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No. of Recommendations: 2
The newest addition to the Special Ops portfolio, Colliers International (NASDAQ: CIGI), just reported a record year, and CEO Jay Hennick predicts a solid, if not quite so spectacular, 2016. Despite strong currency headwinds, the commercial real estate services company turned in record revenue, with growth of 9%. Adjusted EBITDA was up 24%, and adjusted EPS up 25%.

All those figures belie much stronger growth, which was obscured by currency fluctuations. In local currencies, those figures bounced dramatically – with revenue up 18% and adjusted EBITDA up 34%. Adjusted EPS would have been 42% higher if currencies had remained the same. Management expects currency to be a smaller factor in reported results this year, however.

Management has been working to gain scale in a number of geographies, and that was reflected in the higher EBITDA margin of 10.5%, compared with 9.3% in 2014. The company reached the 10% threshold a year sooner than predicted by management, which expects margins to continue to grow over time but to be approximately flat this year. The company showed notable strength in its outsourcing and advisory business, with revenue up 19%, and its lease brokerage, where sales were up 9%. Those offset a 1% decline in sales brokerage business. Management noted weakness in Asia, particularly China, and in Latin America.

Hennick predicted a solid 2016, with revenue up mid- to high-single digits (in local currency) and adjusted EPS up 6% or 7%. That estimate does not include future acquisitions, which are a key component of Colliers' growth plan. The company has already added three new acquisitions in the first few weeks of the year, and management sees any market dislocations as great opportunities to pick up small operations and achieve its 16% to 17% hurdle rate for investments. With leverage at just 0.8 times EBITDA, below its long-term target of 1 to 1.5, the company has plenty of dry powder for purchases.

With management firmly focused on the long-term success of the business, Colliers remains a Buy First.

And now a few cuts from the conference call. I think it's important to see/hear who Hennick is and how he approaches the business. Hennick is a key part of the investment thesis here.

Jay Hennick
Without a doubt, 2015 was a transformational year for Colliers. It was our first year as a stand-alone public company. We strengthened our leadership team significantly. We generated record revenues and profits as I mentioned despite significant foreign currency headwinds. The fact is Colliers generates only 36% of its revenues in the U.S., which is considerably less than its peers, and that means we're impacted much more than the others when it comes to declining global currencies. And that masks the strong growth we've achieved in local markets and in local currencies.

EBITDA margins exceeded 10% for the first time in our history. As many of you will recall, about 4 years ago, we set out to achieve this target by 2016, and I'm pleased we were able to exceed it one year earlier than expected.

During the year, we continue to grow our business internally and through acquisition. We completed a total of 9 acquisitions during the year, 7 in the Americas and 2 in the EMEA.

During the fourth quarter, acquisitions included Colliers Atlanta, one of the top players in the Atlanta market, with more than 250 professionals. Colliers Atlanta was a natural step for us given our long history as partners and shared passion for excellence.

The addition of Summit Realty immediately earned Colliers a place among the top players in the Indianapolis. With more than 70 professionals, Colliers Indianapolis has a long track record of success in this market, but it's also been incredibly successful in helping clients expand to new markets.

Our global platform will be a great benefit in the future as we collectively leverage all that Colliers has to offer.

And by adding the brokerage operations of MDG in Portland, we bolstered our existing operations, and together, have now become the leading market player with more professionals than any of our peers and a dominant local platform offering a full array of services.

Our balance sheet at year end has never been stronger nor has the cash flow from our operations. Both of these give us all the ammunition we need to continue pursuing our discipline and successful growth strategy.

And then we began this year with 3 more acquisitions, the addition of Colliers Central Florida, added another well-known market leader and longtime Colliers partner, with 165 professionals, effectively doubling our revenues in the Sunshine State.

In the U.K., we added another leading investment in office agency specialists, extending our practice in the City Fringe area, otherwise known as Tech City, a new and emerging area of London and the epicenter of the U.K. new digital economy.

And in Montréal, Quebec, we added a boutique provider of landlord and tenant advisory services to further strengthen our operations in this important Canadian market.

Despite the early momentum, there is cautious investment sentiment out there especially as it relates to commercial real estate, and navigating this has never been easy. However, our information in the commercial real estate market is that we will continue to do well this year as a number of factors bode in our favor, although we expect slower growth than in 2015.

As you might expect from us, we see uncertain times is a good thing for Colliers. As long as we continue to execute, focus on the long term and remain disciplined in our approach, we generally look for opportunities in the marketplace to capitalize for the benefit of our shareholders.

As a business leader, I'm always looking for growth opportunities, and right now, I couldn't find a better industry to be in than commercial real estate.

The market is huge with almost $150 billion annually in revenue and growing, and the top 5 players of which Colliers is one, have only 17% of the market. With such a highly fragmented market, there are just tremendous opportunities to continue to grow and consolidate for many years to come.
Anthony Zicha, Scotiabank
Okay, great. And then can you talk a bit about your branding in terms of what you're seeing out there in the marketplace, in terms of acquisition multiples. Are you saying that there is some uncertainty, but is this profiling some opportunities for Colliers?

Jay Steward Hennick
Well, first of all, our brand continues to get stronger, that's not just in the U.S., it's locally. The professionals that are joining us are finally getting it that we have one of the great platforms, we're more entrepreneurial and enterprising, and if you want to make a difference and be part of a firm that's on the rise, Colliers is the right place to be. But Tony, you've followed us for a lot of years and you know that we look for uncertainty in the marketplace to capitalize. And so we're long-term investors and heavily invested in our business unlike many of our peers. This management team owns a significant amount of equity in the business, and it's not just the people that you're talking to here, there's 300, 400, 500 people within Colliers that own significant equity in the business. And so from our perspective, this is a long-term gain. And when markets are uncertain, this is exactly the time to take advantage of them. And, as you know, there's countless examples of that over the years as markets have fluctuated in commercial real estate. So we look for these kinds of times to capitalize.
Anthony Jin, RBC

Okay. Great. And if I can get perhaps a broader commentary. One of your competitors if we could discuss they -- a cooling in the buying sentiment with respect to pricing, while seller expectations remain relatively high. This is in respect to commercial real estate investments. Now, are you guys seeing any of this dynamic and perhaps you can comment on how this buyer-seller behavior has changed over the last couple of quarters?

John B. Friedrichsen, Chief Financial Officer
I don't know exactly who you're referring to or what they were saying. I can say that, Anthony, certainly in key global markets, we all know which ones they are. Over the last few years, we've seen some very, very high prices paid for filthy profit and so forth, that probably has cool off slightly. But I would say that, that is a very small part of the market. And I think pricing stability has been pretty consistent over the last year for sure. And I don't think we see any degradation around that other than what I just referred to. So we feel that it's intact, and I think whenever we have some headline risk that we're seeing now there may be a pause, but I think once we get through that, as I said earlier on, I think, we believe the fundamentals are largely intact to support pricing in the commercial real estate market and don't see a significant pause in that at all.

David Gold, Sidoti & Company, LLC
Got you. Okay. And then, Jay, we've been hearing pretty consistently that there is a bit of a disconnect between, say, the volatile equity markets and what's truly happening on the real estate side of the world. Translation that it hasn't really just stopped things or as much people think. Can you speak a little bit towards confidence in pipelines. It sounds like you're seeing similar pipelines to a year ago. But your confidence in the year and maybe expectations there as far as it sounds like you might be a little concerned about momentum or am I reading that wrong?

Jay Steward Hennick
I'm not concerned about momentum in the sense that I think business will continue to do nicely. I just think that gaining growth market by market is not going to be as easy in '16 as it was in '15 for a variety of reasons. And so as we're looking at '16, we're saying it's going to be a good year. We're going to do nicely. But our internal growth expectations are dialed down somewhat, and we're hoping to be able to accelerate our acquisition engine a little bit to offset some of that and use the slower growth and the uncertainty and what everybody is reading in the newspaper as an advantage to us as we move forward here. I don't know if that answers the question you're looking for, but hopefully, it gives you a taste.

Stephen MacLeod, BMO Capital Markets Equity Research
I just wanted to talk a little bit about the outlook. And I was just hoping maybe you could identify potential areas where your EBITDA margin outlook could either be a little bit higher than what you're looking for or a little bit lower than what you're looking for.

John B. Friedrichsen
Look, Steve, it's been, in some respects, a long road but shorter than we expected to arrive at the margin we're at now. We had telegraphed what we needed to get there, which was really bolstering our businesses in a number of areas and gaining scale. I think it remains to be the case. I mean there are certainly areas where we believe margins are pretty much optimal, but other areas and significant ones where we believe that there's further upside, and it is mainly a scale game, and it's around productivity. And we've made significant strides in those areas. We're not done yet and I think there is further upside. If you look at, I think, the U.S. we've talked about in terms of margins, we've come a long way but there's still room for improvement there. And in Asia, even though for us, Asia still is when you look at the entire picture, a relatively small part of our business. Our margins aren't where we want them to be, and we have plans to get there, and we will need market conditions to help us get there. We believe that that's going to happen, may not be in '16, but certainly going to be beyond that time frame. So as to upside, don't really want to quantify what that is.

Stephen MacLeod
Great. Okay. That's helpful. In terms of the M&A pipeline, I mean, obviously, we've talked a lot about it this morning. But you were very active over the last through December and then thus far in 2016. Is that reflective of what the pipeline potentially looks like right now?

Jay Steward Hennick
Yes, we have a very good pipeline. As you know, Steve, you've been following us for a while. We consider tuck-under acquisitions to augment our internal growth. We have an acquisition team, which is quite extensive. It works extremely well with operations around the world. And so we are originating, considering, underwriting acquisitions on a global basis and I think doing a pretty nice job of it. And to my earlier comments, we're in an industry where only 17% of the overall market is consolidated. So we should be able to continue to capitalize on this for many years to come. As long as we keep our discipline and look for 16%, 17% IRRs on every single deal we do, we should be able to continue to grow Colliers internally and through acquisitions and add share value for many years to come.

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