Q3 2024 Colliers International Group Inc Earnings Call
Welcome to the Colliers International at 3rd Quarter Investors' Conference call. Today's call is being recorded. Legal Council requires us to advise that the discussions scheduled to take place today may contain forward-looking statements that involve known and unknown risk-sensitive.
Actual results may materially different from any feature 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 as 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 Change: As a reminder, today's call is being recorded. Today's Tuesday November 5th, 2024, 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 Hennick. Please go ahead, sir.
Thank you, operator. Good morning and thanks for joining us. As the operator mentioned, I'm Jay Hennick, Chairman and Chief Executive Officer with me today as Chris McLaren and CEO of our Real Estate Services segment and Christian Mayer, Chief Financial Officer.
As always, this call is being webcast and is available in the investor-relation section of our website, along with a presentation slide deck.
This quarter, Pauliard's realigned its operating segments to better reflect the future potential and value of our complementary growth engines. And we delivered solid growth across each one of them.
Engineering grew by 21% driven by acquisitions.
In real estate services, revenues and capital markets rose as strong 17% exceeding our expectations. Well, these things continue to grow nicely, building on last quarter's strong momentum.
and an investment management recurring management fee revenue showed a modest increase, though fundraising fell below expectations reflecting a trend seen across the industry.
We anticipate stronger fundraising in 2025.
Assets under management group by 2.4 billion during the quarter, rising from $96 billion to nearly $99 billion, which is very positive.
We also completed the acquisition of EndWorld, creating a substantial new growth platform in Canada.
After the quarter we added GWAL in Canada and printed Francis and TTM in Australia, continuing our growth trajectory in this segment of our business.
We'll be continuing to have a robust emanate pipeline that positions us well to continue to grow and strengthen our operations for the long term.
Over the past decade, Colliers has transformed one step at a time into a uniquely different integrated global professional services and investment management firms.
Through the callers way, we have continued to strengthen our commercial real estate operations around the world, while adding new road engines and service law finds to provide more recurring revenue streams and diversification to our successful business model.
Today, recurring revenues contribute more than 70% of our earnings, providing exceptional balance and predictability, driving greater shareholder value now and into the future.
With experience leadership, significant insight ownership, and a proven 30-year record of delivering 20% annualized returns for shareholders.
We expect to sustain mid to high single-digit growth going forward. And as we enter 2020-25, we expect further upside to come from improving capital markets.
Enhanced investment strategies and capital raising in our investment management business and continuing incremental growth through acquisitions across all segments of our business as we have been doing for so often in the past.
Speaker Change: Now, let me ask Chris McLaren to discuss some highlights and after Chris is completed, we will hear from Christian on his financial report. Chris
Chris McLaren: Thank you, Jay, and good morning, everyone. Call yours real estate services to live in another quarter of strong results.
Chris McLaren: Capital markets revenues rose 17% exceeding expectations and marking a second consecutive period of growth. We saw growth across the core asset classes of office up 77% retail up 53% in industrial up 19%.
Colliers transaction volumes are up meetingfully in the Americas and APEC regions supported by the recent softening of interest rates, improved lending conditions, and the narrowing of price expectations between buyers and sellers.
Data Regulation continued to show a solid improvement in the quarter with both agency and non-agency business performing well.
Speaker Change: Leasing continued to build on last year's last quarter's momentum, achieving a 6% growth in the third quarter led by EMEA and the US Regents.
In particular, Office Leasing was up 22% on the back of several large transactions during the quarter with strong performances in the UK, determining Poland and the US markets.
Chris McLaren: Most major markets are rebounding with rental rates stabilizing, demand for class A office space remains high as occupiers continue to focus on improving the employee experience and modernizing workspaces.
Our recurring outsourcing services, again delivered steady growth, have 5%. We are seeing increasing momentum in our valuation and advisory business, driven by the multi-family sector, and the increased activity in capital markets.
Chris McLaren: Our investments in our people and business which help us fill gaps and captured market share, we will continue to enhance our platform and deliver long-term value for our shareholders.
We continue to aggressively recruit and add talent and strategic markets to position ourselves, to benefit the improving transactional markets, in leasing and capital markets.
Speaker Change: This past quarter, time included collars on its list of world-best companies. In addition, we were named to Forbes World's Best Employers' ranking for the second year at a row, and are proudly the only global full-service commercial real estate firm on the list.
Speaker Change: These accolades speak volumes about our growth and ability to deliver at world-class experience for our clients and our professionals.
Speaker Change: Now I'll turn things over to Christian who will provide more details on our financials.
Speaker Change: Thank you, Chris, good morning.
Christian Mayer: He's noted all references to revenue growth made on this call or express a local currency and that the non-get measures discussed here today are as defined in the materials accompanying this call.
Christian Mayer: As noted by Jay, in the third quarter, we re-aligned our operating segments to better reflect our operations and the value and growth potential of each. A summary of historical results is available to be downloaded on our investor relations site.
Christian Mayer: 3.4 revenue is for 1.2 billion, up 11% relative to the prior year period.
Speaker Change: Each of our segments and service lines reported saw on revenue growth for the quarter.
Speaker Change: Internal growth is 5% overall and was led by capital markets, which was up meaningfully against a low-based and a prior year, particularly in the Americas and Asia Pacific.
The engineering segments internal growth was flat for the port due to the completion of several large project management contracts in the prior year period, which resulted in a challenging comparative.
Speaker Change: I just to even doubt that a third quarter was a 155 million, up 6% over the prior year.
Our margin for the quarter to clients lightly to 13.1% due to higher cap demand assurance reserves in our corporate segment and the margin delutive effect of past through performance fees in our investment management segment.
Speaker Change: Our Real Estate Services margin remained flat for the quarter, with operating leverage from higher revenues offset by continued aggressive recruiting in strategic markets.
Turning to investment management, we raised a total of 1.1 billion of new capital commitments during the quarter, bringing year to date fundraising to 2.6 billion.
Speaker Change: We now expect to raise about 3.5 billion for the full year, which is an increase of 15% over 2023. But below our expectations for 2024.
Speaker Change: We are in the process of deploying capital raised and have started to fund raise for new advantages, launching early next year.
Our highly differentiated direct private capital investing strategy with a focus on alternatives and infrastructure continues to resonate with investors and we expect fundraising velocity to increase in 2025.
Speaker Change: Assets Under Management increased 2.4 billion during the quarter to 98.8 billion. Growth was driven by fundraising, positive market adjustments and almost all asset classes.
Speaker Change: and Foreign Exchange Games in our European portfolio.
Speaker Change: Moving to our balance sheet, our financial leverage ratio defined as net debts or perform just the EBITDA with 2.5 times as of September 30th with about 0.5 turns attributable to capital deployed on the recently completed Anglo-Bak position.
Speaker Change: We expect leverage to decline to just over two times by year end as regenerate seasonly strong fourth quarter cash flows.
Speaker Change: We have revised our outlook based on our year-to-date operating results and our updated fundraising expectations for the fourth quarter as I noted a moment ago.
Speaker Change: With less than two months remaining in the year, our investment results, our investment management results, are essentially locked within a tight range.
Speaker Change: Our Real Estate Services Performance, particularly in Capitol Markets, is subject to greater variability as we approach year-end and could lead to the higher end of the O'Log range.
Speaker Change: Our expectation for adjusted earnings per share growth is being impacted by the mix of earnings and higher than planned depreciation expense, do mainly two technology investments.
Speaker Change: Let me take a moment to put this year's financial performance into context. In real estate services, we are encouraged by the beginning of the rebound and capital markets, albeit from a low-based last year.
Speaker Change: Lee's thing continues to show solid momentum and we've been taking advantage of Mark conditions to recruit aggressively.
Speaker Change: Our engineering business is poised for internal growth based on our current back level work, as well as incremental earnings from acquisitions completed this year.
Speaker Change: Investment Management has demonstrated consistent, resilient earnings, despite challenging fundraising during the past two years. But we expect conditions to improve in 2025.
Speaker Change: In summary, our three businesses are well positioned for the years ahead.
Speaker Change: Back in fluids, my prepare remarks.
Speaker Change: Well now open the call for questions. Operator, can you please open the line?
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, followed by the one on your touch-toe phone. You will hear a prompt that your hand has been raised. If you're using a speaker phone, please lift the handset before pressing any keys.
Speaker Change: Your first question comes from Stephen Sheldon at William Blair. Please go ahead.
Speaker Change: Thanks.
Stephen Sheldon: First, can you just walk through the moving pieces for the profit guide reduction? How much of that is due to lower fundraising and expected profit in IAM? And it also sounds like you're reinvesting an RES to support your growth outlook there. So maybe how much more you reinvesting there may be relative to what you do?
Speaker Change: Included in the guidance last week, just more detail on the moving pieces of the profit guide.
Speaker Change: Yes, Steven. So I think as we noted in our comments and in the press release.
Speaker Change: The adjustment to the earnings outlook is entirely due to investment management, fundraising.
Speaker Change: and do you have more color on investment management? Know the capital commitments.
Speaker Change: that are generated in a given year.
Speaker Change: become a creative to revenues in a modest way and to keep it done very significantly because of the higher commemoration margins on this, you know, in the range of...
Speaker Change: 40 to 50 percent in Caronsel-Eva, Tom Merge. So that is very impactful to our earnings and with our...
Speaker Change: Fundraising Outlook and now we've got three quarters completed at our outlook for Q4. We have adjusted that accordingly and that's really what's driving the change in the outlook.
Speaker Change: Got it. And then maybe for Chris on the leasing side, you know, little bit of desoloration there, this quarter, a little bit of the growth rate still, they're good.
Speaker Change: I think some of your peers have reported continued acceleration there. So anything to call out there and just generally how are you thinking about the outlook for leasing growth in the fourth quarter and heading into next year and would also less in commentary I'm what we're seeing. You can take some good commentary on office. What do you see on the industrial side?
Speaker Change: Yeah, so we had a pretty good quarter for these things, but on the back momentum of the previous quarter.
Speaker Change: We're seeing some larger deals starting to come to market. There's been some hesitation over the last few years, but now there's some confidence in the economies of some of these bigger decisions being made and we're seeing that in some transactions at call yours.
Speaker Change: Certainly the trend is the Return to Office continues.
Speaker Change: and that through mandates or just through people wanting to get back.
Speaker Change: Be in a cultural situation and share time with employees. So that's all positive and then we're seeing that definitely trend of going to the prime space. You know, there has to be more than experience space.
Speaker Change: and the needs to be a metadise and it needs to be sent to be located. So we're definitely seeing across the globe and all regions in an uptick, in office leasing and based on the confidence of their business models and the general economy.
Speaker Change: In terms of industrial leasing, we had 8% increase in the US in the...
Speaker Change: in the third quarter, it's our largest market for industrial leasing. So that's...
Speaker Change: A good sign, but you know, generally you're allowed around the world. There is a hesitation from tenants.
Speaker Change: to sign leases. There's been more vacancy on the market so it takes more time to look at the alternatives. And then there's also the hangover from this real build up and taking space from the COVID-Ecommerce period.
Speaker Change: but the final mental long-term recovery strong for industrial with e-commerce continuing on-shore and near-shore. So we're feeling that there'll be more than equilibrium in the industrial leasing by mid 2025.
Speaker Change: Got it, very helpful, thank you.
Speaker Change: The New York Times.
Speaker Change: The New York Times,
Speaker Change: Thank you ladies and gentlemen, as of a minderish, do you have any questions? Please press star 1.
Speaker Change: Your next question comes from Jenny Shan at RBC Capital Markets. Please go ahead.
Jenny Shan: Thanks, just on the fundraising with an investment management, some of you peers are talking about
Jenny Shan: Better asset monetization environment, which eventually lead to better fundraising, which it sounds like.
Jenny Shan: That's what you guys are saying. They're just wondering, do what extent are you seeing the same with the funds that are close to end of life? And then what does your 2025 fundraising pipeline? Fundraising pipeline look like?
Speaker Change: We have been deploying capital this year, but we've also been, and we know that we know that it's a last quarter, it's also been harvesting gains in our portfolios.
Jenny Shan: So we do have certain older-grin-age funds that are nearing the end of their lives and those are...
Jenny Shan: Funds where you take the opportunities to selectively sell assets and realize those gains and return that capital to investors. That's the capital cycle and it certainly facilitates future fundraising for us.
Jenny Shan: and we did have some more of that activity in the third quarter. We expect that activity to continue, you know, to play new capital and also harvest gains and realize gains on existing investments and recycled that capital to investors.
Jenny Shan: and that will lead to additional fundraising going forward because that is a very positive signal, obviously for our LPs.
Jenny Shan: In terms of our 2025 fundraising outlook, we'll talk about that in February when we deal with their year end results in our 2025 outlook.
Jenny Shan: Ok.
Jenny Shan: in terms of the Real Estate Services margin.
Speaker Change: wanted out the flat margins, I was like it's aggressive recruiting. So how do we think about the operating leverage going forward now with a few teams of recovery who expect that? How do we think about that margin?
Jenny Shan: i
Speaker Change: So our real estate service does this just to pull back a bit here. We've got leasing capo markets and outsourcing. Three different service lines.
Speaker Change: are leasing in capital markets business as we generate additional revenues there. We do expect incremental margins in the order of 20% on an incremental revenue dollar.
Speaker Change: and the data. When you look at the researchers segment, it's muted somewhat by the Department of Intelligence coming from valuation or from property management, which are more modest in nature.
Speaker Change: The New York Times.
Speaker Change: The New York Times,
Speaker Change: Okay, so like if we see a decent amount of recovery within leasing and capital markets, you know, unlike this quarter, we should probably see improvement in margin.
Speaker Change: I would expect that that's slowly in the fourth quarter and as you know, the Q4s are seasonal peak quarter, so the margin is always higher in that period. And you know, in the end.
Speaker Change: and the margin should be, should be higher, absolutely.
Speaker Change: Okay, and then last question, just again, some of you appears to have called out sort of big growth in the mortgage origination business, you know, in, you know, in,
Speaker Change: To the way I know you guys have backed up in terms of producers and sounds like you were under your lies. How big of a business do you see that being? And again, how do you see that recovering within this year?
Speaker Change: The New Year's Day,
Speaker Change: Let me try that one. You know, we have this movement, we have made some heavy investments.
Speaker Change: 2018 months ago.
Speaker Change: in retrospect probably a little bit too early.
Speaker Change: But we have 16070.
Speaker Change: Producers in the in the dead capital division of our company, which was which is significantly more than we've ever had before. And we're seeing a return, albeit slower than we'd like.
Speaker Change: But when things come back to normal and you know, as capital markets picks up in particular.
Speaker Change: We should see a lot of incremental activity through that business. Already this year, their numbers internally are up significantly over last year.
Speaker Change: and it really does move with capital markets. So there's more capital markets, transactions both sides.
Speaker Change: will be a lot more debt, which means that we'll generate more revenues and profits from that aspect of our business.
Speaker Change: I hope that helps.
Speaker Change: Thank you, the next question comes from him on Shugupda at Skoshebank. Please go ahead.
Speaker Change: Thank you and good morning.
Speaker Change: So just on the engineering division, I'm going to see this being reported as a separate segment and here which you scale here as well. So how should we think about the organic growth in the engineering in this person's sense?
Speaker Change: So, I'm answering the organic growth in our engineering practice on an ongoing basis.
Speaker Change: should be in the high single digit, you know, 5 to 7, 8% range. As we, you know, roll out across, you know, across 2025 and the honor on going basis.
Speaker Change: and their after.
Speaker Change: In the third quarter, I was just pointing on again, I mentioned it in my call, comments. We had a very tough comparative and very strong results in the third quarter of 2023, which were, for the results of a couple of large projects that were completed in that period.
Speaker Change: and representing Anthony Deloard, the Enic Growth Racer 23 of 20s 24.
Speaker Change: So, 5 to 7 kind of organic growth and on the margin side, I mean obviously I think there was some volatility in the last few quarters but going forward I mean would you say like double digit kind of margin stay on this business?
Speaker Change: Thank you guys right, Dimension. Yep.
Speaker Change: Okay, thank you. And then just to follow up on the investment management division. I am, you mentioned fundraising was lower than expectations on Q4.
Speaker Change: was it, you know, the python getting pushed out to next year or you think in that potential capital or investors have moved on.
Speaker Change: You know, we expect significantly more fundraising in 2025.
Speaker Change: for a whole variety of reasons. One, we think the market is coming back, as we've discussed. But secondly, we have a lot of new product in the marketplace, our existing funds.
Speaker Change: Basically ended in many cases ended, will end in 24. So we've got new funds coming to market in 25. Christian mentioned that there's been some some repatriation of capital.
Speaker Change: So we expect a pretty solid fundraising market in 25, based on the way we're anticipating it now, but as Chris and says, we'll give you a better report note look on that in our February results.
Speaker Change: and I know you've been there. Just from a tiny perspective, do you think that, you know, that acceleration in fundraising, it will be more towards the second half of next year, or is it like the first half of year? I mean, is there a season of validating terms of fundraising which typically is in closer to the event?
Speaker Change: The New York Times.
Speaker Change: Well, again, we'll give you a better outlook in February, but generally speaking, when funds are initiated, it takes a quarter or two for investors to re-op.
Speaker Change: Remember, as you pay back, these investors in every fund, 85% on average return into the following fund. So not only is this a recurring revenue business.
Speaker Change: But fun to fun as long as you continue to provide good results for investors, investors tend to re-op into the following into the subsequent ventages.
Speaker Change: So, generally, a vintage might go three years until the money is invested. And so, several are closing out this year. So, we expect...
Speaker Change: Significant New Activity next year. We expect we hope. We'll see some significant new activity next year.
Speaker Change: But I think it'll take a quarter or two before you see that velocity. If that's the question you're asking, think it'll take a quarter or two before we start seeing that money start coming in.
Speaker Change: Thank you, that was very helpful. My last question is on Christian, I think, mentioned incremental margin of 20% on using and capital markets.
Speaker Change: So my question is that did you achieve that incremental margin in Q3 as well? I mean, and was it like completely offset by that recruitment, that aggressive recruitment you are talking about?
Speaker Change: Yeah, I mean, I think you've answered the question you mentioned, you know, they're investment of recruiting, largely offset the incremental margin on the, on those revenues in the quarter.
Speaker Change: and then where I will process, I am in do you think like the fact that the fragments of this recruitment cycle is going to keep on going for the next year as we see fit on the international goals.
Speaker Change: I would say that recruiting is part of everyday work at callers, we're constantly filling gaps in driving in increased market share.
Speaker Change: To give you some color in terms of this aggressive recruiting comment, you know, our biggest opportunity in the US.
Speaker Change: and we're ahead of our targets for last year and we're focused on the core asset classes office and industrial retail. We're making some efforts for landing some multi-market brokers, brokers that you know, transact across geographies and in both in leasing and capital markets.
Speaker Change: We're looking at special sectors like the hotel sector and building a global business where we've recruited experts in the US, Japan, UK, Spain and Germany.
Speaker Change: and then we're taking advantage of high-growth markets like Japan and India.
Speaker Change: Bolstering our teams there and then there's specialty cases where there's some team lips. You get an example at a homecom where we added a first class valuation and capital markets team.
Speaker Change: gives you a play of the recruiting and we think it's a real great time to be adding talent to call yours.
Speaker Change: and Della check. Thank you so much for the company, I will jump back.
Speaker Change: Thank you, the next question comes from Darrell Young at Steephill. Please go ahead.
Darrell Young: Good morning everyone. Just Doug telling on that last question about recruiting professionals. As your mix and exposure to secondary versus gateway markets changed significantly in the last few years and is part of the recruitment drive to bulk up in some of the gateway markets.
Speaker Change: I guess I get a lot of questions around whether as some of those markets improve and off-the-side improves, we'll call yours participate equally if it's mostly gateway focused in the recovery.
Speaker Change: Yes, I would say that we're focused in a parallel approach to get into those gateways cities in a deeper weight. Those are the larger transactions, there's more volume of deals, so there's certainly the aspiration is there.
Speaker Change: and our country and market leaders are focused and bringing in talent to beef up those gate-way cities in addition to the secondary cities.
Speaker Change: and then flipping over to the investment platform.
Speaker Change: and...
Speaker Change: Could you just update us on where you're at in terms of integration of some of the sales and marketing side of the business for fundraising? And is that going to be a more concerted effort going forward to have sort of cross sell it out across the only of LPs?
Speaker Change: Well, that's a very good question. The topical, actually.
Speaker Change: Yeah, I think the, again, I'm going to give you a probably too long an answer but
Speaker Change: Our philosophy has always been to differentiate because we are...
Speaker Change: Partners with the operating management teams and each of our strategies. And that has given us a huge competitive advantage. We think over many others. But with this soft fundraising environment over the past two years, each one of our platform's.
Speaker Change: have expressed.
Speaker Change: I'll be a stronger desire to...
Speaker Change: Integrate to share opportunities that ever before. They operated independently. They all felt like they had.
Speaker Change: Graham Visibility around fundraising and because of the softness everybody has open minded to making some changes. So we are actively looking right now at...
Speaker Change: Reorganizing.
Speaker Change: Our distribution capabilities across the company, you know, more on that as we develop our thinking over the next couple of quarters.
Speaker Change: But there's some exciting
Speaker Change: moves. We think we can make to augment our management teams strengthen our distribution capabilities, leverage.
Speaker Change: the both institutional and high net worth capital origination formats across the entire platform.
Speaker Change: It'll take some time, it'll take some a few board moves.
Speaker Change: But we have the capability internally and we think that we can accelerate. So yes, we're quite excited about what that could be.
Speaker Change: But you know, more on that as we develop our thinking.
Speaker Change: That's great. That's good color. Thanks. Maybe one last one in the O'Pay and Marcy said, first of all, state, transaction activity could pick up in the back half of the year, especially at the high end of your guide.
Speaker Change: is that a function of having some really big transactions in the pipeline that are maybe getting fall over the line at your end or could push into 25 or just a little bit more color on what gives you the optimism for that statement.
Speaker Change: The New York Times.
Speaker Change: So I think we're seeing our pipelines build throughout the year and Q4 on capital markets is a season-based strong quarter for us.
Speaker Change: and we're expecting 25% of the increased quarter over quarter delivery. Some deals slip over, but it seems like there is good strong belief that we'll come through in that 25%.
Speaker Change: Okay, good, thanks very much.
Speaker Change: Thank you. Again, ladies and gentlemen, at the rainminder, please press star 1 if you have any questions.
Speaker Change: The next question comes from Frederick Baschon at Raymond James. Please go ahead.
Frederick Baschon: Good morning, guys. There was a good color on pretty much every business line, but it is wondering on a geographical basis how Europe and the UK are performing more broadly speaking.
Speaker Change: Thank you, Mia, had a good, good quarter. The UK has been a solid business.
Speaker Change: for us and immune from a few of the capital markets issues that were most significant in the Nordics and Germany over the last couple years.
Speaker Change: So we're pleased with our UK operations, and I would say that the companies and the firms on the continent are German business, or Nordics business, start to feel much more confident about the future trajectory of particular capital markets and leasing.
Speaker Change: The New York Times,
Speaker Change: Thanks for that Christian next question's around the end of the year and global acquisition and it's early days, but are you seeing?
Speaker Change: Potential for revenue synergies with your project management business in Canada and how that is shaping up with respect to opportunities but also integrating the business with in your own platforms.
Speaker Change: We're seeing more opportunity, frankly, than we expected. Going into the end-globe transaction and Globes, we're very pleased with it. Early stages, of course, but very pleased with it.
Speaker Change: But our Colliers project leaders business in Canada is a market leader.
Speaker Change: and covers the country from coast to coast.
Speaker Change: and so there's a lot of opportunity that
Speaker Change: and that we believe call yours project leaders and M. Glob can pursue together.
Speaker Change: and they're looking at that.
Speaker Change: and so we think that together there's more synergy than we expect it.
Speaker Change: Thank you, there are no further questions that will turn the call back over to Jay Hennick for closing comments.
Jay Hennick: Thanks everyone for joining us for our third quarter conference call. We look forward to our February results and for providing some comfort and forward-looking outlooks going forward from there.
Jay Hennick: So thanks for participating.
Speaker Change: Ladies and gentlemen, this concludes the conference call. Thank you for your participation and have a nice day.