Q4 2022 CBRE Group Inc Earnings Call
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And when it comes to the C. B a rescue for Fannie Fenichell earnings Conference call.
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<unk> book Senior Vice President of Investor Relations strategic finance at CBRE.
You may begin.
Good morning, everyone and welcome to Cbre's fourth quarter of 2022 earnings conference call earlier today, we posted a presentation deck on our website that you can use to follow along with our prepared remarks.
I'll file that contains additional supplemental materials.
Before we kick off today's call.
Neither today's presentation contains forward looking statements, including without limitation statements concerning our earnings outlook forward looking statements are predictions projections or other statements about future events.
Statements involve risks and uncertainties that may cause the actual results in trends to differ materially from those projected.
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 SEC filings.
Reconciliations of the non-GAAP financial measures discuss our call to the most directly comparable GAAP measures together with explanations of these matters in our presentation deck appendix I'm joined on today's call by Bob <unk>.
Didn't M C E O and M.
M a D or Martino, our Chief Financial Officer now please turn to slide five as I turn the call over to Bob.
Thank you, Brian and good morning, everyone as you've seen we report in core EPS of $1.33 for the fourth quarter.
While down significantly from a year ago core earnings were slightly above the estimate we provided at the end of the third quarter.
This outcome was driven by several of the more cyclically resilient elements of our business.
<unk> and others that are secondarily favoured like project management.
And the logistics asset class.
These businesses, which together comprise about 45% of our core <unk>.
Revenue more than we expected offset by a slightly larger than expected decline and transactional revenue.
Full year core EPS rose, 7% to $5.69.
This is a solid growth rate considering the more than doubling of long term interest rates <unk>.
<unk> equity market decline and the credit crunch that constrained investment activity for most of the second half.
Notably we ended 2022 with virtually no leverage despite making share repurchases.
Infill M&A and strategic investments that together totaled approximately $2.1 billion during the year.
Looking at the macro environment cap rates are up 100 to 150 basis points.
Perhaps a bit more for office and we expect them to expand another 25 basis points or so before peaking likely and Q2.
While capital largely remains on the sidelines, we're beginning to see signs of asset repricing helped along by the narrowing of spreads.
Property types multifamily and industrial fundamentals should remain strong, albeit with occupancy declining slightly from peak levels and rent growth continuing at a more modest clip.
Than the <unk> than the double digit pay set in 2022.
Office will remain the most challenged property type as we do not expect occupancy to come close to pre pandemic levels in the short term.
Globally, we expect significant sales and leasing weakness in the first half before adverse conditions begin to ease later in 2023 <unk>.
Relative to 2022, we expect both Europe .
And Asia Pacific to outperform the America's this year.
For 2023, we expect <unk> to declined by low to mid double digits, but still to be the third highest and cbre's history.
As we've pointed out before this would be a meaningfully better performance than in prior recessions.
Such as the global financial crisis, when core EPS decreased more than 60%.
In all 2023 will be a transition year and we feel good about where we will be when we get to the other side of the downturn.
While the macro environment.
Can certainly change we expect core EPS to grow strongly in 2024 exceeding the 2022 peak and reaching a record level and just the first year after a recession.
With that I'll hand, the call to Emma who will discuss our quarter and our outlook in greater detail Emma.
Thank you Bob.
Turning to our 20th 23 outlets are first discuss fourth quarter results for each of our segment starting with advisory on slide text.
Advisory net rather an SLP declined by 21% and 33% respectively, Kevin by a slightly more pronounced decline in our higher margin transactional businesses than originally expected, which is partially offset by healthy growth from our property management business.
For capital market salesman mortgage origination combined revenue declined by 46% in line with our expectations.
Capital markets revenue growth was robust and last year's Q for increasing by 52 per cent, which accentuated the extent of this year's decline.
Leasing revenue was down 7% both globally and in the Americas, a slightly bigger decline than we expected, but the notable slowdown in office activity in New York, Boston, San Francisco and Seattle.
In total global office leasing revenue with 14% below prior year after increasing by nearly 50% year to date during the third quarter, albeit against it relatively easy prior year comparison alpha.
Outside the U S raising revenue was down 6% Holy due to FX translation headwinds in local currency police revenue increased in both India and Asia Pacific.
The 19% decline in loans everything was attributable to pure prepayments amid rising mortgage rates first record prepayment in Q4 2021.
Excluding prepayment loan servicing revenue increased by two per cent.
Overall cost an advisory declined by 18%, but that does not enough to offset a 21% decrease in total net revenue.
Turning to five seven Gws net revenue grew by 13% with half of that increase coming from organic revenue growth.
In local currency net revenue, excluding China, and count then increased by 12%.
Facilities management of 9% in project management up 21%.
Gws S. Okay increased by 30% with margin improvement driven partly by business next.
China and Count then continued to grow impressively and the first full year since acquiring a 60 per cent interest.
Townsend has exceeded our original underwriting.
2022 represented our highest every year for client contracts coming up for renewal totaling over $4 billion <unk>.
GW asked renewed 94% of the total often with inquiries scope of our client relationships looking.
Looking forward, we expect 2023 right now I'll be just over half the level of 2022.
The Gws revenue pipeline ended the air up 11% every year and 2021 reflection continued demand from first generation out first and clients as well as expansion mandates from our existing client base.
Turning to slide eight <unk> declined to just $17 million in Q4 against an unusually strong prior year comparison.
Our global development that this person is 6 million dollar S. O P loss, primarily due to a 43 million dollar loss in our Telford UK development business.
Laura S O P and U S development reflects the timing of asset dispositions, which were heavily weighted to this is the first task consistent with our expectations going into the air.
Filing an in depth review of the Telford business, we wrote down a handful of projects, where we expect koscheck state our initial underwriting and they also increased our fire safety reserve, we now believe Telford financial performance will improve going for it.
Investment management Am AUN grew $5 billion sequentially, driven by net capital inflows of $4 billion in positive effects movement, which offset $5 billion mark to market decline.
Investment management SRP declined due in part to co investment losses versa gain in the prior year quarter.
Excluding coinvestment gains and losses investment management S. Okay, with nearly flat with the prior year quarter.
Trying to slide nine or 2023 outlook is underpinned by the following macroeconomic assumption.
The U S will experience a short moderate recession in 2023.
Unemployment will increase to near 5% inflation.
Inflation will end the year above the fed's two per cent target, but clearly trending down and tenure U S. Treasury yields will end the year under 3.5%.
Should the economic outlook changed from this base case, our business outlook, but also change.
And our advisory segment, we expect a med single digit revenue decline.
This will be driven by growth and more resilient lines of business offset by mid to high single digit decline in leasing and maintains decline in property sales.
We expect <unk> to declined by high single digit to low double digits as cost savings initiatives, partially offset both relatively better growth and lower margin businesses and general cost inflation.
And our property sales business, we expect the number of transactions will be subdued in the first half of the year and accelerate in the back half of the year.
We expect our leasing business to continue to benefit from an elevated level of at least exploration. While the returned to office has been slow in the U S. A man a packed I've seen occupancy return at a faster pace.
As a result, we expected these regions to be less pressure than the Americas and 2023.
For property management and evaluation, we expect accelerating revenue growth in both lines of business did a recent investments in sales support and tuck in acquisitions as well as last FX pressure.
Within Gws expect low double digit net revenue and S. O P growth with margins, increasing slightly as cost savings more than offset inflation and incremental investments to support growth.
Our facilities management business is benefiting from new ones and expansion.
All major client sectors are expected to grow notably in health care and technology, where the changing use of real estate is driving increased demand for outsourcing services that we believe February the best position to deliver.
We also expect continued momentum in our project management businesses, including double digit top and bottom line growth from our Turner and Townsend business.
Within our Rei segment, we expect S. Okay, and the med $300 million range with a roughly equal contributions from development and investment management.
With an R. T C C development business, we expect S. O P of just over 1% of our nearly 17 billion dollar and process portfolio.
And we've closed over $100 million of expected ESOP in January alone.
R. T C. C business has developed a portfolio of assets that we believe is extremely well positioned for the current market environment with approximately 75% of our expected S. O P. In 2023 from industrial deal.
Well I'll tell her business remains challenge, we do expect improvement versus 2022 is significant cost inflation is now incorporated into projected results, adding approximately $20 million to <unk> first 2022.
Beyond our three main business segment, we also expect roughly flat corporate overhead and our full year car tax rate to rise to 2021 level versus a lower 2022 right.
Consistent with our approach last year, the 2023 outlook as soon as only a modest use of capital.
That said, we continue to have a strong appetite for M&A and share repurchases.
Both of which can support incremental earnings growth above our current outlook and we do not anticipate ending 2023 and a net cash position.
In summary, we expect core EBITA declined by high single digits first 2022 with over half attributable to the decline in development therapy.
We expect core EPS declined by low to mid double digits first 2022.
This is more than the core EBITDA declined because of higher depreciation and amortization and a higher tax rate than in 2022, when we had a number of one time benefits that will not recur.
Lastly, we expects nearly two thirds of full year <unk> EPS in the back half of the year.
More pronounced seasonality to earnings and we six historically experience.
The $400 million cost containment program, we announced last quarter is embedded in our guidance fourth quarter results died nearly $80 million cost benefit. So we expect a cost benefit in 2023 of approximately $300 million with the remainder of 2024, the entirety of the cost containment program will be reflected in our run rate.
By the end of this year.
We expect that our cost containment efforts allow us to counteract the general inflation pressures and enable estimate continued investments to support future growth.
Last year, we refreshed or 2025 financial guidance, which implied February would achieve core EPS between $8 and $9 by year end 2025 absent meaningful capital allocation.
Due to the real estate transaction downturn or target is now likely to slip by 12 to 18 months as I noted previously or 2025 targets were established on the basis that there would not be a recession following the covered recovery.
The drivers of how we achieve this grape yes growth are largely unchanged.
At the midpoint of that core EPS target $8 50, Sam Seaborn.
<unk> will have achieved double digit compound core EPS growth since 2019, despite meaning to manage the two significant downturn. It also represents a high teens cake or from our 2023 projection.
In closing we remain excited about the various prospects for long term growth the strength of our brand and our ability to outperform during periods of market market weakness with that operator will open the line for questions.
Thank you.
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First question is from the line of Anthony balloon.
J P. Morgan. Please go ahead.
Thank you and good morning, My first question relates to GW, asking the outsourcing business and I was wondering if you can maybe you <unk>.
<unk> inside that business, a bit more and and help us understand how in an environment where.
Office usage is down and footprints are shrinking that that business can continue to grow and so just would like to better understand what additional services clients are taking on too you know maybe offset smaller footprint.
Tony.
First of all even if the work you do for a client in a specific portion of your portfolio is shrinking.
It likely would result in project management work potentially transaction management work.
Portfolio.
Portfolio management work so.
Even if even if you have some shrinkage within an account.
There are opportunities for revenue, but secondly, there's the addition of new accounts, which has been very significant for us for the past you're actually record levels and we're expecting that going for where people are giving us more property to manage.
Because they wanted to save cost so the combination of those factors.
We have allowed us to grow that business.
Consistently over the years during downturns and we expect it's going to be a double digit growth in 2023 for the same reasons.
Okay and then just my second question.
Relates to just perhaps any color you can give us that you're seeing on the ground today in terms of you know either green shoots or.
Regions are property types, where you're starting to see activity levels rebound I think you alluded to.
Some property is starting to come to market or folks maybe testing the market a bit and she just wondering if you could elaborate on that some.
Yeah, and you're asking with regard to property sales.
A N leasing just give more transactional stuff.
Yeah, Okay, well what are you seeing activity in sales is for good assets, even in some cases office assets.
If they're a class a buildings fully leased but for sure industrial a multifamily. If you went back to last year. Even the end of last year, you can get a couple of bidders that would test the waters, but now for some of the better quality assets were getting several bidders and they're bidding aggressively and there's anecdotes.
On multifamily there's anecdotes on industrial in particular, where we're seeing that happen is quite a bit different than it was last year. There is a lot of capital.
That's been on the sidelines one to acquire since there's a lot of asset owners that have wanted to sell assets and we're starting to see spreads come in a little bit now and the and the buyers get a little more aggressive in various cases, so that's what you're seeing there with leasing there's continue we continued.
See very strong fundamentals in industrial there's.
Low they can see there are a lot of companies out there that still need space for a variety of reasons and so we are seeing uhm momentum. There and then you have as we said before you have considerable amount of renewal activity around the office buildings in retail.
Particular.
Okay. Thank you.
Thank you.
Next question is from the <unk>.
John nasal throat.
Sex. Please go ahead.
Hi, Good morning, Thank you for taking my question.
Bob you talked about 2024 E. P. S. Recovering 222 2022 levels at least what gives you confidence.
On such a recovery just given the macro environment Indian certain.
You know.
Outlooks that we all have at the moment for the rest of this D. R. I mean are you seeing any signs on the ground of improvement.
Anything that gives you that confidence to go out and talk about 2024 right now.
Joining I'll I'll comment and then I'll I'll give it to EM.
So first of all we actually expect 2024 to not go back to 22 levels, but actual actually exceed 22.
A big part of that is the large portion of our business, that's either circularly benefited or cyclically advantaged all of that outsourcing business, which in aggregate is now quite large.
Anything we're doing for the industrial multifamily asset classes, we expect to be strong by then project management will be strong we expected that business to come back. So all of those all of those circumstances driving it now the thing that would cause it to not happen is if we were wrong about the recession is to risk.
Session was worse or lasted longer has started later, but but those poor parts of our business or what we expect to drive that outcome and Emma you may want to add.
And to put a little contact around what those numbers with like Johnny.
If you think about are resilient lines of businesses, we've talked about that being 40% contributor to <unk>. In 2022 is 45 per cent of our therapy in 2023 that it's going to be closer to 50 to 55 per cent of recipes and those are our lines of business that we expect to continue to grow through a recession. So that's the coming of a larger.
Larger part of our business and then our transactional business line, we expect them to rebound starting a little bit at the end of 2023 into 2024 and what's important to know about that is that the growth that we are that's embedded in that I'd like to get back to above 2022 levels means that our advisory.
Mine's a business are transaction on lines of business, we need to grow less than they did in 2021. So.
Hi, I'm not altogether, it's very achievable and then on top of that what's not embedded in at 2024 guidance or our outlook is that there's any sort of material capital allocation or M&A, which would put us far above 2022 levels.
Mmm.
That's very helpful and that's exactly what I wanted to talk about for my next question by you know more focused on 2023. So income surf you know buybacks and just general capital allocation you talked about using you know you talked about only a modest use of capital in 2023 and and.
That means that buyback is not part of that E. B S guide that you've given today, but how would you rank buybacks and <unk> in 2023 in terms of priority.
And do you think buybacks could look much like 2022.
In 2023, and then you know switching gears to M&A a little bit.
M a neighbor part where where to be part of the calculus could you give us some parameters on what that could potentially look like you know how much leverage would you be willing to tap into and what would be the potential business lines that you would like to explore.
Alright.
So when we look at allocating capital, we look at <unk>, and M&A enlightened or Wayne, which is a better use of our capital and which can drive a greater long term return for us in 2022, and you saw that there wasn't a significant amount of M&A opportunities. We obviously, we're building our pipeline and continued development build our pipeline and are seeing things.
<unk> <unk>.
Conversations are starting to build and accelerate in a way that they did not in 2022, but because there wasn't a tremendous amount of M&A activity available. We did we repurchased almost $2 billion worth of shares in our share price was also an an attractive valuations. So we'll continue to look at that we.
We are constantly evaluating whether we're gonna buyback or we're gonna. We're gonna have two of them are larger transformational acquisition and will continue to do that throughout this year and will update you as that progressive but in our house. We didn't include what.
But that would look like because we don't know how it's going to unfold going forward.
In terms of M&A, we are willing to go up to two times leverage for a transformational deal out of it.
Highly transformation will go slightly above that but that's the range that we're looking at and then with capitalization overall, we want to at the very least in the air not leverage neutral, but we're willing to call about that for for my box as well.
Thank you.
Thank you.
Next question is from the Lions, Steve sidewalks.
Hi Fi. Please go ahead.
Yeah. Thanks, Good morning, Bob just circling back on the sales activity I'm just curious in your mind is the pick up potential pick up in activity more a function of the overall level of interest rates or more of a stabilization of rates and spreads where people can actually.
With our cost of capital is before they start to underwrite transactions I'm, just trying to figure out which ones the bigger lever the actual rate or the stabilization of rates.
I think probably right now it's the stabilization of rach. The other thing Steve that I think is going on is people are recognizing that with all the concerns about the economy.
And obviously there are considerable concerns the fundamentals and industrial a multifamily a really strong really low vacancy rates every reason in the world to believe that rental rates will go up at least somewhat and that's in what's going to be a tough year and then longer term, it's gonna be better and then you have this just very human thing.
About sellers being ready to sell and buyers being ready to buy with capital I'm sitting on the sidelines for a long time as soon as two or three.
Circumstances start to line up favorably fundamentals stabilization of ranch rates rates coming down a little bit.
Some talk in the market that maybe the recession won't be as bad as we thought when you get that confluence of circumstances things start to shake loose a little bit and as soon as one or two buyers go into the market others start to get into the market because they're afraid there'll be left behind.
Okay. Thanks, and then secondly, I I was just hoping maybe M. A could you provide a little more detail on kind of what happened to tell for it or not yeah. It sounded like this maybe cost got out of control and I just thought maybe you could expand on that a little bit just to make sure we understand sort of the problems and I guess, what's been rectified moving forward.
Yeah, absolutely and so I do want to step back and there's two major things going on that are are different. So the first is the.
The UK put in a fire safety Act, which is still under review related to a very terrible fire that happened in the 2017, so through that act of requiring all homebuilders built a building over a certain size over the past 30 years to bring those building building is up to the current <unk>.
Fire safety standards and so as a result, we and all other homebuilders are in the U K and the UK are having to go through this process of determining what the cost will be across all of our buildings that we felt over the next 510 years as long as it takes us to remediate those issues.
And that's what you see the non-cash about 140 million reserve that we took in Q4.
And what's important to know about that is that is our best estimate of what we think the cost will be to remediate those but the actual cash outflow to remediate those issues across those buildings will be over very over a very long period of time.
So we view that as an isolated anomalistic issue that's occurring across all homebuilders in the UK.
The second piece is how about the operations of our business are being impacted and that's primarily related to the external environment record cost inflation, we had a number of COVID-19 slowdown that we've talked about over the past.
Number of years within <unk>, specifically, so what we did in queue for as we evaluated all of our projects.
<unk>, we impaired a number of assets and we took a 43 million dollar loss in queue for for the full year was just shy of $50 million and we believe that that contains that's a that's a very good estimate of the value of those assets going forward and that weren't at an inflection point going forward and we expect under new leadership.
And with a tailwind behind UK bill to rent that that business will continue to grow up going forward.
Okay. Thanks and are you what are you seeing any green shoots at all in in the UK housing market from a demand perspective or is that not yet started to to pick up.
A little bit Steve the I mean, we still have the economic circumstance.
That we have with high interest rates with concerns about the economy, that's causing people to not.
Spend the way they would spin normally so that's that's a little bit of downward pressure on the business, but we're encouraged by what we see in terms of the longer term trend.
Great. Thanks, that's it for me.
Thank you next question is from the line of Michael Griffin with City. Please go ahead.
Great. Thanks, maybe we can go back to the leasing for a second I'm just curious how your strategy around that might be changing just given the longer term implications that remote and hybrid work could could have on performance and impacting the space I think Bob you've talked about you know expanding in industrial. So you know maybe just how thoughts are on that changed and if he can remind us just.
What percentage of that the leasing revenue comes from from the office sector would that'd be helpful.
Okay. Why don't you do you have that number the percentage of releasing that comes from office.
It is about.
Little over 50% and that's calmed down if you compare that to 2019 for example, it was closer to 70 per cent, so that that Ah steadily come down yeah. So Michael what I'd say is our current assumption is that this downward pressure that we've seen on office leasing as <unk>.
<unk> for the time being we haven't seen much change over the last few months and returned to office.
We built a plan for the next several years it assumes that that is gonna be the case.
We assume that there's gonna be a move over time from lesser quality to a better quality assets higher rates.
Higher rental rates, which will be a positive impact on the business, but definitely going forward. We expect more of our income stream in the in the leasing business to come from industrial relative to office than it has.
Other than in last year than it has in the longer term passed and we don't see that changing in the comments that Emma made about our plan for the next several years our growth plan fully incorporate that view.
Thanks, That's helpful. And then just one on on geographic performance. It it seems like your commentary and expectations around Amy in APAC or maybe a bit incrementally more positive relative to the Americas I'm. Just curious if there's anything driving those underlying assumptions of the thoughts about you know economic growth or potential Yo shallower recession.
There, but anything you can expand on on performance of those other geographic segments that'd be helpful.
Okay, well first of all we are now not expecting a recession in Europe .
And we expect Europe to trend better than the U S. In terms of return to the office.
Then you go to Asia, and we expect Asia to be almost like it was historically as it relates to return to the office.
And we have very strong businesses, particularly in Korea.
Pan and China relative to what we've had historically in relative to our competition. We have a very strong business in Japan, and we expect that business. It's become quite large force when we expect it to continue to grow so you.
You had the economic backdrop, it's positive relatively speaking and then you have the.
The circumstance related to return to the office that's positive relatively speaking as you moved from the U S to Europe to Asia, and then you have just the the very strong relative business position that we have particularly in Asia, but also our businesses and.
In Europe , and the UK have gotten much stronger over the past few years on a relative basis. So you see all those things coming through.
Great. That's it for me thanks for your time.
Thank you.
Next question is from the line of <unk> <unk>. Please.
Please go ahead.
Thank you very much first question would be if the move in right in the last couple of weeks. That's has changed has changed anything in terms of.
Tone from a major C V reclines that you're hearing.
I don't think it's had a major impact J D. I mean, everybody is in the <unk> of the mindset that things are going to be uncertain for awhile I don't think the <unk>.
View as to how the year is gonna play out has changed in in any significant way. It certainly hasn't for US. Our view continues to be that we're gonna have a relatively mild recession.
So we're going to be out of it towards the end of the year or early next year and that the capital markets, you're gonna come back in the back half of the year and we've already walk through what we're seeing anecdotally we are definitively scene.
Positive anecdotal signs, we don't want to rotate.
Terms of extrapolating too much from those anecdotal signs, but we think we'll see more of that in the back half of the year.
Thank you very much when you look at the <unk> business overall investment management and development how.
How much risk of further impairments do anticipate valuation impairments. You mentioned you expect cap rates for example to increase another 25 basis points, but could you put some parameters around perhaps how'd you thinking about any risk there.
So Jane on I'll I'll walk this development first and then our investment management business on the development side any impairments and we don't think there should be significantly more this year are embedded in our guidance for for that segment and as I noted in my remarks, we've already generated $100 million <unk> in January alone in our development.
Isn't it.
So we feel pretty confident in how the development business will pan out for this year on the investment management inside what we're expecting is.
Slightly positive net flows for this year of 5 billion primarily from are listed mandates and then also from infrastructure and from our optimistic funds to a lesser extent.
And then we're also embedding a slight decrease in Ah the.
Market value of that AUN, which will offset some of those.
Net inflows.
Oh, Thank you very much just regarding the guidance how much does capital markets and leasing picking up in the back of a half of the year drive the guidance is that really the main uncertainty and the guidance.
Yeah, and it's it's primarily capital markets that were really expecting to pick up.
Leslie in Q4, and just to give J a little context around that if our sales revenue comes in 5% lower than what we're expecting for the full year that would have about it too.
EPS impact and then on the leasing side.
We don't we're not relying on a massive rebound in at the end of the year, but obviously regarding towards.
Less of a decline anything for the full year.
Releasing if there is a 5% decline in revenue versus what we're expecting right now that would have more like three per cent change D. P. S.
And I said, and then <unk> and on the sales vitamin two per cent changed EPS.
Okay, Great. That's really helpful to have on the office side is the uncertainty there which seems secular in.
In nature, causing a rethink of I guess resource allocation in that space in that in that property sector in any any rethink of of how that outfit disorganized.
Well, we have <unk>.
<unk>, we have multiple places that we play in the office sector. So starting with development, we develop it we manage it.
<unk>, we finance it.
And we've sized our business and our capital allocation strategy consistent with the assumptions that we've talked about here today about where that business is going to be.
The other place we play in the office sector is in our investment and industrious. We think industrious is going to continue to grow at a healthy clip. It's a really good offering with really strong leadership team.
And we are <unk>.
Looking at that to be likely bigger part of our business going forward, but we expect leasing to be as we described we don't expect to do much development. Although we'll do some development on build the suits that will continue to be part of our business and that's great business. When you can do office build the suits with credit tenants in.
That's what we would do and then you know over time there'll be.
There's all kinds of uncertainty about what's going to happen in the financing markets, but over time there'll be a good amount of financing work in the office space as well.
Thank you very much.
Thank you.
Next question is from the line of Patrick O'shaughnessy.
Raymond James Please go ahead.
Hey, Good morning, I was wondering if you could speak to how you're thinking about free cash flow conversion as a percentage of your core net income in 2023.
Yep. So we expect it to be roughly in line with where we were in 2022, which was about 75% free cash flow conversion and what's important to know about note about that is because we're gonna someone.
We are in a declining market.
The there is.
This is day of timing in terms of how we grew our bonuses and how we pay them out in cash and so if you normalize for that timing in 2023 hour free cash flow conversion is closer to mid eighties, which is where we wanna be longterm, we should expect coming into 2024 that we should be in a more normalized growth environment and that many.
80 per cent for that free cash flow conversion range.
Got it thank you.
What are you guys seeing right now in terms of talent retention.
Given kind of slow down and some of the brokerage areas are brokers more inclined to to want to move from place to place or do you feel like you are able to retain all the key tell them that you want to.
This is this is the kind of an environment that generally plays well for CBRE when times are uncertain, it's harder to generate commissions on either leases or sales or financing opportunities.
Brokerage tend to want to go to a platform that's more.
More likely to support them, so better information bigger base of clients better brand.
A company that can be.
Be well positioned to invest in a downturn because they have a strong balance sheet.
We're going to generate a lot of cash in 2023, and 2024 and the brokers the pay attention that much more sophisticated brokerage know that they know who will be able to continue to invest in our business. So.
It helps us retain and it helps us recruit and Jack Derby are Gonna Advisory team had a big year of recruiting last year, and we're expecting that too.
Play out the same way this year.
Great. Thank you and then last one for me.
In process development projects.
Decreased substantially cordover quarter, and there was some commentary about I think just some reticence given the macro landscape. How are you looking at that as we move into 2023 could side a little bit further in the near term or would you expect that to start to rebuild.
So are in process.
Frame, what our own processes that is God is projects that have either started construction or we <unk> and it is expected to start construction within 12 months. So the decline was primarily driven by projects in that latter category that we now believe we're going to be more than 12 months off until they've been moved into the pipeline.
Category will continue to evaluate.
I am process portfolio, but if things move out of in process. At this point again is that <unk>.
Projects that won't be starting for more than 12 months. It will not impact 2023 would have an impact 2024 and beyond.
Great. Thank you.
Thank you.
No further questions at this time I would like it on the floor backbone.
Closing comments.
Thanks to everyone for joining us and we look forward to talking to you again, when we report on our first quarter.
This concludes today's conference human disconnect your lines at this time. Thank you for your participation [music].