Q3 2022 Colliers International Group Inc Earnings Call
Good day and thank you for standing by welcome to the Colliers International group's third quarter 2022, Investor Conference call. Today's call is being recorded legal counsel requires us.
She advised that discussion scheduled to take place today may contain forward looking statements that involve known and unknown and uncertainty.
Actual results may be materially different from any future results performance or achievements contemplated in the forward looking statements additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in the company's annual information form as filed with the Canadian.
<unk> Securities.
Ministers in the company's annual report on form 40 F. As filed with the U S Securities and Exchange Commission as a reminder, today's call is being recorded today is November 1st 2022, and at this time for opening remarks and introductions I would now like to turn the conference over to the global Chairman and Chief.
He's executive officer, Mr. Jay Hennick. Please go ahead Sir.
Thank you operator, good morning, and thanks for joining us for the third quarter conference call as the operator mentioned I'm, Jay Hennick, Chairman and Chief Executive Officer of the company and with me is Christian Mayer Chief Financial Officer.
As always this call is being webcast and is available on the Investor Relations section of our website. A presentation deck is also available there to accompany today's call.
Earlier today, Colliers reported very solid third quarter results with outsourcing and advisory and investment management and leasing all up strongly.
More than offsetting any softness in capital markets, which obviously has been impacted by higher interest rates and availability of capital and geopolitical uncertainties.
As you can see growing recurring revenues and earnings now with 55% of our pro forma EBITDA together with broader diversification across service lines across geography, and a class and across client types is demonstrating colliers diversified service.
This model is more balanced and more resilient than ever.
For the quarter revenues were $1 1 billion up 12% in local currency.
Just that EBITDA was $1 45 up 21% adjusted EPS was $1 42 up 11% all versus the prior year period for.
For nine months revenues were $3 2 billion up 21% adjusted EBITDA $428 million year to date up 24% and adjusted EPS was $4 69 up 20% versus the prior year here are some of the highlights.
With the recent acquisitions of Rockwood and versus our investment management business now represents about 30% of our pro forma EBITDA and total assets under management has surpassed the $92 billion Mark firmly establishing colliers is one of the top global play.
And the rapidly growing alternative private capital industry.
We have strategically built our iam business over the past six years and we have done it the right way today, 85% of our assets under management are in perpetual or long dated strategies with 70% of that capital invested in highly defensive and so.
Sought after asset classes like alternatives and infrastructure.
In addition, each of our investment platforms has a long history of delivering top tier investment returns for investors and best in class leadership teams hold significant and direct equity in their own operations, while benefiting from the collective resources of the whole.
The Colliers perpetual partnership philosophy has been a real differentiator for us, creating a permanent capital source for our partners and perfect alignment for our investors and for our shareholders. We are very excited about the potential of this rapidly growing segment of our biz.
Yes.
We also continue to aggressively grow our core service business during the quarter, we acquired peak urban adding significant engineering capabilities and a new growth engine to our market, leading service operations in Australia and Asia Pacific.
We bolstered our presence in the Nordics with an agreement to acquire Pangea area property partners, a leading real estate advisory firm in Norway and Sweden.
Once the transaction is completed colliers will be the number one player in the Nordic region together with our existing operations in Denmark, and Finland, and the group will provide further strength and opportunity to the rest of our business in Europe and around the world.
Finally, just after the quarter end, we added Arcadia property management to our rapidly growing and highly successful U S services business. This acquisition adds further scale and capability to our property management operations principally in the U S southwest.
As you will hear from Christian in a few minutes. Despite our very solid results for the quarter were adjusting our outlook slightly for the balance of the year.
Let me conclude by reinforcing a few things.
Colliers as a highly respected global brand in the operating platform with a broadly diversified business model and multiple engines for growth.
We have virtually unlimited growth opportunities and a clear history of being able to capitalize especially in times of dislocation as we are seeing now.
Currently 55% of our earnings come from recurring revenue streams, including our investment management segment, which now makes up about 30% of our business as I mentioned.
Colliers is more balanced and more resilient than ever and you can easily see this from the results we delivered.
The call your strategy in way of business.
The test of time.
Our proven track record has delivered about 20% annual growth in share value over 27 years that has the track record that is really second to none.
As the chief architect of our company since its founding I continue to believe that colliers is not being valued properly and has not been valued properly over the past number of years and that is regardless of current market conditions.
I say this because we built an incredible company with a unique operating culture diversified business mix significant recurring revenues and a demonstrated ability to create significant shareholder value year over year over a long period of time it is truly difficult.
To find investment opportunities as well managed and is growth oriented as we are at colliers.
Perhaps most importantly, our leadership team owns the largest stake in our company and our company by a country mile. We have more skin in this game and absolutely anyone.
Now, let me turn things over to Christian for his comments Christian.
Thank you Jay.
My comments follow the flow of the slides posted on the Investor Relations section of Colliers Dot com accompanying this call.
Please note that the non-GAAP measures referenced in this call.
As defined in this morning's press release.
All references to revenue growth are expressed in local currency.
Our third quarter revenues were $1 1 billion up 12% relative to the prior year period with revenues up strongly and our outsourcing advisory and investment management service lines.
Our leasing operations also generated solid growth benefiting from increased activity in office and industrial asset classes.
Capital markets activity softened in the quarter, reflecting the impact of higher interest rates reduced availability of capital and geopolitical uncertainty.
Internal growth was 4%, but the balance from acquisitions completed during the past 12 months.
Adjusted EBITDA for Q3 was $145 million up 17% from one year ago with margins at 13, 1% up 100 basis points relative to the prior year quarter.
Third quarter Americas revenues were $695 million up 13% over the prior period.
Growth was led by our servicing and advisory up 27% driven by engineering and design, including recent acquisitions.
Leasing activity was up 21% with growth in both office and industrial asset classes.
Capital markets activity, including debt origination was down 8% as clients pause to reassess the clearing prices for sales transactions.
A rising rate environment as well as availability of debt capital.
Adjusted EBITDA was $67 million up 2% from last year the margin in the Americas was nine 6% relative to 10, 7% in the prior year period and was impacted by higher discretionary and variable costs.
A reduction in higher margin capital markets transactions.
EMEA revenues for Q3 were $164 million up 23% from one year ago with growth across all service lines, particularly project management, although growth was unevenly distributed across countries.
Growth was particularly strong in the United Kingdom more than offsetting the impact of higher interest rates and geopolitical uncertainty in other markets.
Adjusted EBITDA was $13 million versus $15 million last year with a margin primarily impacted by revenue mix with a higher proportion of project management at modest margins.
Asia Pacific revenues were $153 million down, 4% and were impacted by higher interest rates and COVID-19 restrictions in several Asian markets, especially China.
Adjusted EBITDA was $21 million flat relative to the prior year quarter on lower costs, resulting from reduced variable compensation.
Third quarter investment management revenues were $96 million up 23% from the prior year period.
Excluding pass through carried interest revenues were up 62% driven by acquisitions and management fee growth from increased assets under management.
Adjusted EBITDA for the quarter was $37 million up 33% versus the comparative quarter.
As a reminder, our reported adjusted EBITDA is equivalent to fee related earnings or FRE.
That many pure play I am firms report since our Iam earnings comment predominantly from recurring management fees.
We have generated solid new capital commitments from investors across our fund portfolio. During the first nine months of the year, albeit at a slower pace than during 2021.
Similar to our last quarter. We are currently seeing investors take more time to make capital allocation decisions.
We ended the quarter with 87 billion of AUM <unk>.
Including versus which closed just after quarter end.
Now exceeds 92 billion.
Our fee paying AUM is now 51 billion.
Given the private and defensive nature of the real estate and real assets in our portfolio, we expect our FTAA Om to.
Main stable despite this market turbulence.
Our financial leverage ratio as of September 32022.
And as net debt to pro forma EBITDA was one five times.
Including acquisitions that have been announced but were not completed as of September 30th.
Our financial leverage is two point over times inside our stated comfort zone.
We expect to Delever over time, using our operating cash flow to pay down debt.
We repurchased 373000 shares during the past month for total consideration of $35 million under our normal course issuer bid.
Year to date, we have repurchased one 4 million shares for total consideration of $161 million.
Given our future growth prospects.
Wrong financial capacity and our current market valuation, we believe it is prudent to make modest share repurchases at this time.
We are updating our outlook for the full year of 2022 to reflect year to date operating results.
Contributions from acquisitions.
The operating impact of rising global interest rates and geopolitical uncertainties.
As well as adverse foreign exchange impacts on EPS.
The outlook is subject to risks and uncertainties as outlined in the accompanying slides.
We now expect our adjusted EBITDA margin to improve 60 to 80 basis points relative to 2021 from a combination of higher margin acquisitions.
And internal operating leverage.
We also expect our tax rate and NCI share of earnings to be slightly higher than anticipated.
<unk> our expected mix.
Of earnings for the full year.
As a result, we now expect our adjusted earnings per share.
To grow this year at a mid teens percentage rate relative to the low twenty's rate previously anticipated.
That concludes my prepared remarks, I would now like to open the call for questions.
Operator can you please open the line.
Thank you as a reminder to ask a question you will need to press star one on your telephone. Please wait for your name to be announced please standby, while we compile the Q&A roster.
One moment for your first question. Please.
And our first question comes from.
Sandy Luca <unk> with Goldman Sachs. Your line is now open.
Hi, Good morning, Thank you for taking my question.
Could you discuss as we think about a tougher economic environment environment ahead.
What kind of levers do you have to pull and how would you think about potential costs. Scotts is data is there a way to frame that as we go into 2023.
Well Janet Thanks for the question.
We always manage our costs closely.
And as you know our cost structure is highly variable, particularly in our transactional business.
Nominally commissions that flex directly with revenue.
As we.
<unk> talked about were feeling softness in our capital market service line.
And this is going to continue I think first for a little while until interest rates and credit conditions.
Stabilized in the market.
The rest of our business is doing well as you saw in the in the results.
And as a result, we don't have a reason for it.
Formal cost cutting program right now.
But I can say that we have.
Our budget process underway currently.
Certainly cost management is top of mind for that as we prepare for 2023 with.
Yes.
Varying levels.
<unk> revenues.
That could transpire over the next 12 months.
Finally, I would add that these times challenging times, there are good times to invest and recruiting.
And we're going to continue to do that and bring on.
New talent.
And our various service lines.
As we look ahead.
Andy Let me let me just.
Highlight some of the things that Kristian said and put it in sort of.
My perspective, a little bit.
The bottom line is that.
Our business, because we are becoming way more resilient and diversified.
We're really this quarter and we think it will continue.
Really only impacted by.
The <unk>.
Softness in capital markets, and if you put all of that into perspective.
Both for the final quarter and as you look into <unk>.
New year. It is a small percentage of our overall business. It represents a small percentage of our EBITDA.
And not to diminish that in any way, but we don't think it's going to slow down the growth and development of our business as we look forward.
Very helpful. Thank you.
And for my follow ups with we think about the implied guidance for fourth quarter, especially on the EBITDA portion $208 million at the midpoint.
I think implies high single digit year on your growth.
Strong sequentially I think up 45.
Help us understand what portion of that EBITDA growth would you attribute to organic courses inorganic and just trying to understand the incremental acquisitions.
That.
What part of the business and three from <unk>, how much are they contributing and how should we think about the split.
And fourth quarter.
Yes, another good question, Jamie and certainly we just closed on that versus transaction.
In mid October .
Got another acquisition in Europe , that's expected to close in the <unk>.
Coming weeks.
There certainly will be incremental acquisition.
Contribution.
From from those new deals as well as transactions that we.
We completed earlier this year. So I think the majority of EBITDA growth in Q4 will be from.
Acquisitions.
But certainly our organic growth.
In the year and the fourth quarter will be strong in outsourcing and advisory as it has been all year.
It looks like conditions are still quite quite good and of course capital markets, we're watching closely.
And that's a real area of focus for us.
Great. Thank you so much.
Investment management journey.
Scott you mentioned.
The organic components in investment management, our Harrison Street into our European business that we've owned for years.
Also have organic growth to contribute to Q4.
Thank you.
Thank you.
One moment for our next question.
Our next question comes from Mike Dumais Scotia Bank. Your line is now open.
Hey, good morning, guys.
Questions are really just I guess, a follow up to some of the prior questions. If I look at your 2022 guidance.
Based on the math that I'm calculating and applies a negative.
Mid single digit internal growth for.
For Q4.
That compares to a positive internal growth of 4% in Q3 so.
Maybe just a confirmation, but just to make sure that I understand it correctly that incremental softness expected to come strictly from capital markets in Q4.
Yes, that's right Michael.
That's the.
The area that we're most focused on and certainly.
You can see it in the Q3 results as well.
And most impacted obviously by higher interest rates and availability of capital.
Okay.
For sure I mean in the.
The other thing that does does impact us.
And we really can't control this is currency fluctuations.
Got it yes.
You see that are yes go ahead.
Yes, no that makes sense to me I think it makes sense to everybody.
If I look back organic growth in capital markets has amounted to approximately 40% since 2019, I guess based on your disclosure you have done a good job expanding the platform increasing the head count there is a lot of things you've done internally obviously.
We're seeing activity soften now than I am.
Just wondering if there's a bogey in terms of what number we should we think that you guys will eventually normalize to based on what Youre seeing in the interest rate environment.
Just as we think about where capital markets can go.
And the next couple of quarters and what.
Yes.
Effectively normalization periods you look like.
Well, Michael we've been adding producers and in market share over the last couple of years.
Six quarters for sure post pandemic.
So that's the lever our producers are becoming more productive over time, we don't think that's going to that's going to change and now theyre going to they are going to remain.
At higher productivity levels when they work.
In the past.
So.
Look at market conditions and the impact of.
Our ability to complete transactions interest rates the availability of capital I mean, those are those are the factors that we're that we're focused on.
But fundamentally I think our capital markets business is well positioned and it's going to continue to grow.
As we add more producers take market share I've also got a couple of acquisitions.
In capital markets that will add to our scale.
How would that have added to our scale over the past over the past year or two.
So we're pretty bullish from a long term perspective about our capital markets business.
Perfect. Thanks, guys.
Sure.
Thank you one moment for our next question. Please.
And our next question comes from.
Got it.
Stephen Sheldon with William Blair. Your line is open.
Yes.
Hey, thanks.
First question here just wanted to see if you could provide some more detail on the Americas margin, especially the higher discretionary and variable costs.
What are those and how are you thinking about adjusted EBITDA margins in the Americas looking forward, although the mix between capital markets and other business lines and have a big impact on that.
Hey, Stephen that's a good question.
The Americas.
As you know through 2021, and this is true across the business.
Sure.
There was not much travel there wasn't much client engagement directly.
Conferences and stuff like that.
That that activity has resumed.
Pretty pretty strongly in 2022, we've been very active meeting with their clients in person.
Attending conferences other discretionary.
And variable costs like that have increased significantly after a couple of years of virtually shutting those kinds of costs down.
So youre seeing the impact of that.
Our.
Margins in the Americas.
Youre also seeing the impact of our business performing very strongly in the first half of the year and our revenue producers hitting there.
Commission thresholds earlier in the year.
And as a result.
They are earning higher splits and the margins that we generate as the <unk>.
As a firm are slightly lower.
From that phenomenon.
And those those commission levels. They reset annually. So that is something that will reset in January .
But certainly another factor driving the Americas margin in particular finally I'd note our capital.
And our capital markets business, we have a debt.
Origination platform and debt originations profitable service line.
More profitable than the other types of services and the impact of production erection activity and debt origination is having an impact on the margin as well in the quarter.
Got it that's helpful.
Maybe as a follow up I think you had mentioned a favorable recruiting environment right now just curious how much of your producer headcount has grown if you look back over the last few quarters over the last year in the brokerage businesses and are you seeing more urgency in this environment.
Clearly within the smaller maybe more independent teams to look at joining bigger established platforms like Colliers I guess, just what are you seeing there from an urgency standpoint.
Well, we don't share our recruiting numbers with any one but let's say that we have been very aggressive from a recruiting standpoint over the past number of years you can see that.
In our numbers is that our numbers have ramped up over the past number of years.
And so I would say that recruiting is top of mind for us.
More so now we think well others are running for cover there is a tremendous opportunity for us to to redouble. Our efforts in a couple of areas and a couple of markets were very strategic about our recruiting.
Colliers is.
No.
If not the most highly respected name in the industry in North America, It's probably number two.
It is.
Far and away a very comfortable place for for people to come to and we're surely seeing that in our recruiting numbers size of transactions that were that the new recruits are handling size of deals that they are they're handling Christian made a comment earlier.
Boat.
Hitting hitting thresholds earlier in the year part of that is it's just the power of our recruiting.
Recruiting and that's just that's just not North America based it's global.
There is a global initiative around recruiting filling specific gaps, particularly in areas, where our investment management operations.
<unk> strength in infrastructure and.
In other.
I would say.
Recession proof or recession resistant asset classes. So we're trying to strategically.
Up up our game in terms of the expertise in those asset class areas.
Great. Thank you.
Okay.
Thank you.
One moment for our next question.
Our next question comes from Stephen Macleod with BMO Capital. Your line is now open.
Thank you good morning, guys.
Just wanted to follow up on a couple of things.
I'm just wondering if you can talk a little bit about the capital markets backdrop, and sort of how it evolved through the quarter. I mean did you see some sort of like some strength towards the beginning of the quarter and maybe some weakness towards the I'm just trying to get a sense of how that unfolded with respect to how your revenues unfolded in the capital markets business.
Yes, it's a good question Steven.
The first two months of sort of I would say from labor day on it just sort of fell off.
And.
But make no mistake there.
Our tons of buyers in the marketplace with capital to deploy and there is tons of sellers in the market with capital to deploy the difference is that there is this gap between expectation of value and the ability to buy assets given the current.
The current interest rate.
Environment, but also capital availability generally.
So.
There's a huge amount of pent up demand.
That we see will.
I'll start to break over time it'll be impacted in some.
Proportion to interest rates changing direction, and some proportion to availability of capital in some proportion to existing owners having.
Having debt coming due and theyre going to have to deal with that that one way or the other.
So there's a lot of things that that can happen that can.
That can really change.
The trending as we go but.
The interesting thing for Colliers today, Steven is that.
We're so much more diversified it's very important for investors to put everything into perspective, which is the which is the point I tried to make earlier, how big is capital markets. What is the contribution of capital markets what might that look like next year when Mike This big change.
And really does it matter overall to the company, yes, we'd like to have additional revenue streams and profitability come from our strong capital markets business, but we know it's there and we know it will return, but it really in the overall scheme of things doesn't have that big an.
Packed on our our company as a whole.
So I just wanted to make that point very clearly, especially to somebody like you who has followed us for as many years as you have.
Okay. That's that's helpful. Jay I appreciate that.
And then just maybe with respect to the acquisition pipeline I mean, you talked about you have just recently closes you'll have another deal.
In the process of closing.
How do you think about the acquisition pipeline as we do enter a period of softness in in 2023.
Well first of all.
<unk>.
This was a record year of acquisitions for us if we complete the the last acquisition before year end, which we fully expect to do that will put us well over $1 billion in acquisitions. This year, which is by far a record year for us.
So to your to your main question when the markets get tough we get excited excited.
And so we have great opportunity out there we have worked very hard over a long period of time to build relationships.
With that perspective.
Acquisition targets.
And I think that as other people find it more difficult to fund acquisitions or to complete them.
<unk> proposition.
Of our perpetual partnership approach just gets better and stronger and were just as an organization for many years have been exceptional partners to our operating partners across the board. So we're quite excited about acquisitions, we hope to be able.
To continue the pace.
Over over time, but we still will be very strategic and discerning as we have for 27 years in terms of creating shareholder value.
Okay. That's great. Thanks, Jay and just one more if I may.
With respect to you talked about there being lots of buyers in the market lots of sellers in the market.
What do you think is the piece that needs to get removed from the logjam is it more about rates is it more about availability of capital is it people sort of wait until the calendar turns those a bit more certainty on 2023, just curious if youre hearing anything consistently from your.
From your leads.
It's all of the above Stephen because really what happened was six months ago or nine months ago, a seller at an expectation of generating a certain return on an asset.
And a buyer thought that they could buy an asset with an interest rate and availability of capital at a point, where it made sense for the buyer and the seller well.
The gap has widened materially right now and I think there is a lot of people waiting on the sidelines and we're seeing that in our investment management business in spades.
In investment management, there is always a.
Cell.
And asset sales program that happens in the ordinary course of its business and right now we're slowing that process down because the returns that we would get on the sale of assets.
Our lower end.
In November than they were in February .
So and we have first class assets and believe that the values will return one way or the other over time.
Just to make an extra point.
Sure.
Alternative asset classes, our revenues really reset annually. So we do have a buffer against rising interest rates and so on so so buyers will buy our assets faster than they might those that have a lot of fixed rate lease terms in place.
In the more traditional real estate asset classes.
Okay, well that's great. Thanks, Thanks, so much for the color I appreciate it.
Thank you.
One moment for our next question.
Our next question comes from Daryl Young with TD Securities. Your line is now open.
Hey, good morning, everyone.
I have a two part question around.
On the investment management business.
You mentioned the capital raising was slightly tougher.
Currently, but as you look out to 2023 is there a pipeline you can speak to in terms of new funds in the market and how those might evolve next year.
Then just secondly on the valuation of the.
Of the portfolio.
<unk> is there any mark to market risks that we should be considering next year.
Okay. So ill, let Christian handle the second part of that question, but the first part of the question is.
You're seeing it and hearing about it everywhere that.
That fund raising right now is softer than it has been.
There's a whole bunch of reasons for that it's not just high interest rates and higher interest rates and things like that.
But what we're finding is that.
We're doing better than most.
Number one.
And.
And number two I think I think in terms of.
The pipeline of.
Prospective investors for for for our group our group of.
Invested companies.
Is massive right now so way bigger than it has been in previous years.
Just for the most part have not yet made final commitments. So.
We are optimistic that the quality of our our asset classes are such that we will generate more than our fair share of capital.
But as Christian mentioned and as I believe it is prepared remarks.
We'll probably be slightly less in capital raising in the aggregate.
In this current year than we were last year.
But not materially so but the pipeline.
Of new opportunities going into 'twenty three as is.
Bigger than it's ever been for us.
Christian do you want to yes, so so it to answer your question Daryl on valuation.
We invest in private real estate and real assets.
Those assets are marked to market quarterly.
They are not subject to public variation public market variation.
Like some other asset managers and our competitors in the commercial real estate space, who have a significant amount of their portfolios and publicly traded assets.
So for US we look at valuation on a quarterly basis basis. It is done.
We are using third party services.
And mark to market.
On that basis as.
As Jay mentioned the assets in our and our portfolios are defensive.
And that they have the ability to reprice the rats frequently thinking.
Think about student housing, where the rents reprice annually.
Seniors housing, where there is a level of attrition each month in the portfolio and those those rents can be repriced frequently.
Thus there is a level of inflation protection, there and an ability to reprice those those rents.
And maintain market values.
And those just a couple of examples but throughout our alter.
Alternative portfolio in our infrastructure portfolio.
We have the ability to maintain market values of our.
Of our of our portfolio. So we don't expect any significant changes.
In our portfolio from a mark to market perspective, certainly not an adverse mark to market perspective.
The coming quarters.
Okay, Great and then maybe just one more staying on the theme.
<unk> might.
It might be a little bit early days to talk about integration and synergies, but when I look at all the deals you've done.
I Wonder if there is potential for margin upside compared to.
But it would seem on each individual business. If you think you can get some synergies from integration of sales and marketing efforts or if there is upside to the consolidated platform in the years to come.
Well for sure upside in all of that but it's going to take time to.
Two to generate that.
You are talking about consolidation consolidating things like distribution and back office and things like that.
But I think we can we can have some early wins around working with some of the platforms and bringing their margins up to more appropriate levels.
For a variety of reasons and based on some experience we have internally of doing that.
So thats, where our focus is near term and we're hoping to be able to do a little bit of that but.
For the past in the past quarter as an example, the margin in our iam business not counting.
Promotes was circa 47%.
So a pretty high margins to start with and that's one of the benefits that we have in that business.
Got it okay I'll hop back into queue, thanks very much.
Thank you.
One moment for our next question please.
Our next question comes from Frederic Bastien with Raymond James Your line is open.
Good morning, guys.
Wondering if.
Harrison Street, and the <unk> businesses that you brought on or are they in the process of raising capital currently and if so can you can you update us update us on how the fundraising is going.
Yes Fredric.
We are almost constantly in the market raising capital.
I can tell you we have.
A number of funds.
Currently in.
In various stages of the capital raising process and.
Some of the perpetual funds are perpetually raising capital as they as they expand.
Over time.
Not really at Liberty to talk about specific funds, but.
That's the general.
The general.
View.
Is it conceivable then that you could exit the year with.
A number an AUM that's a lot higher than the 92 you reported.
Are you disclosed.
I would say higher iron ore a lot is a relative term.
How do we do as we enter the final quarter of the year.
Okay and then.
Discuss you talked a little earlier about the promotes that are.
To bringing the margins down on the investment management side.
I guess the margins were consistent what you posted in the second quarter, but they are a bit below the 40 plus percent that you've been sort of guiding us towards is it is it a function of those promoters or and what can we expect.
And the next couple of quarters.
Yes, Fredric, we didn't have any carried interest in the in the third quarter.
So our margin in the third quarter was 38%.
And we brought on a couple of new acquisitions in the quarter.
That's having a bit of an impact on the margin mix there but.
Our view would be that.
Excluding carried interest.
We will.
Certainly look to enhance our margins over time.
As well and back to your question about capital raising there is tremendous operating leverage from raising new funds.
<unk>.
That will help us over time.
Since our margin profile in this business as well.
I'm sort of same line of thinking with respect to valuation. So just wondering if given the opportunity to invest an incremental dollar today would your favorite buying your backyard stocker still deploy it on M&A.
Or both.
Well the answer is clearly both.
But based on where we're currently we're currently trading.
Yeah, no it should be open field running on our our buying back our stock to be honest, but.
It's always a balancing effort because this is a near term.
This is a near term decision versus a long term decision when you when you.
And an important element to your business for the long term.
Okay.
Thanks for thanks for your answers thanks.
Thanks Carter.
One moment for our next question please.
And I have a follow up with Michael <unk> with Scotiabank. Your line is open.
Hey, guys. Thanks, Thanks for the follow up.
Question on the margins.
Obviously, there was some compression in Americas and EMEA in Q3 that was offset by a gain in corporate but year to date. Your EBIT margins are up 40 basis points of that implies EBITDA margins will be up in Q4 versus last year. So again, just trying to get a sense.
If that's all investment management.
If theres something in corporate again or generally what you expect in trends in the regions.
Yes, I think all of the above.
Michael.
I think.
We do expect to have some.
Operating leverage.
From the existing operations in the on a full year basis.
But.
The majority will be from the.
The acquisitions and as we've talked about.
The investment management acquisitions are are very high margin relative to the other service lines and that is.
The key driver.
Okay anything thing specific Christian on the corporate side.
For Q4.
Yes, I mean, I think the biggest one is going to be that variable incentive compensation.
And certainly last year was it wasn't outsized year and this year will be more modest in terms of the incentive compensation.
Okay that makes sense and last one sorry, guys, but for leasing I imagine there is some cyclicality related to that business, but you previously pointed to some strengthen in office given some of the dynamics there in the last couple of years, especially with the pent up demand.
As several renewals got pushed back so how much runway do you think you have in office from pent up demand.
That could potentially offset some of the other categories. If we do head into a slowdown.
Yes, that's a good question Michael.
Office leasing has been challenged.
Over the last couple of years.
I think this quarter, we finally broke through the 2019 levels. So our ops leasing levels are actually above.
Q3, 2019 for the first time.
And there is a significant number of lease maturities.
Coming due in 2023 and occupiers are going to have to make decisions about their premises and that will be an opportunity for our teams to too.
Help our clients and negotiate new leases and generate revenue so.
I think our office leasing has some some pretty good dynamics at play for those reasons.
And industrial leasing.
<unk> to be.
An area of strength in it.
And should.
Yes.
The Brazilian.
As well at least in the coming quarter or two.
Perfect. Thanks, guys.
Thank you.
Follow up with Daryl.
With Daryl young with TD Securities. Your line is open.
Hey, just one more for me.
Respect to hiring on producers I think historically in the Americas <unk> had a bit of a margin drag.
<unk> staffed up just before.
Before they become fully productive.
And maybe some incentives to bring them over is that the dynamic we should consider across 2023.
If you do.
There is opportunities for good people.
Yes.
<unk> of that business.
That's the nature of that business for sure, but we're so big.
Globally, and the percentage of recruiting that actually happens.
Again, it's a small percentage of our overall broker.
The group I mean, we might have.
One of the exact number but circa 5000.
Revenue producers globally.
It's a small percentage three 4% that we might.
Recruit on an annual basis. So it's all factored into our numbers as we present them in as we budget for them.
That's perfect thanks very much.
Thank you I am currently showing no further questions at this time I would like to hand, the conference back to Mr. Hannah for any closing remarks.
Thank you very much operator, thanks, everyone for joining us on this third quarter conference call.
Looking forward to.
Two our fourth quarter.
Obviously, the biggest quarter for for Colliers and.
It will be in February so thanks for participating and thank you operator for coordinating this call.
Thank you ladies and gentlemen. This concludes today's conference call. You may now disconnect everyone have a wonderful day.
Okay.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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