several other countries, including France, Ireland, Poland and Spain. Given our broad capabilities across the region, we have been well positioned as capital has moved increasingly across Europe. Leasing rebounded strongly following a subdued performance in Q3. Revenue from this line of business climbed 22%. Growth was particularly impressive in the U.K., up 25%, where we achieved higher market share in Central London. We also saw notable growth in Germany and the Netherlands. Combined, Global Corporate Services and Asset Services revenue increased 11% before the contributions from Norland. Please turn to Slide 11 regarding Asia-Pacific. Revenue in this region improved 14% for the quarter. The fastest-growing area of our business was Global Corporate Services and Asset Services, with combined revenue up 19%. Most of this growth occurred in Australia and India. Our leasing business line also produced a very good growth this quarter, with revenue up 15%. Australia and Japan set the pace for the region. Property sales revenue rose 13% during the quarter, again, driven by Australia and Japan. This growth compares with an especially strong Q4 of 2013 when year-over-year revenue surged 46% over Q4 2012. Please turn to Slide 12 regarding occupier outsourcing, which we call Global Corporate Services. This global line of business is reported within the 3 regional service businesses. Our Global Corporate Services business sustained its long-term track record of strong growth as the depth, capability and maturity of CBRE's integrated service offering continues to attract new clients. Reflecting this, Q4 was one of our best quarters ever, with 63 total contracts signed. Globally, we brought on 107 new contractual accounts last year, by far, our most in a single year. We expect our globally integrated outsourcing platform and increasing synergies with our leasing business to continue to drive long-term growth. Please turn to Slide 13 regarding our Global Investment Management segment. As we had expected, this business saw lower results compared to a standout 2013. As already noted, EBITDA associated with carried interest was $46 million less than last year's Q4, and $75 million less than the full year 2013. Looking at the quarter, we saw solid growth in investment portfolio as AUM increased by $3.8 billion in local currency, offset by $1.8 billion of exchange rate impact $90.6 billion. For the full year 2014, AUM increased by $5.8 billion in local currency, offset by $4.3 billion of exchange rate impact. As we noted at the beginning of last year, 2014 was a transition year as we sold $10 billion of assets and exited a couple of businesses in 2013 and absorbed lower fees in Continental Europe in 2014. We expect growth in normalized EBITDA and AUM in 2015 as we continue to deploy the $8.6 billion of capital that we raised in 2014. Please turn to Slide 14 regarding our Development Services segment. Our Development Services business, again, generated significant growth. For the quarter, revenue plus equity earnings and net gains on real estate dispositions increased 50% to $74.9 million versus Q4 2013. EBITDA for the quarter rose 70% to $37 million. Our pipeline increased to $4 billion, up $1.1 billion from the third quarter of 2014. Most of this increase is due to fee development work in the healthcare sector. Projects in process totaled $5.4 billion, up $300 million from the third quarter of 2014. Our equity co-invest in the development business totaled $119 million at the end of 2014, while our guarantees on outstanding debt balances stood at $10 million. Now I'll turn the call back over to Bob for closing remarks.

Thanks, Jim. Please advance to Slide 15. By any measure, 2014 was an excellent year for CBRE. We believe 2015 will be another year of strong growth. Market fundamentals continue to gradually improve. The investments we've made in our people and operating platform have materially strengthened our global business lines and positioned us for further market share gains. Among our global business lines, we expect leasing revenue to increase at a low double-digit rate as we continue to benefit from our growth initiatives and better macro market conditions, particularly in the U.S. Our Global Corporate Services business remains poised for mid-teens revenue growth. We continue to benefit from our improved platform and increased collaboration between our leasing and corporate services professionals. Our capital markets business, which includes property sales and mortgage services, is expected to grow at a high single-digit pace. The influx of capital into Commercial Real Estate remained strong, but market volume growth can reasonably be expected to moderate from the robust levels of the past few years. However, capital markets volume can fluctuate materially from quarter-to-quarter. Looking at our business overall, we expect our 3 regional services businesses, combined, to achieve further operating leverage and margin improvement, likely moderating from last year's increases. Our combined principal businesses should perform roughly in line with 2014 with Investment Management up and Development down coming from a strong year of gains in 2014. Depreciation and amortization is expected to be up approximately $25 million this year, primarily relating to investments in our operating platform and strategic M&A. Interest expense will likely be flat to down slightly. Our normalized tax rate for 2015 is expected to approximate last year's level of 35% for the full year. Last year, we commented on our historical percentage distribution of normalized EBITDA by quarter. Our quarterly normalized EBITDA profile for the last 4 years has been an average of 16% in the first quarter, 23% in the second and third quarters and 38% in the fourth quarter. This information is being provided to demonstrate historical context for CBRE's quarterly normalized EBITDA distribution. Please note, this is not meant to be quarterly guidance for 2015 and the percentage may vary somewhat in any given quarter. In light of our outlook for the business, we expect to achieve earnings per share as adjusted in the range of $1.90 to $1.95 for 2015 for a growth rate of 15% at the midpoint of this range. We approach 2015 with great enthusiasm for our business. Our people are working together to execute our strategy, drive growth, produce distinct advantages for our clients and create value for our shareholders. With that, operator, we'll now take questions.

[Operator Instructions] Our first question is from Anthony Paolone of JPMorgan.

My first question, on -- in the fourth quarter, your gross margins, they moved up a little. But typically, in prior years, we've seen that go up a bit more. And just wondering what's going on there because it seemed like the OpEx margins were about the same. And so I'm just wondering if this is -- if there's going to be less movement in that going forward, or if there's something in the quarter that drove that down.

Thanks, Anthony, this is Jim Groch. The 2 impacts primarily were Norland, which is significant revenue coming in at a lower margin and EMEA margin was impacted in Q4.

Because the -- I just think about it going up, I think it was 160 bps from 3Q, just sequentially, and it was maybe up only 50 bps from where you were in 2Q. So putting even Norland aside from what happened in 2013, it just seemed like the quarters were a lot closer to each other in '14. Is that something to expect in '15?

No, I don't think so. In EMEA, in particular, we had several nonrecurring type expenses that we did not normalize, but they did have an impact on the EMEA in Q4.

Okay. And then in terms of leasing revenue growth, how would you parse out what's the market and what's been your share, and how do you think about those 2 things as we look ahead?

Yes, Anthony, this is Bob. We got lift from both. We're confident we took market share in leasing and that's been going on for a couple of years, partly because of some changes we made to our platform that allows our Global Corporate Services business and our leasing teams to work more effectively together, partly because we've done an awful lot of recruiting over the last 2 years. We mentioned last year that we had a -- had, had a record year, and this year we had comparable recruiting around the world. So the combination of those things allowed us to grow our leasing business at a rate that was significantly ahead of the market. But the market also provided significant lift. We expect to see a similar dynamic in 2015. We hope and expect to take market share and we expect to see the leasing markets around the world be increasingly strong.

Okay. And then, can you talk about just, you've got a better rating from the rating agencies and you're a bigger company now. Can you talk about just what to do with free cash flow going forward? And you mentioned you only have about a turn of debt at this point. Just wondering what happens to 2015 free cash flow.

Anthony, this is Jim. We have taken contingent -- we've done contingent work on our balance sheet to strengthen the balance sheet and provide more flexibility. As you've noted, the leverage ratio is low. We're always evaluating uses of cash, including dividends and stock buybacks and all other options. If you look at the last 5 years, we've invested the vast majority of our free cash flow in acquisitions, primarily and also in significant investments to our platform. And I think these investments have materially enhanced EPS. We'll continue to evaluate the options, but at the moment, that continues to be our focus.

Okay. And then just last question for me. Any commentary on the competitive landscape for people, in both incremental people as well as retention, given that we're further into the cycle and there are some other competitors out there, obviously, who want to get big, too?

Yes, it's a competitive marketplace for people, Anthony. That's our product and that's the product of our competitors. And so we compete for the people. I would say, it's continued to pick up slowly over the last 2 or 3 years, and we expect that competition to remain hot in the coming year or 2. In general, most of what you see is rational, but occasionally, we see some activity that's not totally rational. And as is the case with acquisition opportunities that don't make sense from a pricing perspective, we try to stay clear of those situations.

The next question is from Mitch Germain of JMP Securities.

Just, I'm curious in terms of how the guidance contemplates new business from outsourcing. Is that somewhat included in the mid-teen growth? Or is the mid-teen growth more or less a same-store number?

Yes. No, Mitch, we expect to do mid-teens growth in the GCS or occupier outsourcing business next year, and that's through growing existing accounts and adding new accounts, which both are strong drivers to growth for us year in, year out that business.

And I guess it goes by assignment, and it's kind of blanket statement to ask you a question here, but I mean, do all of them go free cash flow positive from the start, or is there a bit of a ramp-up?

This is Jim, Mitch. There is a ramp-up and there are often costs up front. We -- you haven't heard us talk about that for a few years just because the business is large enough that those ramp-up costs are steady and recurring and they're just baked into the business and it'd be very unusual for us to have an account that would be large enough to have a material impact that would be worth noting.

Great. And with regards to the hiring, I know, certainly, talent upgrades has been a big part of the story. Do you expect to do similar levels in 2015?

We expect to be active, Mitch. Whether we'll be able to stay at the levels we've been at the last 2 years, we'll have to watch and see what happens. We already got from Anthony the question about the competitive marketplace for talent. And again, I'll equate it to M&A. We've done a lot of M&A over the last couple of years. We've also passed on more M&A over the last couple of years than we typically do because we've seen some irrational things. We have strong ambitions for recruiting and we know where we want to recruit. But we'll only do that if we think the pricing, so to speak, makes sense. So it's too early to say if it'll be at the same pace as the last 2 years. But the last 2 years have been very, very significant for us. As you know, we've spent a good deal of money on it and it's impacted our numbers, but we think it's an investment that's going to have a quite a pay-off for us in the long run.

Great. Last one for me. With regards to the capital raising in the Investment Management business, is there any sort of theme in terms of the types of -- maybe by region or core versus value-add? Are you seeing anything that has a bit of a greater appetite from these investors?

Mitch, this is Jim. I would say it's pretty broad based. We've seen significant capital raise in the separate accounts business globally in each -- and we've seen it in each region. Our global multi-manager business raised $1.6 billion. Our U.S. value-add funds raised $1.2 billion. Our Pan European Core Fund raised $1 billion. So it's been pretty broad based.

The next question is from Brian Burke (sic) [ Brad Burke ] of Goldman Sachs.

First question is on the new revolving credit facility. It's $2.6 billion, a lot more liquidity than you've typically carried. And since it isn't costless to keep revolving credit capacity, I wanted to understand why you decided to add such a big facility. And how should we think about you using that facility going forward?

Brian, this is Jim. It is a large revolver. I would say, as you know, you want to execute your balance sheet financing when the capital markets are strong. And that's what we've done. We've just taken advantage of the strength and the depth of the debt markets. It's not cost free, but it is pretty cost efficient. And we -- you may see that revolver not be substantially drawn, but it's nice to have the capacity available when an opportunity comes up.

Okay. And I guess maybe somewhat related to that. You had talked to Anthony about uses of cash. And can you give us a sense of how the split between M&A and investments in your platform and infrastructure, how that would potentially be shifting in 2015 versus 2014?

It's difficult, Brad, to predict the dollars that go out in M&A. As you know, that can be quite limp -- lumpy. But CapEx was probably about $150 million last year, which were investments largely in the platform outside of that. I don't -- and I expect that to go up a little bit, but not a lot.

Okay. And then, with the guidance that you have, I want to know what that presumes in terms of an impact from FX. And also, I don't know if you could quantify the impact from FX in the fourth quarter.

Sure. Why don't I start with the impact in the fourth quarter. The impact in the fourth quarter was a negative, roughly, $7.6 million, offset by $800 million from hedging. That had about a 2% impact on EPS in the fourth quarter. Overall, for the year, our hedging actually ended up with a net positive result of about $1 million, but we did see the fall off in the fourth quarter. As far as '15, in December, we hedged about 90% of our expected 2015 EBITDA in the largest foreign currencies, pound, euro, Australian dollar, Canadian dollar and the yen. Rates -- the rates that we hedged at in December were already, obviously, different than the average rates for the year. So we think the EBITDA impact of '15 versus '14 average FX rates will be about 2% or 3%; revenue impact of maybe 3%.

And most of that impact would be just from seeing that it will be recognized entirely in the first quarter?

That impact is -- we're really looking at the rates that we hedged at versus the average rates for the year. So as far as -- when hedging -- what the hedge impact will be if currencies move, it'll depend how they move over time as to when we recognize the impact of the hedging during the year.

Got you. Okay. And then just last one, on capital market activity. Again, another follow-up. You've mentioned that you continue to expect to take share. But looking at the guidance for capital markets, it's only up high single digits, and that just wouldn't imply a lot of growth in the market after you do take some share and increase headcount. So should we look at that and say that it implies, you would expect flat to low capital markets growth, broadly speaking, in 2015?

We're taking a cautious, I think, position around further growth in Capital Markets for the year across the world. So I think, certainly, single digits is our projection for capital markets. Obviously, that's the line of business that's the -- we're the least able to predict, and you'll have the greatest volatility quarter-to-quarter, but...

Is that based on something you're seeing in the pipeline, or is that more caution because it's a difficult business segment to forecast?

Yes. It's based on 2 things. It's based on what our economists believe and it's based on our anecdotal view from discussions with our capital markets people around the world.

The next question is from David Ridley-Lane with Merrill Lynch.

Sure. On the one-time charges in EMEA, would margins have been up excluding those charges? I'm just trying to get a sense of the size.

Yes, David, margins wouldn't have been up excluding those charges, but margins would have been materially better.

Got it. And then on the headcount growth for transaction professionals in 2014, was that kind of in a low double-digit range or high single digit?

We had a net increase in headcount of over 400 individuals, globally.

Got it. And I was a little bit surprised when you said the Development Services contribution might be down in 2015, just given the pipeline is up. It's up big. So maybe, is it just the timing of recognizing some of your co-investment gains?

Well, David, that business, the kind of typical gestation period on a development deal can be anywhere from 1.5 years or so for an industrial deal to much longer, 2, 3, 4 years on an office deal. And what you saw was harvesting of a lot of product in 2014 and a very, very strong year and a very good year for adding new deals into the pipeline. But those deals won't harvest in 2015. They'll harvest in '16 and beyond. So what happened in 2014 set us up nicely for downstream, but it won't have a major impact this year in 2015.

Okay, got it. And then I know there was a lot of integration work with Norland during 2014. Did you get a lot of cross-sell benefit in 2014? Or do you expect more of that to come here in 2015?

We've got some nice cross-sell benefit. I just came back from Europe. I talked to our leaders there. And the view of what happened in a marketing and sales sense there was that we were able to close deals with CBRE clients that we would have never been able to close previously because we didn't have that self-perform building engineering capability, which, as you know, was the rationale for that deal. But interestingly, Norland also felt that some of the clients that they couldn't get to previously, they were able to get to with our full service capability. Now we've combined that whole thing in the second half of the year and put it under Ian Entwisle, who is running Norland. And so that will become more invisible going forward, but to our people, that was pretty visible on both sides this year.

Got it. And I hate to ask a macro question, but have you seen any early impacts from the drop in oil prices, I guess, Canada, Texas, Middle East, any sense that trends can be slowing?

I'll take that. The -- we are seeing -- I would say, you're seeing negative impacts in just little tiny spots where it's noticeable, but overall, we think the impact is -- the net impact is positive to the business.

Got it. And then a final one for me. Just how much of your cash is in the U.S. versus overseas? And does the strength in the U.S. dollar make international acquisitions a little bit more appealing for you right now?

About half our cash is outside of the U.S., and the stronger dollar is helpful when looking at the transactions overseas. But obviously, it's as important as to where you think the exchange rates will be over time as to where they are at the moment.

The next question is from Brandon Dobell of William Blair.

Bob, toward the tail end of your remark, you talked about operating leverage in '15 likely moderating from the leverage or margin improvement you saw on '14. And maybe if you could give some color, in the services business, not the principal businesses, but in those services business, what's the main reason for operating leverage getting a little tougher to come by this year versus last?

Well, we start with the incremental leverage that was baked into the numbers this year, and then we have to add to it on top of that. So that's the situation, Brandon. We expect margins to be better in that business -- in those businesses, those 3 regional businesses next year than they were this year. We don't think at this point that the margins will grow by as much as they grew by this year.

How much of, I mean, a headwind, for lack of better term, is the growth in Corporate Services, I would imagine getting some decent leverage on some of fixed costs, but I know it's a tougher business than the transaction ones are. But is there an opportunity to change that profile just given how much cross-sell you can generate between GCS and the transaction businesses?

Well, for sure, when you cross-sell into the transactional businesses, that ends up with a better margin in the project management, facilities management businesses. That's just inherent in those businesses. But we gave you the numbers that we expected for those various businesses, and we -- and sitting here today, we think leasing is going to be a low-teens grower, or we think capital markets is going to be high single-digit grower, but we think outsourcing is going to be a mid-teens grower, which it has been for years and years now and it has an inherently lower margin, so that's part of what we're expecting.

Okay. Maybe to a certain extent, a macro question. Within the mortgage brokerage business, and certainly here in the U.S. where you've got a pretty big business, but also, it sounds like there's some opportunities overseas as well for mortgage brokerage. Are you guys seeing any signs in terms of credit terms, loan to values, things like that, that make you nervous in terms of credit availability or just how much money is chasing deals?

There's certainly a lot of capital available for deals, and that's part of what's been fueling deal volume. I wouldn't say it's making us nervous. And if you think about what's going on in the marketplace, rental rates are finally recovering, right? We're just seeing the real lift in the leasing business in the last few quarters that we've all been waiting for, for a long time. Net increase in job growth versus pre-recession 2007 has only been taking place for a year, so we're in pretty early stages there. And cap rate spreads are over 10-year treasuries or BBB bonds, whatever you look at, are still -- they're plenty, reasonable. So we're not worried at this stage about the leverage in the markets.

Okay. And then final one for me. Looking at the GCS expansions this -- or in 2014, maybe some color on what kind of expansions were most common. Was it just geographic region or geographic region expansion, was it service line expansions? And maybe how big of an impact did Norland have on, I guess, the expansions and maybe even renewal that you did see in '14?

Yes, well, first of all, I'll start with EMEA because you mentioned Norland. Obviously, Norland grew slightly better than we thought it was going to grow when we acquired it. So that was part of it. We also had more growth in our legacy GCS business in Europe than we've had historically, and we believe that was due in part to Norland. And also in part to the fact that it's become a more accepted practice to outsource corporate real estate in Europe. In the U.S., we saw a strong growth. One of the really good areas we saw for growth in 2014 was account-based transactional business. And as I mentioned, we think the market is becoming more accommodative there. In fact, we think the market is driving us in that direction and not just becoming more accommodative. And secondly, we've worked very hard to integrate our brokerage teams with our -- our leasing brokerage teams with our GCS transaction management teams, and we think that was helpful.

The next question is from Todd Lukasik of Morningstar.

Just the first quick one on carried interest revenue. Do you guys have a normalized annual run rate or expectation for that?

Todd, this is Jim. I'd say that, that can move around a bit from year-to-year. 2013 was an exaggerated amount of carried interest because pre-'14, we just ran expenses, comp expense for carried interest per gap, which meant that the comp expense hit -- the expense hit in different years sometimes from the revenue. So in 2013, that was an exaggerated impact because almost all of the revenue, actually even a little more, was all EBITDA. Since the beginning of 2014, we've changed that policy where we adjust the match and timing of the comp expense with the carried interest revenue. So that's cut down the volatility quite a bit and I think it creates a more clear picture of the reality of the business. But next year, we expect -- this year was reasonably modest. And '15, we think will be similar, the amount of carried interest in this year, which was actually quite modest. But there are a number of funds that are doing well and we think this will be a good a bit of carried interest in the future.

Okay. And then next question, on interest rate, I assume, on the sales transaction side of the business, changes in interest rates can impact the decision that your clients are making when they buy or sell. Are they more sensitive to movement in the interest rates at the short end or at the long end of the yield curve?

Well, I would say, first, the impact that we tend to feel is usually short-lived around the change in swing in interest rates, where sometimes people move to the sidelines a bit to just get a sense as to whether there is an impact and what the impact is. I would say, as long as we're in a market like we're in today where there's decent visibility to an expectation of continuing improvement in the fundamentals and the cap rate spreads are still quite reasonable, other than the short-term impact, we don't typically see movement in the interest rates having a big impact with the kind of fundamentals that are behind the business today.

Okay. And then you mentioned Norland, that looks like it's off to really good start here. Just curious about whether there was anything else that you guys did in particular that aided the growth of that business as part of CBRE as opposed to growth that they may have achieved as a standalone. And I know you just mentioned kind of the halo effect of having the CBRE brand and all the other services that you can offer the clients that they're pitching. But I was wondering if that was the main point or if there are any other things that's factored into that 20% growth that you referenced?

Well, we think the CBRE brand is helpful, but it really wasn't the brand that created the impact. It was the fact that we rounded out our service offering in Europe and could now go to these potential clients and talk about a full integrated service offering, where we were having a difficult time doing that before, which is why we -- a big part of the reason why we pursued the Norland acquisition. So that was really what was the magic there, so to speak. The brand, we certainly believe the brand is helpful and they believe the brand is helpful. And we're re-branding their business, CBRE, as you would expect. But it's that full service offering that is the difference maker.

I would now like to turn the conference back to management for any additional or closing remarks.

Thanks, everyone, for being with us, and we look forward to talking with you again in 90 days.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.