Request CBG Transcript 2011-02-04T15 30

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CBG - Q4 2010 CB Richard Ellis Group, Inc. Earnings Conference Call

Event Date/Time: Feb. 04. 2011 / 3:30PM GMT
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Feb. 04. 2011 / 3:30PM, CBG - Q4 2010 CB Richard Ellis Group, Inc. Earnings Conference Call
CORPORATE PARTICIPANTS
Nick Kormeluk
CB Richard Ellis Group, Inc. - IR
Gil Borok
CB Richard Ellis Group, Inc. - CFO
Brett White
CB Richard Ellis Group, Inc. - CEO
CONFERENCE CALL PARTICIPANTS

Bose George
KBW - Analyst
Anthony Paolone
JPMorgan - Analyst
Sloan Bohlen
Goldman Sachs - Analyst
David Ridley-Lane
BofA Merrill Lynch - Analyst
Will Marks
JMP Securities - Analyst
PRESENTATION
Operator
Ladies and gentlemen, thank you for standing by and welcome to the CB Richard Ellis fourth quarter earnings call. At this time,
all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.
(Operator Instructions)
And, as a reminder, this conference call is being recorded.I would now like to turn the call over to our host, Mr. Nick Kormeluk.
Please go ahead, sir.
Nick Kormeluk - CB Richard Ellis Group, Inc. - IR

Welcome to CB Richard Ellis' fourth quarter 2010 earnings conference call. Last night we issued a press release announcing our
financial results. This release is available on the home page of our website at www.cbre.com. This conference call is being
webcast live and is available on the Investor Relations section of our website. Also available is a presentation slide deck which
you can use to follow along with our prepared remarks. An archive audio of the webcast, a transcript and a PDF version of the
slide presentation will be posted to the website later today.
Please turn to the slide labeled forward-looking statements. This presentation contains statements that are forward-looking
within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future growth
momentum, operations, financial performance, and our business outlook. These statements should be considered estimates
only and actual results may ultimately differ from these estimates. Except to the extent required by applicable securities, laws
we undertake no obligation to update or publicly revise any of the forward-looking statements that you may hear today.
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Please refer to our fourth quarter earnings report filed on Form 8-K, and our current annual report on Form 10-K and current
quarterly report on Form 10-Q, in particular, any discussion of risk factors or forward-looking statements which are filed with
the SEC and available at the SEC's website at www.SEC.gov, for a full discussion of the risks and other factors that may impact
any estimates you may hear today.
We may make certain statements during the course of this presentation which include references to non-GAAP financial measures
as defined by SEC regulations. As required by these regulations, we have provided reconciliations of these measures to what
we believe are the most directly comparable GAAP measures, which are attached hereto with the appendix. Please turn to slide
three. Our Management team members participating with me today are Brett White, our Chief Executive Officer, and Gil Borok,
our Chief Financial Officer. I'll now hand the call off to Brett.
Brett White - CB Richard Ellis Group, Inc. - CEO

Thank you, Nick. As dire as things appeared two years ago, they now seem equally positive and exciting. We are at that point
in the cycle when all fundamentals are positive and rapidly improving, and when everything seems possible. On today's call,
we will discuss our very strong results for Q4 and full-year 2010. It was undoubtedly one of the best years in CBRE's 100-plus
year history. At the moment, our near-term future looks even brighter. I am equally sure many of you would like us to comment
on our current M&A activities. Like you, we have read the press speculation and heard the market rumors; however, we have
had a longstanding policy not to discuss rumors and speculation on this topic. Accordingly, M&A is not a subject we can or will
address today. In fairness to you, I wanted to make this statement up front. So, please turn to slide four.
For the fourth quarter of 2010, we posted very strong revenue and earnings growth in our business. In fact, normalized EBITDA
for Q4 2010 and for the full-year 2010 were the second best ever in Company history. This performance was driven by the
continued recovery of the commercial real Estate services industry, combined with strong execution and our proven discipline
in managing the return of related expenses. Our fourth quarter total revenue was $1.7 billion, a 27% increase over the fourth
quarter of 2009.
As was the case for most of 2010, our revenue growth was led by three lines of business. Investment sales, where revenues were
up 40% in Q4 2010, with all regions posting double-digit growth; leasing revenue, which increased 35%, led by activity in the
Americas and Asia Pacific; and outsourcing, which posted a 10% increase, led by the Americas.
Total Company normalized EBITDA was $253 million, a 27% increase over the fourth quarter of 2009. This translated into a
normalized EBITDA margin of 15.3% in the fourth quarter of 2010. Diluted earnings per share for the fourth quarter of 2010
increased 29%, to $0.36, versus $0.28 in Q4 2009.
As we entered 2010, given our concerns around the economy and its impact on the performance of our business, we significantly
reduced target bonus levels and 401(k) matching for 2010. Throughout the year, we did not restore these expenses, even as
our performance improved. However, based on our performance this past quarter, and full-year performance, which significantly
exceeded our original planning, in the fourth quarter we substantially restored bonus target levels and also reinstated a partial
401(k) match for our employees retroactively for the full year 2010.
These actions resulted in additional expense of approximately $30 million or $0.06 per share, in the fourth quarter. We believe
that, in light of the Company's superb financial performance this year, these actions were absolutely appropriate and necessary
for our business and our employees, who made significant personal sacrifices through the downturn to help us reduce $600
million of costs. Many of the individuals benefited by bonus restoration are the same people who received no incentive
compensation in 2008 and 50% of their target incentive compensation in 2009. Even with these actions, the Company exceeded
its financial goals for 2010 and increased its industry-leading normalized EBITDA margin by 240 basis points for the full year.
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I want to also note that our 2010 bonus expense was outsized because our financial performance significantly exceeded plan,
due to the unanticipated rate of recovery for our business. For 2011, we believe US bonus expense is likely to be materially less
than 2010, as bonus targets will take into account the anticipated improved financial performance of the business in a more
hospitable environment. The amount of additional US bonus expense for 2010, due to over-performance, was approximately
$25 million.
On past calls, we noted that, as we felt more confident in the commercial real estate recovery, we would likely reinstate 20% to
25% of the $600 million in cost cuts we implemented through the downturn. Including the bonus and benefit costs which we
brought back in the fourth quarter, we have now restored about $100 million of the anticipated $120 million to $150 million
of such costs. Although we believe we'll be prudent to reinstate the remaining $20 million to $50 million of these costs in order
to drive our business, we will continue to control expenses commensurate with revenue growth to insure we meet our financial
goal of industry-leading EBITDA margins.
We are very pleased to be able to show such strong EBITDA and EPS performance for the fourth quarter and the full-year 2010,
while also being able to reward our employees for their terrific 2010 results and their dedication in bringing us out of the
downturn a much stronger Company. Our strong performance in 2010 and the underlying momentum in the business increases
our confidence that we are in the early days of what ought be a protracted and healthy recovery and expansion cycle in
commercial real estate. This firm, the preeminent firm in our industry, has never been positioned better to exploit a recovering
marketplace.
Some of the more noteworthy transactions we completed during or immediately following the quarter are listed on slide five.
As usual, I'll not go through them individually, but we have included them to show some key business wins, and, with that, I'll
now turn the call over to Gil to go over our financial results in detail. Gil?
Gil Borok - CB Richard Ellis Group, Inc. - CFO

Thank you, Brett. Please advance to slide six. Revenue was $1.7 billion for the fourth quarter of 2010, up 27% from last year
excluding discontinued operations. This increase resulted from improvements in sales, leasing, outsourcing, appraisal and
valuation, global investment management and commercial mortgage brokerage activities. Normalized EBITDA was also up
27% to $253.1 million in the quarter from $199 million in the fourth quarter of 20009, delivering a normalized EBITDA margin
of 15.3% for the Fourth Quarter of 2010.
Our cost of services as a percentage of revenue was up 80 basis points to 56.4% in the fourth quarter of 2010 versus 55.6% in
the fourth quarter of last year. This increase mainly resulted from the full restoration of Commission rates and salaries to
pre-recession levels at the beginning of the third quarter, as well as selected hiring of key professionals as business improved.
In the fourth quarter of 2010, operating expenses, as a percent of total revenue dropped slightly by 10 basis points to 31.6%
versus 31.7% in the fourth quarter of 2009, despite the bonus and 401(k) restoration of approximately $30 million and carried
interest compensation expense related to future periods of $13.8 million.
Fourth quarter 2010 GAAP diluted earnings per share was $0.30 versus $0.21 last year. Adjusted diluted earnings per share was
$0.36, up 29% versus 28% -- versus $0.28 in the fourth quarter of 2009. Our fourth quarter 2010 tax rate was 38%, driven by
unanticipated true-ups upon filing of certain state tax returns in the US and foreign statutory audit settlements. Please turn to
slide seven. Leasing was our largest service line in the fourth quarter of 2010, posting a 35% increase versus the fourth quarter
of 2009. It represented 37% of total Company revenue in the current year quarter.
Property and facilities management was our second-largest service line in the fourth quarter of 2010, representing 29% of total
revenue in the quarter. Sales revenue rose 40% in the fourth quarter of 2010 versus a year ago, following a strong increase
posted in the fourth quarter of 2009 of 24%. The continued strength of Class A property sales, coupled with volume increases
in other property classes, fueled growth in the current year Fourth Quarter. Appraisal and valuation revenue was up 19% in the
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fourth quarter 2010, as compared to the fourth quarter of 2009. This was driven by strong capital market activities in the quarter.
Commercial mortgage brokerage posted an increase of 233%, driven by loan originations and strong US-government-sponsored
entity activity, as well as improvement on the part of traditional and conduit lenders.
Global investment management revenue increased 87% year-over-year, driven by all sources of revenue in that business,
including management fees, acquisition fees and carried interest. Development services revenue was down 23%. Revenue from
property and facilities management, fees for active undermanagement, loan servicing fees and leasing commissions from
existing clients, are all largely recurring. This revenue represented approximately 50% from total revenue for the fourth quarter
of 2010. Please turn to slide eight.
The outsourcing business grew nicely in the fourth quarter, with revenue rising 10%. This was driven by the strong new account
growth and client expansion we experienced throughout 2010. In the fourth quarter, we signed contracts with 18 new accounts.
We renewed nine contracts and we expanded our service offering for seven existing outsourcing clients. Our performance this
quarter was lead by the Americas, which posted its strongest growth rate in the last nine quarters. The total of 34 contracts
again matches our strongest quarter ever for most contracts signed in a quarter, which was the second quarter of 2010.
For the full year 2010, 121 total contracts were signed, up 38% from the 88 contracts signed in 2009. This included a record 62
new clients for the full year of 2010. Overall, our global portfolio of commercial property and corporate facilities under
management totaled 2.6 billion square feet at the end of the fourth quarter, an increase of 18% for the full year 2010. Slide nine
demonstrates the stabilizing or improving vacancy rates and absorption in 2010 and our forecasted improvements for 2011
and 2012. Average national cap rates improved meaningfully in 2010, driven by high profile and Class A property sales, mostly
in larger markets.
These top-tier assets are trading actively at cap rates between 4.75% and 6%, and financing is available at attractive rates. This
strength is also spreading to other property classes as investors' appetite for yield has increased. Please turn to slide ten.The
recovery of the US sales market continued in the fourth quarter of 2010, as our Americas sales revenue for the quarter increased
66% on a year-over-year basis. Our market share totaled 14.8% of all activity for the full year 2010, which gave us the top position
for the 10th year in a row, according to Real Capital Analytics.
Our Americas leasing revenue posted a tremendous 45% increase in the fourth quarter of 2010, as compared to the fourth
quarter of 2009, increasing to $419 million. Nationally, the office vacancy rate decreased by 20 basis points to 16.4%. Net
absorption in US office product was positive for the third straight quarter. Please turn to slide 11. Our investment sales revenue
in EMEA increased by 19% in the fourth quarter of 2010, as compared to the fourth quarter of 2009. This increase comes on top
of a 29% investment sales increase from the fourth quarter of 2008 to the fourth quarter of 2009. Activity here was lead by the
UK and France.
CBRE's revenue from leasing in EMEA grew 6% in the fourth quarter of 2010 versus the fourth quarter of 2009. This is consistent
with relatively modest economic growth in the eurozone in the fourth quarter, and activity here was lead by the UK. Please turn
to slide 12. CBRE sales revenue in Asia Pacific increased by 12% in the fourth quarter 2010, versus the fourth quarter of 2009.
The increase was notable, given it was made on top of an 88% increase in the fourth quarter of 2009, versus the fourth quarter
of 2008. CBRE's leasing revenue in Asia Pacific grew 34% in the fourth quarter versus the fourth quarter of 2009. The strongest
growth came from Australia, China, India, and Japan. Please turn to slide 13.
Revenue for the development services segment was $19.6 million in the fourth quarter of 2010 versus $24.5 million in the fourth
quarter of 2009, partially due to lower rental revenues resulting from asset dispositions. Operating results for the fourth quarter
of 2010 for this segment included normalized EBITDA of $8.6 million, and meaningful improvement over the fourth quarter of
2009 normalized EBITDA of $6.3 million. This improvement, in normalized EBITDA, was driven by gains from property sales. At
December 31, 2010, in-process development totaled $4.9 billion, even with the $4.9 billion at September 30, 2010, and up
slightly from the $4.7 billion at year-end 2009. The pipeline at December 31, 2010, totaled $1.2 billion, up from $1.1 billion at
September 30, 2010, and $900 million at year-end 2009. The combined total of $6.1 billion is up 9% from year-end 2009. At the
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end of the fourth quarter, our equity co-investments in the development services business totaled $62 million. Please turn to
slide 14.
Global investment management revenue was up 106% to $79.8 million in the fourth quarter of 2010 from $38.7 million in the
fourth quarter of 2009. The Company realized $19.9 million of carried interest revenue in the fourth quarter from a liquidating
fund versus no carried interest revenue in the fourth quarter of 2009. Higher acquisition fees and fees for assets under management
also contributed to the revenue increase. Assets under management totaled $37.6 billion at the end of the fourth quarter 2010,
which was up 8% compared to the fourth quarter 2009 and 5% versus the third quarter of 2010.
During the fourth quarter, we completed $1.3 billion of acquisitions, $0.5 billion of portfolio take overs and approximately $1.1
billion of dispositions globally. Currency fluctuations decreased the portfolio by $200 million. Year-to-date, 2010, we have raised
new capital of approximately $4.8 billion and had approximately $2 billion of capital to deploy at the end of the quarter. Our
current investments in this business at the end of the quarter totaled $99 million.
Our global Investment management EBITDA reconciliation detail is shown on slide 15. In the fourth Quarter of 2010, we wrote
down only $1.2 million of investments. In the fourth quarter of 2010 we recognized $19.8 million of carried interest expense,
of which $6 million pertained to the fund that liquidated during the quarter with the remainder relating to future periods. In
the fourth quarter of 2009, we reversed a net $200 million of carried interest compensation expense accrual --that's $200,000
of carried interest compensation expense accrual. As of December 31, 2010, the Company maintains a cumulative accrual of
carried interest compensation expense of approximately $20 million, which pertains to anticipated future carried interest
revenue.
EBITDA was positively impacted by carried interest revenue, higher acquisition fees, and fees for assets under management, a
reverse provision for doubtful accounts related to a specific fund, as well as approximately $7.6 million associated with the
consolidation of several properties due to a change in accounting regulations effective January 1, 2010, which had no bottom
line impact. This business operated at a normalized EBITDA margin of 52% for the fourth quarter of 2010 and 32% for the full
year of 2010. Please turn to slide 16. The left side of slide 16 shows our amortization and debt maturity schedule for the period
ended September 30, 2010. The right side of the slide illustrates our outstanding debt following our debt refinancing in the
fourth quarter.
During the fourth quarter, we retired all prior outstanding term loans using new term loans A due in 2015 and term loans B due
in 2016 totaling $650 million, $350 million of senior unsecured notes maturing in 2020 and approximately $475 million of cash.
We also increased the revolving credit facility to $700 million and extended its maturity to May 2015. Please turn to slide 17.
Excluding our non-recourse real estate loans and mortgage brokerage warehouse facility, our total net debt at the end of 2010
was $943 million. This represents a reduction of 33%, or $461 million, since December 31, 2009. At December 31, 2010, our
weighted average interest rate was approximately 6.5%, which came down from approximately 7% at the end of the third
quarter, benefiting from our refinancing activities during the fourth quarter. Our leverage ratio on a covenant basis now stands
at 0.94 times at the end of the fourth quarter 2010. Our total Company net debt to EBITDA stood at 1.37 times, which remains
below our current target of two times. I will now turn the call back over to Brett.

Thank you, Gil, and please turn to slide 18. We believe we are in the early stage of recovery in the commercial real estate cycle.
It is reasonable to expect meaningful growth in 2011, although we do not expect growth rates comparable to those experienced
in 2010 as we bounced off an abnormally low bottom in this cycle.
Investment sales and leasing should continue to show year-over-year improvements, although comparisons, of course, will be
a bit tougher. Outsourcing growth trends and our accelerated contract win rate leaves us quite optimistic for 2011. We are now
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more optimistic regarding our expectations for global Investment management. Based on the rate at which we brought back
costs in 2010, we expect the growth in costs to be much slower in 2011. We are committed to managing costs commensurate
with revenue growth to insure we maintain industry leading margins. We know there is significant operating leverage in our
business and still believe getting to our goal of 20% EBITDA margins at the peak of the cycle is quite achievable. We intend to
actively manage the business to get there.
Taking all this into account for the full year 2011, the second year of what we expect to be a multi-year recovery, we expect
earnings to be in the range of $0.95 to $1.05 per share. And, Operator, with that, we'll now open for questions.
QUESTIONS AND ANSWERS

Operator
(Operator Instructions)Our first question is from the line of Sloan Bohlen with Goldman Sachs.
Sloan Bohlen - Goldman Sachs - Analyst

Hi, good morning. First, just a question on margin expectations for 2011. Thank you for the color on what costs have come back
to date. With the guidance range for earnings that you've set, could you maybe give us a sense of what you're expecting in
terms of either revenue growth or where you think the operating leverage could kick in or where margins could end up next
year?

Well let me just give you a general response to that and then, Gil, I'll ask you to go as deep into that as you'd like to. I think the
way to think about 2011 is that we are, in our opinion, firmly in the early days of what we believe is going to be a protracted
and strong recovery cycle in commercial real estate.
All the fundamentals that you and I watch are certainly pointing strong positive and we're getting even more indications from
the business everyday that this business is really in a pretty terrific place right now. So that should, without any extraneous
impact, negative impact upon the business, should allow us to accrete margins fairly handsomely year-over-year through the
cycle, and that would be our expectation for 2011.
We mentioned in our deck that we had some items come through in Q4 which brought down margins a bit. Notwithstanding
that of course, I know it's not lost on our callers, we continue both in the down market in the last four years and the up market
the last year-and-a-half to have industry-leading margins by quite a distance, something that we intend to hold on to for a long
time. So, Gil, would you like to speak to any specifics that Sloan mentioned?

Yes, sure, Brett. Thanks.Hi, Sloan. I'm not going to comment specifically on where margin might come from, revenue cost EBITDA
margin, because the guidance that we give is EPS guidance and you've got to take it from there.
What I will say just following on from what Brett said, is obviously given the one-time -- or the out-of-period add-backs in the
fourth quarter to the extent you're going to do work in that area. I would obviously concentrate on full-year 2010 margins and
do your work off of that.
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Okay, fair enough. Just maybe a question on competition and market share. If we focus maybe on just investment sales and we
look at what Real Capital Analytics showed in the US for growth and volume year-over-year, it appeared maybe your numbers
were a little less. I wonder if you can comment on whether you're finding some weaker competitors and now ramping up
business or have done some strategic hiring.

Well in terms of the investment property market, both here in the States, and in Europe and Asia, we are a leader in all those
markets and we're a leader in those subsets of the markets that we think we have the best opportunity to create profits in. So,
when you look at Real Capital Analytics, there are components of what they track that we don't participate in or don't participate
in very deeply. But those segments that we do participate in, we believe and the numbers show, we actually increased our share
-- our distance in share year-over-year and we intend to continue to do so.
On the capital market side, the investment property side, this is a business that has gone through a historic, and I think
once-in-a-lifetime, unraveling, and really as we all saw, that business went from a peak activity that was astounding to really
zero activity two years later, and the on-boarding of costs in that business, fortunately for us, will come as a direct result of the
on-boarding of revenues.
During that down cycle, we didn't release any of our investment property producers. I don't think any of them left and they are
also here working away real hard, they just didn't make a lot of money during the downturn. Now as the property markets pick
up the capacity that those (inaudible) have to on-board revenue is very, very significant , and I don't think you're going to see
us doing much to add new personnel to those businesses around the world. We really don't need them, and at this point it's
really just a matter of riding the market back up and continuing to take share where we can.
In that business, there are some -- really unlike our other business lines, this is a business that has some really terrific, what I
would describe as niche competitors. And in the States, clearly, those are Eastdil Secured and Holiday Fenoglio Fowler, those
are our two big competitors in the States that are fantastic firms. This is all they do. That's where the battles are. It's those two
firms and us and we like that battle. We're holding our own, they're holding their own. But I like our position and don't expect
us to be slipping backward any time

Okay, and then maybe just one last one, Brett, for you, on strategy and obviously maybe you can't comment specifically to
rumor transactions, but areas of the business that you'd like to grow going forward? Maybe you can talk about where you see
the best opportunity to add I guess a little growth beyond what you think can happen from just the market recovery?

Well, Sloan, What I'll do is I'm just going to go right back to the comments I made last quarter and just remind everybody what
we said then. We believe there are lots of opportunities in the marketplace right now, and let me start, Sloan, by just reminding
-- well, you know this, but those callers who may have forgotten.
Probably the most important thing we did in the fourth quarter was the refinancing of our balance sheet, and that refinancing,
which we believe was market-setting, it's substantially improved our covenants in terms of maturities and flexibility. We got
the first non-investment grade revolver without a floor in this sector last year. We had the first term B in any sector with any
credit without a floor last year, and we have the first ever what we're calling an expandable reuseable accordion.
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The reason that's so important, and I know you appreciate this, is it gave us an enormous amount of capacity to make acquisitions
and to take advantage of this marketplace. And as I said last quarter, those opportunities will come two ways. The first is there
will simply be firms, like in any year, that have made a decision, they're trying to compete against the global multi-nationals.
It's just too hard a road to slog, and they will look to a roll-up of some sort, and we will be looking at those firms, as we always
do, as good opportunities if priced right, and if we think we can integrate them.
As I also mentioned last quarter, this market down-cycle has brought to the market once-in-a-lifetime opportunities that, frankly,
I don't know that we'll ever see again. Those once-in-a-lifetime opportunities come in a couple flavors. First and foremost is the
investment management space and we talked about that last quarter. There have been a number of investment management
platforms in the pension and advisory business that have gone to market, either through very public auctions or very quiet
one-off trades. That isn't going to happen again likely in my lifetime, and so we're keenly interested watching those opportunities
as they come through the marketplace and we'll position employees to go after any of them we think are good for our business
and suitable for the business.
We'll also see those once-in-a-lifetime-type opportunities come through, we believe, in some of the more traditional multi-service
platforms in the commercial real estate service space. This downturn wreaked a lot of havoc and a lot of pain on some of the
smaller firms, and I think that it's very clear to us that some of those firms, as good as they are, have just come to the conclusion
that being a tweener in this industry is just not a good place to be. And some of those firms also are now, we're finding, interested
having discussions they've never been interested having before.
I think the right answer to your question is this is a very, very unique time. We went through a lot of work the last 18 months to
get this Company ready for coming out of this downturn so that we could make strategic acquisitions. Our balance sheet has
never been healthier, in better shape and more flexible than it is now. We are aggressively looking throughout the marketplace
for these once-in-a-lifetime opportunities and I'm hopeful that we'll be able to bring some of them to closure.

Great. Thank you, guys, I appreciate it.
Operator
Our next question is from the line of Anthony Paolone with JPMorgan.
Anthony Paolone - JPMorgan - Analyst

Thanks. A question on your growth in leasing revenues. It was pretty strong, and I was wondering if you can tell us how much
of that came from perhaps market share gains versus just strength in the commercial real estate market fundamentals, more
broadly and also by region.

Sure, Anthony. Let me give you some data points to start with and then I'll answer your more subjective question, if you don't
mind. I think this will be helpful. If you look at US leasing and I'll use office as a proxy for the market, I think that's a fair proxy,
velocity, or number of transactions, was up 18% in the fourth quarter prior and 20% for the year. Lease term, barely moved. It
was up 2% for the fourth quarter and 6% for the year. Square footage also barely moved, it was up 1% for the fourth quarter
and 4% for the year. Average commission per transaction, however, was up quite strong. It was up 11% for the quarter and 19%
for the full year, and of course those two numbers relate to the harder compare you're going to get to later in 2010.
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Now what all that tells us is you're seeing a lot more transactions come through the marketplace at a higher price, which is of
course indicative of a recovering marketplace. In the leasing business, both here, in Europe and Asia, we are the dominant player
in that brokerage work out in the marketplace, and because of that, we do tend to accrete more share in a recovering marketplace,
we believe, than do our competitors. I believe the numbers are showing that that's indeed what happened in 2010 and what I
would expect to happen in 2011.
For our business, this is a very, very good time for our leasing professionals. They've been, for really two-and-a-half years, they've
been working with companies as they went down into the bunker and stayed in the bunker. They are now working with the
same companies as their CFOs and treasurers and their CEOs become much more optimistic about their future and are now
working on what we would consider to be much more traditional or normal business plans as it pertains to taking on new space.
The price differential you saw here, average commission differential you saw year-over-year, is also indicative of the quality of
space that tenants are now going after. Average rents didn't go up as much as the numbers I gave you. What that means is that
there's less leasing occurring in the what I would call sublet or shadow space market, and a lot more leasing occurring in
high-quality product. Again very indicative of a recovering market and that bodes very, very well for our leasing business.
These are the transactions where our margins are quite strong. It's transactions where our producers and our leasing businesses
tend to do very, very well. So that business line, perhaps as much as any other we have right now, is the one we're probably
most excited about as we came out of 2010.

Okay, I guess then to somewhat paraphrase, is the faster recovery that we've seen in the major cities like New York and DC or
London kind of driving that?

It's a much faster recovery than we expected, Anthony, and here is what I think we're seeing, we talked about this last quarter.
If you look at the broad economic data, you would be very puzzled by these numbers, because as good as these numbers are,
it really is hard to find any strength in the overall US or global economy.
It's really a very anemic recovery from that respect , and certainly in terms of job growth. But what these numbers tell us, we
talked about this last quarter as well, our clients, the folks occupying space out in the marketplace, frankly at the moment are
not very interested in the current economic numbers and indicators. What they're doing is they're making decisions on their
view of the mid and long term right now. I would say, across-the-board, if you were to poll the top 100 or 200 space occupiers
in the States or in Europe, you would find that the vast majority of them, probably over 90% of them believe that the prospects
of their business are strongly more positive looking forward than they have been. That's what they're using to make their space
decisions.
So all that to say that the occupier market is a bit ahead of the economic recovery, and that makes sense. They are taking the
space they need to hire. They need to do that before they hire the bodies, and our expectation is, by the way, from these numbers
is that job growth is right around the corner. Certainly what our clients are telling us is that they believe they will be expanding
their businesses, they believe they will be hiring and therefore, they need more

Okay, thanks for that. A question on the outsourcing revenues, up 10% in the quarter, but square footage actually grew about
18%. How do we tie those two together?
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Well they don't -- unfortunately, I wish they did, they don't directly correlate. The revenue growth comes, of course, as we are
either reimbursed for employees we put on these accounts or we earn fees for the base management contract or incentive fees
or project fees around the contract.
We can on-board a lot of square footage, and in fact we did the last three years, without a lot of incremental margin or profitability,
and that's fairly typical for a difficult marketplace, for these large corporate customers are not particularly active in the market.
There's no question there has been fee pressure throughout that business the last three years on the downside of the economy.
That fee pressure still exists, although my expectation is it will loosen up a bit in 2011 and 2012.
But for us, the way we think about that business, Anthony, is the growth of that business starts with the on-boarding of the
contract and the on-boarding of the square footage. That gives us a control of the business. Now, as the markets improve, and
as those customers become more active again, we now have them as a captive customer and we will on--board those revenues
as they become more active. So we like the statistics. We like the fact that that business is growing in terms of number of clients
and square footage managed, and we're patient, but of course expectant for transaction fees and incentive fees and other fees
to come through the contracts as the economy improves.
Those customers, by the way, the big outsourcing customers, are probably the most conservative customers we have in terms
of moving forward with an optimistic view. These are big, big companies who outsource for cost efficiency, and they tend to
be a bit more conservative around taking new space and expanding their capital budget, but they will. And I think what you'll
find, and certainly we expect is, the on-boarding of square footage we've done the last few years as the market continues to
improve will pay big dividends.

Okay, thank you.
Operator
We have a question from the line of Bose George with KBW.
Bose George - KBW - Analyst

Good morning. I think you'd made a comment earlier on the 4Q tax rate, which I missed. I was just wondering what drove the
tax rate to somewhat higher than we expected, and in terms of next year, should we look for tax rate kind of back in the high
30s?

Good question. I'll let Gil answer that.

Yes.The tax rate for the fourth quarter was 38% on a normalized basis, so it's quite complicated when you look at our press
release. First of all, if you just calculate the tax rate, it's only on continuing operations, and on a GAAP basis. In the development
10
FINAL TRANSCRIPT
business we had some discontinued operations that actually had a tax benefit. So, if you'll take my word for it, on a normalized
basis it was 38% in the fourth quarter.
We did have some foreign -- small, but effective rates, small audit settlements in a couple countries. We also had some true-ups
with state taxes in the US, so that did impact the rate in the quarter a little bit. They were discrete to the quarter. I think most
importantly is what do we think the tax rate will be next year, and I'm going to tell you, I think it's going to be around 38%, 39%.
If revenue shifts to the US, which it may well do in 2011 a little bit, then that would impact the tax rate by having it go up a little.
So I'm going to go with 38% to 39% on a normalized basis for 2011.

Okay, great. Thanks for that, and then just wanted to touch on the commercial brokerage. You'd mentioned the strong GSE
activity, and just with all of the multi-family activity, which I think is probably picking up a lot of maturities, do you think that
strengthens further into 2011 and 2012?

It's a good question. Certainly that has been the big story in that market space through the downturn in the last year-and-a-half
of recovery. I suspect that it's going to continue to be a big part of the story; however I think what's going to happen here is
the other segments of the capital markets are going to begin to -- or will continue to come back to the marketplace. Multi-family
won't be the only story out there, and certainly right now it isn't. We're seeing increased activities, in fact, quite increased activity
across all product types now.
So as the markets recover and as we get back to a more normal operating environment for all product types, I think the GSE
and the multi-family story will take their rightful place as an important story, but not the story. But certainly I don't see it as a
declining business. I certainly see it as a very good, very core business for us that will continue to be so.

Great. Thanks a lot.
Operator
We have a question from the line of Will Marks with JMP Securities.
Will Marks - JMP Securities - Analyst

ThanksSo a few questions here. First of all, on the net debt position right now, would you say -- it looked like for the full year,
it's a reduction in the neighborhood of $300 million, is that correct? Can you confirm?

Yes, well the net debt, if you go to slide 17 it's actually on the cap table. The net debt was down $460 million year-over-year,
the gross debt close to $700 million, which what that tells you is we used cash to pay down debt, which is true and you can also
see that on the cap table. Cash went down $235 million.
11
FINAL TRANSCRIPT

Do you think that the $461 million is a pretty good indicator of what your true cash flow was?

That's a different question, Will. I think the question is cash flow from operations, it turns up and it's probably pretty close, yes.
A lot of our cash flow from operations went to pay down debt and of course cash is fungible, so there were a lot of other reasons
cash was used. But yes, when all is said and done it's a pretty good proxy.

Thanks, and then in the first quarter, sometimes I think there is a bump from the actual cash bonus payments. Should we expect
an increase during the first quarter in the in terms of net debt?

In the normal course, Will, yes, there will be revolver borrowings in the first quarter. If you looked at this time last year, we were
in a net cash position, we were sitting on quite a bit of cash waiting to determine what we would do and what refinancing we
would do, so you didn't see that normal spike.
What I would tell you is, given that we've used cash, domestic cash in particular, and we have to differentiate between foreign
and domestic, domestic being more readily available vis-a-vis the credit line, then yes, it makes sense and best use of cash will
be to pay down debt as we've done. Use the credit line to cover the seasonal working capital and then pay it back down when
the cash comes in later in the year. So yes there will be some borrowings on the revolver in the first quarter to cover bonuses
in the US.

Okay, and then on a related note, the debt position, can you give us a range of maybe the interest expense figure that we should
be assuming for 2011?

Yes, I'm going to tell you on a quarterly basis, it'll be between $35 million and $40 million.

Okay. That's really helpful, and then a couple big picture questions. One, on the broker account, would you say in the US, your
sales and leasing brokerage headcount increased, stayed flat, what happened in 2010?

Will, there's a lot of ins and outs there, but I think generally, it stayed flat. What we're doing with our brokerage sales force is
the same thing we've been doing, fortunately for us, for some time. We have a footprint in the States that is complete. We don't
have any gaps, as you know, we have no gaps in the market. We're the dominant player in virtually every city.
12
FINAL TRANSCRIPT
So what we deal with is attrition through retirement. And the way we deal with that is to on-board new recruits primarily out
of college, sometimes from competitors, to backfill those folks that attrition out through primarily retirement, and that's generally
a net zero. It goes up or down a couple percentage points, but it's generally a net zero. We have, and we've talked about this
before, Will, we have we I believe by far the longest tenure of our sales folks in the industry. People don't believe here when
they get here. So, our issues really are not needing to go out to the competitive marketplace and hire folks, we do that very,
very selectively, but really more to bring in young people, get them trained up in our firm and then slowly implicate into the
market to replace those that are leaving for retirement.
We have no initiatives of any real size to speak of right now to bulk up [funers] anywhere in the world, although we do have
initiatives to target specific professionals at some of our -- have some specific competitors who we think would do better under
our platform than they are under there's, and folks that we think could be additive to the mix. But those are very targeted and
they will not move the needle on overall brokerage headcount.

Okay, a couple other things. Brett, the $0.06 figure you gave in your prepared comments, that was including that $30 million
plus 401(k)?Sorry, to ask you to repeat that.

Well, let me let Gil repeat it so I don't trip up on the numbers. Gil, will you--?

Yes, the $30 million is inclusive of both, that was the bonus and 401(k) add-back and it did translate into about $0.06 in the
quarter, yes.

Will, I just want to add something to that. The point we tried to make in the deck, and it may not have been entirely clear, is in
addition to that, there was this issue of over-performance in our bonus plans. I think as you know, in the US the management
bonuses are based on an EBITDA target number. So at the beginning of the year we set a budget, that budget number becomes
the EBITDA target and our managers are paid a bonus based on if they missed or beat that target. Because of the way 2010
played out it maxed out all the bonus plans. In fact, it was the highest percentage bonuses paid to many of our managers ever.
That won't happen again, at least probably for a long time, so that overage, which I believe Gil characterized as $25 million, is
unlikely to be seen again in 2011 in those bonus plans.
So you really had the impact of two things. You had some reinstatement of cost but you also this once-in-a- long-time event
where our managers actually received a very outsized bonus. God knows they deserved it, but the way our programs work, it's
highly, highly unlikely they would repeat that in the near-term.

Is that all in the operating, administrative or other line?
13
FINAL TRANSCRIPT

Gill?

It's spread -- Will let me just clarify, when Brett quoted the $25 million, that's over-performance for the year, the $30 million
add-back is the fourth quarter, a combination of reinstatement and over-performance.

Got it. So it really is spread out all over. When I look at the expense, the increased expense in quarter, it really looks to be mostly
in that administrative and other line in terms of where it -- certainly where it missed my number. I don't know about anyone
else, but I would assume that it's in that line, but you're saying it's spread all over?

It's spread -- you are correct, it is more heavily weighted to OpEx.

Okay. And then just lastly, related to all this, and you've given plenty of color on the whole expense issue. If we look at 2011,
and does this make the fourth quarter the easiest comp? Are we going to have some of this issue the first three quarters? How
should we be thinking about it?

Will, I would never answer that question. There's no such thing as an easy comp. But I will say this, certainly some of those items
that came through for the year in the quarter, some will be repeated, some won't. Really, Will, I think to us, the main point here
we would want our investors and analysts to take away from this is first of all, we certainly understand the questions, because
I think the comp expenses we put through Q4 surprised you, and that's never appreciated by our investors and analysts.
The point we're trying to make, however, is first of all is in the broad scheme of things it doesn't really matter. I would remind
you and all of our callers that our margins, it really is an amazing thing, Will. Our margins through the down cycle and now
through the recovery cycle, were markedly better than any other major player in this industry. Our current margin is over almost
200 basis points higher than our next largest competitor. This is a Company that has a proven and unique ability to convert
revenue to profit, and we're going to continue to do that and we are not going to on-board expense at the detriment of our
margins. In this case we we're able to do something we felt was appropriate and actually morally correct for our employees and
still preserve a wide delta on our operating profitability from those we compete against, and that to us is the main story.

Okay, thanks a lot.

You bet.
14
FINAL TRANSCRIPT
Operator
We have a question from the line of David Ridley-Lane with B O A Merill Lynch.
David Ridley-Lane - BofA Merrill Lynch - Analyst

Yes, hi. A bit of a scenario question for you. Would another shock to the financial system such as a further downturn in the US
residential market or foreclosure-related issues there, perhaps repeat of the Euro sovereign debt issues, how much do you think
that would really impact investment sales given the fundamentals that you're seeing out there in the market? How much
confidence do you have in your forecast given the continued uncertainty on the financial side of things, not necessarily on the
real estate side of things.

It's a really good question, it's something we think about quite a bit and here is the answer we would have, or we do have today.
First, keep in mind that the damage done to the capital markets from all the things that have happened the last four years, not
just the sovereign debt issues but also the, really, disappearance of the capital markets for a period of time and the problem
with lenders.That damage to the financial system has not been repaired, not even remotely been repaired, and the activity you
see in the capital markets is in spite of that. In other words, the fuel behind our capital markets business right now is not the
robust return of commercial lending. In fact there isn't -- notwithstanding what all our great client banks tell us, about how
actively they're lending, we don't see it. And the underwriting criteria being used by the banks today is severe and really beyond
the reach of most traditional investors.
So the activity we see in the marketplace today is being done around that problem, rather than be done because that problem
has been fixed. And I say all that because another shock to the financial system I don't think would have a significant impact
on the overall capital markets business. What's fueling the investment property business, the capital markets business, right
now is a desire by capital to be invested in the asset class and the ability of capital to find new sources of lending to get those
transactions done. It's not being done because your firm or other great clients we have rushed back into the commercial property
sector. In fact that's quite the opposite. So that gives me some comfort that if we see a sovereign debt issue in Europe or we
see a further deterioration of the US residential market, that they will not have as large an impact on that business as they
typically would because that impact is already worked into the system.
And so as we think about our forecast going forward we feel pretty good about them. I think the risks to the forecast really are
around jobs and job growth. I think that if in all of 2011 we see no job growth, which is the way it's felt the last 18 months, I
think there's some risk to these forecasts . The market that we're dealing with, the occupiers that we're dealing with, anticipate
job growth. And something that would shut that down would be a more real risk factor I think to the forecast than a shock to
the financial
David Ridley-Lane - BofA Merrill Lynch - Analyst

Okay, that's great color. Maybe just this might be too knit-picky, but the gain on sale of real estate line is always tough to predict.
It was about $7 million in 2010. Would you expect it to be -- I know this is tough, but should we just pencil in something similar
for 2011 or would you expect it to be higher? Is there some sort of pipeline that you're looking at that would help us?

Gil?
15
FINAL TRANSCRIPT

The best thing I would tell you to do is to look at the slide 13, which is development services. That tells you what the pipeline
is. That line item is by and large driven by that business, but to give you further specific commentary, it's difficult to do because,
as you know, that business is dependent -- and that line item, in particular, is dependent on sales activity. It depends what type
of sales we have. If we have a sale of a joint venture then that gain would show up through equity earnings. If we have a
consolidated sale -- sale of a consolidated property, it shows through that line.
So to analyze that line is pretty tough, I think you've got to look at the development business as a whole and make some
assumptions. Each and all of our assumptions would be different as to what is a consolidated sale, what we're predicting it's
going to be versus equity, earnings. So I agree with you, it's very tough, and therefore I'm not able to put a prediction on what
exactly would flow through that line and again, I would refer you to the business in total.
Operator
And we have no further questions in queue at this time. Please continue with any closing remarks.

Thanks, everyone, for your time on the call. We'll be speaking to you again soon. Thanks a lot.

Thank you.
Operator
And ladies and gentlemen, that does conclude our teleconference call for this morning. Thank you very much for your participation
and you may now disconnect.
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FINAL TRANSCRIPT

CBG - Q4 2010 CB Richard Ellis Group, Inc. Earnings Conference Call

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CONFERENCE CALL PARTICIPANTS

Nick Kormeluk - CB Richard Ellis Group, Inc. - IR

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Brett White - CB Richard Ellis Group, Inc. - CEO

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Gil Borok - CB Richard Ellis Group, Inc. - CFO

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Brett White - CB Richard Ellis Group, Inc. - CEO

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QUESTIONS AND ANSWERS

Sloan Bohlen - Goldman Sachs - Analyst

Brett White - CB Richard Ellis Group, Inc. - CEO

Gil Borok - CB Richard Ellis Group, Inc. - CFO

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Sloan Bohlen - Goldman Sachs - Analyst

Brett White - CB Richard Ellis Group, Inc. - CEO

Sloan Bohlen - Goldman Sachs - Analyst

Brett White - CB Richard Ellis Group, Inc. - CEO

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Sloan Bohlen - Goldman Sachs - Analyst

Anthony Paolone - JPMorgan - Analyst

Brett White - CB Richard Ellis Group, Inc. - CEO

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Anthony Paolone - JPMorgan - Analyst

Brett White - CB Richard Ellis Group, Inc. - CEO

Anthony Paolone - JPMorgan - Analyst

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Brett White - CB Richard Ellis Group, Inc. - CEO

Anthony Paolone - JPMorgan - Analyst

Bose George - KBW - Analyst

Brett White - CB Richard Ellis Group, Inc. - CEO

Gil Borok - CB Richard Ellis Group, Inc. - CFO

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Bose George - KBW - Analyst

Brett White - CB Richard Ellis Group, Inc. - CEO

Bose George - KBW - Analyst

Will Marks - JMP Securities - Analyst

Gil Borok - CB Richard Ellis Group, Inc. - CFO

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Will Marks - JMP Securities - Analyst

Gil Borok - CB Richard Ellis Group, Inc. - CFO

Will Marks - JMP Securities - Analyst

Gil Borok - CB Richard Ellis Group, Inc. - CFO

Will Marks - JMP Securities - Analyst

Gil Borok - CB Richard Ellis Group, Inc. - CFO

Will Marks - JMP Securities - Analyst

Brett White - CB Richard Ellis Group, Inc. - CEO

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Will Marks - JMP Securities - Analyst

Brett White - CB Richard Ellis Group, Inc. - CEO

Gil Borok - CB Richard Ellis Group, Inc. - CFO

Brett White - CB Richard Ellis Group, Inc. - CEO

Will Marks - JMP Securities - Analyst

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Brett White - CB Richard Ellis Group, Inc. - CEO

Gil Borok - CB Richard Ellis Group, Inc. - CFO

Will Marks - JMP Securities - Analyst

Gil Borok - CB Richard Ellis Group, Inc. - CFO

Will Marks - JMP Securities - Analyst