Q4 2021 CBRE Group Inc Earnings Call
Senior Vice President of Investor Relations and strategic Finance CBRE.
Ma'am. Please go ahead.
Good morning, everyone and welcome to CBRE fourth 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 website CBRE Dot com along with a presentation slide deck that you can use to follow along with our prepared remarks as.
As well as an excel file that contains additional supplemental materials.
Before we kick off today's call 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 our 2022 qualitative outlook and multi year growth framework operations market share capital deployment strategy and share repurchases.
M&A and investment activity the performance of existing investments financial performance, including cash flow profitability expenses margins adjusted EPS core adjusted EPS and the effects of the COVID-19 pandemic, the integration and performance of acquisitions.
In other transactions and any other statements regarding matters that are not historical fact.
We 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 statements.
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 core adjusted EPS adjusted EPS adjusted EBITDA net revenue and certain other non-GAAP financial measures included in our remarks to the most directly comparable GAAP measures together with explanations of these measures in the appendix of the presentation slide deck.
Our agenda for this morning's call will be as follows.
First I'll provide an overview of our new financial metrics net.
Next Bob <unk>, our president and CEO will discuss initiatives that support our four dimension diversification strategy, Dan <unk>, our chief financial and investment officer, who will discuss the quarter in detail our capital deployment strategy, our initial qualitative 2022 outlook and our.
Updated multiyear growth framework done, we'll open up the call for questions.
You can see on slide five the fourth quarter completed a strong and transformative year for CBRE, we made strategic investments in Turner, and Townsend and industrious and saw significant gains from strategic non core investments made through our spec and in venture capital funds.
Due to our controlling interest that results from our 60% ownership stake in Turner and Townsend, we fully consolidate Turner and Townsend financials, including their balance sheet.
We will focus our commentary on consolidated performance inclusive of Noncontrolling interests, and we will use consolidated adjusted EBITDA for our net leverage calculations.
To give more transparency to our investors we are introducing a new earnings metric called core adjusted EPS This quarter.
Core adjusted EPS excludes the impact of strategic non core non controlling investments that are not attributable to a business segment.
These had an immaterial impact prior to 2021. These investments are a small part of our portfolio, but there is likely to be considerable volatility in their fair values, particularly for Altice tower.
The largest of our investments now trading on the New York Stock Exchange.
We believe this new metric will help investors better assess the underlying performance of our core business.
Starting in Q1, we will also present strategic non core investments and corporate overhead separately, which today are combined we believe this incremental transparency will help investors assess the level of corporate overhead and the performance of these noncore investments.
We've also enhanced our presentation today to help provide greater insight into our performance as a result, the slides accompanying our remarks are different from previous quarters and focus on the most significant drivers to our consolidated results for revenue adjusted EBITDA and earnings.
The segment specific slides we've presented in previous quarters are included in an appendix as are some slides from.
Our research team detailing the long term historical relationship between real estate and inflation that we believe investors will find topical with that please turn to slide seven as Bob provides insight into our strategy Bob. Thank you Kristen and good morning, everyone.
As you've seen we had a strong finish to 2021 significantly outperforming both Q4 2020.
And the pre pandemic peak in Q4 2019.
This capped an outstanding year for CBRE with all key financial benchmarks, reaching new all time highs for the company.
We certainly benefited from a supportive macro environment in 2021.
Beyond that our strong financial performance is the product of our longstanding work to strengthen our balance sheet and improve the resiliency of our income statement as well as our successful efforts over the past several years to diversify our business across four dimensions asset types lines of.
Ms <unk>.
Clients and geographies.
We have described our diversification efforts in detail in recent quarters, highlighting how it is positioned CBRE to benefit significantly.
Through secular tailwind.
Some examples of this are our investments in term Townsend a project manager that enhances our green energy and infrastructure capabilities and industrious, a leading asset light player in the growing flex space market.
In our real estate investments segment, we are now executing our strategy to realize positive synergies between our development and investment management businesses with support from our strong balance sheet.
So far this effort is focused on industrial and logistics assets, which are benefiting from long term secular trends are.
Our research team projects that global E Commerce sales will rise to approximately three nine trillion.
By 2025, requiring an additional $1 5 billion square feet.
Of distribution space <unk>.
Specifically, we are placing development projects into investment programs run by CBRE investment management, essentially converting portions of our more than $18 billion in process development portfolio into investment management AUM.
This strategy also capitalizes on our industrial investment sales and property management expertise.
At the same time, we are further building AUM in our industrial and logistics strategy by supporting CBRE investment management's acquisition of large portfolios of operating assets.
The most recent example is the agreement to acquire a $4 $9 billion portfolio of U S and European logistics assets from Hayward.
Our balance sheet provided a backstop proportions of this portfolio, which enabled our team to move quickly to secure a highly desirable set of assets.
We plan to replicate this model for other secular Lee favorite asset types, including multifamily and life Sciences, and expect our integrated investor operator developer model will generate material incremental recurring revenues and earnings for years to come.
Reflecting our strong 2021 performance and the substantial opportunities we see in front of us.
We are increasing our multiyear aspirational growth framework.
For the period from 2020 to 2025, we now expect our average annual core adjusted EPS growth to exceed 20% barring an economic disruption from geopolitical or other events, which we're watching closely.
This is up from the low double digit growth expectation, we set a year ago.
The average annual growth rate is expected to be in the low double digits for the prospective period from 2021 to 2025.
We believe there is potential upside to our expected growth rates for both periods through incremental capital deployment.
And we will walk you through this in detail after she reviews the quarter.
Emma.
Thanks, Bob 2021 was an outstanding year for CBRE with strong growth across our key financial metrics and record free cash flow driven by operational discipline and our four dimension diversification strategy. We're also well positioned for future growth, which I'll discuss shortly.
Throughout my remarks today I'll highlight how our results benefited from asset type diversification and in future quarters, I will focus on the benefits of other diversification dimensions.
Now please turn to slide nine so we can dive into our results for the quarter.
Q3 I'll include compares with Q4 2019 for their transactional business lines to provide insight into our performance from peak levels.
On a consolidated basis revenue grew 24% compared to Q4, 2020, and 20% over Q4 2019 led by rebounding sales and lease revenue and.
Advisory services added nearly $1 billion in net revenue growing 43% over Q4, 2020, and 23% over Q4 2019 to over $3 3 billion a record for our largest segment.
We continued to benefit from our supportive property sales backdrop globally sales revenue jumped over 73% from Q4 of 2020 and 45% from Q4 2019.
The U S led the recovery among our major markets with 89% sales revenue growth compared to the prior year quarter.
We had the highest market share across all major asset types in 2021, while our overall U S market share rose 100 basis points in the quarter. According to independent data provider real capital analytics.
Capital inflows into multifamily and industrial remains strong, allowing us to benefit from the very intentional work, we have done to build leading sales platform focused on these asset types.
U S industrial sales revenue more than doubled from Q4 2019, while U S multifamily sales nearly doubled over the same period.
Office continues to gradually improve back towards pre pandemic levels.
And our U S office sales revenue was around 14% shy of Q4 2019, an improvement from steeper declines in the prior quarter.
Global leasing revenue rose, 14% compared to the fourth quarter of 2019 with all three regions ahead of 2019 levels for the second consecutive quarter.
EMEA leasing revenue grew 25% on Q4, 2019, and the Americas was up 13%, while APAC grew 7%.
Industrial leasing surged around 60% compared to the fourth quarter of 2019 as occupier demand for distribution space remained strong.
Like in sales office leasing also continued to recover with global office leasing nearly flat versus Q4 2019.
EMEA and APAC office leasing rose around 7% and 11% respectively compared to Q4 2019.
Office leasing revenue trends also continued to improve.
While still below its 2019 level by around four 4% the year over year shortfall from prior peak levels has narrowed compared to previous quarters.
Notably, while it's still early in the year, we are continuing to see strong momentum in both U S sales and leasing thus far in 2022 with revenue trending significantly above prior peak first quarter levels.
Loan servicing was the primary growth driver within the rest of advisory with revenue rising around 70% from Q4 of 2019 to nearly $93 million.
Our loan servicing portfolio grew 23% versus the prior year and 10% sequentially to nearly 330 billion, primarily driven by private capital sources are.
Our multifamily portfolio comprising nearly half of the total grew about 14% for Q4 of 2020.
Our alternative asset type portfolio, which includes agriculture healthcare hotels and others grows over 70% and now comprises approximately 19% of our total servicing portfolio.
Growth was driven by a strong pace of third party servicing wins, which is a key focus area for growth in this business.
Our MSR gains faced the tough compare and we're down about $47 million. These gains were elevated in last year's fourth quarter as the government agencies were extremely active in providing liquidity to our multifamily market burdened by Covid impacts.
Turning to Gws net revenue grew 22%, increasing 330 million to nearly $1 9 billion.
This includes about $175 million in net revenue from the Turner and Townsend transaction, which closed on November one and was in line with our previous expectations were.
We are extremely excited about the growth trajectory for this business.
Project management is a fragmented market estimated to be over $100 billion with strong secular growth tailwind, particularly within infrastructure.
This transaction helps to bolster the Nathan infrastructure capabilities within our existing businesses.
We believe broadening our infrastructure offerings that will help to accelerate future growth and deepen diversification, especially by helping to further insulate our business from more cyclical trends.
Our legacy Gws revenue grew nearly 8% led by project management, which rose about 17% excluding contributions from Turner and Townsend.
<unk> growth and project management was driven by continued recovery from the pandemic constrained environment.
Facilities management revenue increased nearly 6% and net revenue rose over 10% supported by growth from local clients.
We expect facilities management growth to benefit from continued progress in returning to a more normal business environment in 2022.
Looking at Rei revenue increased $125 million or 43% to over $413 million.
Was driven by increasing activity in our UK multifamily development business, which is continuing to recover from COVID-19 related challenges.
Investment management revenue was relatively flat versus Q4 of 2020 at about $150 million due to lower carried interest revenue, which can be volatile.
Excluding carried interest revenue investment management revenue grew 19% driven by strong asset management fee growth.
AUM rose to a new record of nearly $142 billion with more than 80% invested in assets other than office.
Industrial comprises the largest component in line with our strategic vision to position the company to benefit from this sector strong secular tailwind.
Flipping to slide 10, consolidated adjusted EBITDA grew to over $1 1 billion.
Excluding noncash gains related to <unk>, our altice tower investment there are back and venture capital investments adjusted EBITDA grew over 37% compared to Q4 2020.
On this basis, our underlying adjusted EBITDA margin on net revenue rose six basis points versus Q4, 2020 to 16, 5%.
Which is one 7% above our Q4 2019 level.
Advisory services segment operating profit marginally exceeded our expectation increasing $219 million to over $740 million as sales and lease revenue rose more than expected.
Advisory as net operating profit margin, excluding volatile noncash almost our gains reached a new record of 21, 5% about 120 basis points better than Q4 2019.
We achieved this despite record productivity pushing more producers into higher split tranches.
In Gws legacy segment operating profit reflected higher than expected medical expenses as we saw ramp up in year end insurance claims compared with 2020 severely pandemic constrained levels as.
As well as a $3 million impact of noncash deferred purchase consideration expense for Turner and Townsend.
Turner and Townsend profitability performed in line with our expectations contributing just over $23 million of profit from November one through year end.
Rei segment operating profit rose $39 million to 156 million and was roughly in line with expectations as outperformance in investment management offset a modest shortfall in development.
Investment management benefited from higher than expected net promote in co investment returns driving operate operating profit to $41 million.
Development operating profit of $122 million was affected by a $29 million increase in our reserve. We had previously taken on a U K construction projects that faced challenges that were exacerbated by the pandemic.
We believe we have fully reserved for this project and don't expect it to result in further adverse financial impact.
Putting aside this reserve increase development operating profit would have been over $150 million for the quarter and about $380 million for the year, surpassing our previous expectations.
This was driven by the conversion of our average in process portfolio to operating profit at a rate of over two 1% over the trailing 12 month period.
Level, well above our historical norm of between 1% and 2%.
With most years around the midpoint.
We also saw increased corporate overhead in the quarter. This was largely driven by higher incentive compensation as performance materially exceeded initial 2021 expectation and our investments in key corporate functions to help support our larger business we.
We do not expect incentive compensation to fluctuate as much in 2022 as business volatility continues to normalize.
Looking at Slide 11, adjusted earnings per share rose, 51% to $2 19.
This includes the benefit of 36 from a gain on our <unk> investment and another <unk> from Mark to market adjustments on our Altice tower in VC investments.
Excluding these noncash gain core adjusted EPS rose, 24% to $1 80.
Excluding only the stack deconsolidation gain which is consistent with how we've reported our results in previous quarters, adjusted EPS rose over 26% to $1 83.
Robust underlining earnings growth reflects the strong increase in adjusted EBITDA as well as lower net interest expense.
These are partially offset by higher depreciation and amortization mainly related to elevated prepayments of government agency related loans, which triggered higher <unk> amortization.
Our results also include noncash interest expense related to deferred purchase consideration for our remaining Turner and Townsend payments.
And an increase in our effective adjusted tax rate to 23, 9%.
The nonrecurring reserve increase in the U K multifamily development business lowered earnings by approximately <unk>.
Going forward as Christian noted earlier, we will report both adjusted EPS and core adjusted EPS to give you transparency into how both our core operations and noncore investments are performing.
Now I will discuss our financial capacity on slide 12.
Due to our strong profitability, we generated nearly $1 1 billion of free cash flow in the quarter, bringing our annual free cash flow total to almost $2 2 billion, which is a new record for our company.
We ended the year with a net cash position of <unk> two turns while deploying nearly $1 $8 billion of capital net of debt issuance proceeds during the year primarily for investments in future growth, we also repurchased around $370 million of stock, providing our shareholders a repurchase yield of over 1%.
We intend to continue this capital deployment strategy and believe there is ample opportunity to invest in future growth. While also programmatically returning cash to our shareholders in support of this we commenced our fifth consecutive quarter of repurchases in Q1 2022.
We intend to continue repurchases throughout this year, assuming the return remains attractive and we have capacity given our evolving M&A pipeline. Additionally.
Additionally, as we move forward strong free cash flow conversion will remain a priority for us and our senior executive team will be evaluated on this metric as part of their 2022 goals.
Please turn to slide 13.
We expect another year of strong growth in 2022 market conditions remain generally favorable notwithstanding heightened geopolitical tensions and <unk> are likely to persist across the four dimensions of our business in areas, where we are proactively investing to drive growth.
Advisory services is positioned for another year of strong revenue and segment operating profit growth with leasing revenue expected to rise at a high teen to low 20% rate and sales revenue expected to rise at a low to mid teens rate.
We expect incremental benefit from offices gradual recovery and that industrial leasing should decelerate modestly due to a potential near term shortage of available properties.
As Bob highlighted earlier, we believe long term secular trends are bolstering demand for industrial space and expect strong performance for this asset class on a long run basis.
Outside of sales and leasing we expect advisory revenue to rise at a high single digit to low double digit clip compared to 2021.
We also expect advisory is operating margin to be roughly flat versus the prior year as the benefit of high margin transactional revenue growth will be tempered by some operating expense investments designed to accelerate future growth.
Advisory operating profit expectations also include increased strategic equity awards to help better align a broader leadership team with our enterprise strategy and shareholder.
We expect strong long run margin performance in advisory partially driven by these investments.
In Gws, we expect low to mid double digit organic top line growth and mid to high single digit organic segment operating profit growth.
This is being driven by continued strong growth in project management.
And accelerated growth in enterprise facilities management, partially driven by a return to normal contract cycle time, we expect this growth to be more weighted to the second half of the year.
WNS legacy segment operating profit expectations also include the impact of $17 million of noncash deferred purchase consideration expense for Turner and Townsend.
This expense will continue through 2025, when we've made the last of our required payments.
We will also record about $10 million in noncash interest expense associated with our deferred payments.
Like an advisory Gws operating profit expectations also include an impact from increased use of strategic equity awards. This is reducing expected legacy segment operating profit growth by around 1%.
We expect to Turner and Townsend to grow net revenue at a mid teens rate in line with its historical average over the approximately $974 million at generated in calendar year 2021.
Strong organic growth is expected to more than offset a small foreign exchange headwinds at today's spot rate.
Turner and Townsend net operating profit margin is projected to tick up around <unk>, 5% from the 13, 4% generated in the fourth quarter.
This reflects strong top line growth the restoration of certain expenses during COVID-19 and about $10 million of noncash expense for retention bonuses.
<unk> revenue is expected to grow around 20% and segment operating profit is expected to roughly matched the elevated operating profit of $520 million generated in 2021 <unk>.
Excluding the $24 million accounting change driven gain that we recorded in last year's first quarter.
Revenue growth is being driven by continued recovery of our UK development business.
Our Rei expectations also contemplate elevated hiring and investment management for new product development, a key strategic focus as well as more moderate appreciation in asset values.
Finally, we expect our development in process portfolio will convert to operating profit at a rate of under 2% in line with historical performance.
Our in process portfolio is well positioned for the current environment with nearly 80% of the portfolio comprised of industrial multifamily healthcare and life Sciences assets.
As you can see we are consciously orienting the portfolio towards assets with strong long term performance potential.
Setting aside any effects of our strategic non core investments.
We expect corporate overhead to declined nearly 5% from 2021.
We anticipate investments in further scaling key corporate functions to be more than offset by more favorable incentive compensation impact.
Going forward core adjusted earnings, which excludes the impact of our small portfolio of strategic noncore investments will be the basis of our financial forecast.
We are making these investments for their strategic value rather than near term financial gains. However, there will likely be start volatility in their investment valuation, especially for our largest noncore investments in publicly traded <unk> power.
Altice is poised to benefit from the transition to a low carbon economy, while enhancing capabilities to help our clients meet their clean energy and sustainability goals.
As always for investments of this nature short term bouts of market volatility can cause the value of our investment to swing sharply on a quarter to quarter basis.
For example, the <unk>.
Majority of the noncash gain we recognized in the fourth quarter would be reversed in the first quarter at <unk> share price as of February 15th.
Now looking at depreciation and amortization.
We expect this to rise about 4% and we project our effective adjusted tax rate to be in line with the 23, 9% rate we saw in Q4 2021.
We are also highly focused on monitoring how inflation could impact our business real estate provides a natural inflation hedge when held on a long term basis, which somewhat questions are transactional businesses.
In fact sales could potentially even benefit if inflation concern as normal draw more capital to real estate.
On the expense side clients reimburse us for the salary and benefits of nearly half of our employee base, who are primarily in the gws and property management businesses.
And inflation provisions are typically embedded in our multi year gws contracts and.
In light of this we believe we are well positioned to succeed in a higher inflation environment.
It is also prudent to highlight that while the current operating environment remains favorable there is heightened uncertainty given this higher inflationary environment tighter monetary policy and rising geopolitical tensions.
Please turn to slide 14 for an update of our multi year growth framework.
As Bob noted we have raised our base case annual core adjusted EPS growth expectations to more than 20% for the 2020 to 2025 period and to low double digits for the next four years theres upside to both growth rates from additional capital deployment.
We envision solid organic revenue and earnings growth across our three business segments. Our overall margin is expected to gradually increase over this period, even with considerable growth from our lower margin Gws segment.
The gws margin itself should also improve overtime as higher margin project management accounts for a larger share of our gws revenue base.
We will continue to manage our balance sheet prudently, we are comfortable with increasing net leverage to around one turn as we deploy capital into M&A to accelerate growth.
We could even go as high as two turns for a highly compelling strategic opportunity.
We expect to focus our capital deployment strategy on secondarily favourite areas that will further diversify our business, we see significant opportunity to expand our investor operator developer model into multifamily life Sciences and infrastructure Importantly, this model plays to our competitive advantages.
Leading cross functional collaboration business line diversification and balance sheet strength, giving us the opportunity to further differentiate CBRE.
Given our sizable financial capacity, we expect shareholder capital returns, we'll continue to figure prominently within our capital allocation plans over this multi year horizon.
Okay.
Ending with slide 15, since 2016 core adjusted EPS has achieved average annual growth of 21%, while revenue and free cash flow have also grown at double digit annual rates over this period.
This strong growth has been supported by the strategic steps, we've taken to bolster our balance sheet, while pursuing a disciplined capital allocation program and increasingly diversifying our business.
We expect our multi year growth framework will extend the successful track record of performance across our key financial metrics.
We are extremely optimistic about our trajectory as we head into 2022 and look forward to delivering another year of strong performance.
And with that operator, we'll open the line for questions.
Thank you very much.
At this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
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All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
We have our first question from the line of Anthony Pallone.
J P. Morgan. Please go ahead.
Great. Thank you.
I guess my first question is just to understand it.
So just the new EPS metric there is going to be core.
Adjusted EBITDA.
EBITDA.
Ties to metric because it doesn't seem like it's reward one to four.
So we haven't changed the adjusted EBITDA metric, but there are going to be two different segment operating profit metrics going forward for each segment. So we will be reporting consolidated segment operating.
For each segment.
Well as operating profit attributable to CBRE common stockholders.
And for purposes of consolidated adjusted EBITDA, we feel like that's the best measure for the company in terms of the EBITDA metric because we are fully consolidating all of Turner Thompson's financials into our own and.
So that keeps the margins actually logical.
And then I will just add on core adjusted EPS the comparable.
Not reporting a comparable core adjusted EBITDA. So our adjusted EBITDA will include the gains from the stack and our venture capital gains.
Does that answer your question.
Yes, I think so.
Okay I'll jump back in the queue. Thanks.
Thank you we have next question from the line of Alex Kramm with UBS. Please go ahead.
Yeah, Hey, good morning, everyone.
You made those comments on inflation and then it didn't look at the slides that you that you had from your research group.
I think on balance you think inflation is a positive does that does that include.
The rate hikes as they are obviously forecast with notable happened maybe you can specifically talk about rates you have a very diversified business, so kind of hard to think through.
There were rate increases my hits, you, so maybe a little bit more detail on that would be helpful. Thank you. Yeah. So we've based our outlook based on what our in house economists believes will happen in terms of inflation and rate hikes over the next year and.
His view is that inflation will moderate through 2022, and 2023 and the federal and we'll do a similar number of hikes as the markets projecting them to manage that inflation and so we've incorporated that outlook into our guidance.
As we said we think we have we know that we have a number of inflation hedges throughout our business, but there are areas, where we know inflation will impact us.
So there are two main areas, where we have incorporated that for the half of our global employee base that is not reimbursed by clients. We have factored in wage inflation and then for a relevant business volumes that may be impacted by cap rates, we have assumed some moderation in cap rates throughout the year.
And that may be a conservative assumption going forward and then I do want to say that our outlook does not contemplate the uncertainty and impact from the geopolitical tensions that are rising throughout the world.
Okay. Thanks for that and then maybe shifting to margin quickly.
Can you just flesh out the margin comments, a little bit more.
Yes on the on the advisory side, what's the right base to use for that margin comment given that you present, your module, sometimes with or without gains and then on the on the gws side.
Again sounds like Thats tied to I think you mentioned a 1% impact.
Certain items would like if you if you think about the core underlying gws business organically is that seeing benefits from operating leverage or are there also other investments that are that are countering that.
'twenty two.
So throughout our businesses throughout all three lines of business, we are investing more to drive incremental growth.
In future periods, so across all three business lines, we're investing about $300 million and Opex and those investments are four areas.
Areas like increasing our capabilities.
And to serve our clients in Gws for example, expanding into smart building and advisory.
We are increasing our consulting group.
To drive future growth and an Rei, we're launching new products and life Sciences, and infrastructure, which is requiring some investment in 2022.
And then you mentioned the 1% our margin expectations for this year also include strategic equity grants that.
We are putting in place to help align a broader set of our leadership team across advisory and Gws and Thats about a $22 million sop impacts across the two segments.
Okay, and sorry on the advisory side, what's the right base to use for the module flat margin comments, alright, just I don't know if you answered that.
Excluding <unk>.
Okay fantastic. Thank you very much I'll jump back in the queue.
Thank you.
To ask a question box events for press Star one on your thoughts John for now.
We have next question from the line of Jade Rahmani with <unk>. Please go ahead.
Yes.
Thank you very much I think on a recent market's call hosted by <unk> <unk> mentioned that the company intermediate at around $400 billion of transactions in 2021 of which around $80 billion was debt placement.
So I wanted to ask in the debt brokerage space, how big a priority is growing that business do you see that is meaningful.
I would've expected the mix between debt and equity it could be closer to equal so that $80 billion baseline seems like Theres a big.
Potential to grow.
Yes, Jay this is Bob.
We have.
Significant efforts underway to grow all of our lines of business in all three segments of the company and.
And that business has grown nicely over the last several years, we expect to continue to grow obviously the sales numbers that you heard for 2000.
'twenty, one and specifically the fourth quarter of the year.
Were the subject of us taking market share in a market that was very strong and thats, what youre seeing in those big numbers.
In a normal market environment.
Leaving aside the current geopolitical uncertainty.
You anticipate that that business would be closer to perhaps 30% to 40% of the total.
I don't think we've we've put those numbers out there.
Thank you as it relates to uncertainty prior to Ukraine.
It was growing uncertainty with respect to the interest rate outlook and inflation are you seeing or noticing any changes in sentiment our tone from customers you mentioned.
<unk> strong first quarter results, So Florida leasing.
But just want to hear what you're hearing from clients, if they're getting more cautious if theres any changes in the appetite to transact.
Well.
In fact, the matter is Jay some of the biggest news related to Russia, and Ukraine has unfolded over the last 24 hours.
And everybody is watching that and concerned about that.
And everybody is concerned about what the impact might be on the global economy, when I see everybody everybody in our sector, but everybody pretty much in every sector.
The thing that shouldn't be lost in all of this though and we've talked a lot about is here today and we've talked about at the last few quarters.
We have built a business that is really well diversified across those four dimensions asset type.
Client type service type and geography.
And there is a massive amount of commercial real estate around the world that is going to be used in various places depending on what's going on in various types of assets and services.
And because we have a broad footprint across all those dimensions, we're able to push our resources our management time, our M&A focus our capital into the areas that we think are most benefited secular Lee at any given point in time, that's come across in our results for the last couple of years. It clearly came across in our results for 2000.
In 'twenty, one so you regardless of what happens geopolitical year, regardless of what happens in the economy, we are much better positioned.
And then we have been historically them relatively well positioned to other companies in our sector and other companies across business and you saw what played out for CBRE relative to the S&P 500 in the wake of COVID-19. So I think there is real risk out there geopolitically, but I think we're well positioned to withstand whatever the Yukon.
He brings our in our direction.
When do you think about infrastructure as an opportunity for the company.
Is there any further dimension that you could put around that.
Do you see it as for example core within real estate with expanding the services that are offering are really moving.
Core real estate to areas, such as perhaps chemicals manufacturing.
Asian <unk>.
Energy government are you talking about really expanding.
<unk> offering into those.
Core infrastructure.
Sectors.
Well infrastructure is relevant to us today, and two big areas number one Turner and Townsend Turner and Townsend has a lot of infrastructure work in a variety of industries and for governments around the world.
So we expect that to grow over time, we expect that to grow with Turner and Townsend, who is growing very very nicely in that area. The second places we have a relatively small but growing infrastructure investment management business as that business grows either organically or through acquisitions, we expected little touch those other.
Those other clients sources, where those other investment opportunities beyond commercial real estate in fact, it is a separate asset from commercial real estate, it's a real asset class, but its a separate asset class and the projected growth for it over the next day.
Decade as enormous as you know.
So you envision CBRE eventually having infrastructure away from.
Core commercial real estate as a.
Key product offering or business line item.
We have that to date with Turner, and Townsend and investment management, and we expect we expect it to grow significantly so yes.
Okay, and lastly, within Turner and Townsend.
What percentage of their business relates to <unk>.
Climate.
To build some resiliency.
Energy related.
Situations.
Energy related work is about 10% of their revenue historically.
And growing.
The other thing about that Jade and we did that we get that question with regard to our own business.
And the answer is not as clean as.
We would all maybe like it to be when we're answering your question right. So we have.
Products or services that are directly attentive to green energy consulting work, we do project work we do.
Our green energy work or environmental work is embedded across our business. It's in our development business.
And the nature of the buildings, we design and develop its in our property management business sits in our.
Project management business, it's in our facilities management business, it's hugely embedded in this massive supply chain. We have so when you look at a company like Turner and Townsend, where you look at the work we do there is direct specific.
Sustainability work, but then it's we create advantages for our clients and growth momentum for ourselves.
Sustainability related work, we do across all of those services.
Thank you for taking the questions.
Thank you.
Next question is from the line of Steve <unk> with Evercore ISI. Please go ahead, yes.
Yes, thanks, good morning.
Guess I'm, just trying to sort of piece together a bunch of the numbers that you've put out there and what you guys had in the slide deck, you sort of talked about this low double digit sort of earnings growth from 21% to 25, I realize it's not going to be exactly linear by year.
If you just sort of took that at face value that would sort of suggest should be up in that kind of high $5 range, maybe pushing $6 a share I realize you didn't give the exact EPS guidance. But then you also talked about this $300 million additional investment that you're making and I realize that's within the margin. So I'm just trying to make sure that when you talk about.
These additional investments as that.
Inclusive of that sort of low double digit growth in so effectively you would be doing a lot more earnings power. If you werent, making these investments or is that kind of a drag in the short term on that 11% to 12 in the hockey stick a little bit more in 'twenty three 'twenty four 'twenty five.
The former that $300 million of investments is embedded in our outlook for this year and.
With out that investment or our EPS growth would be significantly higher but we believe those investments are important to drive future growth.
Great and just as a follow up as you look at that if you look at that as sort of a one time or do you think those investments are sort of ongoing maybe not at those levels or I guess should we start to see margin improve more and I can understand you got to make the investments today, but should we see better margin improvement say in 'twenty three and beyond.
So those are ongoing investments.
We continue to execute in our business as we're trying to drive incremental growth in the future with new capabilities across our lines of business I throw out a couple of examples earlier and one thing to note is that in 2021, we we invest in our business and we set out to invest to drive growth at the <unk>.
Beginning of the year based on the revenue that we anticipated.
Heading throughout 2021.
If we had known revenue would have accelerated the way it did in the latter half of 2021, we would have invested more in opex in 2021 than we did.
And so youre seeing some of the margin expansion in 2021 as a result of that so we werent, we werent able to get our investments up to where we would have if we could have anticipated the growth.
Okay, and then just last question I know youre pretty programmatic on the buyback it sounds like that will sort of stay in place maybe accelerate a little bit if the stock sales.
Sells off.
The equity market pullback.
Is that roughly $400 million does that sort of embedded in the.
So effectively the guidance or would the buyback benefits all be additive to that kind of low double digit earnings growth rate just trying to figure out how much of the buyback is sort of already in your expectations and how much would be additive.
We have a modest level of repurchases embedded in our outlook, but not the entirety of it and the way we look at our our programmatic repurchase program is we use that as a balance to optimize our return to shareholders, though if we see a really strong M&A pipeline, which we do and then we execute some of the.
The larger deals will pull back on our repurchases throughout the year.
So we really use any of the lever so in that outlook youre seeing us a small level of repurchases. You are also seeing a very low level of M&A and so any of those uses of capital will be incremental to our growth.
And then last question just maybe on that M&A pipeline I realize you won't name names, but could you maybe just talk about the types of businesses that you are seeing the most activity and where you are most interested.
Steve.
We really.
Look across all three of our segments for opportunities to expand our offering to our clients and grow the business.
And of course strategically we have particular areas that were more focused on than others. We don't.
Talk about those publicly until we do a deal.
Because we consider proprietary information, but I will tell you that we have a very rigorous program that is run between the leadership of our three segments and.
Corporate development team, where we identify specific areas in each of the three segments of the business that we think are particularly well suited.
To grow through M&A and some of that M&A is infill M&A and some of that M&A is more transformational.
We also we have our eye on a number of what we call sponsorship opportunities that would be consistent with what we did with Turner and Townsend, our industrials, where we think we can.
By a portion of the company have them help us.
And the way, we serve our clients and help them supercharge their growth and the way we bring them into our orbit so to speak to serve the clients. We have so all of those things are part of our M&A strategy. It's broad.
The small deals and large deals in.
And you should expect to see significant use of capital going forward to further grow the business through M&A.
Great. Thanks, that's it for me.
Thank you.
Our next question from the line of Matthew <unk> with William Blair. Please go ahead.
Good morning.
Everyone. This is Matt <unk> on for Stephen Sheldon. Thank you for taking my questions. I was wondering if you can provide some additional commentary on leasing specifically how much of the strong leasing guidance is driven by a recovery in office versus continued strength in areas like industrial and have you seen any changes in lease duration.
<unk>.
So.
Throughout this year, we're seeing.
As I mentioned in my Mark were expecting.
Recovery across all all the all asset types.
<unk>, specifically, we're expecting that to slow somewhat.
Supply has become somewhat constrained.
<unk> office to return.
Similar to how it did throughout the latter half of 2021.
And then what was the second part of your question.
Just wondering about changes in lease durations.
Please tell me.
Slightly and continuously throughout 2021 and a.
New lease terms are up 1% and renewals are up 4%.
But they haven't materially moved so new lease terms are about six years in renewal terms that are are at about four years.
Great. That's helpful. Thank you and then one additional follow up.
Can you also talk about the performance between small and large leasing deals. Thank you had previously mentioned that large leasing deals were still below pre pandemic levels in the prior quarter and just wondering if theres been any changes there.
Matt large leasing deals have picked up.
On the office side, but they haven't we're not back to where we were pre pandemic of course large leasing deals and industrial have been.
Unlike anything we've seen historically.
In the absence of some supply constraints, we would expect large leases and on the industrial side to continue.
Great. Thank you for that.
Thank you.
To ask your question Press Star one on desktop touch tone telephone.
Your next question from the line of Alex Kramm with UBS. Please go ahead.
Yeah, Hey, Hello again just.
Could I squeeze in a couple of follow ups should be quick just on your medium term outlook I think you.
Obviously, it caveat that with.
It does not include a return to office and maybe Thats, a couple of quarters ago, but.
His office embedded in that know what is embedded in terms of the office.
Our updated guidance.
And any color there would be helpful. Thanks.
Alex we've embedded assumptions about returned to the office in our guidance and they're slightly more.
Conservatives than they were in.
In the prior couple of quarters Theres, just a lot of uncertainty and we see it all over the place with companies trying to figure out and employees trying to figure out the degree to which they will go back to the office.
So we think that the return to the office is going to be slightly less than we would've thought 90 days ago, or 180 days ago and thats embedded in our numbers. We also think though that there is other things that are going on as a result of the way people are looking at their office space usage that are going to help our business significant opportunity.
And project management, we continue to be there I believe theres going to be significant opportunity in the flex space Arena, where we've invested in industrial and <unk>.
Our big clients all over the world are telling us that.
And all of those assumptions.
Our embedded in what we've modeled for our business.
Fair enough and then just last one for me.
You mentioned.
The changes to the splits I believe.
I didn't fully catch the comment was was impacting I think the margin last year can you just.
Remind me what exactly you've done there and then also what the reception has been from I guess.
Various parts of your.
Brokerage.
For us this is an important clarification.
Not a change to splits if that as.
Producers do more volume they entre into a higher tranche of splits and so as they did more volume in Q4. They entered more producers unusual entered into the higher tranches split.
So no change to what those trends are what the splits are.
Okay, well, thanks for clarifying that.
Okay.
Yes.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Bob <unk> CEO for closing remarks over to you Sir.
Thanks, everyone for joining us and we'll speak with you again at the end of the first quarter when we give the results for that period.
Thank you.
Ladies and gentlemen, this concludes today's conference.
You may disconnect your lines at this time, thank you for your participation.
Okay.
[music].
Okay.