CB Richard Ellis Group, Inc. Q4 2009 Earnings Call Transcript

| About: CB Richard (CBG)

CB Richard Ellis Group, Inc. (NYSE:CBG)

Q4 2009 Earnings Call Transcript

February 4, 2009 10:30 am ET

Executives

Nick Kormeluk – SVP, IR

Brett White – President & CEO

Bob Sulentic – Group President & CFO

Gil Borok – EVP, Global Chief Accounting Officer and CFO, Americas

Analysts

Anthony Paolone – JP Morgan

Kevin Doherty – Bank of America

Sloan Bohlen – Goldman Sachs

Will Marks – JMP Securities

Brandon Dobell – William Blair

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the CB Richard Ellis fourth quarter 2009 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator instructions) And as a reminder, this conference is being recorded.

I’d now like to turn the conference over to Nick Kormeluk. Please go ahead.

Nick Kormeluk

Welcome to CB Richard Ellis' fourth quarter 2009 earnings conference call. Last night, we issued a press release announcing our financial results. This release is available on the homepage of our website at www.cbre.com. This conference call is being webcast live and is available on the Investor Relations section of our website.

Also available is a presentation slide deck, which you can use to follow along with our prepared remarks. An archived audio of the webcast, a transcript and a PDF version of the slide presentation will be posted to the website later today.

Please turn to the slide labeled forward-looking statements. This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 including statements regarding our future growth momentum, operations and financial performance. 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 current Annual Report on Form 10-K and our current quarterly report on Form 10-Q, in particular discussion of risk factors or forward-looking statements, which are filed with the SEC and available at the SEC's website at www.sec.gov for a full discussion of the risks and other factors that may impact any estimates that you may hear today.

We may make certain statements during the course of this presentation which include references to non-GAAP financial measures as defined by SEC regulations. As required by these regulations, we have provided reconciliations of these measures to what we believe are the most directly comparable GAAP measures, which are attached hereto within the appendix of the presentation.

Please turn to slide three. Our management team members participating today are Brett White, our President and Chief Executive Officer; and Bob Sulentic, our Group President and Chief Financial Officer. Along with us for the question-and-answer session are Gil Borok, our Chief Accounting Officer and CFO of the Americas; and Jim Groch, our Chief Investment Officer.

I will now hand the call off to Brett.

Brett White

Thank you, Nick. I’ll start my comments today with some highlights from the fourth quarter; and for that, please turn to slide four.

First and most significantly, the company achieved a modest increase in total fourth quarter revenues compared to 2008. This is the first year-over-year increase we have experienced in seven quarters. In addition, adjusted net income came in almost flat in Q4 2009 compared to Q4 2008.

As noted in our press release, Asia-Pacific led all other geographies in revenue growth by a significant percentage, posting a year-over-year revenue increase of 43% for the quarter. EMEA also posted solid growth with revenue increasing 8% in Q4 versus the prior year. Our outsourcing business continued to demonstrate strong fundamentals in the quarter as CBRE continued to capture a significant share of this work awarded in Q4.

New client wins and expansions at existing relationships helped drive growth in square footage under management by approximately 300 million square feet in Q4 compared to Q4 of 2008. However, year-over-year comparisons show modest outsourcing revenue decline as customers continued to spend less on their real estate needs in 2009 compared to 2008. Recurring revenue comprised approximately 55% of total revenue in the fourth quarter as compared to approximately 57% in the fourth quarter of 2008.

As you may recall, in the third quarter, we announced that we have met our goal of removing $600 million of annual run rate expenses and had targeted $535 million in realized savings for 2009. The amount of cost savings realized in 2009 versus our 2007 base year was considerably higher, coming in over $550 million. This allowed us to drive the strong EBITDA margins we were able to post once again this quarter.

We continue to further strengthen our balance sheet to position the company for growth. In November, we raised an additional $300 million of capital through an at-the-market equity offering. We also recently launched a second round of loan modification offers, probably targeting early renewal of additional revolver capacity.

Significant uncertainty remains in the market with regard to the ultimate unwinding and resolution of the very substantial amount of underwater commercial real estate mortgages coming due over the next few years. However, we are pleased to see the stabilization that began to occur in the business in the fourth quarter and the year-over-year growth we are seeing in various areas of our business.

Perhaps most importantly, we believe that CBRE was able to exploit the downturn in the global markets by continuing to attract many of our competitors' people and clients to our market-leading platform. The resulting accretion of market share now captured by the company should pay handsome dividends in the coming years as the markets recover. Our notable quarterly transactions are listed here on slide five. I'll not spend time going through them, but we included them to illustrate some key business wins.

And with that, I'll now turn the call over to Bob Sulentic to go over our financial results. Bob?

Bob Sulentic

Thank you, Brett. Please advance to slide six. Revenue was $1.3 billion for the fourth quarter, up slightly from last year, resulting primarily from improvement in sales and leasing activity. Normalized EBITDA was $199 million, providing a normalized EBITDA margin of 15.3%. Our cost of services was down 130 basis points as a percentage of revenue to 55.6% in the fourth quarter of 2009 versus 56.9% in the fourth quarter last year. This resulted from the slight improvement in overall revenues and a higher mix of sales and lease revenue versus the prior-year quarter, along with the benefits of cost reductions.

In the fourth quarter of 2009, operating expenses declined 3.5% to $410.7 million versus $425.5 million in the fourth quarter of 2008. As Brett mentioned earlier, relative to our $600 million run rate cost savings target, we have executed actions for the full amount and we achieved over $550 million in 2009 savings. The majority of these savings were in operating expenses with some of them in cost of services.

Please turn to slide seven. Revenues from property and facilities management, fees per assets under management, loan servicing fees, and leasing commissions from existing clients are all largely recurring. As Brett noted, these revenues represented approximately 55% of total for the fourth quarter of 2009, similar to 57% of total in the fourth quarter of 2008.

Leasing was the largest service line in the fourth quarter and it increased 3% in the quarter versus the fourth quarter of 2008. This represents the first quarterly increase in leasing revenue since the first quarter of 2008. Our property and facilities management business accounted for 33% of total revenues in the fourth quarter of 2009 as compared to 35% in the fourth quarter of 2008.

Sales revenue increased by 24% in the fourth quarter of 2009 versus a year ago, which was its first year-over-year quarterly increase since the fourth quarter of 2007. The appraisal and valuation business revenue was slightly higher in the fourth quarter of 2009 as compared to the fourth quarter of 2008, also a trend reversal.

Global investment management revenue was down 10% year-over-year, while development services revenue was down 15%. And the commercial mortgage brokerage business was down only 7% as the challenges in the credit market eased a bit and GSA lending remained strong.

Please turn to slide eight. The trend in outsourcing revenue was similar to the full-year trend with a decline of 5% on a year-over-year basis. The primary reason for this trend remains low corporate spending. Despite this lower spending, we continued growing the number of clients and square footage we have under management. The number of new outsourcing contracts that included in the international component increased by 50% in the last two years.

As shown on the slide, for the fourth quarter, we won seven new accounts, expanded six client relationships, and signed 11 renewals. Our square footage under management stood at 2.2 billion at the end of the year, representing an annual increase of 16% over year-end 2008. For the full year 2009, we secured 32 new outsourcing contracts and renewed or expanded 56 existing relationships, illustrating the continuing strong momentum that was evident in 2008.

Although I won't run through all the details, we have attached slide nine, which provides certain U.S. market statistics illustrating just how challenging vacancy and absorption trends have been and are projected to be in 2010. The glimmer of hope on this slide is that the estimated range of cap rates for 2010 showed some possibly of contracting. We have already seen some cap rate contraction among the best properties in the strongest markets.

Please turn to slide 10. Market-wide U.S. investment volumes for the fourth quarter of 2009 totaled $18.1 billion according to Real Capital Analytics, down 10% from the year-earlier quarter. For full year 2009, market-wide investment activity slumped 63% from 2008 to $52 billion and 87% from the 2007 peak.

Fourth quarter 2009 investment activity did improve by 38% compared with third quarter 2009 volume. This is the second straight quarterly improvement following seven quarter-to-quarter declines, stretching back to the fourth quarter of 2007. Despite the year-over-year decrease in overall U.S. dollar investment volumes, our Americas sales revenue for the quarter increased 7% on a year-over-year basis. In our Americas leasing business, revenue declined only 2% in the fourth quarter of 2009 versus prior year, much better than the full year 2009 decrease of 22%.

Not surprisingly, U.S. office vacancy rates increased again by 20 basis points in the fourth quarter of 2009 to end the year at 16.3%. Although this was the ninth consecutive quarter of rising vacancy rates, the trend of severe increases, which characterized much of the past year-and-a-half, appears to be abating.

Please turn to slide 11. Our investment sales revenue in EMEA increased 29% in the fourth quarter of 2009 as compared to the fourth quarter of 2008. This is in stark contrast to the 41% decline for the full year 2009. It was encouraging to see that the fourth quarter 2009 increase in investment activity was broad-based with notably stronger performance in France and the U.K. Recovery was also seen in Central and Eastern Europe which had previously been severely impacted.

CBRE's revenue from leasing in EMEA grew 3% in the fourth quarter of 2009 versus the fourth quarter of 2008. This compares favorably to a 25% leasing decline for the full year 2009. Most notable was the rebound in London where rental rates improved by 3.5%.

Please turn to slide 12. CBRE's sales revenue in Asia-Pacific jumped by 88% in the fourth quarter of 2009 versus the prior-year fourth quarter. This dramatic improvement limited the full year 2009 revenue decline to only 14% versus 2008. This improvement was also broad-based with activity picking up across virtually all geographies, led by Australia and China.

CBRE's leasing revenue in Asia-Pacific grew by 30% in the fourth quarter versus the prior-year fourth quarter, obviously much better than the full year 2009 contraction of 12%. Rental rates in Asia-Pacific saw signs of stabilizing and the countries with the strongest trends were China, Japan, and India.

Please turn to slide 13. Revenue for the development services segment was down 17% to $24.5 million in the fourth quarter of 2009 versus the fourth quarter of 2008. Operating results for the fourth quarter of 2009 showed normalized EBITDA of $6.3 million after adding back $900,000 of cost containment expenses and $15 million of net write-downs of impaired assets. The fourth quarter 2009 normalized EBITDA margin was 25.7% as compared to 24.1% for the fourth quarter of 2008.

At December 31st, 2009, in-process development totaled $4.7 billion, down 16% from year-ago levels. The pipeline at December 31st, 2009 totaled $900 million, down 64% from year-ago levels. The combined total of $5.6 billion is down 31% from year-ago levels. At the end of the fourth quarter, our equity co-investments in the development services business totaled $64.7 million.

Please turn to slide 14. Global investment management revenue was relatively flat for the quarter versus last year at $38.7 million. Asset management fees increased slightly to $33.4 million versus $32.7 million in the fourth quarter of 2008, while acquisition, disposition, and incentive fees decreased by $1.1 million. Assets under management totaled $34.7 billion at the end of the fourth quarter, which was almost flat compared to the third quarter of 2009, but down $3.8 billion versus year-end 2008. Our co-investments in this business at the end of the quarter totaled $102.2 million.

Our global investment management EBITDA reconciliation detail is shown on slide 15. Fourth quarter 2009 EBITDA was impacted by a non-cash write-down of $3.6 billion, attributable to decreased property valuations and $300,000 of cost containment expenses.

In the fourth quarter of 2009, we did not realize any carried interest revenue and we reversed a net $200,000 of previously accrued carried interest compensation expense as compared to the fourth quarter of 2008 when we also did not realize any carried interest revenue, but reversed a net $25.8 million of carried interest compensation expense.

As of December 31st, 2009, the company maintains a cumulative accrual of carried interest compensation expense of approximately $14 million, which pertains to anticipated future carried interest revenue. This business operated at a modest EBITDA margin of 4% and 6% for the fourth quarter of 2009 and full year 2009 respectively.

Please turn to slide 16. Real Capital Analytics now classifies $176 billion of commercial real estate as distressed. This includes properties that are troubled, including those that are delinquent or in default, in lender OREO or in workout. The potential for considerably more properties to become distressed is very real in view of the substantial amount of commercial real estate debt that will be coming due over the next few years.

Distressed assets continue to come to market at a slower pace than anticipated. Nevertheless, the company's portfolio of distressed assets being marketed for sale in the U.S. now exceeds $5 billion. We have been appointed receiver for more than 20 million square feet of property in the U.S. and 4 million square feet in the U.K.

Please turn to slide 17. There has been no significant change in our debt amortization and maturity profile in the fourth quarter. However, our net debt has declined materially as a result of our $300 million ATM equity raise and cash from operations. As you will notice on the next slide, our cash balance at the end of the year reflects this additional capital.

As Brett indicated earlier, we also recently launched a second round of loan modification discussions, primarily targeting early renewal and extension of our revolver. We will announce the results of this effort once complete. At year-end 2009, we have approximately $380 million in debt amortizing and/or maturing through 2012.

Please turn to slide 18. Excluding our mortgage brokerage warehouse facility and non-recourse real estate loans, our total net debt at the end of the fourth quarter of 2009 is down to $1.4 billion. This is a reduction of $441 million from the third quarter of 2009, primarily driven by the $300 million ATM equity raise in November and cash flow from operations generated in the fourth quarter.

Net debt Q4 2009 was reduced by $546 million or 28% compared to the fourth quarter of 2008. At the end of 2009, our weighted average interest rate was 7%, the same as it was at the end of the third quarter. Although we will not speak to it direct – to it directly, slide 19 is included to show annual capitalization comparisons.

On slide 20, we've illustrated our financial ratio covenant requirements. You can see that our leverage ratio, net debt to EBITDA as defined in our credit agreements, at the end of fourth quarter continued to improve with the equity raise and cash generation, and had plenty of room under the maximum ratio committed of 4.25 times. This leverage ratio at December 31st, 2009 of 2.23 times compared favorably to the December 31st, 2008 ratio of 3.28 times. Our trailing 12-month interest coverage ratio was 4.14 times, well in excess of the required minimum of 2 times.

The total amount of covenant EBITDA add-backs related to the credit agreement to normalize EBITDA was approximately $75 million for the trailing 12-month period ended December 31, 2009. The amount of add-backs will continue to decrease as cost savings are realized in operations.

I'll now turn the call back over to Brett.

Brett White

Thank you, Bob. And please turn to slide 21. I – we would now like to provide some thoughts about expectations as we move into 2010. While macro market conditions continue to be difficult, we are seeing more signs that the environment is improving.

Leasing markets, while far from robust, have seen some return of demand as the re-pricing of space has created opportunity. This is especially true in the major bellwether markets. For example, London saw a one-third increase in Q4 absorption versus the third quarter as requirements for space, which have been put on hold, were brought back to market. New York City saw a significant turnaround in sentiment at mid-year. Second half leasing averaged nearly 1.8 million square feet per month versus less than 1 million square feet on average during the first six months.

However, we expect our leasing business to show some volatility in results through 2010. Consistent growth will resume only when employers begin rehiring on a sustained basis. There have also been hopeful indicators in the beleaguered credit markets, including the completion of three CMBS transactions; conservatively underwritten with modest yield premiums that were oversubscribed; two of these deals were done without government backing; an increase in lending activity from banks and life insurers as the yields on corporate bonds have compressed; and the reopening of the refinancing market, which remained largely closed earlier in 2009.

In addition, the real estate investment property sales markets are showing increased activity and some value stabilization at the high end of the market. This trend is most clearly evident in the United Kingdom where prices corrected sharply. Property values there increased 10% over the last six months of the year, driven by 100 basis points of yield compression.

Investment markets in Greater China and Australia also became notably active late in the year. Australia property saw a modest yield compression in Q4 for the first time in nearly two years. While U.S. investment sales remain historically depressed, activity has also recovered from the near-dormant state earlier in the year and cap rates have lowered for the best properties in the strongest markets. Global capital, foreign and domestic, is slowly coming off the sidelines.

Outsourcings are continuing to show solid growth in fundaments, notably the number of accounts in the square footage we handle. This is particularly true in Asia-Pacific and EMEA. The outlook for global investment management and development services will continue to be challenged until the investment sales environment and property values improve. Among our geographies, we expect Asia-Pacific to continue leading us in terms of relative growth because of the health of their local economies.

Lastly, we will continue to have a bias to supporting growth in the business versus pursuing additional rounds of cost reductions. We believe unique and perhaps once-in-a-lifetime opportunities to grow the share will present themselves as markets evolve from a crisis condition to one of recovery.

In closing, I would like to comment specifically about our earnings outlook. For two years now, we have declined to provide guidance about our short-term earnings prospects and that remains the case today. However, as the global economy begins to emerge in this unprecedented financial crisis and returns to what appears to be the beginning of a more normal operating environment, we feel it is appropriate to remind you of our consistent and longstanding view of our operating leverage in a normal environment.

Notwithstanding the years with unusual positive or negative influence upon revenues, we believe the company should be able to deliver annual revenue growth in the 6% to 8% range, annual EBITDA growth in the 10% to 14% range and annual EPS growth in the 15% to 20% range. While it is still far too early to describe 2010 as a normal operating environment, our initial expectation is that our performance in 2010 may be within these more typical ranges.

With that, operator, we now like to take questions.

Question-and-Answer Session

Operator

(Operator instructions) And we will go to the line of Anthony Paolone with JP Morgan. Please go ahead.

Anthony Paolone – JP Morgan

Thank you and good morning.

Brett White

Good morning.

Anthony Paolone – JP Morgan

Brett, just by way of giving some parameters around numbers for 2010 and some of your comments about the business, you seem just a little bit more bullish than maybe you were a couple of months ago at the Investor Day and I was wondering if you can give us a sense as to maybe more specifically, what has really changed in the last couple of months that you've seen.

Brett White

Sure, Anthony. And I think that's a fair characterization of our current read of the market. Last fall, we were experiencing some very, very early signs of bottoming in the commercial real estate markets. We were seeing that in Europe and particularly the U.K. and France, in certain cities in Asia. There seem to be signs of stabilization and in fact, some strength, but it was very, very early.

Now, having completed the full year 2009, having had a chance to really watch the seasoning of two more quarters through the business, we can draw some, I think, more firm conclusions about where we are in this cycle. First, I would say that the global markets are, as they tend to be when in these cycles, they are moving towards recovery at vastly different paces.

Those markets I just referenced that were showing some strength or strengthening in the early third quarter, I think, are on the capital markets and leasing side now is showing demonstrable strength. So we are seeing good positive signs out of France and U.K., many Asian markets and Australia as well.

That having been said, the U.S. markets are still searching for bottom. That having been said, the pace of decline in the U.S. sales and leasing markets has improved sequentially each quarter through 2009 and that was really one of the things that was very important for us to watch was how Q3 and Q4 played out and what that sequential decline in sale and lease revenues would look like through the year.

So having completed that year, we can now tell you that a sequential decline in revenues across both sales and lease in the U.S. has improved steadily and sequentially throughout the year. Nonetheless, those revenue lines are still declining, albeit at now very, very low rates.

So it appears to us, and I think we feel relatively good about this, that the U.S. markets are very close to bottoming, notwithstanding another major shock to the system and we'll talk about that a bit later, what the potential of that might be. But notwithstanding another major shock, the U.S. markets seem to be quite close to bottom and poised for some, what I would imagine will be, very, very slow incremental recovery. Other markets globally seem to be well ahead, in some of cases, of the U.S. markets and that by the way is not surprising based on how they – those economies are faring and the way that – in particular the U.K. devalued real estate in 2008 and 2009.

Anthony, one last comment on that is this recovery cycle, as we begin to inch our way into it, likely will play out quite differently than I think – than the traditional recovery cycles we are all used to, just as the down cycle did. There was nothing typical or usual about the way these markets came apart the last two-and-a-half years and I suspect that recovery will be a bit different than what we are used to as well and different in a sense, I think it will be more incremental and longer to take a firm hold globally than perhaps prior recovery cycles.

Anthony Paolone – JP Morgan

You seem right. The way down was a little bit faster this time and you think the way back up may be a bit slower. Is that – am I reading that right?

Brett White

Well, yes. I think the way down was both faster and also more severe in scale. So we saw deeper declines on capital values, we saw very rapid declines in absorption and lease rates than might be typical. I think the recovery cycle is going to be a bit incremental for a while for two reasons. One, we don't have global economic recovery right now. The U.S., the world's largest economy is still losing jobs. So we simply can't say we are in recovery in the States or not and none of the data signs that we watch here in the States would imply that we are. So you've got the bellwether market, still in decline, albeit, a much slower rate of decline than it was previously.

You have other markets, as I mentioned, that are now in, I think, what seems to be demonstrable recovery. So the recovery cycle, the firm will experience as a diversified global player, I think, in the initial stages is going to be incremental. It's going to be something much less than the hockey stick that I think many would like to see and I think that that hockey stick does exist out there for the business, but it's probably not in the near term. I think it's a ways out

And of course the big elephant in the room Tony, as you know and all of our callers know is, there is a massive amount of commercial real estate mortgage debt in the marketplace that is going to come due over the next three or four years that as of today could not be refinanced. And until the resolution of that issue is apparent to the marketplace, forecasting strength of recovery and forecasting growth rates and so forth is a bit tricky.

So as we think about 2010 and I think as you all think about 2010, it seems to me that we are looking at that large amount of commercial mortgage debt and assuming that there isn’t some short of massive unwinding or catastrophic problem that comes from that in 2010 – by the way, I think that's a good assumption. However, we all don't know how that's going to be resolved and some outcomes could be very positive for the firm and the industry, some could be less so.

Anthony Paolone – JP Morgan

Okay. Thank you. I just have another item on – more related to the balance sheet and the $740 million roughly of cash. How does that – what do you do with that cash balance over, say, the next couple of quarters and also, in light of your comment of potentially seeing some opportunities out there to invest?

Brett White

Right. I'll let Bob take that.

Bob Sulentic

Okay. Tony, the – first of all, we are – we have embarked on the process of another set of loan modifications and we are going to report to the market what the result of that is when it's completed. So the anticipation is I would use some cash. We also, as you know, have foreign cash in – as part of that balance that generally is not accessible for day-to-day activities here in the States. So we segregate that when we think about our use of cash.

We also are going to, as you implied, be more on the offense this year than we have been in the past couple of years and we want to make sure that we are in a position where if we choose to invest, we will be able to invest. And that's – that would be in a number of arenas, in the co-investments, in our two principal businesses where we think there is going to be an awful lot of opportunity sometime over the next couple of years, and then of course in the – in-fill M&A activity that we may choose to do.

We'll begin to look cautiously at those opportunities. Again, nothing like we were doing in '06 and '07, but certainly this should be a good time to invest over the next year or two. And we want to make sure we are in a position to do that.

Anthony Paolone – JP Morgan

And on that M&A side, are other things that have emerged at this point or is this just you all anticipating how to think about things in the next few quarters or a year or whatever?

Brett White

Tony, it's Brett. I would say, a little bit of both. Certainly as the markets begin to get their footing and they are definitely getting their footing now, we are seeing opportunities begin to present themselves, early days, absolutely. But nonetheless, there are opportunities beginning to present themselves and we think that over the coming year, we may see some more interesting opportunities come to market.

I mentioned in my comments, this is the type of down cycle we've experienced where truly once-in-a-lifetime opportunities may very well present themselves. And those can come from – as Bob said, those can come from a variety of areas. Certainly on the capital markets side of the business, you've seen a destruction of capital values that in my career is unprecedented and that has had a very, very significant impact on firms who are solely focused on those product types. Imagine being a firm who is in our business that only deals with the sale and purchase of investment properties, you saw your revenues decline by something like 90% from peak.

So we are watching that space carefully. We are watching in the fund management world how that's playing out. As Bob said, we are looking at co-investment opportunities where some of our funds might have an opportunity to do some interesting things. I think it's just wise – I think Bob said it right. I think it's just wise at this point in the cycle where we seem to be bottoming and slowly emerging into recovery, to be sidelined with some cash and be ready should an opportunity present itself.

Anthony Paolone – JP Morgan

Okay. Thank you.

Operator

Next, we will go to the line of Kevin Doherty with Bank of America. Please go ahead.

Kevin Doherty – Bank of America

Great. Thank you. I guess I just wanted to follow up a bit more. I would appreciate the commentary you gave about this recovery certainly being different. But that said, I think there is certainly an expectation that strong leverage would come through, I think, given the aggressive cost cuts. So I just wanted to see kind of how much of that would be sort of factored into the outlook you gave.

Brett White

Yes, I think the way to – Kevin, to think about what we've said and what the market is telling to all of us is first of all, I hope I'm stating the obvious to say that our results for 2009 and the fourth quarter in particular demonstrate that even in a declining market, we can do some pretty terrific things with margins and the production of profit.

And as we sit here today, as I said a few minutes ago, Kevin, I know everyone would like to hear us declare that the markets are now in recovery and that leverage from cost reduction is going to flow through to very strong profits. The fact of the matter is we are not in recovery yet. We are in some markets; as I mentioned, in the U.K. and France and some markets in Asia and Australia. Those markets seem to be in recovery, but the biggest market in the world is not. And so – and we are there right now, we are sitting here in February and we are in a situation where the U.S. commercial real estate markets are coming off of a fourth quarter where they declined again.

So as you think about 2010 and we talk about earnings growth and we talk about EBITDA growth, that is despite the fact that we are still in a declining market in the States through the fourth quarter. We are telling you that we believe that what we know that the rate decline has improved sequentially each quarter in 2009 and we believe we are right there, that we are close to, if not at, the bottoming of the U.S. commercial real estate market.

Now, had that occurred in June of 2009, we would have a much different view about 2010, but it didn’t and it hasn't yet. So our expectations around 2010 are that on the back of unprecedented cost cutting by the firm and the fact that we are able to not only hold on to all of our key people and clients, but in fact on board key people and clients from our competitors, we are able to produce positive leverage at the EBITDA and earnings per share line.

But make no mistake about it. We are not at the moment forecasting or talking about an environment in 2010 that will feel to you and I, we don't believe as a typical recovering market where you would see a real flip, strong improvements in sale and lease transaction velocities and revenues. If that does appear in 2010 and it certainly could, you'll all be the first to know. But as we sit here right now, we feel that 2010 is going to be a better year, but still a tough year.

And as I also said, I think that the – what you are looking for and what you are alluding to, which is the hockey stick from leverage of cost reductions and good on-boarding revenue, I think is still a bit away. Remember that, and you've heard this on another public call yesterday, as you move from crisis back to what feels to us to be a bit more normal environment, you are going to see some pressure on margins and profits as people actually begin earnings and compensation again. So bonuses, some amount will be paid likely in 2010. You'll see some salary restoration and those things while not huge in scale, will also inhibit some of that hockey stick you might expect to see with 6%, 7% to 8% revenue growth.

But again, I think the comment I want to make here very clearly is we are not in a strong recovery here in the States. We are in a declining marketplace that feels to us that has now bumped bottom and we are optimistic that it will begin to improve in 2010.

Kevin Doherty – Bank of America

Okay, that's – that's fair, I appreciate that color. And maybe just following up on that, could you help us understand how you are thinking about, I guess, the seasonality of the business as we move through the year and maybe how volatile the course would be around the revenue changes and even the margins as we move through this period?

Brett White

Sure. Bob?

Bob Sulentic

Yes, I think Kevin, the best way to think about what might happen in that regard next year is that in the absence of this hockey-stick effect and some very, very strong tick-up in activity, particularly in the United States that we are not anticipating – but in the absence of that, you would expect next year or this year to play out – 2010 to play out in terms of seasonality much as 2009 did.

Kevin Doherty – Bank of America

Okay. And then just as a follow-up, I know last quarter you talked about revenue per transaction trends in the leasing business had started to flatten out. Maybe if you can just give an update there and also talk about that metric in the investment sales side as well?

Brett White

Sure. I'll give you some numbers. This is for U.S. transactions, so make sure you've got the box right. U.S.-only sale and lease transactions, if you look at the year-over-year – and I'll give you quarters, year-over-year revenue changes for sales in the U.S.; Q1 was down 71%, Q2 was down 61%, Q3 was down 54%, and Q4 was down 10%. So what you see there is a sequential improvement quarter-to-quarter.

Leasing side, going again Q1 through Q4, you've got down 30%, down 27%, down 24%, and then down 4%. So again, this is sequential improvement, but declines nonetheless. And I think that's the – that' what I was referring to a bit earlier when I said it's still in the decline phase, but looking better and better.

Kevin Doherty – Bank of America

Okay. And then any meaningful change in just sort of the size of the individual transactions?

Brett White

I would say that generally – and it's a little harder to get to in our data. I'd say generally what you typically see in this – in what I would describe as a very, very early-stage recovery in the States, would be the leasing transactions are – as the velocity picks up, they are usually a bit smaller transactions, the sale side certainly – because values have come down so far, you are talking about smaller transactions definitionally across the sale business and that's been true, as you know, for the past couple of years.

As – now, how does that play out prospectively as – let's assume that our thesis for 2010 is correct and that soon we see job losses seize in the States and we begin to see job gains. You would then – you get the same nice multiplier effect on the upside as you had in the downside, you'll start to see longer-term leases for more space and that's very beneficial to the business, but that won't come until we see – I believe, until we see and as Bob mentioned in this comments, meaningful job growth return to the marketplace and we are of course not there yet. You are there in other markets around the world and that's why we are seeing better leasing pickup in those markets.

Kevin Doherty – Bank of America

Okay. I appreciate the color. Thanks, guys.

Brett White

Yes.

Operator

Next, we will go to the line of Sloan Bohlen with Goldman Sachs. Please go ahead.

Sloan Bohlen – Goldman Sachs

Hey, good morning, guys.

Brett White

Hey, Sloan.

Sloan Bohlen – Goldman Sachs

Brett, you kind of just talked a little bit about the leasing environment in Europe relative to United States. Just for the sales market, maybe if you could talk a little bit about the differences and why maybe we saw a pickup in London particularly and is it more a matter of better absorption of space over there or is it a matter of how loans are being modified here in the United States and just why do you think it's slower here?

Brett White

Well, we – it's a great question and it's an interesting dynamic to watch. This cycle has taught all of us a lot of lessons. I think one of the observations I'd make about how the down cycle work on the capital markets is that in the U.K., there is a much more stringent, and you can perhaps replace that word with severe, mark-to-market process for commercial real estate values.

And so you may recall that during the down cycle, out of the U.K., we were getting – we were all getting monthly marks on commercial property values that were significantly deeper than what you were hearing from the States. So you listen to (inaudible) or whoever you want to listen to and they were talking about 13%, 15%, 17%, 20% value decline, and those in the U.K. and they are talking about 40s.

And what happened there was you had a very – I think a very open, free system where the marks were taken rapidly and deeply. And it allowed the market to recover much more quickly because bottom was found, the market I think felt and appeared to be a bit more transparent and that's what these markets – of course, as you know, what these markets need is an agreement between the bid and the ask of what fair value is. And that I think was discovered more quickly in the U.K. than it has been able to be discovered here.

U.K. also benefits from being really the international market of choice for property investors and so I believe very strongly that many, many, many well-heeled – personal – individual investors and funds saw the U.K. market devalued at 40%, 50%, 55% and viewed that to be an overcorrection and jumped in and jumped in quick. And there were properties to buy in the U.K.

In the States, we have really the opposite situation. We have a market that is a bit more difficult to determine fair value. You have a market where due to the nature of ownership, the only people who are selling into this marketplace are individuals who have to sell and very few are doing that.

So even if you have – and many funds right now in the States have an enormous amount of sidelined equity capital available for the purchase of commercial real estate, they can't find the assets to buy. We've got a clogged system at the moment; we've got a system where for a lot of reasons properties that four years ago would have been viewed as non-performing are chugging along through the system with the same lender and borrower in place.

And that's – there is no velocity in the system and that's this big issue I referenced earlier, which is at some point, these – the market is going to improve where those properties are – have loans that are at a lesser face value than the value of the property or there is going to be some event that will occur, we'll start moving those properties through the system. As we said here today, it's more – a bit of a limbo environment in that regard.

Sloan Bohlen – Goldman Sachs

Okay. I appreciate the color. And maybe just turning to the balance sheet, maybe a question for Bob. You talked a little bit about being a little bit more offensive on the acquisition front this year. Could you talk about how you reconcile that with maybe your long-term plans for de-levering and obviously a lot of the pressure is off in the near term, but maybe just how you think about the business or the balance sheet long term?

Bob Sulentic

Well, we have de-levered by over $0.5 billion in the past year and we've said before that our long-term view is that we ought to be levered about 2-to-1 or our leverage ratio should be about 2 times. It's higher than that now. We want to bring that down and our preferred way to do that would be through cash flow from operations. We expect – obviously, if you look at the comments at the end of our release, we expect things to begin to improve and our ability to generate cash to improve. So that would be our favored way to deal with the whole issue of liquidity.

At the same time, we want to have enough cash on our balance sheet and we want to have enough borrowing capacity over time to do sizable things if those opportunities come into play. And so even if we did, getting down to an ideal leverage ratio or what we've characterized as ideal, we would be willing to lever up at the right time in the cycle to do the right deal, to grow the company and increase the shareholder value in the company. And that's really the view we have of this thing.

Sloan Bohlen – Goldman Sachs

Okay. And then just one last one if I can. Brett, you talked a little bit more about the corporate costs – or corporate cost cutting, kind of cutting into the revenues with the property and facilities management business. Can you maybe kind of give us a reference point at how far along we are in that process and maybe just help split out how that impact is kind of offsetting the growth that you have in that business?

Brett White

Sure. What we are referring to, which is an interesting dynamic in the outsourcing – particularly the corporate outsourcing space right now, is if you – I know you did, if you listened to the numbers, we on-boarded – Bob, I think it was close to 300 million square feet of outsourcing square footage in 2009 full year, which was an enormous amount of space and I believe probably twice as much as any other firm in the business brought on last year. And that's great news because that's the foundation for years and years of growth that we will enjoy in revenues for the firm.

The bad news is that our corporate customers, just like our sales and probably many of the firms on this phone call, are extremely frugal with spending right now and where that hurts us the most is in two areas. The project management work that we do for our corporate customers is a good business for us and our corporate customers are not doing a lot of work on new space at the moment. So that project management work is at a fairly historical low.

Related to that is – of course the transaction work we do for our corporate customers. And again, as directly related to the project management ebbing, we are not seeing a lot of aggressive space acquisition at the moment or for the past year from our corporate customers.

So here is how I think about. That's all okay, it's – gosh, I wish they were all doing those things, but that's not really the main event to me or to us. The main event to us is this is that this market-leading – and we are by far, the market leader in the outsourcing space, this market-leading platform is on-boarding clients at a rapid pace and that is setting a foundation of long-term recurring revenues and when the market does recover, we are going to see some pretty terrific stuff come through that business from the project management work and the transaction work that always flows through these corporate customers.

So if one thing I really want to do in a market like this, it would be to on-board these new mandates and to expand these client relationships, which we have done – as you know, we had some really remarkable client expansions in 2009, certainly highlighted by Bank of America and all the international work we picked up from them, and we are poised and ready for those clients to reenter the market.

And as you've heard on other calls recently, there are now signs that those corporate customers are absolutely dusting off those more long-term strategic plans and beginning to think and talk and in fact, in some cases, execute plans to take more space and do some exciting things. But we are in the early stages of that and the pressure on revenue as we referenced is why it is discussed.

Sloan Bohlen – Goldman Sachs

Great. Thank you, guys.

Brett White

Sure.

Operator

We will go to the line of Will Marks with JMP Securities. Please go ahead.

Will Marks – JMP Securities

Hi. Good morning, Brett, Bob, and Nick. I had a – I wanted to ask you first just back to the guidance. Is it possible that you would have the 6% to 8% revenue growth, but in the very high margin businesses that we are hearing are going to improve at least somewhat versus 2009, certainly sales, maybe leasing less – so is it possible that (inaudible) comes from those areas and therefore those drive more than the 15% to 20% EPS?

Brett White

It's – well, Bob, I'll let you take a stab at that.

Bob Sulentic

I mean, it – it's possible, Will. I mean, of course it's possible. You – there are things in the marketplace that are going to unfold in ways that we simply can't predict here today. I mean, for instance, we might return to a – incredibly quickly to an environment where we could buy and split properties in our principal business and you would get outcomes that aren’t reflected in here. We don't think that's going to happen.

We talked quite a bit here today about job growth in the U.S. and the fact – and we and others have talked over the recent history about the fact that the distressed opportunities haven't come to the market at the rate that we all thought they were going to come to the market at. A lot of the buyers are still on the sidelines. The sellers are not sure that they are going to place – their pricing is in a place yet where they want to sell. Any one of those dynamics could break loose and cause outcomes for us that were more favorable than what we've talked about. There are things out there that could cause outcomes that are less favorable than what we've talked about, obviously too.

What Brett quoted in our release was kind of our view of where this company should operate in a more normal environment, coupled with our view that we are headed toward a more normal environment. If we are not headed toward a more normal environment, we are going to get outcomes somewhere on either side of that.

Brett White

As – Bob raised a very good point well, which is – and you've been following us for a very long time. You know that that paragraph we gave you is simply the base operating model we've been describing to you and our other analysts, investors for almost a decade now. In a normal environment, that's what you should expect out of the firm and as I said in the release and on the call, it is way too early to call this a normal environment. However, looking at our models and our budgets and forecast, it's not unlikely we could fall in that range this year.

But it's – Will, I know what you are talking, that also is the same point Kevin was making earlier. I know what you all want to hear, but I'm not going to give it to you, which is you want to hear that we are in recovery, the transaction business is going to start on-boarding revenue and you are going to get the great hockey stick. I guess I'll tell you this. It's out there. I just don't think it's this year. I think we're – it's too early.

And I could be – we could be wrong and you know what? We probably will be wrong, whether it's – we call for 2013 and it's 2011 or we call for 2011, it comes in 2013. The one thing you know from watching us, as do our other callers, is this industry tends to miss the big velocity moves on EBITDA both directions. We tend to be overly optimistic when the market is coming apart; we tend to be overly conservative when the market is coming together.

The best we can tell you right now is we really don't think that hockey stick, that big, big jump in EBITDA and EPS that you are looking for is 2010. I think it's a bit further out, but we really don't know. We are just waiting the tea leaves [ph] as we have them right now and each quarter we'll know a bit more.

Will Marks – JMP Securities

Great. I'm sorry to be a dead horse. Thank you for that.

Bob Sulentic

Well, let me add on to that too, because I do think you can – not you personally, but any of us can hear numbers and they can be a little confusing taking that out of context. If you look at our investment property's revenues, they were 11% to 12% of revenues this year and let’s say those revenues spiked in '10 by 30%. That would only add 4% to our revenues for next year.

So you hear these big numbers on some parts of the business or you hear the pop in revenues in Asia for instance, relative to what they had last year and you think about what might happen next year. But I do think you have to put those spectacular numbers into the context of what they mean to the overall income statement.

Will Marks – JMP Securities

Okay, great. And thank you for the background on all this. Let me switch gears and ask you a few, hopefully, fairly quick questions. Bob, you had mentioned, I believe – can you just confirm, $75 million of EBITDA to – that would be on top of the $372 million reported to get you an adjusted?

Bob Sulentic

Gil, you want to – ?

Gil Borok

It's Gil. That's right.

Will Marks – JMP Securities

Okay.

Gil Borok

For covenant purposes.

Will Marks – JMP Securities

Great. Okay. And then – oh, for covenant purposes? Okay. And do you think that's a fair way of looking at the EBITDA base when looking at either the guidance or just how we should all model?

Gil Borok

Yes. But what you got – you took the $372 million. You should take the full $454 million of normalized, add to that the $75 million for covenant purposes.

Will Marks – JMP Securities

Sorry. So $454 million normalized?

Gil Borok

That's normalized. $372 million is reported.

Will Marks – JMP Securities

And – okay. And to get to $454 million, you add the $75 million?

Gil Borok

To – no, to get to $454 million, you have to add other adjustments and then add $75 million to that for covenant purposes.

Brett White

But the normalized – the normalized EBITDA number, Will –

Will Marks – JMP Securities

Yes.

Brett White

It's what you should focus on if you think about modeling and so forth. Covenant EBITDA is important to our lenders, but I don't think you should model the business of a covenant EBITDA. Use the normalized numbers, because that's how we go – we run –

Will Marks – JMP Securities

Which is $454 million?

Gil Borok

Correct.

Brett White

Yes.

Will Marks – JMP Securities

Okay, got it. Okay, thanks. A question on the line on the income statement, the minority interest expense line. It changed direction during the quarter. Can you give us any thoughts on how to model that? I know it's just – it's very tough to modeling and does move the needle.

Gil Borok

Yes, in the normal course, Will, that line is not particularly material. What you've got – again, if you are looking at the press release, you've got the GAAP numbers on that line, which would include write-downs in both years. So you've got the minority portion of those write-downs reflected in that line.

And so on a GAAP basis, you've got some strange movements year-over-year. On a normalized basis, going forward, in the normal course as we get equity earnings in and we have – if we have profits, that would be a normal relationship year-over-year and it's not particularly material. I mean, there would be some growth – just as we've said, there would be some growth to the overall business.

Will Marks – JMP Securities

How about the equity loss from undecided subs line?

Gil Borok

Again, it's not particularly material and it comes mostly from the principal businesses. So it would – it should grow, on a normalized basis, in line with the guidance that we've given. I used guidance literally, but in light of what we are talking about for the consolidated company for '10.

Will Marks – JMP Securities

Okay, perfect. And then can you give the cash flow figure for 2009, what your operating cash flow – with all the capital raises, I mean, you paid down debt more by – by more than just a –

Gil Borok

It is in the presentation. If you look at the slide 19, we give you cap table for 12/31/08 and 12/31/09. And you can see the change in net debt, which will tell you the answer to that.

Brett White

When coupled with the equity raise.

Gil Borok

Correct.

Will Marks – JMP Securities

Well, yes, that includes the equity raise. So if you back out the equity raise is what – I can do the math. That's right.

Gil Borok

Yes.

Bob Sulentic

Yes, exactly.

Will Marks – JMP Securities

Okay. And one final question. The – in – what do you think the industry decline was in Americas leasing or U.S. leasing during the fourth quarter?

Bob Sulentic

What the industry –

Will Marks – JMP Securities

Or if it was a decline.

Brett White

In terms of revenues?

Will Marks – JMP Securities

Yes. I mean, you showed – you were up, I believe and I'm just wondering if you have any industry view of what that figure would have been. You guys were – or you were down 2%.

Bob Sulentic

We were – yes, we were nominally down year-over-year fourth quarter. My guess would be that the industry as a whole was probably down – if we were down 3% or 4%, it was probably down 8%. I am guessing – well, I think it's – you would – what I would expect and what's normally the case is that in a market like this, we are getting pretty good share accretion. It's just natural in a market like this. So if we are down some amount, I would guess the overall market was down a bit more.

Will Marks – JMP Securities

Okay, thank you. That's all from me.

Bob Sulentic

But Will, there is no – there is no track to data. So this is just pure speculation.

Will Marks – JMP Securities

Got it.

Operator

Next, we will go the line of Brandon Dobell with William Blair. Please go ahead.

Brandon Dobell – William Blair

Thanks. Brett, in past calls you've talked about market share sometimes. Any sense of how you guys finished up the fourth quarter in the basic or the various geographies for market share in investment sales and are there particular areas where you feel you've got more headroom than others? I would guess in U.S., market share is going to be tough to double, but are there areas where you think you do have the kind of opportunity?

Brett White

Sure. Let me just go through, I think, the three headline business – not only business lines, those are called buckets of revenue. So I'll use the outsourcing, sales, and leases.

Brandon Dobell – William Blair

Yes.

Brett White

Outsourcing, I think the numbers are now out there. We had a very strong year in 2009 in on-boarding share and outsourcing. We talked about 300 million square feet of net additions to the portfolio. I think that's close to double anyone in the industry. So that's a pretty impressive statistic.

On the capital market size of the sale and lease of investment properties in the major markets that matter, the places where real revenue comes from, I would say we are likely the leader in virtually every one of them. In the major cities I think, with a few exceptions, that is absolutely the case. In the States, we are absolutely the market leader in investment property sales, in Europe that is the case in most of the cities, and in Asia it is a bit more of a mixed bag, but certainly in the markets that matter, if we are not number one but we are right there.

On the leasing side, I believe we are the market leader in virtually every major world market. Certainly we are in the States, we are in the U.K., and most of the major Western European cities as well. So our market share, we believe, has moved up nicely in this down cycle, as you would expect it would; it would be disappointing if it did not. In a down cycle, there is absolutely a flight to quality and you also see the exit of some participants.

We saw a little bit of both of that in this most recent down cycle, and also the nature of the business has changed. The outsourcing business as we have talked about before has become an extremely technical, extremely complex, high-hurdle business to get into. It really just is not possible really anymore for all but two, any maybe you can reach and say three, firms to participate in true global outsourcing. It is just too complex and too expensive to be in that business.

On the sales side, the type of sale business out there right now is very complex, requires tremendous amount of underwriting, these are the things we do very well. And we are very pleased with where our share has moved.

It would be nice if I can reference at a single publication that ranked all the firms in every market, it does not exist in this industry. You have to look to various sources in the major markets and you have to kind of ignore the – something we all do of our adjusting we're all [ph] number one, go to the data, you will find what you need but I think what you will find is that CB Richard Ellis leads almost every lead table in almost every market.

Brandon Dobell – William Blair

Kind of sort of tagging on to that, how core related do you think a recovery in outsourcing and leasing will be or is? Do those things come hand in hand, can outsourcing recover without leasing recovering and vice versa?

Brett White

Well, it's – in recovering, I am assuming you mean revenue growth, correct?

Brandon Dobell – William Blair

Right.

Brett White

Right, because it's – again you have this interesting situation where we are actually on-boarding outsourcing business right now at a rapid rate, but for the reasons I mentioned earlier, the revenues are slower to come, and yes, there is no question that an improvement in job growth will drive both an improvement in leasing revenues and improvement in outsourcing revenues because it flows through to expansion in space and the things we get paid to do for these clients. I think that is a fair conclusion that when you see one, you will see the other and they are correlated.

Brandon Dobell – William Blair

A couple for Bob, as you look out for this year, I know there is not great visibility on some of those things but how should we think about some of the impairments, charges, it seems like you are kind of running of a lot of the issues with cost savings and acquisition and integration charges, those kinds of things but how should we think about those and then also any color around CapEx and the tax rate for 2010 it would be helpful.

Bob Sulentic

Okay. First of all with regard to impairments, at the end of every quarter we do a thorough analysis in our two principal businesses, our investment management business and our development services business, and we take the impairments each quarter that we think need to be taken.

So, in other words, sitting here today, we would say those impairments that exist in our portfolio have been taken. When you are in an environment where there is a decline in values or there is debt maturities coming along that you may or may not be able to deal with within the portfolio, you can have new instances of impairment. You mentioned Brandon that they have been kind of running off over time or declining, this year’s year-end impairments were dramatically lower than last year’s.

We think as the market stabilizes and it clearly appears to be stabilizing that that trend of the impairments running off should actually accelerate. So we feel good that you should expect materially less impairments this year than you have seen in the last year. With regard to the tax rate, it was about 40% for 2009, we think it is going to be a couple of points less this year than it was in 2009, so about 38%, and what was the third piece you asked?

Brandon Dobell – William Blair

CapEx spending.

Bob Sulentic

CapEx spending was at a very low level last year and frankly it was at a level that we would rather not be at. It was south of $30 million, the target was 30, we will spend more this year than we spent last year. We have got some things going on strategically on the IT side that we are going to spend some money on.

We have got some leases that we are going to renew and extend ourselves and spend some money on, and frankly that is a great proxy for what we think our customers are doing just like our customers in several major markets around the world. We are going to lease some space, extend leases we have or relocate to new spaces that we think are opportune. We are going to spend some money in conjunction with that. So you should expect to see CapEx go up this year but it will be well below historical peaks.

Brandon Dobell – William Blair

Fair enough. And then a final question. Within the leasing business, especially in the Americas, any sense of kind of how that mix stands now between office, retail, industrial, just trying to get a sense of what the different levers might be based on how the economy kind of bumps along and recovers?

Bob Sulentic

You know it is a great question and that data exists, I am afraid I do not have it with me at the moment. It does exist though and it can be found and if Gil can dig it up somewhere – Gil, if you can get back to Brandon and let him know what that – what published data is out there, (inaudible) must have something on that. Yes.

Brandon Dobell – William Blair

Great guys, thanks a lot.

Bob Sulentic

Yes, you bet.

Operator

Anthony Paolone with JP Morgan. Please go ahead.

Anthony Paolone – JP Morgan

Thanks. In the press release, you noted hitting $110 million of EBITDA in facilities in the U.S. I was just wondering how much of the whole facility's pie that was.

Brett White

You are talking about the outsourcing revenues and the EBITDA associated with that Anthony?

Anthony Paolone – JP Morgan

Yes, you said U.S. property and facility management had $110 million of EBITDA in 2009. I was just wondering what portion of the whole properties and facilities EBITDA was that.

Bob Sulentic

Anthony, it is just the U.S. portion of our landlord management business and our corporate outsourcing business. So it is only a percentage but it is a big portion on it, let’s say maybe 50%, 60% of the business.

Anthony Paolone – JP Morgan

Okay and then just wondering in the facilities business, it seems like on a quarterly basis you renew 13, 15, 17 type contracts. How many typically I guess expire in a given quarter? What does that look like?

Bob Sulentic

In the outsourcing space, there is no seasonality to contract explorations as it would be – it is a straight ratable math so there is nothing – in that business these are typically three, five-year, seven-year contracts and they are kind of signed on a ratable basis throughout the year, they expire on a ratable basis throughout the year – well, there is no big seasonality to contract explorations now.

Anthony Paolone – JP Morgan

I am just curious what I guess the renewable rate is if we think in the quarter –

Bob Sulentic

I am sorry, what percentage of things we renew?

Anthony Paolone – JP Morgan

Yes, I think you said you did 17, renewed or extended 17 existing contracts in the quarter, how many actually had to be addressed or can do?

Bob Sulentic

Anthony, I cannot give you an exact percentage for this quarter but we have historically and consistently run north of 90% on our renewals, well north of 90%.

Anthony Paolone – JP Morgan

Yes, that is what I was curious about, great. And then one final just tiny detail but I was just curious on your balance sheet Bob, the warehouse receivables and the warehouse line of credit, historically those matched up like dollar-for-dollar and they were just off a little bit and I was just curious if there was something different that was happening there.

Gil Borok

There is a new program that we have entered into. It is – it's very similar to what we have done in the past with the Freddie and Fannie, it's with a HUD lender and they don’t match up with that new program. There is a slight tweak in timing between the commitment that we get and the draw down on the line and that is creating a little bit of a gap between the two, but it is not material and it is not a big part of what we do, and I would not expect it to grow, the gap to grow any going forward.

Anthony Paolone – JP Morgan

Okay but they are not asking you to take more risk in the future or something like that?

Gil Borok

No.

Anthony Paolone – JP Morgan

Okay.

Brett White

Anthony, can I go back, I want to make sure we understood and answered your question about the U.S. property and facilities management EBITDA as a percentage of the whole, were you asking what percentage of the company’s entire property and facilities management EBITDA resides in the U.S.?

Anthony Paolone – JP Morgan

Yes.

Brett White

I think the answer to that would be north of 75%.

Anthony Paolone – JP Morgan

Okay, so the $110 is really the bulk of that business line.

Brett White

Our global properties and facilities management EBITDA, yes.

Anthony Paolone – JP Morgan

Okay, thank you.

Operator

There are no further questions. Please proceed.

Brett White

Great. Well, I appreciate everyone’s participation in the call today and we look forward to talking to you after the completion of the first quarter.

Operator

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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