Q1 2023 CBRE Group Inc Earnings Call
Speaker 1: I I.
Speaker 1: To.
Speaker 2: Greetings and welcome to CBRE's first quarter 2023 earnings conference.
Speaker 2: Senior Vice President of Investor Relations and Strategic Finance. Thank you, Brad. Thank you, Brad.
Speaker 3: Good morning everyone and welcome to CBRE's first quarter of the year 2020 earnings conference call. Earlier today we posted a presentation deck on our website that you can use to follow along with our prepared remarks and an Excel file that contains additional supplemental materials. Before we kick off today's call, I'll remind you that today's presentation contains forward-looking statements.
Speaker 3: including without limitation, statements concerning our earnings outlook, forward-looking statements are predictions, projections, or other statements about future events. These statements involve risks and uncertainties that may cause actual results and trends to differ materially from those projected.
Speaker 3: 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 files.
Speaker 3: We have provided reconciliations of the non-GAAP financial measures discussed on our call to the most directly comparable GAAP measures together with explanations of these measures in our presentation deck appendix.
Speaker 3: I'm joined on today's call by Bob Solentich, our President and CEO , and Emma Giamartino, our Chief Financial Officer.
Speaker 3: Now, please turn to slide five as I turn the call over to Bob.
Speaker 4: Thank you, Brad. Good morning, everyone. Our first quarter results were slightly better than we expected going into the year, but still down significantly from last year's strong first quarter.
Speaker 4: Our performance relative to our expectations was led by the cyclically resilient elements of our business and our cost management efforts.
Speaker 4: We are business that are cyclically resilient, include our entire GWS business.
Speaker 4: that are cyclically resilient include our entire GWS business, loan servicing.
Speaker 5: directions and we are hopeful that we'll convert at least a large deal in our pipeline but if we don't do that we will accelerate our share repurchases and as I said in my remarks we intend to deploy as much capital as we in the next 12 months as we did in the last 12 months and as a reminder that was
Speaker 6: as you think about 2023 guidance, there is is M&A part of this unshared guidance?
Speaker 5: It is not. It is not. And what I say about that is
Speaker 5: have a meaningful impact to 2023 results, that impact will flow into 2024.
The outsourcing business, which includes just providing facilities management and project management portfolio of services work, mostly for big corporates focused on saving them money working on their net zero initiatives shedding.
Shedding assets in some cases.
That business will be an enduring double digit grower and probably not low double digits. We think there's an opportunity to have them be mid double digits and when I made my comments.
A minute ago about companies.
Increasingly interested in having us be there will require or us investing in them a lot of that happens in that segment. So that's kind of where we see the shift happening across our businesses.
Okay. Thanks, and then just on the way you sing side you you know to just stepped down that's unfolding there I think the office side of it I think everybody probably.
Understands pretty well, but do you see any other parts of leasing cracking either geographically or <unk> by property type that took note right.
<unk> has been pretty strong, but maybe a little bit more color there and I think you even like retail in Europe , you called it out and I think you're you're releases having been pretty good.
Yeah retail leasing is good.
And by the way <unk> retail rental rates are growing up because there was a big experience thing going on here across the U S and around the world that is causing retailer's various types, including food and beverage but.
Obviously, the high end retailers doing quite well and that's helping or at least some business in retail.
Industrials been white hot over the last couple of years, and it's just not going to stay that hot and definitely that that's been a little bit anomalistic.
So we are seeing a little bit of downward pressure on industrial leasing, but we think over the longer term industrial release and will be very very strong into dynamics driving logistics based around the world will remain in place, but but we are seeing some downward pressure on that for sure. This year.
Okay, great. Thank you.
Alrighty. Our next question is from <unk> with a K B W. Please proceed with your question.
Uhm, Thank you very much.
Commercial real estate as an asset class.
Whereas an interesting time because for as long as I've covered the space.
The institutional allocation to commercial real estate.
Has continually increased and this is the first year as I remember.
Where it's decreasing and at the same time the ground is clearly shifting with office at the office historically represents a.
Scaled way to deploy capital in the space, otherwise you're buying very small assets, it's very hard to get the scale.
So do any of those dynamics effect in your view.
The long term secular trend of institutionalization and commercial real estate and the attractiveness of the asset class overall.
In aggregate Jada I don't think so and I'll tell you why I say that first of all what you're seeing now is.
Driven largely by.
Real estate being out of favour, it's not even in the in the.
Biggest since being driven by office buildings being out of favorites being driven by the denominator effect.
The base of assets around the world is growing the base of industrial space around the world is growing the base of institutional quality multifamily around the world is growing.
Et cetera, and we think that's going to continue and we think when stock prices rebounded denominator effect to go in the other direction. The other thing I would tell you about office space, which has been a big home for capital. There's a tendency when things turn to think that they're going to turn into disk.
Appear.
Our view is that the that the.
Portfolios that companies have to use office space not the investors in office space, but the companies that use it that ultimately drive.
Spend an office space will ship shrink materially.
But it'll still be an enormous asset class, if it's down 20% or 10% or 15% whatever it settles down it will still be an enormous asset class.
In the future of office space is still being sorted out we may be more back in the office in the future than we are today, that's just an unknown, but that will be a very large asset class that will be a very big home for institutional capital in the future, but certainly other asset classes will and there's all retail.
Industrial hotels mulch.
Multifamily huge asset classes and look look what's going on with hotels I mean.
Trying to get a hotel room at a rational pre COVID-19 right right now anywhere in a good hotel and you just can't do it and so I don't think commercial real estate as an asset class.
Is going to decline in importance at all in the future.
Thank you very much for that.
I wanted to ask about this again I don't know if it's a pipe dream I have but.
I could envision CBRE going in a direction, where infrastructure really becomes essentially a new leg in the stool, a new stand alone segment and you're really brought in the suite of services you provide the governments do agencies.
And climate mitigation becomes an extremely.
Large strategic opportunity. So do you see infrastructure as one of those potential transformational type deals. It probably also would be accretive to February is overall multiple since it with the pants resiliency.
They are being less cyclical and having a lot of secular growth potential.
J, there's two areas of our business now, where we do do meaningful work and infrastructure, we have an investment management business that invest in infrastructure and with the acquisition of 60.
60% of Turner, and Townsend, which by the way has continued outperform our expectations that they have a significant.
Infrastructure insignificant Green energy business and they do large projects subject to very long term contracts around the world.
We would expect those businesses to grow and provide incremental opportunity to us in the long run what we might do beyond that.
He was alone or as a long run circumstance that we're not really prepared to talk about at this point, but we do have.
Positive exposure in both those areas.
Thank you.
Thank you. Our next question is from Michael Griffin with City. Please proceed with your question.
Great. Thanks, Bob.
Remarks, you talked about how you expect G. W asked to grow in the high single digits.
I think last quarter. It was pegged at about low double digits, maybe I misheard. This but if that's the case why why would that'd be I I presume that these are sort of stickier more resilient business lines. So anything you could add on that would be great. Yeah.
Yeah, Michael what I said was that we expect the total of our.
Cyclically resilient businesses to grow in the high single digit so that would be gws valuations property management.
Let's see portion of our investment management business, we expect.
Gws business to grow well into the double digits.
Gotcha. That's that's helpful. And then maybe just want an office, particularly on potential refinancings and Dirk how many do I think we've seen some news recently about.
That availability for maybe less than trophy class properties and you know I think the library off its assets unique might.
[noise] suggests at least standpoint that I saw that there is out there are are you seeing those particularly on on the opposite side I mean, I think the expectation is for trophy buildings have financing, but maybe some of that you know not be absolute top of the market stuff might be harder to finance.
Well it trophy buildings.
Both in the current environment and in the long term are going to do quite well in our view because with all that's going on on the return to the office circumstance companies are looking for great environments for their employees were doing it for our own headquarters in our own offices around the U S and around the world.
Virtually all of our clients are doing it in these so these great buildings are going to do well.
B and C buildings are going to be challenged and there is less capital available form, but I think there is.
Overreaction to that circumstance.
The press is for like so many things it's a great story to talk about how bad something is when it gets bad. The fact of the matter is coming out of the financial crisis office buildings were capitalized much more conservatively than they had been historically more equity in office buildings, then there had been previously.
If you look at the banking system today, something like 1.5%.
Of commercial or commercial banks.
Pork asset portfolio is in office buildings, it's not a huge threatening circumstance. Some of the problem assets will go back to the bank some of them will get restructured and worked out as is always the case with troubled assets. So it's gonna be it's gonna be hard to refinance some of those assets and some of those assets are going to become true.
Doubled and go back, but it's not going to be an overwhelming circumstance the ways.
Headlines would suggest it might be.
Great.
Helpful. And then just the last one I think ammo might've mentioned, the Telford acquisition tracking in line with expectations you know the UK I believe it's a single family business.
Obviously, we've seen over here in the states worries around the regulatory Brian and maybe some single family companies is there any worry that that's similar regulations could come down the pipe in in the UK or is it just kind of a very different business models.
And then I just want to clarify our Telford business as a multifamily business.
Stepping towards the belt around multifamily.
Okay.
And is there any worry around regulation on that I mean, we've seen some of the apartment companies you know whether it's you know.
Rent regulation stuff like that any any concerns.
No no we don't have any concerns and we actually see when I. Initially made that investment we saw a secular talon in <unk> in the UK that continues to access that we expect that we expect that business to continue to grow going forward.
Awesome well that's it for me thanks for your time.
Thank you.
Thank you. Our next question is from Stephen Sheldon with William Blair. Please proceed with your question.
Yeah. Good morning, Thanks for taking my questions.
Really impressive trends gws this quarter sounds like there is confidence and continue double digit growth there in that context, I think there has been at least some concern that with companies reducing their office real estate footprints. It it could become a headwind growth and gws at some point if contracts scope.
Skip reduced so.
Be curious if you're concerned about that at all or or is the business. So diversified by different asset classes in the industry still so fragmented and so early and outsourcing adoption that you're not worried about the grocery Jeffery gws over the medium term I guess, that's how do you think about that.
Steven.
Corporates, reducing their office footprint is ahead wind for that business.
By the way has been a headwind for that business for the last 15 years. The average square foot per person that corporate choose has been going down and down and down and we've been helping them with that we've been helping them reconfigure their portfolios. We've been helping them do project work in support of that and the project work they need now with the kind of space there.
Trying to deliver for their employees is really important so yes that'll be a headwind in terms of the amount of space that we might manage for individuals corporate but other work we would do for them would offset that but the the thing that kind of overwhelmed that circumstance is that more corporates are bringing us on new clients or bring.
<unk> New song to do work to help them create environments for their employees.
To help them save money both in terms of the size of their footprint the operation of their facilities to.
To help them move toward a more energy efficient environment, and certainly know where Turner and Townsend that puts us in a better place to do that so the net of all those dynamics is that this is going to be a double digit growing business and again, that's before some of the acquisition opportunities that we're seeing that are becoming.
More prominent for us because partly because we want to do it but partly because companies that might combined with us you're finding is more interesting than they used to.
Very helpful and then just to follow up.
Given some of the details of 2024 at a concert but.
2024 core EPS, surpassing the prior P, which was 2022 is the plan capital deployment, a big factor in that whether it's accretive M&A or share repurchase activity or would you still expect to surpass prior peak in 2024 without a big ramping capital deployment.
There's very little capital of appointment and plan to exceed prior P. G. P. S. In 2024 any capital allocation.
And how many <unk>.
Help us or past us even to a greater extent and I do want to emphasize that getting to 2024 and 2024 getting to that record EPS level. We believe this is very at T. Mobile it takes relatively conservative assumptions to got their posts a rebound in our advisory on our transactional different fine both on our I N advisory.
We don't have to get back to 2021 level in those businesses to get into this record.
And then within GW asked if you are in the very low double digit range. We can still get to that does that record EPS level and that's again, that's all without meaningful capital allocation.
Great. Thank you.
Thank you. Our next question is from Patrick O'shaughnessy with Raymond James. Please proceed with your question.
Hey, good morning, So obviously that financing is really challenging right now commercial real estate, what sort of role do you see for private credit and commercial real estate financing going forward.
Well I can tell you Patrick.
It won't be surprising to you could you hear me say that we interface a lot with the.
Private equity folks and commercial real estate, who our customers of ours that might be participants in this in the view is that this is going to be a big opportunity for them.
When there's when there's a lack of supply.
Coming from other areas people.
People come in and backfill and created opportunities for themselves in that area and we think that's gonna happen here.
Got it. Thank you and then you spoke earlier about market pricing clarity, serving as a catalyst for improved capital markets transactions.
But what's the catalyst for that market pricing clarity to actually happen.
Interest rates to stabilize and come down are the biggest are the biggest factor there and we think that's gonna happen later this year.
Alright, thank you.
Thank you there are no further questions at this time I'd like to have the floor back over to Bob's Olympic for any closing costs.
Thanks, everyone for joining us and we look forward to talking to you again a quarter from now on the report.
Second quarter results.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.