Colliers International Group Inc

TSX:CIGI

Earnings Call Transcript 2023-Q2

[Operator]

Welcome to the Colliers International Second Quarter Investors Conference Call. Today's call is being recorded. Legal counsel requires us to advise 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 the 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 form 40-F as filed with the US Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is August 2, 2023.

And at this time, for opening remarks and introductions, I would like to turn the call over to the Global Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

[Jay Hennick, Global Chairman & CEO]

Thank you, operator. Good morning, and thanks to everyone for joining us for this second quarter conference call. I'm Jay Hennick, Chairman and Chief Executive Officer of the company. With me today is Chris McLernon, Chief Executive Officer of our Real Estate Services business, and Christian Mayer, our Chief Financial Officer.

As always, this call is being webcast and is available on the Investor Relations section of our website, along with the presentation slide deck. During the second quarter Colliers experience strong growth in recurring revenues, which contributed 65% of our adjusted EBITDA. Having such a large percentage of recurring revenue highlights our balanced and resilient business model, enables us to withstand market fluctuations and truly sets us apart from the others.

Once again, investment management and outsourcing and advisory experienced robust growth during the quarter, while capital markets, and to a lesser extent, leasing, declined versus the prior year, a record quarter. As everyone knows, lower interest -- lower interest rates have -- lower investment volumes, sorry, have been caused by rising interest rates, challenging debt availability and continued price discovery, which we expect will quickly rebound once conditions stabilize. Since the rest of our business has been performing well, we're maintaining our financial outlook for the year, as Christian will elaborate on.

Our company is basically comprised of two parts. Colliers, one of the top global leaders in commercial real estate. This segment makes up about 70% of our adjusted EBITDA and is led by CEO, Chris McLernon. Chris will provide some highlights in a few minutes. The second segment is Investment Management, which is our fastest-growing business.

Since 2016, Colliers has built a highly differentiated private investment platform with an impressive $100 million of assets under management. Importantly, 85% of our AUM is comprised of perpetual or other long-duration investment vehicles, giving us predictable revenue streams over the long term. As importantly, 70% of these assets are in defensive strategies like seniors and student housing, healthcare and infrastructure, classes that are highly sought after with strong tailwinds for the future.

During the second quarter, IM continued to scale with revenues up 58%, including the benefit of acquisitions. We continue to invest in our platform, adding investment professionals and new products, as well as strengthening our distribution capabilities. While fundraising remains a challenge for the entire industry, the interest in our investment vehicles has never been greater. We expect our fundraising will accelerate as we move towards the end of the year.

And now let me ask Chris McLernon to discuss some of the highlights from our real estate services business. Once he's completed, Christian will provide his usual financial report, and then we'll open things up to questions. Chris?

[Chris McLernon, CEO, Real Estate Services]

Thank you, Jay, and good morning. Our vision at Colliers is to accelerate the success of our clients and our people while creating value for our shareholders. Today, Colliers is stronger than ever. It is our unique enterprising culture that sets us apart from our competitors, as we continue to attract and retain the best talent in the industry while taking share from our competitors. Although transactional services of capital markets and leasing declined versus prior year due to the challenging market conditions, our Outsourcing & Advisory services showed strong growth, continuing the momentum from the first quarter.

Globally, capital markets investment volumes have hit the lowest level seen in a decade due to the rapid rise and continued uncertainty around interest rates, combined with the tightening debt markets, which is affecting price discovery between buyers and sellers. We are confident that our transaction business will rebound strongly once market conditions improve.

In the meantime, to counter the decline in transactional revenue, we have been very proactive optimizing our costs throughout the business. We have done this before and our enterprising culture with leadership at all levels are fully aligned with shareholders, allows us to make hard decisions quickly and in the best interest of our clients, people and shareholders.

Finally, during the quarter, we continued to make progress toward our Enterprise 2025 plan, growing our outsourcing and advisory business internally and strengthening our service offering by completing three strategic investments in the US, Australia and New Zealand.

Now let me pass things over to Christian.

[Christian Mayer, CFO]

Thank you, Chris, and good morning. Now that you've heard from Jay about investment management and from Chris on Real Estate Services, I will add some comments on our consolidated results, our balance sheet and our financial outlook for the full year. Please note that all references to revenue growth made on this call are expressed in local currency and that the non-GAAP measures discussed here today are as defined in the materials accompanying this call.

For our second quarter, revenues were $1.1 billion, down 4% relative to the prior year, which was a record second quarter for our business. Our capital markets and leasing service lines reported revenue declines of 38% and 7%, respectively, in line with market conditions and our expectations, continuing the challenging trend that started last summer. Our recurring investment management and outsourcing and advisory service lines each reported strong growth.

On an overall basis, internal revenues declined 10%, attributable entirely to lower transaction volumes. Consolidated adjusted EBITDA for the second quarter was $147 million relative to $161 million in the prior year with margins at 13.6% versus 14.3% in the prior year quarter. The margin reduction was attributable to the decline in capital markets volume, particularly in our EMEA region, where producer compensation is partially fixed. The overall margin impact was moderated by growth in our higher-margin Investment Management operations as well as aggressive cost control actions across the company. We have achieved cost savings of approximately 28% during the second quarter, and we expect a similar or greater level of savings in each of the third and fourth quarters.

Turning to our balance sheet. Our financial leverage ratio, defined as net debt to pro forma adjusted EBITDA, was 2.4 times at June 30, reflecting capital deployed on acquisitions during the past 18 months, which are performing in line with our expectations as well as seasonal working capital usage. Absent any significant further acquisitions, we expect our leverage to decline to under 2.0 times by year-end. On June 1, we completed the early redemption of our 4% convertible notes, issuing 4.1 million new subordinate voting shares.

The early redemption eliminates the interest expense related to those notes and increases the amount of permanent capital on our balance sheet. At present, 55% of our indebtedness is at attractive low fixed interest rates. Our weighted average interest rate for the second quarter was 4.6%, up 130 basis points over the prior year, far less than the 450 basis point jump in floating reference rates during the same period, demonstrating our active management of borrowing costs.

With respect to our financial outlook for the full year 2023, we are maintaining our current outlook. We expect lower capital markets and leasing transaction volumes to persist for the remainder of the year, with the impact partly offset by cost control efforts across our company. We also expect continuing strong growth in our recurring service lines, Investment Management and Outsourcing & Advisory.

Overall, we expect full year adjusted EBITDA to be up between 6% and 14% relative to 2022. We expect the majority of our second half growth to be focused in the fourth quarter due to easier prior year comparatives in our transactional business and expected incremental management fees from fundraising and investment management.

Full year adjusted earnings per share is expected to be down slightly to up slightly on higher interest expense as well as the impact of a larger proportion of earnings coming from non-fully owned operations. That concludes my prepared remarks.

I would now like to open the call for questions. Operator, can you please open the line?

[Operator]

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Steve MacLeod with BMO Capital Markets. Please go ahead.

[Steve MacLeod, BMO Capital Markets]

Great. thank you. Good morning, morning, everyone. Just a couple questions…

[Jay Hennick, Global Chairman & CEO]

Good morning, Steve.

[Steve MacLeod, BMO Capital Markets]

Good morning. Just a couple of questions. One is around the investment management fundraising environment. You suggested that you expect a very strong back half for fundraising. And I'm just curious if you can give a little bit of color around what's driving that. As you pointed out, Jay, I think in your prepared remarks that fundraising is a challenge in the industry, but you're still expecting a strong accelerated back half.

[Jay Hennick, Global Chairman & CEO]

Look, it's still unclear. I think that the reason we're seeing or the entire industry is seeing a slowdown is for the same reasons capital markets in some ways is seeing a slowdown. Everybody is trying to figure out how that might impact value of assets within funds and so on and so forth. The beauty of our Investment Management platform and the fact that we create -- we curated it over a long period of time is that we focused on defense strategies, infrastructure and other highly sought-after investment classes. So redemptions for us have been modest, if at all, whereas there's been redemptions in many, many funds that have more traditional real estate asset classes.

But I think investors generally are being more cautious. But our pipelines have never been stronger. So we're having more meetings, there's more conversation with new potential LPs throughout the entire system. So we're all excited about that. It's just taking longer for them to make final decisions, and -- but that's been the case, I would say now for two quarters, maybe a little -- maybe three quarters. So sooner or later, they're going to have to start to make some decisions. And we think that we'll be at the front end of those decisions given our asset classes.

[Steve MacLeod, BMO Capital Markets]

Okay. That's great. That's good color. Thank you, Jay. And then just within Capital Markets and Leasing, obviously you've talked about, just the sort of weaker backdrop persisting for the back half of the year, which I think is an expectation that everyone has. Can you talk a little bit about just sort of your activity levels? Are you seeing a lot of kicking of the tires and just the transactions are not getting done? I mean, just as it relates to potentially pent-up demand?

[Christian Mayer, CFO]

Yeah. Hi, Steve. It's Chris here. We're certainly taking more meetings in Q2 and going into Q3, pitching more and bringing new mandates to market, certainly at the lesser numbers and volumes, but we're seeing activity that will transact probably towards Q4. The market has stalled. And as I said in my opening remarks that we're at a 10-year low, you've got Germany, for example, down 68% year-over-year, US down 65%. So -- but we're seeing some good meetings starting to take place and investors wanting to test the market.

[Steve MacLeod, BMO Capital Markets]

That's great. Thanks, Chris. Appreciate that color. Thanks, guys.

[Operator]

Your next question comes from Stephen Sheldon with William Blair. Please go ahead.

[Stephen Sheldon, William Blair]

Hey. Good morning, guys. Thanks for taking my questions. Great quarter overall in a tough environment. Did want to ask about the slowdown in Outsourcing and Advisory in the Americas. I think it's been growing kind of high single digits the past two quarters, down to 3% year-over-year this quarter. Anything specific driving that, such as tough comps or one-off items? And then how are you thinking about the growth outlook there over the next few quarters and to early 2024?

[Christian Mayer, CFO]

Just give me a sec here, Stephen, we're going to pull out the...

[Jay Hennick, Global Chairman & CEO]

We don't know if [indiscernible] we're surprised by them.

[Christian Mayer, CFO]

Surprised by your question, but…

[Stephen Sheldon, William Blair]

Okay. Maybe I'll ask another…

[Christian Mayer, CFO]

O&A is actually up in the Americas, Stephen, by about $10 million on a quarter-over-quarter basis. So I'm not sure.

[Stephen Sheldon, William Blair]

Yeah, I asked year-over-year slowdown because it had been growing, I think, in my numbers at least 9% 4Q, 7%, 1Q down to 3% this quarter year-over-year. So I don't know if maybe valuation has slowed down given that there's some transactional…

[Christian Mayer, CFO]

Right. I think I understand the question now. Part of our interest in Advisory business has -- is a valuation practice. And that valuation practice is a recurring service offering in that it provides ongoing property valuation on an annual basis to large financial institution clients who contract us to do that work. There is some additional work that gets done on the front end, as transactions occur and as new loans are originated, that part of the valuation business has declined clearly. And maybe that's what you're seeing there, but that could probably be the -- that's probably the single biggest driver of a reduction in volume there.

[Stephen Sheldon, William Blair]

Okay. Got it. That's what I figured. And then just 2025 is quickly approaching, you guys have your targets out there. Just curious, it seems like you've done multiple of these kind of five-year targets. When are you thinking about providing your outlook for 2030? I know there's a lot going on in the near term, but just curious where -- when we would maybe start expecting to see some of those longer-term targets again?

[Jay Hennick, Global Chairman & CEO]

It's funny you mentioned 2030. We're doing lots of work on 2030 right now, which is way ahead of where we would have been several years ago. We generally would start our five-year plan, 3.5 years, maybe four years into our current plan. We actually started it early this time. But I don't think we would make it public much before, we came -- we're finished the current five-year plan, but there's been a lot of thinking around the 2030 plan, what do we look like in 2030, it's quite exciting from our perspective, we see some very, very interesting ways for us to continue our current growth trajectory. But right now, it's quite remote. And my commentary is just around the fact that we think that we can continue to grow at the same kind of clip we have historically for much further than the current five-year plan.

[Stephen Sheldon, William Blair]

Got it. And maybe just one more. Chris, I think you kind of talked about seeing some good activity on the capital markets side, although deal volume is still down quite a bit year-over-year. It doesn't seem like it picked up yet. Some of your peers have reported green shoots in areas like or subsectors like multifamily, industrial, subsectors like that. Just curious what you're seeing out there if we looked by almost by subsector or different asset classes within commercial real estate. Is there more activity happening in certain subsectors than others?

[Christian Mayer, CFO]

Yeah, absolutely. The number one asset class that investors are looking at is that industrial logistics, it's been a five-year boom in the marketplace. Vacancy is quite low. So we're seeing rental appreciation. And so that continues to be a hot sector. Same with multifamily, with many cities around the world, you've got an over-demand situation where rental tenants are looking for properties, and so we're seeing rental increases in multifamily. So I think that's a good sector. There's the whole flight to quality in terms of office leasing. So the very best buildings, the trophy assets with the best amenities, best locations, best tenants are still going to be an attractive investment. And then I would say the alternatives, student housing, data centers, et cetera. But the problem is that it's such a small pool of assets, but it's very much in demand. So those are the sectors that we're seeing that have interest with investors today.

[Jay Hennick, Global Chairman & CEO]

I would also add another thing to what Chris said is, and that's geographic -- our geographic diversification. If you take a look at our APAC numbers, they were surprisingly better than the rest of the world, which is interesting because things may be turning there a little bit, whereas in the US capital markets and leasing were down, whereas in APAC, they weren't down nearly as much. And so we don't know whether those are early signs yet. But that's -- to us, that's a green shoot.

[Christian Mayer, CFO]

Absolutely. Jay, just to follow up on that. In Asia Pacific, we've got a first-class regional and local management teams. And we're seeing real good progress in our Japanese capital markets business going from strength to strength. We've also improved our operations in Korea and Singapore. So we saw a couple of large transactions this quarter in those two markets. And then a pillar of strength is still our Australian business, and we're seeing some, again, industrial and logistics sales and then the return to residential project marketing with the heavy immigration coming into Australia. So definitely some green shoots there.

[Stephen Sheldon, William Blair]

Thank you, guys. Appreciate the color.

[Operator]

[Operator Instructions] Your next question comes from Frederic Bastien with Raymond James. Please go ahead.

[Frederic Bastien, Raymond James]

Thanks. It's nice to have Chris join us for the call and presumably for future ones. Also, thanks for your comments on the APAC region because that was one of the questions I had. I guess my biggest concern coming into the print were margins and they held up quite nicely, especially in the Americas. So it certainly showed you've been quite proactive with your cost structure. Question is around the outlook you provided for the back half. I think you mentioned in your prepared remarks, you expected more savings to be achieved. Wondering if you could provide additional color there? Thanks.

[Christian Mayer, CFO]

Yeah. Frederik, we've been active on managing our costs, and we've been positioning ourselves to deal with this decline in capital markets activity that started really nine months ago. So we have been proactive in reducing head count and producer support and administration roles, managing that headcount as best as we can despite the fact that there is activity, as Chris says, there's people looking at transactions. So being prudent there on our headcount, managing the discretionary costs in the business, travel, conferences, that sort of thing. So we've made some very good progress there. As I mentioned in my prepared remarks, $28 million in the second quarter, and we're looking for the same or better in the third and fourth quarters and that will positively impact our margin for the full year.

[Frederic Bastien, Raymond James]

Thanks. How would that differ from the cost savings that you achieved during COVID? Or how different of an approach did you…

[Christian Mayer, CFO]

It's the same playbook, Frederic, but a different situation slightly. During the pandemic, it was actually much more black and white. Our people were at home. Transactions simply weren't being talked about and weren't being explored. So we made more dramatic cuts to those areas. I think from an overall perspective, the pandemic era cuts were significantly more in dollars, but they were focused on the same areas of our transactional business.

[Chris McLernon, CEO, Real Estate Services]

And just to add some additional color. Remember, we've got this decentralized partnership model. And so we've got leadership locally aligned to performance and they're being proactive. It's a basket of businesses. And so we've got some countries performing well, some service lines performing well. So it's not looking at cost containment across the board. It's being selective and looking at those service lines and countries that are challenged and letting the ones that are going well, continue to run well.

[Jay Hennick, Global Chairman & CEO]

And let's not forget the highly variable nature of our professionals globally around the world, that compensation adjusts based on their production. So we feel, as you're hearing from Chris and from Christian, that this is a road we've been down several times before. The structure of our business is quite unique in this respect. And I think leadership has consistently had the fortitude to act when times like these occur, and we're doing that and the results are showing up. So we're pleased with that.

[Frederic Bastien, Raymond James]

Awesome. Thank you. That's all I have.

[Jay Hennick, Global Chairman & CEO]

Thanks, Fred.

[Operator]

Your next question comes from Jimmy Shan with RBC Capital Markets. Please go ahead.

[Jimmy Shan, RBC Capital Markets]

Thanks. Good morning, guys. Just wanted to follow up on the leasing business. Capital markets revenue versus your peers were down about the same level, but leasing seems to have done a little bit better. I wondered if whether that's different asset mix, geographies and kind of what would account for seemingly a better year-over-year performance? And then maybe how do we think about the trajectory of that business over the next few years? I know weak office, industrial is strong, but maybe if you could provide some color as to how to think about the growth beyond this year.

[Christian Mayer, CFO]

Yeah. This is Chris here. It is a geographic topic. So Asia Pacific leasing was up 24% year-over-year on the quarter. And this was attributed to a couple of things. One, again, I mentioned the improved performance in some of our Asia Pacific operations, Korea, Singapore, Japan. And then we've also got a growing business in India. But predominantly, it would be Australia. Again, we are the leader in the A-class landlord leasing business. And there's a whole trend of the flight to quality for office users to go to the best buildings. And so we're capturing a lot of that market in Australia, which is helping the overall leasing markets for the company.

[Jimmy Shan, RBC Capital Markets]

Okay. And in terms of your guidance for the year, I guess two questions. One is, what would that assume in terms of AUM growth in the back half? And then sort of is your confidence in the guy really sort of predicated on your -- the cost-cutting effort that you've done so far? Is that really what's kind of the main driver to you being able to sustain the guidance?

[Chris McLernon, CEO, Real Estate Services]

Yeah. I mean, to answer your question, Jimmy, our AUM at June 30 was $99 billion. We certainly expect to be well north of $100 billion, sort of -- know exactly where that's going to be, but definitely a few billion north of $100 billion by the end of the year, and that will come from fundraising that we expect will occur before the end of the year. As Jay mentioned, we've had very modest redemption activity. So that's not really a factor valuation and our AUM is also a modest negative, but not something that we're concerned about. So it's really all about fundraising for us in terms of our AUM trajectory.

And just as a reminder, our fee-paying AUM is the number that generates the revenue. Our AUM is a gross measure that includes leverage. So if we raise -- just for discussion purposes, $1 billion, our AUM will actually go up potentially by $2 million given the leverage that's [not] (ph) in the portfolio. So just be cognizant of that.

In terms of your other questions, cost control certainly will be a continuing focus for the balance of the year, as I mentioned a couple of times on the call already, and that's part of what is in our outlook. We've also had a couple of tuck-in acquisitions, actually three tuck-in acquisitions this year to date. So those will continue to annualize into the results over the next two quarters. So -- and of course, our outsourcing business will also continue to grow over the next two quarters, and that will drive some additional EBITDA to help us achieve our outlook.

[Jimmy Shan, RBC Capital Markets]

Okay. That's good.

[Jay Hennick, Global Chairman & CEO]

Thanks, Jimmy.

[Operator]

Your next question comes from Maxim Sytchev with National Bank Financial. Please go ahead.

[Maxim Sytchev, National Bank Financial]

Hi. Good morning, gentlemen.

[Jay Hennick, Global Chairman & CEO]

Hi.

[Maxim Sytchev, National Bank Financial]

I just wanted to start a little bit with EMEA, if it's possible. Do you mind providing with more color in terms of the operating earnings loss in the quarter? Is it again, more of a function of the compensation structure than anything else? Or is there sort of any additional data points you can provide on that geography? Thanks.

[Christian Mayer, CFO]

Yes, Max. It really is that. It's the compensation structure, which has a partially fixed component in capital markets. And as you can see in the materials of the capital markets, revenues in EMEA are down quite significantly in the quarter. So that's the driver of it. The revenues are offset by growth in Outsourcing & Advisory, but those margins in Outsourcing & Advisory are sort of low double-digit area, whereas the capital markets business in EMEA is a significantly higher margin operation. And as the revenues come down, that margin deleveraging is more significant and impacts the amount of EBITDA generated as well as the operating earnings that are generated.

[Maxim Sytchev, National Bank Financial]

Okay. Thanks a lot for clarifying question. And then, Jay, maybe a bit more sort of a broader question. I mean if you listen to some of sort of the bearish commentary around kind of commercial real estate in general, is that actually potentially the big issue dropping is kind of '25, '26 in sort of time frame. I'm just wondering what are your thoughts on maybe counterpoints to that view of the world in terms of the potential stabilization when it comes to the value of the properties and how the [sausage] (ph) sort of gets made on that sort of time frame? Thank you.

[Jay Hennick, Global Chairman & CEO]

So I think it's -- I divide the question into two. First of all, there's various asset classes in real estate. We all know what they are. Office is obviously something that's under some pressure. But as Chris mentioned on multi-family and our defense assets -- defensive assets, infrastructure, these are all doing extremely nicely. Operator, do you mind clearing your throat at a different time. These are all assets that are doing extremely well.

And the only difficulty then is availability of capital, but there -- I see -- I see a normalization happening, but we still need to see some stabilization in interest rates. We need to see a change in mentality among sellers of assets and buyers of assets who are prepared to step-up for some of the more quality assets that are available.

So I'm reading all the same things that you're reading, I'm hearing '25, I'm hearing '26. I can't believe it would be delayed to that length of time. I think you're going to start to see activity in '24, maybe even early '24. There's funds out there that need to acquire. There's funds out there that -- that need to dispose. You're seeing Blackstone sell massive pieces of their large REIT to redeploy their capital.

So I think it's all over the place, frankly. And I think it's going to be at the more sought-after real estate assets, you're going to see movement sooner than you think. Of course, we would like to see it starting tomorrow. But the reality is, it's going to be sooner than we think, because these assets are going to have to turn over. It's much more a mature asset real estate is today than ever before. So we're sort of thinking '24. We're going to be maybe not at record levels, but there's going to be nice activity happening in '24.

[Maxim Sytchev, National Bank Financial]

Super helpful, Jay. Thank you so much. And then maybe just one last question. Obviously, you continue to build your platform in engineering and consulting. And now that you have quite a bit of size in the business. I'm wondering if you can maybe comment on, give us examples around some cross-selling successes that maybe you would have had across sort of the entirety of Colliers. Yeah, that's my last question. Thank you.

[Jay Hennick, Global Chairman & CEO]

There's just so many. But the obvious ones is -- the obvious ones are in engineering, there is a ton of prework that has to go into taking a piece of land from raw land to the point where it can be developed or sold. And so our engineering segment is very busy with homebuilders everywhere, builders of big distribution facilities and so on in order to get the actual land, sewage, drainage transportation all set up so that properties can be sold and developed and so on and so forth. So there's a natural connection, the same clients that may own a piece of land or may want to acquire a piece of land need to have some assistance from an engineering firm to entitle that land to do what they want to do. And that's just one example.

For us, our Engineering & Design business includes also project management, which together, those businesses are now approaching almost $1 billion in revenue and the project management piece of our business generates huge business from the engineering and from our commercial real estate business as people are looking to build, renovate and alter the structure of their real estate assets, including in the office environment, where we're very busy right now trying to decide what the right component of an office is for a downtown office user with work from home and a variety of other factors that we all know about. So -- that's my answer. I'm happy to go into more detail if you want.

[Maxim Sytchev, National Bank Financial]

No, that's perfect. Thank you. Thank you so much for the color.

[Operator]

Your next question comes from Frederic Bastien with Raymond James. Please go ahead.

[Frederic Bastien, Raymond James]

Hi, guys.

[Jay Hennick, Global Chairman & CEO]

Fred.

[Frederic Bastien, Raymond James]

Just a quick question on -- just noticed the investment management margins were down sequentially from 45% to -- roughly 45% to 42%. And I think you're guiding for somewhere close to 50% as we close out the year. Can you just speak to the pressure you see on the margin, what was behind that? And how we get back to the trend you've been forecasting on a go-forward basis?

[Chris McLernon, CEO, Real Estate Services]

Yeah. Frederic, 50% margins is our target down the line, three to five years from now, as we continue to scale the business. We expect to achieve something in the order of 45% thereabouts this year in terms of a full year margin profile. In the quarter, we -- as Jay mentioned in his remarks, we invested in distribution capabilities and other growth initiatives, new staffing to support new fund launches. So those growth investments do have an upfront cost attached to them. And those are going to bear fruit here over time, and we're convinced of that and confident in that, and that's why we're making those ongoing investments in our platform.

[Frederic Bastien, Raymond James]

No, that's great color. No, I know you've made significant investments over time and they've certainly paid off. So thank you for that.

[Christian Mayer, CFO]

All right. Thanks.

[Jay Hennick, Global Chairman & CEO]

Thanks, Chris.

[Operator]

There are no further questions at this time. Please proceed.

[Jay Hennick, Global Chairman & CEO]

Well, thanks, everyone, for joining us on this second quarter conference call, and we look forward to speaking to you again during the third quarter. Thanks for participating.

[Operator]

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, and have a nice day.