Q4 2022 Colliers International Group Inc Earnings Call
Speaker 2: Welcome to the Colleague's International Fourth Quarter Investors Conference call. Today's call is being recorded. Legal Council requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risk and uncertainties.
Speaker 3: 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 forward-looking statements is contained in the company's annual information form as filed with the Canadian Securities Administrators and in the company's annual report on form 40F as filed with the U.S. Securities and Exchange Commission.
Speaker 4: As a reminder, today's call is being recorded. Today is February 9th, 2023. And at this time for opening remarks and introductions, I would like to turn the call over to global chairman and chief executive officer, Mr. Jay Henig. Please go ahead, sir.
Speaker 5: Thank you, operator. Good morning and thanks for joining us for this fourth quarter and your red conference call. I'm Jay Henning the chairman and chief executive officer and with me today is Christian Mayor of Chief Financial Officer.
Speaker 6: As always, this call is being webcasts and is available in the Investor Relations section of our website. A presentation slide deck is also available there to accompany today's call.
Speaker 7: During the fourth quarter, investment management and outsourcing and advisory delivered strong revenue growth, while leasing match the record results from the prior year period.
Speaker 8: As expected, interest rate volatility and challenging debt markets impacted capital markets in our seasonally strongest quarter.
Speaker 9: We expect this to continue through the first half of 2023.
Speaker 10: However, transactions are still being completed and there's significant pent-up demand for real estate assets, which should translate into additional volumes in future quarters, especially as conditions stabilize.
Speaker 11: Aside from capital markets, momentum from the balance of our business is better than expected as you'll hear from Christian.
Speaker 12: Strong, full year performance was driven by high value recurring service lines, which continues to validate our strategy of transforming callers into a different kind of diversified services company.
Speaker 13: With our globally balanced and highly diversified business, significant recurring revenues, and proven track record of capitalizing on opportunities, Collier's is stronger and more resilient than ever.
Speaker 14: Earnings from high-value recurring revenues now make up about 58% of our pro forma EBITDA, and this is growing.
Speaker 15: Last year we completed a record $1 billion in acquisitions across our global enterprise. These acquisitions not only strengthen our core, but they also create additional opportunities to drive shareholder value.
Speaker 16: An investment management, a segment established only six years ago. We finished the year with total assets under management of $98 billion.
Speaker 17: placing callers amongst the top global players in the alternative private capital industry.
Speaker 18: One of the most important attributes of this business is that 85% of our assets are in perpetual or long-dated funds, 10 years or more.
Speaker 19: These revenues are very stable and have grown historically year over year and we expect this to continue in the future.
Speaker 20: As you might remember, in 2020, we announced our Enterprise 25 Growth Strategy.
Speaker 21: The goal was to double our profitability and generate more than 65% of our earnings from high-value recurring revenues over the following five years.
Speaker 22: Last year was the second year of our plan and so far were well ahead of our targets.
Speaker 23: If we're able to achieve this, as we've done in the past, it will be excellent news for shareholders.
Speaker 24: Paul Ears has a highly respected global brand and growth platform.
Speaker 25: We have a well-balanced and highly diversified business.
Speaker 26: with a unique, enterprising culture and leadership team who have a significant equity stake in our company.
Speaker 27: The combination of these characteristics truly sets calliers apart from the rest.
Speaker 28: But perhaps most importantly, we have a 28-year track record of delivering 20% annual growth in share value to shareholders.
Speaker 29: A track record we are very proud of.
Speaker 30: Now, let me turn things over to Christian.
Speaker 31: Christian?
Speaker 32: Thank you, Jay, and good morning. My comments will follow the flow of the slides posted on the Investor Relations section at colliers.com accompanying this call.
Please note that the non-get measures referenced on the call are defined in today's press release.
All references to revenue growth are expressed in local currency.
Our fourth quarter revenues were 1.2 billion relative to 1.3 billion in the prior year period.
Revenue is wrapped strongly in our recurring outsourcing and advisory and investment management service lines.
Our leasing operations were up 3 percent, benefiting from continuing activity in office and industrial leasing.
Capital markets, as Jay mentioned, declined across all regions, reflecting the impact of higher interest rates, reduced availability of capital, and due to geopolitical uncertainty.
On an overall basis, internal revenues declined 11% entirely on lower capital market activity.
Adjusted EBITDA for Q4 was 203 million, up 6% from 1 year ago, with margins at 16.6%, up 230 basis points relative to the prior year forward.
The margin improvement primarily reflects service-mix shift toward our high-margin investment management operations.
America's fourth quarter revenues were 679 million down 16% relative to the prior period.
Outstrosing advisory was up 9% driven by engineering and design, including recent acquisitions.
Leasing activity matched the record results from the prior year of order.
Capital markets, including debt origination, was down 51% relative to record volumes in the prior years seasonally strongest fourth quarter.
Adjust the EBITDA with 83 million down 12% from last year.
The margin in the Americas was 12.2% of 60 basis points, reflecting lower average commission levels, lower performance-based incentive compensation, as well as careful control of discretionary costs during the quarter.
Q4 and MIA revenues were 228 million, half 8% from one year ago.
Project management activities up across the region as releasing transactions.
Adjusted EBITDA was $36 million versus $42 million last year with a margin primarily impacted by service mix with a higher proportion of project management revenues at modest margins.
Asia Pacific revenues were 194 million down 3%. Capital markets revenues were impacted by industry volatility and continued COVID restrictions in Asia.
while leasing improved in both industrial and office asset classes.
Adjust the Badawa's 34 million for relative to 38 million in the prior year of concept of a forest with 170 million death rate correctly.
Fourth quarter investment management revenues were $121 million, up 53 percent.
excluding pass-through carried interest, revenues were at 87% driven by acquisitions and management fee growth from increased assets under management.
Adjusted EBITDA for the quarter was 53 million up 88%.
to the relative to the comparative border.
for reference.
Our reported adjusted EBITDA is equivalent to fee related earnings or FRE that many pure play IM firms report since our IM earnings are generated from recurring management fees.
Fund raising across our platform for the full year 2022 totaled 8 billion.
This was a relatively strong result when compared to the general slowdown in capital allocation by investors across most real estate asset classes.
We have a strong fundraising pipeline which we hope will derive internal AUM growth of 10 to 15% in 2023.
As of December 31st, we had $98 billion of AUM.
Our fee paying AUM is now $53 billion.
As I noted last quarter, the private and defensive nature of the real estate and real assets in our portfolio brings stability to our AUM.
Our financial leverage ratio at the December 31st defined as net debt to perform on the Justin Evadot was 1.8 times.
We expect our leverage to be 1.8 to 2 times for the first half of 23.
declining to the 1.5 times range in the second half.
As previously noted, the target leverage range is between 1.2 times, and we are comfortable exceeding this range temporarily if a compelling acquisition opportunity becomes available.
We have provided an initial outlook regarding our financial performance expectations for 2023.
Our outlook includes all acquisitions completed today and incorporates our best information for each service line and geography.
There are three broad themes to our outlook.
One, recurring investment management revenues are expected to grow significantly from continued capital raising for several products we have in the market right now.
as well as the annualization of recent acquisitions.
2. Recurring, outsourcing, and advisory operations are expected to continue to grow organically.
as well as from the annualization of recent acquisitions.
And three, we expect capital markets activity to be down 20 to 40 percent during the first half of 23 relative to strong prior year preparedness.
with a return to your rear growth in the second half.
We expect to maintain discipline cost and troll through this period with tight management of discretionary expenses.
And by gearing our support and administrative staffing levels to match expected revenues.
This other look is subject to a risk of uncertainty without the line on the accompanying slides.
That concludes my prepared remarks.
I would now like to open the call for questions. Operator, and you please open the line.
Thank you. As a reminder, at the K-Question, please press Star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press Star-1-1 again. Thank you.
Our first question comes from Michael Dumas with Scotia Capital you may proceed.
Hey, good morning, Jay and Christian. My first question, I wanted to dig into the 2023 EBITDA guidance just a little bit. My math tells me, assuming 100 million of incremental EBITDA from the deals that you have closed at the midpoint of the 23 EBITDA guidance.
essentially implies flat organic EBITDA. So first, is that thinking correct? And then second just broadly is the idea that you know leasing ONA and IM effectively offset capital markets.
Great question, Michael. First off, the EBITDA from the Analyzation of Acquisitions is more like 75 million, not 100 million.
So you need to dial that into your organic growth assumptions, which will take those assumptions a bit higher.
That's my key observation to your comment. As it relates to capital markets, of course, I vote line that we expect to be down significantly in the first half, which will translate to being down in that particular service line by 10 to 20%.
on a full-year basis. The other parts of the business, outsourcing and advisory and investment management, have significant organic growth baked in to each of those areas as we continue to grow organically and generate new business in those segments.
Thanks, Christian. That's a great outlook. And then maybe just flipping to the Americas here. So we saw margin expansion there, despite the contraction and revenue. You highlighted lower commissions incentive comp and discretionary spend. Just wondering, you know, how we should think about the sustainability of the margin expansion there through the first half of 23 given. 2014.
the anticipated declines in capital markets. Look, when you have significant declines in revenues, they're going to have some margin compression.
We're getting our best to manage costs. We have
highly skilled operators in the field that have done this before. 3 years ago, we lived through the pandemic and we took a very disciplined approach to cost management. And we're doing the same in this situation. So, we're going to do the best we can to maintain those margins, but there will be some.
margin compression, of course, as revenues decline at those levels we talked about in the first
Perfect, that makes sense. Those are my two guys.
Thank you.
Alright, this question comes from Stephen Sheldon with William Blair in Company who may proceed.
Okay, thanks. And just to start off with, just want to commend you on continuing to give guidance for the year, which is, you know, is pretty rare in this industry. But the first question on capital market.
Now, you kind of mentioned this in your commentary, but just want to dig in. I guess, are you seeing any signs of deals getting pulled or canceled altogether, or does this truly seem like a timing delay where transactions are taking longer and where there could be a wall of pent-up activity they could unlock in the second half of this year?
potentially into 2024? Well, I think it's definitely transactions have been canceled. And for all the reasons you'd expect, interest rates, availability of capital, near-term expectation that a building was worth X dollars.
six months ago and it's worth substantially less today.
But there is huge pent-up demand, at least we see it. We see it in Europe actually, the smaller transactions, the smaller buildings are moving, are trading. But we think there is a big pent-up demand of real estate assets that want to trade, but they still need a period of time to stabilize.
and stabilize both on both sides. I think higher quality assets will trade sooner than lesser quality assets, but there is a lot of discovery happening. It's not just price discovery.
clients looking at portfolios or ways to acquire two or three assets from a seller who might be under a little bit of financial pressure. So I would say our capital markets people are busier today than they've ever been before.
Got it. The tell full. And then just as a follow up for investment management, great friends and fundraising AUM.
I guess just at a high level, what do you attribute that success to? And is that AUM grow? You have a lot of different assets and businesses there now. I guess that AUM growth pretty broad based across the different businesses you have in there, just any more detail on that.
Yeah, I mean it is broad across all of the
the asset classes, you know, we're in very attractive spaces, alternate assets, infrastructure, traditional real estate, multi-family, et cetera, and we do a little bit of credit as well. But, you know, the thing that really surprises a lot of people.
is that there is in addition to the fact that, and I commented about this in my comments, that we have a lot of perpetual and long dated funds, you have to remember that the LPs, and for us, most of the LPs are...
big institutions. We have just under a thousand LPs, a very little direct to retail at this point, although something we're working on. But these LPs have known us and our platforms for a long period of time. So
They move from one fund to another as the closed-ended funds mature and a new fund is initiated. They move from fund to fund. So in addition to the fact that there are long-dated strategies closed-ended funds.
It's the same investors that are going from fund to fund to fund. So there's a wonderful cadence of recurrability to this business and we're enjoying it now. It's cadence that only continues.
If we continue to deliver top tier performance to our clients, and that has continued through all of the platforms that we have.
And, you know, I think there's a lot of reasons why that happens. Part of it is, of course, that we have selected carefully, but part of it also is that we're partners with the people that make it happen every day. And they have a significant vested interest in continuing to deliver.
top-tier performance to their clients. Probably more than you wanted to hear, but at least it gives you a little bit more color.
Now that's really helpful. Thank you.
Thank you.
Our next question comes from Stephen McLeod with BMO Capital, you may proceed.
Thank you. Good morning, guys.
I'm going to stay with you.
I just wanted to turn a little bit to leasing, which you've highlighted in your 2023 outlook, expected to be sort of stable and was stable in Q4. And I'm just curious if you can talk a little bit about some of the factors that give you strong visibility into leasing.
trends in net 2023.
You know, we've said this for a long time. And, you know, I think if you go back really to the fundamentals of leasing, a leases five years, ten years, seven years, whatever the lease term is, and during COVID there was a period of time when...
Landlords because of the uncertainty would extend lease terms for a year or two well people Well their tenants got comfortable with you know, what's the new paradigm? Which by the way, I'm not sure they're comfortable still yet on what the new paradigm is
But ultimately, leases have to be renewed, extended, a move has to take place. And so there is a repeatability to leasing that you don't necessarily have, for example, in capital markets. So...
You know, we were not surprised to see Leasing give or take the prior year. I think we were happy to see it. But Leasing has got some interesting repeat qualities that are not really seen.
by most people.
Great. Thank you. That's helpful. And then just on turning the capital markets, you know, just wondering if you can talk a little bit. I know you gave some color j, which I appreciate. But just wondering if you can talk a little bit about how you've seen capital markets evolving in Q1 if at all different.
in a material way from Q4. Just it feels like there's a little bit more rate stability now than there was in Q4. So I'm just curious if you had seen some sequential improvements in the capital markets business.
Well, Stephen, it's pretty early to comment on Q1.
But, you know, certainly the trend from Q4 was down meaningfully year over year relative to in particular the Americas record volumes in Q4 of 21.
Q1 of 2022 was a pretty strong quarter too. So the comparative is tough. And as I mentioned, we do expect cattle markets to be down in the 20 to 40 percent range and aggregate in the first half. So I think what we're saying is that...
Capital market activity continues to be challenged and we expect it's going to be challenged in the first quarter and in particular larger assets are not really trading right now. You know that does that mean.
that part of the market is not very active. Other parts of the market, we are seeing some activity, but overall it's going to be down like we said. Then you just finally highlighted the strength of the balance sheet, which I think is a huge asset in a market like this.
and long-term as well, as well as the capital deployment that you've put towards acquisitions over the last 12 months. Can you talk a little bit about what you're seeing with potential acquisition opportunities? And then, Christian, just to follow up, you mentioned the leverage target. I'm so wondering if you could repeat that because I didn't quite. Can you keep to there for our own matter to make more growing?
pick it up in your paper marks. You want to talk about your charge? Yeah, I'll start with a leverage target and then J will turn to acquisitions. The long term leverage range for us is one to two times, but we are comfortable exceeding two times temporarily if an acquisition opportunity comes available.
In terms of acquisitions,
We've got a
You know, with a billion dollars of acquisitions done last year, we could actually rest.
and collect the cash flow that we generate from our business, which is extensive. Our cap acts as a percentage of our EBITDAs relatively small, so we generate a lot of free cash flow in this capital-like business. But as we have done historically, we've set...
a target of another $65 million ish in incremental EBITDA and acquisitions for 23. And the beauty is they're all over the board for us. I mean, lots of opportunity and services really around the world.
And there's even an opportunity in investment management in a couple of areas as well. But I would say the services portion of our business has got tons and tons and tons of room. And as I've been saying, Stephen, for so long,
having a global platform with exceptional management teams around the world who've been with us for a long time and are heavily incentivized through share ownership and other things gives us the ability to execute on acquisitions virtually anywhere in the world and properly integrate them and you know we've been doing this for a long time so
you know, we're going to, for us, it's going to continue to be business as usual and and acquisitions will continue to be part of our overall growth plan.
Thanks, Jay. Thanks, Christian. And congrats on the Great Quarter.
Thanks, Christian, and congrats on a great quarter. Thanks.
Thank you.
Our next question comes from Darryl Young with TD Securities, he may proceed.
Good morning everyone and congrats on a good result. First question, the margins and investment management, they took a bit of a step higher this quarter. I think you've alluded to the potential for those to be sort of 50% or higher in the future. Is that going to come mostly from the organic fundraising and operating leverage or should we...
We're taking it on an incremental approach. I think the 50% margin target is a few years away for us, but certainly, 45% is well in reach for 2023.
Okay great.
And then in terms of engineering and property management both going very well, have you seen any indications that financing costs or just construction costs in general or are slowing the outlook for engineering?
Or is there anything to see there? It seems like it's just continuing – construction activity just continues to be exceedingly robust.
Very robust and in particular, the infrastructure spending everywhere is really driving engineering. I don't have the percentages of our business handy, but I would say that the majority of our revenues are...
things like infrastructure, rebuilds, everywhere, new development, everywhere, and that's really driving the growth of our engineering platform.
Got it.
And there was just one point of clarification to Steven's question. I think you mentioned 63 million of targeted EBITDA. That would be above and beyond the guidance that was just put out.
Yes, Daryl, I think Jay mentioned 65 million of incremental EBIT that could be as targeted as our acquisition goal for the year. That will be, you know, that'll happen when the acquisitions happen and we'll update.
you at that point, but certainly the yellow-bringed reduc... We haven't front of you today does not include any acquisitions.
Alright, I'll get back in the queue.
Thank you.
Our next question comes from Chadney Luther with Goldman Sachs, you may proceed.
Hi, good morning. Thank you for taking my question. So this is sort of trying to dig deeper into one of the questions that was already asked on guidance. How much of your 2023 revenue and earnings guidance is driven by acquired businesses, rolling up where obviously there is less risk versus...
astute one. As I mentioned earlier on the call, about 75 million of the UBITDA
comes from the utilization of accession completed in 2022.
And out of that $50 million, sorry, out of that $75 million.
50 million is investment management, which we have extremely high visibility on. And the remainder is a combination of the other services, which includes a little bit of capital markets, but also significant amount of property management and engineering business.
Fair point. And then you guys talked about strong fundraising pipeline, which you expect to drive AUM growth of 10 to 15 percent in 2023. What's the composition of this incremental AUM? Will this be ORS? Will this be traditional? Or will this be...
infra, and what sort of conversations are you having in this environment that's driving such strong fundraising?
Well, it's all over the map based on the strategies that we're in the market raising capital on. So I don't have the exact breakdown in front of me, but across the board, whether it's Harrison Street brought with the salt.
versus Collier's Global Investors all are in the market raising their next vintage of funds. There's one or two new products. New products generally raise less incremental dollars.
but vintage products generally do much better than that. So, you know, the expectation that Christian talked about in his prepared remarks are, you know, I would say significantly existing products re-ups.
Excellent. Thank you so much. Thank you. As a reminder to ask a question you will need to press star 1-1 on your telephone. Our next question comes from Frederick Bastion with Raymond James. He may proceed.
Good morning guys.
I can confirm that.
I can confirm that the demand for engineering services is unlike anything I've seen in my 20 years covering this space. So pretty bullish on that particular end market. Now given this, are you not tempted to dial up the M&A?
I mean, I know you've been quite active there, but I think I am, took a focus, took a large part of your efforts.
and attention in 2022. So how do we think about that particular sector and the growth prospects in the next couple of years?
Well, you've known us a long time and we try not to sleep too much, but engineering and project management has gone from virtually nothing in 2018-ish to something that's approaching almost a billion dollars in revenue for us.
There was also an acquisition in the UK during this past year. So we are very active. And if you have any opportunities that you think we should take a look at, we're always open to speak to anyone you want.
No, no, thank you, Jay.
The other question is more along the more clarity around that. You know Christian you noted you guided towards a 20 to 40 percent decline in capital markets.
do you expect that to be evenly weighted between Q1 and Q2? And then secondly, are there regions where is it evenly spread among your three regions or will one region feel it more in particular?
Frederick, I'm not sure I want to get into the particulars around Q1 and Q2. Let's just say that we think it's going to be down 20 to 40 in the 1st half. But, you know, as we've said, those were strong quarters last year and tough comparatives. And as it relates to the regional question, I think you'll.
with the situation in Ukraine. So, I don't expect the year of your variance in Namibia to be that significant. And as you look at Asia PAC, we had the COVID issue in Asia in the first half of last year.
that was impacting our activity levels, so I don't think the variances there are going to be as significant either. The reg is really going to be focused on the Americas.
Okay, thanks. That's helpful. Pretty consistent with what I was expecting.
Thanks, I'll leave it. Great results, great guidance. Very happy.
Thanks.
Thank you.
This concludes the Q&A session. I'd now like to turn the call back over to Jay Henning for any closing remarks.
Thank you, operator, and thanks everyone for participating in our fourth quarter year-end.
year end conference call. We look forward to speaking to you again at the end of the first quarter and we'll see how we do in Capital markets have a great day
Ladies and gentlemen, this concludes the conference call. Thank you for your participation and have a nice day.
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