Colliers International Group Inc

TSX:CIGI

Earnings Call Transcript 2019-Q1

[Operator]

Welcome to the first quarter investors conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance or achievements contemplated in these forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's annual information form as filed with the Canadian Securities Administrators and in the company's annual report on Form 40-F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is Friday, April 26, 2019.And at this time for opening remarks and introductions, I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

[Jay Steward Hennick, Founder, Global Chairman & CEO]

Thank you, operator. Good morning, and thanks, everyone, for joining us. I'm Jay Hennick, the Chairman and Chief Executive Officer. With me today is John Friedrichsen, Chief Financial Officer. This conference call is being webcast and is available at the information -- at the Investor Relations section of our website at colliers.com. A presentation slide deck is also available to accompany today's call.Earlier today, Colliers reported solid results for the seasonally slow first quarter, paving the way for another strong year of growth. We're confident in our outlook for 2019 and pleased with the impact Harrison Street Real Estate Capital is having on the growth and the diversification of our business.Revenues were USD 635 million, up 19% in local currency; EBITDA was $44 million, up 22%; and adjusted earnings per share came in at $0.51 a share, up 13% over the prior year. John will have more to say about our results in just a few minutes.As you know, we entered 2019 with great momentum. In addition to establishing a new real estate investment management segment, we completed a record 11 acquisitions, including 5 in the Americas, 4 in Europe and 2 in Asia Pacific. In total, we added about $90 million in annualized EBITDA last year alone without diluting shareholders at all.That momentum has continued so far this year. To date, we have completed another 3 acquisitions, including the market leader in Virginia with 340 real estate professionals as well as our former affiliate and top player in the vibrant growth market of Charlotte, North Carolina. And yesterday, we announced the acquisition of Colliers Sweden. Adding another company-owned operation in the Nordics further strengthens our European platform and builds on our market leadership in Denmark and Finland. Although our former affiliate has been in Sweden for many years, it did not have the resources to realize the potential. We see excellent opportunity to build our business in that market in the years to come.Finally, just after the quarter end, we extended our $1 billion revolving credit facility to 2024 and established a new structured accounts receivable facility, giving us much more flexibility to our capital structure and reducing our overall borrowing costs. John will have more to say about this as well in just a few minutes.With a strong balance sheet, disciplined growth strategy, proven record of performance, with greater recurring revenue and diversification than ever before, Colliers is in an excellent position to continue to capitalize on opportunities in the massive global real estate market in 2019 and beyond.Now let me turn things over to John for his review, and then we can open things up for questions. John?

[John B. Friedrichsen, Chief Financial Officer]

Thank you, Jay. As announced in our press release earlier this morning and by Jay in his opening remarks, Colliers International Group reported strong solid financial results for our first quarter with solid performance across our global operations, once again highlighting the benefits of our service line and geographic diversification. I will address our overall consolidated financial results for the quarter, our operating results by reporting region, overall capital usage and financial position and concluding with our outlook for 2019.For our first quarter of fiscal 2019, consolidated revenues increased to $635 million, up 19% in local currencies from $553 million in the first quarter of 2018, with 8% of our growth generated internally and the balance from acquisitions. Adjusted EBITDA for the quarter totaled $43.6 million, up from $36.1 million in Q1 last year, an increase of 22% in local currencies with our margin at 6.9%, up from 6.5% last year. And adjusted earnings per share came in at $0.51 compared to $0.45 per share last year, up 13% in our U.S. dollar reporting currency with a $0.01 unfavorable impact of FX on adjusted earnings per share in the quarter.Our adjustments to GAAP EPS and arriving at adjusted EPS are outlined in our press release issued this morning and are composed primarily of noncash charges that we view as largely unrelated to our operating results and are consistent with those presented historically.Turning to our operating results. I will now provide a review by major service line and by region with all percentage changes in revenues based on local currencies. Our $635 million in revenues for the quarter was comprised of $152 million in Sales Brokerage, up 10%; while Lease Brokerage came in at $182 million, up 11% over Q1 of 2018. Meanwhile, revenues from Outsourcing & Advisory services totaled $258 million, up 13%, led by property management and with solid contributions from our property management, which is our project management and valuation and consulting services.Revenues generated by our Outsourcing & Advisory services segment represented 41% of our overall revenues in the quarter compared to 43% in Q1 2018. Geographically, 56% of our revenues and 55% of our adjusted EBITDA was generated in Americas in our first quarter. Europe generated 19% of consolidated revenues, while Asia Pacific generated 18% and 23% of revenue and adjusted EBITDA, respectively. Our Investment Management operations, including Harrison Street, generated 7% of our revenues and 22% of our adjusted EBITDA in the quarter.Turning to regions. In our first quarter, America revenues totaled $359 million, up 11%, with 4% internal growth and 7% from acquisitions. Lease Brokerage revenues were up 17% versus last year. Sales Brokerage revenues, down 1%, with mid-single-digit percentage growth in the U.S. offset by a decline in Canada subsequent to a very strong finish for 2018. And Outsourcing & Advisory revenues were up 13% led by strong growth in U.S. property management and project management in Canada. Adjusted EBITDA came in at $26.2 million, roughly flat with last year, and a margin of 7.3% versus 8.1% negatively impacted by investment in producer recruitment and revenue mix.Turning to EMEA. Revenues of $121 million in the quarter increased 15% with internal growth of 13% and 2% from acquisitions relative to Q1 of last year. Sales Brokerage revenue was up 52% over last year, with lease revenue experiencing a slight decline of 1%. Meanwhile, revenues from Outsourcing & Advisory services increased 9% led by a recovery in our workplace solutions business in France. Adjusted EBITDA was a loss of $2.5 million relative to a breakeven performance in Q1 of 2018 impacted by incremental planned investment in revenue producers to drive new service line growth, which we expect to see later in the year.In our Asia Pacific business, revenues came in at $112 million, up 11% in local currencies, with 9% of the growth generated internally. Sales Brokerage revenue increased 14%, more than offsetting a decline of 8% in Lease Brokerage revenue mainly due to timing factors in our Asia business. Outsourcing & Advisory revenues increased 18% with strong growth across project management, property management and consulting and appraisal services. Adjusted EBITDA was $10.9 million, down slightly from $11.2 million last year, with a margin at $9.7 million versus 10.4% primarily due to revenue mix favoring a greater proportion of lower margin recurring services revenues.And finally, in our Investment Management operations, primarily due to the Harrison Street acquisition completed in the middle of 2018, revenues totaled $43 million compared to just under $3 million in Q1 of last year. Note that our Q1 2019 revenues included $11 million of carried interest pass-through revenues attributable to preacquisition assets under management and which are accrued to employees and former shareholders. Adjusted EBITDA came in at $10.2 million, while our margin, excluding the carried interest revenue that I just mentioned, which has no economic effect on Colliers, came in at 32.1%, below our expectations, primarily due to timing related to fundraising and capital deployment. Both the capital raising and deployment pipelines remain robust, and we expect to see the positive benefits of these realizations over the coming quarters.Moving to our capital deployment and balance sheet. In our first quarter 2019, capital expenditures totaled $10.4 million, up from $6.2 million last year, with the increase largely due to timing of spend deferred from 2018 as noted in our Q4 2018 conference call.Our forecasted range of CapEx spends for 2019 is in the $42 million to $45 million range, consistent with the range previously indicated. We invested $20 million in an acquisition activity during the quarter, down from $88 million in Q1 of last year, but with a solid pipeline of strategic acquisition opportunities aligned to our Enterprise 2020 growth plan.Our net debt position stood at $686 million at the end of the quarter compared to $545 million at year-end, which is typically the seasonal low point in terms of our debt level, and compared to $325 million at the end of Q1 last year. Our leverage ratio, expressed in net debt to adjusted EBITDA, stood at 2x versus 1.6x at year-end and 1.3x at the end of the Q1 2018, reflective of the robust acquisition-related investment during the past year and currently at a level well within the leverage we are comfortable with.As already mentioned by Jay, after the end of the quarter, we extended our committed availability under our revolver to -- under our $1 billion revolver to 2024 and secured a $125 million structured accounts receivables facility, which further diversifies our sources of financing and reduces borrowing costs.Looking across our global operations, our pipelines in most markets continue to reflect solid commercial real estate activity with market conditions that include favorable economic growth across most markets, stable interest rates, accessible debt financing, general stability in the supply and demand for commercial real estate and continued interest in commercial real estate assets by investors, particularly institutional players. Key drivers supporting steady activity in sales, leasing and other commercial real estate services, the balance of 2019 remain intact. And therefore our outlook for the year, presented during our 2018 year-end conference call remains unchanged, as outlined on Slide 12 of the presentation accompanying our call today.That concludes our prepared remarks. And I would now like to ask our operator to open up the call to questions.

[Operator]

[Operator Instructions] Your first question comes from the line of George Doumet of Scotiabank.

[George Doumet, Analyst]

I'd like to focus a little bit on the EBITDA margins in the Americas. I think they were down 80 basis points year-over-year. You guys called out some recruiting activity there. I was just wondering how much of that is -- was investment for, I guess, for future scale and how much of that is really, I guess, the reality of a more competitive labor market out there.

[John B. Friedrichsen, Chief Financial Officer]

I'd say it's generally all related to increased capabilities and recruiting to build our business and fill gaps, which we have identified in certain markets.

[George Doumet, Analyst]

Okay. That's helpful. And on the plan to grow the margins in that segment by 100 to 200 basis points over the next 2 to 3 years, I guess, how long should we think about investments like all you just referred to? And when would you expect to see the positive contributions to margins? Maybe any color you can provide there on cadence.

[John B. Friedrichsen, Chief Financial Officer]

George, I mean, it's John here. I hesitate to give quarterly -- we're not giving quarterly guidance or quarterly outlooks, and it's hard to measure quarter-by-quarter. But the 100, 120 basis points I think you referenced is our expectation for this year for the business as a whole. But if you're talking about the regional margin contribution, which we've talked about in the past, certainly that is something that is doable over the next 2 to 3 years and something that's focused principally in the U.S. business. We talked about this before, and we're focused on that. So don't really want to give the timing on that, but I believe we're on it, and I think we'll see progressive increases in margin there over the next 2 or 3 years.

[George Doumet, Analyst]

Okay. And just one last one, if I may, on -- I think you referred to this earlier on, but on the AUM growth, it's just -- it's up only 1% sequentially. So maybe some thoughts on the expectations for that to kind of improve and maybe an update that you can provide on how the fundraising activities are going.

[Jay Steward Hennick, Founder, Global Chairman & CEO]

It's Jay here. I think they've already improved, that's a nice sequential bump. And it's very seasonal in terms of fundraising. So it's probably a more appropriate question to ask at the end of quarter 2 or quarter 3 because that's when the flow, the traditional flow of fundraising happens. There's a lot of work done in the first quarter to generate that kind of growth. So I think it's probably a better question for next quarter.But if I might, George, I'd like to add a little bit to put things into context in the U.S. We see -- as we've talked about historically, we see a nice opportunity for us to move our margins in the U.S. business up by 200 or 300 basis points over the next, let's call it, 2 to 3 years. And the reason for that is the U.S. business for Colliers is something that's relatively new. We've -- we acquired it in 2011, 2012. We acquired the control of the U.S. business in that time frame. And since that time, we have made significant acquisitions, building the business from something like -- and I won't have the number, perhaps John does, but something like $200 million to $300 million in the U.S. to something that, with a little luck on -- just on the brokerage side, will exceed $1 billion in revenue.That means that there have been a lot of additions, that means that there is a lot of integrations, this is rebranding in the case of new businesses to Colliers, like things like Virginia, which we just did. All of those, we see as huge opportunity for us. The margin is there. We just need to capitalize on it. We need to integrate back offices, we need to streamline our opportunities as we're doing in virtually every other market around the world. If you take a look at the margin performance in places like Europe, Asia, Australia, even Canada, which I know is not totally broken out, they are all at the margins that are in the 300 basis points increase. So we see the U.S. as a huge opportunity for us, but I wanted to provide further color to the previous question.

[Operator]

Your next question comes from the line of Stephen Sheldon of William Blair.

[Stephen Hardy Sheldon, Analyst]

First, can you talk about the trends you're seeing now in the Nordics and maybe how the acquisition in Sweden could help you strategically in the region? Are there a lot of companies that operate in all 3 countries: Sweden, Denmark, and Finland where maybe this opens the door more for you to be the main CRE vendor for these companies relative to the 4? Just, I guess, any color on trends in the Nordics and your competitive positioning now.

[Jay Steward Hennick, Founder, Global Chairman & CEO]

Yes. The Nordics is a very interesting part of the world and I think overlooked by many. If you look at the population, we now are company-owned in Denmark and Finland and now Sweden. Denmark is by, hands down, the market leader in an area, which is -- in a country that has something like 6 million people, and 4 million of the 6 million people are in the 2 primary markets in that market, same thing in Finland. Sweden is a little bigger than the other 2 from a population standpoint, again consolidate -- a lot of people living in the 2, maybe you can argue 3 major markets in Sweden. But our affiliate there, unlike Denmark, which we had a very strong position and then we augmented it last year, in the case of our affiliate in Sweden, they really have a -- probably #6 or 7 position in the marketplace, and those that are higher than them in the pecking order are not the obvious ones that you would think. They're regional players. And so we see an opportunity for us to take our global brand, put some resources and moxie behind it in the same way as we'd done in Japan, as an example.And this isn't something that's going to happen miraculously next year. But over the course of the next couple of years, we see a huge opportunity to triple or quadruple the size of the business, whether internally or through tuck-under acquisitions, giving us the market leader in Sweden. And together with our Nordic practice, we would be #1 or #2 in terms of revenue generated. The only other market in the Nordics that is an affiliate is a very strong operation in Norway. And we have a phenomenal relationship with the principal of that business. And so we see it as an opportunity for us to build a very significant and profitable business in that region, which, of course, is already part of Europe and an important part of our European platform, which has enjoyed some great success over the past couple of years. I probably went on a little bit too long in that answer, but hopefully that gives you sort of a flavor of how our team is thinking about growth in the Nordics.

[Stephen Hardy Sheldon, Analyst]

No. That's great. Appreciate the color, very helpful. I guess the second is kind of a follow-up and going into the Investment Management business. I mean can you just talk some more about the margin performance there? You called out fundraising and I think some other maybe areas of investment. So any additional color there on those investments, the cadence of those investments? I mean do you typically kind of see the fundraising happen in 1Q without any revenue contribution and then you see the pull-through in 2Q and 3Q? And then I guess just a broad -- broadly, the outlook for margins and Investment Management over the remainder of the year.

[John B. Friedrichsen, Chief Financial Officer]

Steve, this is John. I mean there were some costs in Q1, which related to building the business, adding people, fundraising, some minor amounts related to some compensation stuff that got settled related to past performance, which was trued up in Q1, normal kind of stuff. So that's a factor, and so that was relevant for Q1. Obviously, we're going to continue to bear most of those costs, not all, as we continue to build the business in future quarters, but we'll get the benefit of fundraising and closing of current initiatives and funds, which will then result in revenue recognition related to management fees, some of which will go back into periods that were -- when the fundraising -- or when the funds were initially established and when they were originally marketed.So you'll get a bit of a pickup from certain activities related to that as well as deployment in other funds, which will then attract management fees. So bottom line is, as we grow this business, there is a very, very significant and solid base of ongoing revenue that's going to be generated through management fees along with some activity-related variances, so all very positive. Just to go back to your final point around margin expectations, I think we've indicated that -- those to be in the high 30s to low 40s. I think in the 40% range is a good number. And that's what we're focused on with the Harrison Street business.

[Stephen Hardy Sheldon, Analyst]

And for those numbers, at least for the 40%, are you saying for 2019 or just eventually more of a medium term?

[John B. Friedrichsen, Chief Financial Officer]

Yes, for 2019.

[Operator]

Your next question comes from the line of Stephen MacLeod of BMO Capital Markets.

[Stephen MacLeod, Analyst]

I just wanted to follow up on the last set of questions around the Harrison margins. Do you still see sort of a path to expand those margins into the kind of 40% to 45% range over time?

[John B. Friedrichsen, Chief Financial Officer]

For sure. I mean we're focused on that. We will continue to have to invest, and some of that is going to be a little bit of catch-up. But ultimately, as this company continues to build out and we tend to -- and we see continued improvement in productivity and realization on some of the investments made around people and capabilities to continue building, that is absolutely where we would expect the margins to be. So we talked about 40% from the beginning, and that incremental over time as we build scale in this operation, including activities, which we're now building in Europe, we should be in that range.

[Jay Steward Hennick, Founder, Global Chairman & CEO]

I would add a little bit to that. That, that is to me, that same-store growth for Harrison Street, I think moving the margins up 100, 200, maybe 300 basis points is going to happen naturally. But one of the things we're looking at from a growth standpoint is ways in which we can more rapidly scale our business in different geographic regions, for example, in Europe. If we're able to do that, we are going to go back probably in margin in order to accomplish that growth. That's just the reality of this business and -- but that creates further scale and opportunity in a different market and on balance will move the margins back up.But every time you enter a new market, it's very costly. And you either run a business, which is we're making some educated bets on growing into a new market, doing some extra hiring, maybe doing a modest acquisition to help accelerate the growth. All of those things will negatively impact, I believe, the margins in the near term, not on a material way, but it won't take us up to the 42%, 43%. And this is just sort of me giving you more color around the growth prospects for Harrison Street vis-a-vis operating it on a same-store sales kind of basis.So with that caveat in mind, yes, we can move into 43%. But we are aggressively looking at growing that business, it's a tremendous platform, an exceptional management team, and I think most importantly, they've been very successful over a lot of years being very focused. So they're not all things to all people, they think only of the seniors and students and medical and infrastructure. And if somebody calls them with a great office building or an industrial building or something for sale at $0.50 on the dollar, their answer couldn't be a faster no because they consider themselves to be expert at their business and have unique competitive advantages that help them get a better yield on their assets.So again, further color, and I'd like to give that color to you because it is new days for this new segment of our business, and it's important that you understand a little bit about what's motivating us to move this thing forward and a little bit of the excitement we have behind it.

[Stephen MacLeod, Analyst]

Yes. Okay. That's great. That's really good color. When you talk about -- just a follow-up, when you talk about aggressively looking to get scale in different markets, would that be via acquisition? Or is that via investment that would push the margins back or potentially both?

[Jay Steward Hennick, Founder, Global Chairman & CEO]

It's probably both. We're probably open to -- like we have been aggressively hiring in Europe, as you know, Harrison Street has a European platform, it's relatively small, manages a lot of money, but it's relatively small. We believe that we want to take it to another level, we have to ramp up the size of the business. And so there's 2 ways to do that: one is to do a massive hire, and one is to do a tuck-in acquisition. I think we're looking at both options.

[Stephen MacLeod, Analyst]

Okay. That's very helpful. I just wanted to follow up on one other thing, which the numbers certainly don't bear it, but when you look at the EMEA regions, very strong organic growth of 13%. I would've maybe expected that to be a little bit weaker just given the Brexit impact. But could you talk a little bit about what you saw in the U.K. market related to Brexit? And I guess perhaps was any potential weakness offset by strength in other parts of the EMEA region?

[John B. Friedrichsen, Chief Financial Officer]

Yes. That's -- I mean I think the U.K. fared reasonably well from what is typically a relatively slow quarter. It was decent. I think the rest of Europe, we saw some pretty good results. Germany was strong. Denmark, which Jay kind of referenced before in the Nordic discussion, was strong. We had a positive turn of events in France, which we hope we can sustain around the workplace solutions business, so lots of good things happening. I mean there's still a level of uncertainty, and I think that the U.K. in particular, certainly around primarily capital markets, there's going to be I think a period of probably somewhat more muted activity than would otherwise be generated just because until there's more clarity around Brexit, it's going to hold things back. But at the same time, if you take a longer-term perspective, they're going to figure this out.And for those that have a long-term perspective around the U.K., which would include us, we're looking for opportunities and taking in advantage of some uncertainty, which could give us a favorable angle in terms of growing that business. You've seen it already, and we've spoken about incremental producers that we have attracted because we do have a long-term view and I think that others don't necessarily. They perhaps have a different perspective on the impact of Brexit on their own business and what might happen. So that's the way we see it.

[Jay Steward Hennick, Founder, Global Chairman & CEO]

And more macro, more macro. It's very interesting because market data indicated this quarter, capital markets were down 12% in the first quarter. We were up 10%. Market data indicated leasing volumes were down 8%, we were up 8%. So we're quite bullish on our internal growth across the board, and that includes Europe in a big way, as you could see, with very strong growth across the board. So it's -- I thought those metrics were very interesting, and it's clear that we're picking up lots of market share in a lot of places.

[Operator]

[Operator Instructions] Your next question comes from the line of Matt Logan of RBC Capital Markets.

[Matt Logan, Senior Associate]

In terms of your market share, could you talk a little bit about your investment in U.S. secondary markets over the last 2 years and how you see your competitive positioning relative to your peers?

[Jay Steward Hennick, Founder, Global Chairman & CEO]

Yes, I can. Again, I sort of alluded to this earlier. The buildup of our U.S. business, which is now more than $1 billion, took place basically by buying market leaders in different geographic regions. Some of them affiliates, some of them nonaffiliates, some were strong market leaders, like the actual #1 or 2 market leader in a region, some like -- some markets like we've recently acquired in Pittsburgh and potentially Cincinnati and even St. Louis where markets that were owned by an affiliate were underperforming the market. We used the opportunity to buy them back with a view of strengthening the business over time.And so we're seeing that in some of the internal growth and -- but we're -- it's still a work in process, to be frank. I can give you a list of some markets where we're the absolute leader. I can give you some -- a list of the markets where we're top 2 or 3, and I can give a list of some that we are well down the list, but at least we're in the game and have an opportunity to ramp up the Colliers brand. So there is not a clear answer really right now, but I would say, on balance, our service fee revenue in the U.S. at $1 billion puts us #4 on an aggregate basis and maybe #3 if you factor out the janitorial revenues from some of our peers.And we see nice growth happening. And we don't own all the regions still. There's still affiliates out there that total probably $300 million or $400 million in revenue that we could acquire over time. So the U.S. is still a work in process. It's -- they are doing well, but there is 300 basis points in margin that is opportunity for us, and we're keenly focused on that.

[John B. Friedrichsen, Chief Financial Officer]

Matt, yes, it's John. Just let me add to what Jay was saying. Just a comment generally, and you probably know that, and people that are observers of U.S. market probably know this, but the secondary markets are significant in the U.S. in particular, significant size. And as the U.S. economy, as we saw this morning, with the growth that was published, economic growth is pretty significant. And I think that the opportunities in the secondary markets are probably better than they have been through this entire business cycle. We know that investors in real estate and companies in secondary markets, a key factor in their decision to transact or do business in those markets is to help the U.S. economy. And I think we've seen that, it continues to be relatively constructive in terms of supporting our activities, and being well positioned in the secondary markets is a good place to be.

[Jay Steward Hennick, Founder, Global Chairman & CEO]

And more movement of corporations than ever before to different secondary markets. You're seeing markets that are specializing in health care, you're seeing different markets that are specializing in tech whereas before, it was very concentrated in certain markets. Now secondary markets that are great places to live become a magnet for corporations that want to either reestablish their head office there or establish a very significant portion of their business, making, as John says, all the secondary markets very, very interesting.

[Matt Logan, Senior Associate]

That's great color. And with, I guess, continued population growth in the U.S. Sun Belt, would you see the risk/reward tradeoff as more favorable in secondary markets?

[Jay Steward Hennick, Founder, Global Chairman & CEO]

Well, I think traditionally, the Sun Belt has been secondary markets that are becoming major markets. Just think of South Florida, I think, it starts at Miami and doesn't end until Jacksonville, that's south -- that's Florida now. And that market is massive. And there's no land available for construction, there's corporations moving in there, and I'm pleased to say that Colliers is #2 right now in Florida, in every category. And 5 years ago, I wouldn't be able to say that.

[Matt Logan, Senior Associate]

That's pretty impressive. Maybe just changing gears slightly. With your Outsourcing & Advisory business performing well and lower interest rates globally, do you see any potential for organic growth to surpass your low single-digit expectation this year?

[John B. Friedrichsen, Chief Financial Officer]

No. I think we're good based on our visibility of what we see now. I would keep it there. I mean look, if circumstances change or we gain greater visibility, which is likely to happen as we progress here during the year, we would change that view. But I think for now, we're good at where we are.

[Operator]

Your next question comes from the line of Mitch Germain of JMP Securities.

[Mitchell Bradley Germain, Managing Director and Senior Research Analyst]

Jay, I know that -- I know Harrison Street's a pretty sizable alternative like student housing, other sectors like that. Any idea or any plans to grow into more traditional sectors like office where there may be a greater cross-sell opportunity?

[Jay Steward Hennick, Founder, Global Chairman & CEO]

We're very opportunistic, as you know, Mitch. We've looked at a lot. There's a couple out there that we have been dating for several years. We'll see if some come to fruition. But I think it's safe to say that we have a bit of a debate internally from time to time. What is the best -- what is in the best interest of our Investment Management platform? Where do investors want to allocate their company in the years ahead? And if that -- if we keep our eye on that, it's closer to alternative investments, more complicated types of investments. Yes, there is fewer cross-sell opportunities that are -- some of our peers have the benefit of enjoying. But strategically, is that the right approach? Or is the right approach to just buy the same old for the benefit of leveraging the -- potentially leveraging additional real estate services. I think in 5 years, we probably have both. But right now, I think we're leaning towards focusing on best strategy for the division.

[Mitchell Bradley Germain, Managing Director and Senior Research Analyst]

Got you. And just one for John. The clean number on Investment Management that would -- or the clean revenue number would be to remove the $11 million of carried interest, right? Is that kind of the way that we should be thinking about that?

[John B. Friedrichsen, Chief Financial Officer]

Yes. Yes, that's kind of -- just it's in revenue, and it's in cost of sales. It's nothing in terms of EBITDA, but it does gross up the revenue, so yes, that would be way to adjust it, just take it out.

[Mitchell Bradley Germain, Managing Director and Senior Research Analyst]

So it's in both items. I got you. Okay, great.

[John B. Friedrichsen, Chief Financial Officer]

Yes, yes.

[Operator]

[Operator Instructions] Your next question comes from the line of Frederic Bastien of Raymond James.

[Frederic Bastien, MD & Equity Research Analyst]

You mentioned that you have lots of opportunities still to acquire affiliates in the U.S. Wondering what the situation is outside the U.S. Are there still a lot of affiliates that you don't currently own that you would like to get your hands on?

[Jay Steward Hennick, Founder, Global Chairman & CEO]

Fewer, Fred, because we really believe that we own the key markets that we need to own. And several of the other -- look, I don't know the exact number today. I didn't do the recalculation. I would say we own 47 of the most important countries around the world, and there are several that -- Greece, Turkey, places like that, that are affiliates, they pay us a nice affiliate fee, but I'm not sure we're running to buy those.But in the U.S., there are some interesting potential opportunities, which we have, of course, a right of first refusal on at any time, and so those are obviously of keen interest. Sweden was interesting because it helped to fill out the Nordics. Obviously, Norway would be the final piece of that equation. We love what we're -- what we've got building in the Nordics, but we also have an exceptional affiliate in Norway that's doing a terrific job and is essentially integrated in our business. So we're happy to have him as an affiliate. We'd be a touch happier if it was a company-owned operation, probably happiest if he was our partner going forward because he's so exceptional at what he does. But we'll have to -- we'll just have to see how that rolls out.

[Frederic Bastien, MD & Equity Research Analyst]

Okay. Great. And then initially, you compared the Sweden affiliate to the Tokyo one, can you give us an update on how the Tokyo business is going -- or sorry, not the Tokyo but the Japanese business is going? I know you have acquired it 2, 3 years ago.

[John B. Friedrichsen, Chief Financial Officer]

Yes, it was really last year. I mean it was -- we kind of settled things out in late 2017, but it wasn't until last year that we really were able to establish basically a greenfield operation with some people -- experienced people who wanted to continue to operate underneath the Colliers brand name. So we built it up to 30 people, which is pretty significant in the space of a year.There's plans to continue adding through this year to that team. It is focused today on Tokyo, and I think that that's where the opportunities are. Down the road, there will be other major cities in Japan. Obviously, it's one of the biggest economies in the world, and we have a business there that is generating very positive EBITDA, pretty significant relative to where we were at the beginning, which was just a breakeven situation out of the gate in late 2017. So there's tremendous opportunity, and this is interesting. The Sweden situation, there are some parallels.And both businesses had been in the market for a long time, had not grown significantly. Japan was a little trickier, the way we had to do that, but ultimately we're successful, and there's going to be big upside there. Obviously, Sweden is a smaller market but twice the size of Denmark in terms of population, GDP growth and so forth. So you can think about what the potential is there, that big upside.

[Frederic Bastien, MD & Equity Research Analyst]

And one step at a time, right?

[Jay Steward Hennick, Founder, Global Chairman & CEO]

Yes.

[John B. Friedrichsen, Chief Financial Officer]

Yes.

[Operator]

There are no further questions in the queue. I turn the call back over to the presenters for final remarks.

[Jay Steward Hennick, Founder, Global Chairman & CEO]

Okay. Thank you, everyone, for participating. I hope we gave you a little bit more color this quarter than we have historically. And I would just underline the fact that this is a seasonally slow quarter, and so based on the growth we're enjoying, we're feeling very confident that the balance of the year will be solid. So thanks for joining us and looking forward to the next time we speak. Bye.

[Operator]

Ladies and gentlemen, this concludes the quarterly investors conference call. Thank you for your participation and have a nice day.