The S&P500 is a better option over this Real Estate Service company

Colliers is a leading real estate services and investment management company. It provides advisory services to enhance the value of property for real estate occupiers, owners and investors. The company has a presence in the U.S., Canada and 68 other countries and has assets worth $33 billion under management.

Colliers derives nearly 94% of its revenue from commercial real estate services and 6% from investment management services. The U.S. accounts for 56% of CRE revenue, followed by EMEA (~20%) and Asia (~18%). Colliers’ asset class comprises offices, industrial and logistical services, hotels, retail, and residential properties.

Investment Data

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Revenue Growth & Market Exposure

With more than 25 years of professional experience, Colliers has developed a strong business model with a highly diversified global operations and higher proportion of recurring and contractual revenue streams. The company is targeting to further increase its stable revenue streams with Outsourcing, Advisory and Investment Management expected to account for half of its total revenues from just 41% in 2018.

Colliers provides Outsourcing & Advisory services (accounting for ~40% of revenues), leasing (~29%), capital markets (~25%), investment management (~6%) services to its clients. The majority of the company’s earnings come from Investment Management and Outsourcing & Advisory services that are recurring and contractual. Colliers keeps investing in technology to stay ahead from its competitors. Its proprietary platforms include Colliers 360 for corporate users, Colliers Office Expert for occupants and tenants, Colliers Indsite for industrial users and ColliersCRM for advisors.

Colliers acquired a controlling interest in Colliers Mortgage and Maser Consulting during the year, which are expected to generate significant recurring revenue streams in the future. The company is targeting future growth through acquisitions as well as organically. It has spent more than $2 billion in 88 acquisition transactions in the last 17 years. Colliers’ investment in Harrison Street has made it one of the leading global investors in alternative assets.

The pandemic-induced uncertainty adversely impacted Colliers’ leasing and capital markets business in the second quarter ended June, 2020 and is expected to remain below 2019 levels. The Investment Management and Outsourcing & Advisory revenues are expected to remain relatively stable for the balance of the year.

Dividends

Colliers International sports an annual average yield of 0.15% and a payout ratio of 73%. The company pays a dividend of $0.05 per common share semi-annually. A dividend hike is long overdue at Colliers International. It last raised its dividend by 25% in 2016. The company has delivered compound annual returns in share value of almost 20% over the past 25 years. Colliers’ EPS has grown at a rate of 19% CAGR in the last five years. The company also has a share repurchase program in place and it announced a new NCIB which entitles the company to repurchase up to 3 million shares during the twelve months ending July 2021.

The real estate services and engineering services markets are huge representing market opportunities of more than $340 billion. Colliers has a good chance to grow given that the top five firms account for only ~30% market share. The company can gain from massive consolidation opportunities and can diversify into social and other horizontal infrastructure.

Colliers has an asset-light model with strong cash flow and balance sheet. About 50% of adjusted EBITDA is recurring in nature. Moreover, it has modest capex requirements which further supports strong EBITDA to free cash flow conversion. The company has also taken significant steps to adjust costs to expected revenues across all service lines and has achieved $150 million in cost savings for 2020. Colliers forecasts a 25%-35% YoY decline in consolidated adjusted EBITDA, excluding the impact of pending acquisitions.

Chart by StockRover.

Competition

Colliers operates in a highly fragmented, growing industry. It competes with the likes of Altus Group Ltd, Brookfield Property Partners, Tricon Capital Group, FirstService Corp., etc. Altus Group is a leading provider of software, data solutions and advisory services to the global commercial real estate industry. It is a market leader for core CRE practices and is known for its large global blue chip client base. FirstService Corporation is a leading real estate services company in North America and the largest manager of residential communities. The pandemic has led to uncertainty in leasing and capital markets and the company expects revenues from its variable brokerage operations to decline in the year.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:BPY.UNBPY.UNBrookfield Property PartnersReal EstateReal Estate Services0.5420.9615.0910.8010.801.940.08258.250.890941.330.138865Tollbooth - UnregulatedNONONONOCanada1
TSE:FSVFSVFirstService CorpReal EstateReal Estate Services0.36176.747.7083.1383.132.130.00500.500.414940.680.107243IntermediateNONOYESNOCanada1
TSE:CIGICIGIColliers International Group Inc.Real EstateReal Estate Services0.22119.324.7858.3858.382.040.00110.110.063720.100.001123IntermediateNONONONOCanada1
TSE:TCNTCNTricon Capital GroupReal EstateReal Estate Services0.5110.982.1124.7824.780.440.02552.550.636440.280.050543Tollbooth - UnregulatedNONONONOCanada1
TSE:AIFAIFAltus Group LimitedReal EstateReal Estate Services0.2449.992.03119.37119.370.420.01201.201.428640.600.012012Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Colliers’ focus on high value-add real estate professional services, and recurring and diversified revenues provide a wide competitive moat. As one of the top five global players, Colliers is well-positioned to gain from potential market share opportunities, consolidation and value-add services in a highly fragmented, growing industry. The company should also gain from rising demand in the commercial, e-commerce and industrial segments in the post-COVID world. 

However, it’s not much of a dividend holding with the current dividend rate and lack of growth.

Dividend Adjusted Chart by StockRover.
Chart by StockRover.

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