Q1 2021 CBRE Group Inc Earnings Call
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Greetings and welcome to CBRE Q1, 2021 earnings call at this time, all participants are in a listen only mode.
And answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
I will now turn the conference over to your host Christian Fireman, Mr. Herman you may begin.
Good morning, everyone and welcome to CBRE first quarter 2021 earnings conference call.
Earlier today, we issued a press release announcing our financial results, which is posted on the Investor Relations page of our web site <unk> Dot com along with a presentation slide deck that you can use to follow along with our prepared remarks as well as an excel file that contains additional supplemental materials.
Our agenda for this morning's call will be as follows first I'll provide an overview of our financial results for the quarter next Bob <unk>, our president and CEO and Leah Stearns, our CFO will discuss our quarterly results and updated 2021 qualitative outlook. After their comments, we'll open up the call for.
Our questions.
Before we begin I'll remind you that this presentation contains forward looking statements that involve a number of risks and uncertainties.
Examples of these statements include our expectations regarding cbre's future growth prospects, including 2021 qualitative outlook and multiyear growth framework operation market share capital deployment strategy and share repurchases M&A and investment activity financial performance, including profitability.
<unk> margin adjusted EPS and the effects of both cost savings initiatives and the COVID-19 pandemic.
Integration and performance of acquisitions and any other statements regarding matters that are not historical fact.
Urge you to consider these factors and remind you that we undertake no obligation to update the information contained on this call to reflect subsequent events or circumstances, you should be aware that these statements should be considered estimates only and certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward.
Looking for a full discussion of the risks and other factors that may impact. These forward looking statements. Please refer to this morning's earnings release and our most recent annual and quarterly reports filed on form 10-K and form 10-Q, respectively.
We have provided reconciliations of adjusted EPS adjusted EBITDA net revenue and certain other non-GAAP financial measures included in our remarks to the most directly comparable GAAP measures.
Gathered with explanations of these measures in the appendix of the presentation slide deck before we discuss the quarter I'll briefly outline a few changes to our financial reporting which are summarized in our earnings release as well.
We now report all project management revenue and our Gws segment.
Additionally, a portion of our project management revenue with reported that the advisory segment.
<unk> all sales and leasing revenue is now reported in the advisory segment, we will no longer report sales on leasing revenue from Gws clients and the Gws segment, including all sales of leasing revenue in the advisory segment piece of a more complete picture of transactional trends in our business.
We have also established a fourth business segment, where we will report corporate overhead expense and other financial impacts that are not specific to one of our three existing operational segments.
This will provide greater transparency into our cost structure.
Due to this change we will be utilizing segment operating profit to evaluate the profitability of our operating segments, which excludes the impact of corporate overhead. Additionally, we will replace our fee revenue metrics with net revenue to account for the impact of pass through reimbursement revenue.
Net revenue only excludes reimbursement revenue that does not generate a margin for CBRE. We believe this will provide a clear view of our profitability profile, particularly in our gws business or.
For this quarter, we have provided a bridge for legacy and revised financial metrics at our quarterly supplemental posted to the Investor Relations section of our website going forward, we will only be reporting these updated financial metrics now please turn to slide four which highlights our first quarter 2021 results.
Total revenue grew about 1% to a new first quarter record of over $5 9 billion, while net revenue fell 2%, reflecting continued constrained transaction activity and advisory services.
The quarter saw a tangible benefit from both last year's transformation initiatives, which has improved our cost structure and operational agility and higher elements are in.
In total our adjusted EBITDA margin expanded about 200 basis point rising to 14, 6% in line with our first quarter 2019 margin.
Adjusted EPS grew 15% to 86.
GAAP EPS rose, 55% to 78%.
Importantly, GAAP EPS in the prior year first quarter included a 17 headwinds from an asset impairment, which was in part related to the onset of the pandemic.
Impairment was not included in adjusted EPS last year. Additionally, this quarter included an 11% benefit from venture Fund investments, Inc, and an accounting methodology change within our investment management business, excluding unusual items in both periods EPS was roughly flat with first quarter 2020.
On an adjusted and GAAP basis now for a deeper insight. Please turn to slide six as I turn the call over to Bob.
Thanks, Chris and good morning, everyone.
CBRE is off to a strong start in 2021, our performance is being propelled by our long standing efforts to diversify our business across four key dimensions property types lines of business geographic markets and client types.
Last quarter, we described in detail how this diversification has enhanced the resiliency of our business.
This played out in several ways during the first quarter.
Geographically while activity in some markets, notably the Americas remained muted we saw solid growth in the United Kingdom.
It's of Continental Europe.
Australia, Southeast Asia, and greater China.
<unk> business lines mortgage origination and loan servicing valuations investment management and facilities management long solid growth.
Offsetting our continued tepid sales and leasing environment.
Industrial and data centers remain preferred property types.
Our work in both property types grew robustly in the quarter fueled by booming demand for E Commerce and cloud based services.
Growth in these resilient property types helped to compensate for continued pressure on other property types, particularly office.
Our client base is well diversified across the economy.
Quarter, one activity with clients in some industries was down from a year ago. We.
We saw particular strength in our work for lifestyle ensues, and industrial and logistics companies among others.
Broad diversification of our business coupled with decisive actions in 2020 to reset our cost structure.
Underpinning our earnings growth for the quarter and we expect to see continued benefits in the quarters and years ahead.
For full year 2021, we now expect adjusted earnings per share to meaningfully surpassed 2019 peak level with potential upside from discretionary capital deployment.
Notably our outlook for 2021 and beyond envisions strong growth, even with continued pressure on the office market.
Clearly that pressure remains very acute right now, particularly in densely populated gateway cities.
And we will remain challenging for some time to come.
However, we strongly believe the pressures on office will recede from today's extreme levels.
As vaccine Rollouts continue and company settle into normal work regimes.
We expect our group to be enhanced by capital deployment is focused on sectors and business lines that are positioned to benefit significantly from secular growth trends you saw.
Evidence of this with our investment in industrial in the first quarter, which positions us to participate in the rising demand for flexible space solutions and.
And you can expect to see more evidence and future partnerships sponsorships.
And the M&A activity.
Now Leah will tell you more about the quarter, our outlook and our capital deployment strategy Leah.
Thanks, Bob turning to slide eight segment operating profit for advisory services with nearly flat despite a 5% net revenue decline the.
The revenue shortfall reflects continued pressure and high margin sales and leasing businesses, which we offset with disciplined cost management strong GSE servicing activity and elevated our MSR gains as well as growth in the other advisory lines of business.
Overall, our advisory segment operating profit margin expanded about 100 basis points compared with a year ago.
Excluding the MSR gains in both years, the margin improved 20 basis points to about 17, 2%.
As expected global leasing revenue remains under pressure declining 17% due primarily to weak office leasing in the Americas.
We did see modest sequential improvement in Americas office leasing as revenue fell 47% versus the 58% decline we experienced in the fourth quarter.
Activity was stronger in other geographies and property types for example, APAC leasing rose a healthy 11% as retail and industrial jumped 25% and 38% respectively. While office was flat with a year ago.
And the leasing grew 4%, reflecting surging industrial demand, which outweighed moderate office and retail declines.
Notably, China, and Australia, where the pandemic remains well in check.
Office occupancy returned to pre COVID-19 levels, which has coincided with improving leasing trends in these markets.
Advisory sales continued to improve sequentially declining just 9% versus the 16% decline in the fourth quarter.
This improvement was paced by APAC for sales get just 2%, reflecting particularly robust retail and industrial activity America.
Americas, and EMEA sales fell around 10% and 13%, respectively, due primarily to sharply lower office sales.
Excluding the sales and leasing business lines net revenue rose, 7% and comprised nearly half of the advisory segment total net revenue.
Commercial mortgage origination revenue rose nearly 14% in the quarter, reflecting strong GSE lending, including for affordable housing.
This activity also reflects the benefit of continued strong refinancing and a pickup in construction activity.
As a result of the strong pace of loan origination or loan servicing portfolio increased 19% to nearly 285 billion, while servicing revenue rose over 21%.
Valuation revenue was up 8% activity was particularly strong in the Pacific region, where the where evaluation revenue increased over 35%.
Finally property management net revenue grew over 2%, primarily driven by expanded and new client relationships and APAC. This offset a modest decline in the U S. As we exited a low margin contract and transferred a few accounts to our local facilities management business and gws.
Moving to slide nine global workplace solutions revenue and net revenue edged up 4% and 1% respectively on a net revenue basis facilities management rose, 4%, while project management decreased 7%.
The decline in project management was driven by the legacy Advisory project management business project work for these clients tend to be tied to space that out, resulting from new leases and thus should improve as leasing markets recover.
Revenue associated with Gws contractual clients was up moderately in the quarter.
Modest topline growth, coupled with continued discipline and cost management and the benefit of transformation initiatives undertaken in 2020 led to segment operating profit growth of 42%.
As we mentioned last year Q1 did include an $11 million drag from the reduced scope of a client account adjusting for this unique items segment operating profit was still up 29%.
Importantly, we have seen a meaningful ramp in our facilities management, new business pipeline and it now exceeds the year end 2019 level. The acceleration since year end has been broad based and diversified across geographies and industry sectors, notably life Sciences manufacturing and logistics professional services and.
Technology clients and among property types, including data centers retail office and manufacturing facilities.
Turning to slide 10, our real estate investments segment generated $61 million of segment operating profit and $18 million increase from Q1 2020.
Investment management revenue grew 9% to $132 million.
This revenue growth was fueled by a 16% increase in asset management fees generated by our strong growth in assets under management, which reached a new record level of over 124 billion.
As well as stronger incentives and development fees as well as co investment gains. In addition, we recorded a $24 million benefit from an accounting change related to the valuation of unlisted assets, which should help reduce earnings volatility going forward.
This partially offset lower carried interest which declined $14 million to about $5 million in the quarter.
Operating profit for this business line rose to $69 million, an increase of over 200%.
Development operating profit fell to $9 million. This decrease was primarily due to the timing of certain asset sales, which were particularly strong in the prior year first quarter.
On a trailing 12 month basis development operating profit has grown about 36% are in process development portfolio reached a new record at 15 billion importantly, three asset types that remain in strong demand multifamily industrial and health care plus office buildings that are at least 90% leased.
As more than 80% of this portfolio. Our development pipeline also grew 11% from year end to $6 8 billion.
Lastly, harness higher operating loss, primarily reflects certain deal costs and software write downs associated with the industrial transaction. We remain on course to close on the increase in our industrial escape from 35% to 40% during the second quarter.
Turning to slide 11, let's now take a look at our new qualitative outlook for the year.
Transaction activity is improving more quickly than we initially anticipated this is especially true for global property sales and leasing outside the Americas. As a result, we have raised our outlook for 2021 transaction revenue growth to the low double digit range earlier, we had expected growth in the mid to high single digits.
We expect a rebound in transaction revenue to be most pronounced in the second quarter since we will be comparing against the most depressed levels of the pandemic.
Across the rest of our advisory businesses, we continue to expect high single digit growth.
We expect improved profitability as well given the revival of transaction revenue for.
For 2021, we anticipate our advisory segment operating profit margin on net revenue will slightly surpassed the 19, 7% pre pre pandemic peak achieved in 2019.
Moving to Gws, we are raising our expectations for segment operating profit, while maintaining our revenue forecast in the high single digit range. We are benefiting from exceptional cost discipline, which we believe will allow us to reverse certain temporary expense cuts more slowly than originally anticipated.
As a result, we now expect Gws segment operating profit to grow in the mid to high teens range. This year.
Looking at Rei, We expect this segment to build on its record profitability contribution in 2020 with both investment management and development poised for sharply improved performance.
In investment management, we expect revenue to slightly surpassed 2020 407.
$475 million.
With continued increases in recurring revenue being offset by lower carried interest.
We expect this business lines profitability, which totaled $140 million in 2020 to rise from that level at a mid to high teens pace.
We project U S development profit to rise by more than 30% compared with last years $150 million level. Our improved outlook reflects the strong pace of monetization and higher property valuations than we originally projected.
Our in process portfolio continues to grow with an emphasis on warehouse and distribution space.
For our UK multifamily development business, we expect the pace of construction to pick up as COVID-19 restrictions lift and reiterate our earlier expectations for this business profitability is expected to be about $15 million higher than the $3 million generated in 2020.
Due to our improved revenue outlook and the benefit of transformation initiatives completed last year, we expect our adjusted EBITDA margin on net revenue to modestly exceed the 14% level achieved in 2019. This includes an expected uptick in corporate expenses, primarily related to higher performance based Scott.
Compensation and certain opex investments for growth initiatives.
All in as Bob indicated we now expect our 2021 adjusted EPS to meaningfully surpassed our pre pandemic peak of $3 71.
Achieved in 2019 with potential upside from capital allocation activities.
The anticipated growth for this year is likely to be significantly above the trend line. We provided in our long term aspirational outlook last quarter.
Flipping to slide 12, we retain significant financial capacity to accelerate long term growth. While also returning cash to our shareholders. We believe that we have significantly reduced the volatility of our financial results and enhanced free cash flow potential.
The record free cash flow, we generated in 2020 combined with the prudent way, we manage our balance sheet ahead of the crisis positions us to deploy capital as economic conditions improve.
Our efforts have already begun so far this year, we've invested about 200 million on capital expenditures M&A and partnership investments, while buying back approximately $88 million of shares including $64 million in the first quarter.
We have a strong M&A pipeline and expect to continue programmatic share repurchases.
However, given our strong balance sheet and free cash flow generation. It is highly unlikely we will approach the high end of our target leverage range within our current long term planning period absent a transformational investment.
In closing we are optimistic about our outlook for 2021 and beyond we have a strong industry leadership position and management team well diversified business loyal client base and the capital structure to fund future growth and optimize shareholder returns and with that operator, we'll take questions.
Thank you.
This time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line. The question queue. You May Press Star two if you would like to remove your question from the queue.
All participants using speaker equipment and may be necessary to exit the handset before pressing the star keys.
Our first question is from Anthony Powell long with Jpmorgan. Please proceed with your question.
Alright, Thank you and good morning, Brad.
First question is.
Catch all of Christian.
And comments and I think there was some mention about <unk>.
EPS, maybe year over year distribution changes and the impact there can you touch on Matt again, I just want to make sure I understand the baseline of what changed.
Sure Anthony it's Leah.
Christmas just outlining there were some unique items in Q1 from last year as well as this year. The key drivers are really an impairment that we had last year for GAAP EPS and then in the first quarter. We did have an accounting change in global investors related to.
Our fair value accounting around our co investment balances we also had.
Venture capital gains that was onetime in nature in the first quarter this year.
And so those items has basically offset each other.
Okay.
Okay.
And the valuation items in <unk> that you did in the first quarter does that.
Change, how we should think about the profits of that business just on a run rate basis, if I can add to the to the 'twenty to 'twenty one full year.
It is it was something that we expected.
And anticipated accounting change when we came into the year that we were going to implement in Q1 and it is something that will actually reduce the volatility of that earning stream within our investment management business going forward, we're basically going to be marking to market. Our unlisted co investment balances and therefore, instead of having one large gain at the end of the period costs youre going to see.
Yes, mark that to market every quarter.
Okay, and so is there a way to frame that for the full year 'twenty. One at this point or you got it for Mark as of the first quarter.
I'm sure you'll be changes.
Exactly right from here, we'll make changes deploy marked okay.
I understand and then second question.
Last year, you outlined a lot of different cross shaved.
And now you changed some of the presentation here is there a way to.
To put that into the framework to understand where you are on that right now what was achieved in the first quarter of what's left over.
Over the remainder of the year.
Currently we I would say in terms of how we're presenting the information.
There's not a real material shift in terms of where the benefits of the cost management actions are flowing through the business.
The advisory segment continues to be the area, where we've made the lion's share of the overall cost reductions so about 60% of our cost actions are benefiting advisory.
Next to that is gws, where we've got about 30% and then the rest is between RPI and our corporate segment.
In terms of the the first quarter, though.
Net basis, I'll talk a little bit about run rate cost savings and we do have some temporary cost coming back like compensation that is performance based.
And accrued based on that.
We had about $24 million of benefit in advisory on a net basis and about $14 million of benefit in gws, but the rest basically about a $1 million or so across rei incorporate so again the vast majority of the overall benefit in Q1 was an advisory and our reporting segment modifications haven't.
Altered b.
The mix of where that's going to impact the business going forward.
Okay.
$40 million that you achieved in the first quarter.
What.
Should we expect over the balance of the year.
Yes, so in terms of for the full year, we think there'll be a little over $110 million of savings and this is all on a net basis. So when you gross that up we have taken out about just shy of $90 million in the first quarter and.
Right around $250 million of incremental cost year over year.
On a run rate basis.
Got it.
Okay, and then just maybe moving more towards the business side of things if you will.
So the strength in life Sciences, Datacenters industrial that stuff.
And the growth in those areas.
Either longer term offset any diminution of office.
We do expect that the diversification not just across asset types, but across our geographies.
Geographies will also be important so as we think about the surging demand for warehouse industrial distribution life Sciences as well as digital infrastructure those are certainly helping to mitigate the acute.
The declines that we're seeing across office. So I do think that that is a key part of the overall story for CBRE. In fact that we have positioned ourselves to be aligned with those very important areas of demand in the market today and then also given the fact that APAC was early on in terms of the impact related to COVID-19 we are.
Seeing the the regions of the world that have.
Kind of come through this and manage through COVID-19 quite well are effectively or we're early on in the onset of COVID-19. Those are really back in terms of strong performance and we're starting to see the recovery take shape in places like the U K Continental Europe and U S.
Okay, and then lastly can you just comment on the.
The transaction environment for acquisitions, you've talked about it for several quarters you made at the industrious.
Investment, but just wondering about the size and pipeline of potential deals over the balance of the year.
Anthony This is Bob.
Have a substantial.
M&A pipeline and.
Pipeline of alternatives are.
<unk> opportunities that we would characterize more as sponsorship type opportunities, where we could invest in.
The company and then help that company be more successful than it would be on its own.
We've done a lot of strategy work to determine the areas of our business that we want to make investments soon because we think they will benefit in the secular way Leah just outlined a bunch of them for you.
So you should expect to see us.
Makes some very nice investments over the coming months that would be securely favoured and CBRE, who would be able to help those investments perform well I will say that we are going to be very careful we're not going to be feeling pressure to push money out the door just because we haven't we do think that.
There will be opportunities.
Sharon this sounds like less on the side of.
Operating intensive things like traditional type transactions more of sort of the industrial style deals.
Some of both some of both and also some incremental investment in our real estate investment business, we do a lot in the industrial area for instance.
And we think there's incremental opportunities to invest there.
Okay. Thank you.
Thank you. Our next question is from Jade Rahmani with TCW. Please proceed with your question.
Thank you very much I was wondering if.
On a per share basis, there is any way to quantify what you might consider unusual items was it just the alright.
Alright accounting change.
Perhaps around five per share or were there.
Additional items.
Jade in terms of the venture capital and the.
Rei accounting change those.
As well as some prior period items I would say you've got about <unk> <unk> each related to the DC and the accounting change and then we did have.
In the prior year period, we didn't have that impairment.
Related to the COVID-19 impacts across parts of our business.
So that was reflected in the prior year period.
And just looking at the changes to definition that revenue with fee revenue growth have been similar.
Round down four 4% on a local currency basis for.
For the first quarter.
And we've provided a bridge for you in terms of the overall fee to net basis. It was pretty much in line there wasn't a major swing there.
Thanks.
In terms of the GSE multifamily volumes.
So far this year up I believe over 50% and I think you also pointed out.
The margin benefit from the MSR gain.
Are you seeing any slowdown.
The GSA is.
Multifamily originations where rates were lower early in the year and I think the mix of refi transactions was above the normal rates.
Are you expecting the volume growth in that business too slow.
Well, that's really driven.
Again by market conditions. So if you if you look at our margin performance for the year, Yes, <unk> certainly helps but even if you back out <unk> just before I get into the volumes on the Gse's I think it's important to note that we actually saw margin expansion ex <unk>. So that's really important.
As it relates to the Gse's there for coming down this year. So we may see some attenuation in terms of overall liquidity in that market, but again their mandate is liquidity. So we'll see how they respond to the overall market conditions.
The benefit to our business, though is about the mix of where we're seeing that activity come from and in the quarter. We did have more of a.
Volume coming from standing as opposed to Freddie and that certainly helps from a margin perspective, given the fact that we do have a risk share there on the Fannie side. So overall, it'll really depend unfortunately, jade with respect to how that that activity comes in and we.
Don't actually influence that Australia market driven.
Outcome.
Okay. Thanks very much.
I've gotten some questions on the potential bond administration changes Ken.
31 exchange.
And was wondering if you've looked at either what percentage of your transaction volume in that marketplace to be impacted and just overall your thoughts around.
That could impact the market.
Jay.
We have paid attention to that and it is this.
It is not the first time.
Arisen.
So first of all it's not certain that will happen, but we're watching it closely I think you have to put in perspective, what part of our business that impacts so it impacts the sales business the real estate asset sales business here in the U S.
And we think it impacts about 10% of the U S sales activity.
Across markets, that's not as CBRE continent.
So that's the that's the portion of our business that might be impacted our view is.
If it were to happen and not be retroactive.
For the foreseeable future it would be a plus for transaction volumes because people would be in the market trying to get deals done in the long run given the magnitude of it relative to our whole business.
The area, which is continuing geographically.
Line of business.
Wise, we think it will not have a material impact on our earnings prospects.
Currently or in the longer term as we've laid them out for you.
Thank you very much and lastly, one of your peers made an investment in a single family for rent platform.
Wondering if you had any thoughts on the attractiveness of that sector and if it's something CBRE might pursue.
We are always looking for new opportunities that are kind of within the boundaries of what we do and again keeping in mind, we think of our business in those four dimensions that we talked about property type line of business.
Client type and geography.
We're scanning the horizon constantly from new opportunities.
And we don't talk in advance of when we execute those new opportunities Jade, what we might do.
That's not an area that we're active in them.
Thank you for taking the questions.
Thank you. Our next question is from Rick Skidmore with Goldman Sachs. Please proceed with your question.
Good morning, Bob You mentioned in your prepared comments about the new normal work regime in office can you talk about what you expect that new normal to be in the office based on your client conversations and I believe and maybe a prior call you talked about office being at 85% versus pre pandemic can you just maybe up.
Get your view there.
Thank you.
Not a lot new to our view.
Intensely engaged with occupiers here in the U S and around the world.
We believe this office will never be quite what it was prior to the pandemic, but we also believe it will be very different than it is today.
85% that we've talked about before is kind of still what we believe.
By the way if you're paying.
Most attention to the press and where individual companies youre seeing most of the outlier comments coming in now had the flavor of where our.
Our people are really getting weary and are people really need to get back together, we really need to focus on culture, and we really need to focus on bringing new people on so while our view hasnt changed.
Our conviction around the notion that it will be that people will get back to the office in a dramatically different way than they are today has probably grown there will certainly be a hybrid scenario, where there'll be some work from home. Some work from flex space and then of course some work from.
Offices, we think the configuration of offices will change and that will create some real opportunity for us to do work for our clients, but largely our view is what it was 60 days ago. When we reported our year end earnings group.
Great. Thanks, Thanks, Bob for that.
Just to follow up a few of the office companies and one of the data providers have talked about.
Traffic picking up on the office side in terms of just leasing interest are you seeing that in your pipeline or is that and what would be driving that is that people looking for expansion space such as tenants just rotating space in high grading.
Any comments there.
We're certainly seeing the pickup in activity and its everything its people.
Finally, coming to grips with the fact that the <unk>.
<unk> is working here in this these are U S comments vaccine is working.
The disease is dissipating.
And people are moving back toward more normal circumstances in many ways.
Returning to the office is one of them. So it's pickup in every kind of thing you can imagine.
And.
It's going to be different second half of the year than it is now.
Great. Thank you.
Thank you. Our next question is from Michael Funk with Bank of America. Please proceed with your question.
Yeah, Hi, good morning. Thank you for the questions just to follow on that long.
When I'm thinking about return to work.
Most clients delaying or pushing out <unk>.
Longer term leasing decisions until after employees return to work or based on your conversations do they already have a sense of what theyre going to need.
In terms of office space and will be entering into new leases or do you expect it to be mostly renewals for the remainder of the year.
It's a mixed bag Michael it depends some some companies are aggressively out in the market trying to execute plans now and others are waiting.
And so I wouldn't be able to characterize it as one thing across the board for these big occupiers. We work with I think the trend is more and more of them are decided and they have to address it Mike.
I'll tell you one thing that we believe is going to happen.
Better quality buildings with better infrastructure bidder hvac's systems better circulation around the buildings better elevator systems et cetera are going to be in more demand as a result of this circumstance for very obvious reasons and we think there is some chance that as we get later in the year and early next year.
There could be.
We will focus on those buildings and real pickup in activity.
And then back to the tax question.
I appreciate the comments, Matt 10, 31 exchanges, but are you seeing a real time impact now from from the sellers, maybe accelerated the time frame of our sales.
Just in anticipation of any kind of changes in tax laws affecting the sales activity.
We certainly have seen Matt happened before Michael I would say as this year. We are seeing activity around 10, 31 exchanges continue to be healthy. So it is a phenomenon that we have seen play out before and even at the end of last year. When there was some speculation that there would be tax reform in 'twenty one.
We did see some transactions come through in the fourth quarter and that sometimes drives some of the seasonality that we see in the fourth quarter.
But it's just a small horse race.
Yes. Thank you maybe one more if I could just thinking about M&A.
Are there specific regions of interest you highlighted the geographic diversification certainly helped.
It is helping your results or are there other regions of interest may be where you feel that you don't.
Don't have a large enough footprint you might want to get bigger there would help with that diversification.
Yes, we have across our M&A strategy.
Prototypes were interested in lines of business, we're interested in geographies, where we're interested in more than others for sure on each of those dimensions.
<unk>.
And I wouldn't I wouldn't spike out anything specific Michael just because of the confidential nature of M&A, but I think you can be confident that again across each of those dimensions. We have favored things we would like to get done.
But we're very very open to opportunities.
That arent necessarily in the more favored areas.
But we do have things we're targeting.
Great. Thank you very much.
Thank you. Our final question is from Stephen Sheldon with William Blair. Please proceed with your question.
Hi, Thanks for taking my questions.
First what do you think is driving the stronger improvement in leasing and capital market trends outside of the U S than within the U S is that mostly due to the different progressions with the pandemic or are there. Some other notable factors to consider.
Yes, I think it really at least what we've seen so far it really is driven by where economies or restrictions around mobility has been lifted and have been reopened. So for example in China and Australia, we see office occupancy pretty much back to pre COVID-19 pre pandemic levels.
And those are certain markets, where we are seeing return in terms of demand that is corresponding with that so I think it really is driven by the ability for businesses to get back to normal and for transactions to really play out.
And obviously in some of those markets, where we're lapping are seeing.
Compare comparable.
<unk> results versus really the initial downtick for those areas as well. So we are seeing nice growth come back.
Because of that.
Great. That's helpful. And then train will create expansion into Europe, I guess, what could that mean for the development business over the next few years and how are you thinking more broadly about expanding into new countries and regions for both Trammell Crow, Inc. For tougher on the development side.
Yeah, Steve when we have an extremely strong development brand and franchise, we have a lot of capital available to us from third parties that want to invest in that business.
And we have a deep knowledge of where we think development opportunities will occur because of our advisory business and due to on the street so to speak around the world across product types.
For the longest time, we were hesitant to expand outside the United States.
But the success of that business grew so much in the last decade, the interest of our capital partners grew so much.
We took the step with Telford at a couple of years ago, we're extremely pleased with that.
And.
Because of that and because of the relationships on the advisory side and because.
The demands of our capital partners, we decided to take this step.
With industrial development across Europe.
And you should expect to see more of that kind of expansion over time, very thoughtful very careful but more of that over time.
We think it's one of those opportunities that we think we're really well positioned to take advantage of it as an opportunity to expand our services capability, it's an opportunity to expand the footprint of that.
We might invest capital into as well.
Great. Thank you.
Thank you ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Bob <unk> for closing remarks.
Thanks, everyone for being with US and we'll talk to you again at the end of the second quarter.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a great day.