CB Richard Ellis Group's Management Presents at Barclays 2012 Global Financial Services Conference - Conference Call Transcript

Sep.10.12 | About: CB Richard (CBG)

CB Richard Ellis Group (NYSE:CBG)

Special Conference Call

September 10, 2012 9:00 am ET

Executives

Brett White - Chief Executive Officer

Gil Borok – Chief Financial Officer

Analysts

No identified analysts

Ross Smotrich - Barclays

Good morning everybody. I think we’re going to get going. We’ve got very strict warnings that we need to stay on time and on schedule this morning, so since this is the first presentation of the morning, we’re going to get going.

So I’m Ross Smotrich. I’m the REIT and real estate analyst here at Barclays. I’d like to thank all of you for joining us this morning at the Barclays Global Financials conference. I’m very pleased to introduce Brett White, who is the Chief Executive Officer of CB Richard Ellis. Brett is joined by two colleagues – Gil Borok to his right, who is the Chief Financial Officer, and down here in the front Nick Kormeluk, who is responsible for investor relations.

By way of introduction, Brett started with the company in 1984. He assumed the CEO role in 2005. I think it’s fair to say that he’s been very instrumental in growing the company into one of the largest—in fact, the largest real estate services firm globally, including the 2006 acquisition of Trammell Crow and more recently the acquisition of ING’s real estate investment and management business.

Brett, thank you very much for joining us. We’re very appreciative you came.

Brett White

Thanks Ross. Good morning everybody. I walked by the main ballroom this morning at about 8:30 and there were two people listening to the speech in there, so I’m happy to have more than two people in here this morning – maybe it’s because it’s later.

Okay. Most of you if you have followed CBG the last few years have seen this deck, and what we do is we use the same format for every presentation; we just update the numbers. And I’m going to run through the standard pages fairly quickly and Gil will hit the financials in the end, then we’ll take Q&A for whatever time is left.

So if you’re not familiar with the firm, CBG is a commercial real estate services firm, a business services firm like any other. We just happen to operate in the commercial real estate asset class. We are by far the leading global brand. We’ve been in business well over 100 years. We have more than 400 offices in over 60 countries, and we are number one in most of the world’s largest business centers.

Broad capabilities – as you can see here, we’re number one in every one of our business lines – leasing, investment sales, corporate real estate outsourcing, appraisal and valuation, commercial mortgage brokerage, commercial real estate investment management, which we’ll get to in a bit, and our development business. We have terrific scale and diversity. We’re about 1.6, 1.7 times the size of our nearest competitor, tens of thousands of clients. We do business with about 80% of the Fortune 100, and you can see here we did about $160 billion of transaction activity in 2011.

We are recognized as the global leader, have been for many, many years. We’re the only firm in our space that’s on the S&P 500. We’re the only firm in the Fortune 500. The firm that tracks brand recognition in our industry has ranked us the number one brand for every year the survey has been done, which is 11 years. IAOP ranked us again as the number one real estate outsourcing firm, which is very important to our corporate real estate services business. Number one in the Green rankings, and Wall Street Journal gave us a nice accolade last year as well.

So this firm is a fairly simple business. Our vision, which we put forth to our employees in the market back in 1992, has not changed by a single word, which makes our job fairly easy, and that is to be the preeminent vertically-integrated, globally capable commercial real estate services firm, and simply put all that means is we want to be number one in every business line we have, every major geography within which we operate. We want to be number one with our own people – no joint ventures, no alliances – and we want to be global, and those particular objectives within the vision statement, all of those have now been achieved as of last year.

Our strategy is also fairly simple. We want to make sure that whether you are an occupier of commercial real estate or an investor-owner of commercial real estate, we provide all the services you need within those assets, and if we can do that, there’s no room for a competitor to chisel off one of our good clients. And we do – every one of these services on the wheel, which you can’t read, are all the things that occupiers and owners need, and we are, as I said, number one in every single one of them.

Our objectives for the business are also very simple. As I mentioned, we want to be the leader in every world city, the leader in every major business line, highest quality brand, people – we’re a services business, that’s very important. By the way, we have, we believe, the lowest attrition rate in our sales force globally of any firm in the industry. We believe we’ve had that position for over a decade. We have great culture at CBRE. It’s one of the reasons people come and stay with us. And finally and most important to me, it’s all about the scoreboard. I’ve tried to make it the hallmark of my leadership of the firm that we will always lead the industry in margins, and we always have. Every quarter since I’ve been here, that’s been true.

Diverse client base – we do business with everybody who owns real estate, commercial real estate, or occupies commercial real estate. That having been said, the bulk of our revenues comes from large clients, so whether they are large corporations or large institutional owners, those are the predominant folks that we do business with and of course that’s where the world’s going. Every day, more and more of the ownership of commercial real estate consolidates. More and more of the occupancy of commercial real estate consolidates as companies get bigger and acquire other companies. Those two dynamics that have been extant in the industry for decades play right into our hands. We’re the firm best set up to manage that occupancy real estate for corporations and the ownership for large institutional owners.

Geographic diversification – this is a pie chart that continues to evolve and evolve the right way. You can see here that about 62% of our revenues are generated out of the Americas, which is predominantly the United States; about 17% Europe, about 13% in Asia Pacific, and then some cats and dogs in some business in some lines. This, we believe, is about how the commercial services revenue pie is actually allocated around the world, so we believe we’re almost perfectly matched to where the business exists. For instance, if we had a pie chart here that showed you 60% Europe and Asia, we’d be missing out hugely on the opportunity in the Americas. Conversely if we had 80% in the Americas, we’d be missing out on Europe and Asia. We don’t think we’re missing out at the moment on anything.

Revenue diversification – this has been part of our core strategy for over 20 years, and that is to diversify the firm away from being a firm that did predominantly transactions – or said another way, brokerage work – and into a firm that is highly diversified between long-term contract-oriented revenues and short-term transaction-oriented revenues. We think we are absolutely in the right place right now – about 50/50. So when you think about CBG, I think a lot of people think we’re a brokerage company, and we’re the biggest brokerage company in the world – that’s true. But in fact, brokerage is now less than half of our total business and the long-term contract-oriented businesses are now the biggest part of our revenue pie.

Revenue breakdown here, and you can see what I was just talking about evidenced in the numbers. You can see that property facilities management or outsourcing is our largest business, then leasing, then sales, and we go down from there.

Outsourcing services – so just to remind you what this is, what we call outsourcing is when we are hired on a long-term contract to do one of two things – either a major corporation like Google hires us to manage their footprint globally, which they do, that’s corporate services outsourcing. We’re managing the buildings they’re in. We’re providing in many cases the security and the janitorial and other things that go on in those buildings. The other half of outsourcing is managing real estate for institutional owners. So in this case, a large institutional owner or a REIT hires us, gives us 10, 20, 30, 40 million square feet of their own property and we do everything inside those properties for them. We handle the leasing, we handle the collection of rents, we handle the upkeep and maintenance of the building – that’s outsourcing. These are very long-term, very, very sticky contracts. It’s almost impossible to lose a corporate contract unless you really, really have some issues, and on the institutional ownership side we tend to only lose those contracts when the properties sell. Within the outsourcing space, we’re the number one provider of every single service within that space.

Moving to leasing, you can see here that in 2011, we actually achieved peak leasing revenues, which is a pretty amazing observation given where we came from the last few years. But the point I would make here is that the leasing business is much more resilient than people think it is, and you can see here on the revenue history that that is shown to be true. It’s a steadily growing business over time. Why? Because over a long period of time, rents always go up. Over a long period of time, there is more and more stock added to the asset class – more and more buildings are being built, and you can see here that leasing was about 28% of our total revenues in 2011.

Leasing market outlook – this is a very important slide. In fact, it’s probably the most important slide in the entire deck. Our big diverse complex business, if you had to pick one metric to think about if you think about the health of the business, think about this because as the global leasing markets go, so goes commercial real estate. And what’s nice about that statement at this point in time today is that we are at a true inflection point in the leasing business and we believe that occupancies here forward for a protracted period of time and vacancies are going to continue to go down, and therefore lease rates will continue to move up – incrementally, but move up nonetheless. And think about this fact, those numbers I just showed you, the leasing numbers have been moving up the last three years notwithstanding an ugly, ugly macro environment. That shows you how resilient that market is.

On the sales side, here you can see we’re well below the peak which we reached in 2007. Nonetheless, we’ve had steady and actually pretty strong growth every year since 2009. Why is that? Well one, you’re coming off such a low base in 2009, and two, there is still a lot of liquidity out there and ever more liquidity out there looking to own commercial real estate. And why is that? Because it has real yield. So of course as you all know, the great interest in commercial real estate is you get two things when you invest in commercial real estate. You get an appreciating asset and you get yield, and in this market environment a 5 or 6 or 7% yield on a high-quality building looks pretty darn good.

This is sale transaction volume here, just gives you a sense of where we are from where we were. I would say the positive spin on this slide is we’ve got a lot of room to grow. I don’t think we’re anywhere near where we were in the 2006-2007 period of time.

Now I’m going to move to global investment management. This is our real estate investment management business. We’re a pension fund advisor. We also work on behalf of endowments and in some cases very high net worth individuals. This is a very, very big business. We are the largest commercial real estate investment manager in the world. We have almost 100 billion in AUM spread across dozens and dozens and dozens of funds, and dozens and dozens of geographies. The predominant base of our investment management business is core real estate – that’s very important – which means that it’s main and main real estate with very low leverage and very, very low risk. We don’t take balance sheet risk in this business. We have a very small co-investment – you can see here, 215 million across all that 100 billion of AUM. But the great thing about this business is – and you can see that it’s been growing over time – is the way we’re paid. We have four types of investments in the investment management business, so you can see them here – separate accounts, sponsored funds, unlisted and listed securities. In all four of those fund types, we’re paid management fees, and in all four of the fund types we’re paid one type of incentive fee or another. This business has become, although it’s a relatively small revenue contributor to the overall pie, it’s now a very, very material profit contributor. And as you saw in the slide previously, these revenues are coming in at north of 30% margin. This is one of the dynamics that’s going to help us to get to that 20% aspirational EBITDA margin that Gil and I have talked about for some years, and we think that is absolutely achievable.

Finally, development services, a business we picked up when we bought the Trammell Crow company. Good little business. It’s an institutional developer, looks a lot more like a fund manager than it does a development company, and you can see here almost no recourse debt, very small co-investment. Great little business for us, and when they build their projects and have their institutional programs, in many years we have wonderful one-time gains on asset dispositions. You saw that the last couple years.

And now I’ll turn it over to Gil. Gil?

Gil Borok

Thank you Brett, and good morning everybody. Just a few words on the financials. We couldn’t have an investor presentation or such a forum without these, so we’ve tried to be concise and display on one page some of the financial points that I’d like to make.

First of all, this is 17-year history going back to 1992, and what you can see on the top is our revenue growth over that period of time. In blue, there’s indication of where we’ve had significant M&A, and then on the bottom our normalized EBITDA and normalized EBITDA margins. So over that period of time, we’ve grown revenue, if you will, by 16% - that top arrow, and we’ve grown normalized EBITDA by 21%, and that’s an important point because in this business, which is scalable, there is operating leverage if we’re managing costs correctly, and we pride ourselves on managing costs tightly in order to achieve this result. With that operating leverage, as markets improve, more of a dollar falls to the bottom line, and that’s evident over this extended period of time.

Another point here to make is you can see that over time, the peaks and valleys rise, and Brett alluded to this – as there is more and more commercial real estate stock, as we get bigger within commercial real estate and as we get more scale, we have this phenomenon whereby at any point in time along the continuum, you’ll see that our margins, even at a low, the successive low is higher than the last one in terms of the margin, and our high points get higher. And that supports the fact that Brett alluded to in terms of our getting to 20% margin. We get a lot of questions on that because we do have different revenue streams. We have our outsourcing business that’s growing at a lower margin than our brokerage business, using the brokerage business as a benchmark; and if you go back in time, that was our largest and maybe our only business that mattered. Clearly now that’s changed, so we’ve got outsourcing revenue at lower margins but we’ve got investment management, as Brett alluded to, at higher margins.

If you look forward and you say, how do you get to that 20%? And assuming revenue mix is about the same, maybe a little bit of pressure from revenue in the next peak from where we were in the prior, the way we get there is through cost management. Many of you that who have followed us for a while know that in ’07 and ’08 and ’09, we cut out 600 million of cost from the business. And we’ve let some of that come back, some by design, some in support of revenue growth. Very careful about allowing cost to come back as revenue growth is apparent, not allowing it to come back without revenue growth, and we can evidence actions that we took in the fourth quarter of ’11 which were unpopular actions where we took cost out of the business because we didn’t see the revenue growth we’d expected, and we’ve had cost come back. So we’re on it all the time, but if you think about that 600 million of cost and you say, well maybe half comes back by the next peak, and we’re managing it pretty carefully, then you can see our revenues will be higher than this but if we had revenues similar to the last peak of 6 billion, 300 of cost saves that stay out of the business on 6 billion is 5%. You add that to the 16 we had last time, and you’re at 21 now. I’m not saying we’re going to get to 21 because there were other pressures, and 20 is a bogey; and whether it’s 19 or 21, we’ll be in that vicinity. We truly believe that, and that’s a good goal to have and one Brett and I have stated, as he said, for quite some time. So we look forward to that in the next peak.

Just a word on our debt – in terms of our mandatory amortization in our schedule, which I think is important to note a few factors to note. First of all, nothing meaningful due until 2015. We do have some bonds that are due in ’17 that are callable in 2013. Those are our expansive bonds that we raised in 2009. They’re at 11.625%, so at the moment we’re obviously looking at alternatives because we do have this call date in June next year. If we were to refinance the entire amount, we would probably refinance it at around half the interest rate; and I’m not indicating what we will or won’t do, but at a minimum there’s an option to refinance at half the interest rate, and you can do the math on what that does on a run rate basis to our EPS. But very well spread out, and the goal is obviously to keep a distance – you know, 24 to 36 months – before any meaningful maturities at any time, so we’ll start to work on the ’15 amounts pretty soon here to keep runway.

We’re very comfortable in terms of our leverage which is, depending on how you calculate it, that’s our debt to our normalized EBITDA ratio, which is at about 2 times, and so we feel pretty comfortable about that at the moment and where we are in the cycle, and we manage that and pay attention to the cycle in terms of what that ratio ought to be. So historically we’ve let that ratio go up, we’ve let it go up to as high as 3.4, 3.5 times to do an acquisition, for example, and tried to steadily pay it down pretty quickly thereafter. Our sense at the moment is we wouldn’t let it go that high, that we wouldn’t really want to see necessarily much more than a 3, with that number maybe even a little below that. But again, depending on where we are in the cycle and what opportunities present themselves, we might let that raise up and then the idea is to de-lever. We were stopped in our tracks in doing that in 2008 – 2009, obviously because it was a period of time where you couldn’t pay down debt as quickly as you might like, but lessons were learned.

And then the cap table just lays out the various tranches of debt. We are higher in our total net debt at the moment, but that’s a seasonal phenomenon; so at June 30, 2012, if you look bottom right, the last cell there, we were at 282.7 million higher. We paid bonuses in the first part of the year, and we do that—in the U.S., it’s non-production staff, in Europe and Asia it is both production to some degree and non-production staff. That’s when our biggest payouts go out, so we tend to—we do have negative working capital in the first half of the year, and in any normal year we pay it back and then some in the back half, so we usually end, all things being equal, with our normal costs – so interest, taxes, and so forth – we normally will end the year producing more cash than we use.

And then just to round it out, we’ve got an outlook slide here. This hasn’t changed from our quarterly earnings call deck, but just to reiterate, we are in a cyclical recovery – Brett alluded to it – a protracted cyclical recovery. Sometimes it doesn’t feel like it, but that is the fact, that we are on a positive trend. Our outsourcing business is doing well. It delivers strong, consistent growth quarter after quarter. That’s a market space that is ripe for the taking, and so we’re able to post consistent and strong growth in that business. Our leasing growth rates remain modest – not unexpected given the environment, but nevertheless overall it remains modestly positive. Our investment sales will be dependent on the macroeconomic environment in the various regions in which we operate. Obviously no great expectations for Europe, but in the U.S. we’ve posted pretty good results year to date, and in Asia we’ve done more or less the same.

Investment management – this year, we’ll continue to benefit from the ING REIM acquisition, so it’s going to be a significant positive year-over-year, and with an eye to cost management, as always, we expect that our normalized EBIT margins will continue to improve and be strong in 2012, and we continue to maintain our guidance range of $1.20 to $1.25.

And that sums it up.

Question and Answer Session

Brett White

So with that, we’ll take any questions you might have. Yes?

Unidentified Analyst

(inaudible)

Brett White

Well, the leasing market, as I mentioned earlier, has been steadily improving since 2009. It’s been improving because the dynamics that you are most interested in when you watch a leasing market are heavily favorable. So what are those? It’s construction. There hasn’t been any new construction of quality commercial real estate for many, many years, so even though this recovery is weak incremental, there’s enough there to keep vacancy rates coming down and keep leasing rates now turning and beginning to move up. So in the U.S. right now, as we talked about at the end of the second quarter, we see favorable dynamics there. We don’t in western Europe; we do in Asia Pacific. All that taken together, what we said at the end of the second quarter was we remain optimistic about the direction leasing is taking.

So no, leasing is not the area that I think we worry about the most. What we worry about the most right now is Europe. I guess good news, if there is any good news there, is that the capital markets volumes in Europe have been so low now for the last year and a half that really you can’t go lower than zero. And I’m not saying it’s at zero – it isn’t – but it’s been very slow. So I think the way we look at it is a bit more optimistically, saying that we’re chugging along with a business right now that’s feeling pain in western Europe. Asia has been moving along okay. The States is looking pretty decent, and all that together has allowed us to continue to grow earnings and margins on a very healthy basis.

I think what we would worry about is another big step down. If things stay the way they are, get a little bit incrementally better every quarter, I think things will stay on track from where we’ve described they should be this year.

Yes – again?

Unidentified Analyst

Thanks, Brett. Last year you guys had some gains from Trammell Crow, and this year you have the ING benefit so maybe it’s a wash, but maybe you could address whether or not you do see gains coming in the fourth quarter or not at this point?

Brett White

Well, I would not talk about that at this point, but what I will say is that the development business is a business that will from time to time produce these lumpy gains, and we really don’t have great clarity into when those would come. It’s really those gains are based on when they decide to sell or their partner decides to sell a large asset. They’re great when they come, and that’s one of the nice aspects of that business. The ING business that we acquired and now our entire investment management business is a very big business now, and what you’re not going to see out of that business going forward are big, lumpy, one-time promotes. What you are going to see is a very steady return on the capital we’ve invested and very steady management fees, and very steady but relatively small incentive fees. So it’s just a much bigger, much more diversified business now. That’s a better business for a firm like this.

Ross Smotrich - Barclays

Any other questions? Please.

Unidentified Analyst

I see you guys talked in the slide deck about paying down debt, maybe coming towards your current levels. In terms of acquisitions, are you guys at a pause mode at that level and more focused on internal issues? How would you characterize that?

Brett White

Just recall that for us, there are lots of different types of acquisitions, so there are strategic acquisitions that we chase for years and years and years and then hopefully some day that firm comes available. Those are big acquisitions that require debt financing of some sort – ING REIM, Trammell Crow, Insignia ESG – those are the last three big acquisitions that we’ve made. But every month, every quarter, every year, good market and bad – including 2009 and 2010 – we’re doing tuck-in acquisitions all the time. We’ve done something like 130 of them since 1997. There are many, many little firms we’re looking at today. Those are paid for out of cash on hand, so we’re making those right now, we’ll make them going forward. If we saw a big strategic available, absolutely we’d lever up to do it. As Gil said, that’s how we go about doing this; but as we lever up for a big strategic, we lever down as fast as we can.

The level we’re at now that Gil referenced is a very comfortable place for us to be right now. It gives us capacity if we need to chase something big. If nothing big comes along, Gil will continue to pay down debt.

Unidentified Analyst

Hi. Can you talk about competition by business line and what impact it’s having on pricing? Thank you.

Brett White

Sure, yeah. So we sit in a very unique space in the industry. There is really at this point a true bifurcation in the industry, and what you have now are really two big, global diversified services firms – us and our good competitor, Jones Lang. And you have a whole number of boutique firms that do something really well. They might do retail in midtown Manhattan. They might do property management only in Cleveland, Ohio. But they do those things exceptionally well. The firms in the middle, they’re all going away. They’re all going away, and we’ve been talking about this for 15 years and every year I get up here and tell you this, the next year three more are gone. You’re going to end up in this industry with only two groups of firms, and all those folks in the middle are going to disappear. Whether they get acquired or they go bankrupt, they’ll be gone.

So who is our competition? Our competition is two sorts of folks. We compete against our big global competitor in every business line, in every geography – great competition, but no real impact on pricing there. Pricing has held pretty stable in our industry for a long time. And with the boutiques, we compete a lot there and there is a lot of price pressure with boutiques in certain local markets in certain business lines. Overall, because of the size of our business, we haven’t seen any price movement really in any of our business lines for a very long time. The one place where there is always price pressure is outsourcing on the corporate side, and that’s a very, very tough business. It’s a business that requires a lot of people. It requires a lot of services be delivered to these clients, and they are very, very good at beating us up in the bid process. But that having been said, we’re very happy with the margins we’re getting out of that business and very optimistic about the future of that business.

Actually, I think that business – corporate outsourcing – is probably the big story for the next five to 10 years in this industry. That is a very, very important business.

There was a question in the very back?

Unidentified Analyst

Hi, good morning. Can you just share a little bit about your business in China and Hong Kong, and what’s driving growth there? Thanks.

Brett White

Yeah, well first of all, I’m going to talk about them as two different markets because for us, they are definitely two different markets. Hong Kong is a mature, seasoned commercial real estate services market. Fees paid there are what we would describe as retail developed market fees. Our clients there are folks we’ve worked with for years. The asset class there is very, very high quality. It’s a very strong, very good market and we’ve been in business in Hong Kong for well over two decades. Great place to do business, and we’re one of three firms there that really lead that marketplace. We have two competitors that are right where we are in the market.

Mainland China is a whole different story. Mainland China is a place that we need to do business. We have many, many global customers who do business in mainland China and need us there and expect us to be there, and we are there with them. We have thousands of employees in mainland China, we have tens of millions of square feet of property under management, but it’s a tough market. It’s a market that is in development. It’s a market that as of today in many areas and in many different types of the business don’t pay the types of fees that we get in other markets. So we work very, very hard in mainland China. We’re very optimistic about the future of mainland China, but as a contributor to firm profits it’s immaterial. We believe over the years that we’ll continue to grow and be a better and better profit story than it is now. We have—I’m actually going to Shanghai next week. We’re going to sign a contract to do some work over there on some very, very big assets. We are a lead player in mainland China and, as I said, we’re very excited about the future over there.

But mainland China is a market in evolution, and it’s interesting – I talk to lots of CEOs in the services space that do work in mainland China. We’re all in the same place. The opportunity is massive. The excitement about wanting to be there is very real. The ability to produce real material profits is difficult.

Unidentified Analyst

Can you just talk a little bit about within the U.S. by geography and sort of industry verticals what you’re seeing – you know, coast-by-coast or however?

Brett White

In the U.S.? Yeah, so the U.S. of all the global geography right now, the U.S. is doing the best. I think that’s for a number of reasons – first, in the U.S. corporations here, institutional owners here went through their pain a while ago, and we’re very, very efficient in the U.S. now, we as a business community, so we get a cost very fast. We get positioned for a downturn very fast. What you have now in the U.S. is you have corporations with very, very healthy balance sheets. Everyone went to balance sheet hospital in 2009 and everyone came out with a very clean bill of health, so our big clients in the U.S., they’ve got lots of cash. They’ve got no maturities. They’re interested in growing their businesses and they are doing that incrementally right now. What everyone is waiting for is clarity on the economy and clarity on government regulation, and kind of what the world is going to look like next year.

Personally when I look at the U.S., I’m very bullish about the prospects here because I believe there’s an enormous amount of pent-up demand in the U.S. right now just waiting for clarity, and I think it will be very exciting once that clarity is delivered and some of these issues in Europe tune down a little bit to see what U.S. corporations will do in terms of spending and hiring.

In terms of where the business is in the U.S., it’s the same old story. It’s the coasts, it’s technology centers, and it’s logistics centers of course. That’s where you’re going to find the great growth right now. That’s where you’re going to find real rental rate strength right now. So for instance, Silicon Valley and San Francisco are on fire right now, and that’s story is replicated in those areas that I referenced. But the States is, of all the geographies around the world right now – and Gil, I’ll ask you to comment – the States looks the best.

Gil Borok

Yeah, I think that’s right, and obviously in terms of outsourcing, this is our—because you asked a little bit about the service line – this is our largest market with the largest, most mature assets. So that business has the most ability to grow in the U.S., but of course then we’ve got the markets in Asia and Europe that are less mature but also with opportunities. So the bread and butter sort of is here, and that sort of is a baseline for us.

And then the only other point I would make is there are certain sectors that have been healthier than others, so the technology and biosciences and so forth have led the way at least in leasing and demand for space, and then you’ve got the dynamic of that – maybe one third point – which is lack of supply, which we sort of made that point earlier. And so all that makes for pretty good market dynamics here.

Brett White

Yeah, I would just add – we’ve answered your question, but for 10 years what Ray Werden (ph) and myself have been talking to all you about is the big driver of the growth of the firm was going to be consolidation, and that of course is exactly what happened. Ten years going forward from here, I believe the big driver in this industry is going to be the corporate services outsourcing space. That is such an important dynamic in the industry right now, and if you follow the industry or you’re thinking about following the industry, understanding what’s happening there is absolutely critical. And what’s happening is this – this business that I grew up in was a business that was driven and led by big tenants doing big leases, and those tenants and leases were handled by the most terrific sales force I could ever imagine, the one we have at CBRE. Those relationships, those clients every day are moving from these one-off transaction relationships into long-term contractual relationships with firms like ours. That trend is not going to change, and every year here forward you’re going to see more and more of that big tenant work around the world done by fewer and fewer firms. And you’ve seen that in our corporate outsourcing numbers the last three years – there growth there has been unprecedented. That’s going to continue.

Yes?

Unidentified Analyst

(Inaudible)

Brett White

Sure. I’ll just handle how the merger’s gone, and I’ll let Gil talk about the numbers in there. It’s gone fantastic. It’s probably the best integration we’ve ever had, and we’ve never had a bad integration. This one was spectacular. We had zero loss in terms of people. We had no loss in terms of material clients. We brought in a group of people from ING REIM that are, I think, the best in the business and they are flourishing here. They’re in a new home which is a commercial real estate firm, not a bank, and they’ve never been happier. So if I could line them up right here and have them tell you how they like it here, you’d see a very happy group of people.

Gil, on inflows, outflows?

Gil Borok

Yeah, so in terms of flows, capital raising has been what I’ll call modest, and I think there could be more capital raising were it easier to deploy. So if you think about the ING business, a lot of that business – not all of it, but a big portion of what we bought is based in Europe, and the capital markets there are not cooperative at the moment. And so as a result, there’s been some difficultly deploying and that’s building up, and ultimately we will see deployment of that capital. So I think the raising is not as much of an issue as being able to deploy.

When you look at the U.S. and Asia, there are—again, in Asia there are actions waiting to go. In the U.S., we actually are deploying and we do have a couple funds that are out there, both raising and deploying capital. So that’s functioning relatively well, and then I think in terms of the securities business, which is also a big portion that we bought from ING – it’s about 20 billion, give or take in AUM – their flows have been relatively flat, so what’s coming in is also going out. A lot of that is open-ended, and so we’re not seeing a huge buildup but we’re also not seeing a detriment there.

Ross Smotrich – Barclays

And I think we have perhaps time for one more question.

Unidentified Analyst

Could you touch on your business relationship with government – I mean, how much of your revenue comes from them, and could you talk about their current business spending on the (inaudible) stage?

Brett White

I’m sorry – could you repeat the first part of the question? I apologize.

Unidentified Analyst

Your relationship with government—

Brett White

With government?

Unidentified Analyst

Yes.

Brett White

My relationship with the government? In grey! We don’t do a lot of work for the U.S. government. Work in the United States from the government is typically put out by the GSA. It’s a big public bid process. Margins are razor-thin, if at all. It’s not an area that we spend a ton of time focusing on. We have niche groups that are in DC and work on certain agencies and try and get work there. We did a big, big contract with the FDIC which we’re still working on, disposing of assets there. But the government as a segment of our business, it’s immaterial. That’s also true in Europe and Asia. I would say that in France where we have a very big leasing business, the government in France is probably our largest client because they consume enormous amounts of very high quality space, God love them, and we try and take advantage of that. But that would be the best answer I could give you on that.

Ross Smotrich – Barclays

So I think we’re going to have to stop. There is a breakout session following this in Liberty 3. I’d like to thank both Brett and Gil, and thank you all for your interest.

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