Q1 2024 CBRE Group Inc Earnings Call
Operator: Greetings and welcome to the Q1 2024 CBRE Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Burke, Head of Investor Relations and Treasurer. Thank you. You may begin.
Greetings and welcome to the Q1 2020 for CBRE earnings Conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Brad Burke head of Investor Relations and Treasurer. Thank you you may begin.
Bradley Kenneth Burke: Good morning, everyone, and welcome to CBRE's first quarter 2024 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 material. Before we kick off today's call, I'll remind you that today's presentation contains forward-looking statements, including, without limitation, statements concerning our economic outlook, our business plans and capital allocation strategy, and our financial outlook.
Everyone and welcome to Cbre's first quarter 2024 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.
Bradley Kenneth Burke: Forward-looking statements are predictions, projections, and other statements about future events. These statements involve risks and uncertainties that may cause actual results and 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 filing. 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. I'm joined on today's call by Bob Sulentic, our Chair and CEO, and Emma Giamartino, our Chief Financial Officer. Now, please turn to slide 5 as I turn the call over to Bob. Thank you, Brad.
Bradley Kenneth Burke: Before we kick off today's call I'll remind you that today's presentation contains forward looking statements, including without limitation statements concerning our economic outlook, our business plans and capital allocation strategy and our financial outlook.
Bradley Kenneth Burke: Forward looking statements are predictions projections and other statements about future events. These statements involve risks and uncertainties that may cause actual results and trends to differ materially from those projected.
Bradley Kenneth Burke: 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.
Bradley Kenneth Burke: 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 I'm joined on today's call by Bob Swan, Our chair and CEO and MD, Dr. Martino, our Chief Financial Officer.
Bob Swan: Now please turn to slide five as I turn the call over to Bob. Thank.
Robert E. Sulentic: Thank you, Brad, and good morning, everyone. Before I begin, it's important to note that Emma and I regularly reference our performance relative to expectations during these quarterly calls. In all cases, the expectations we are referencing are based on the outlook we provided during our most recent quarterly call. We started 2024 by delivering core earnings that exceeded our expectations. This was driven in part by solid net revenue growth. However, several notable elements of our performance differed from our plan going into the year. I'll touch on three of them.
Thank you Brad and good morning, everyone.
Bob Swan: Before I begin it's.
Bob Swan: It's important to note that Emma and I regularly reference our performance relative to expectations. During these quarterly calls.
Bob Swan: In all cases, the expectations. We're referencing are based on the outlook. We provided during our most recent quarterly call.
Bob Swan: We started 2024 by delivering core earnings that exceeded our expectations.
Bob Swan: This was driven in part by solid net revenue growth. However, several notable elements of our performance differed from our plan going into the year.
Bob Swan: Touch on three of them leasing strength.
Robert E. Sulentic: Leasing Strengths, Property Sales Weakness, and Cost Pressure. Leasing outperformed expectations driven by office leasing growth globally that reflects a resilient economy and companies making progress on bringing their employees back to the office. At the same time, persistent inflation kept interest rates higher than expected, which led to underperformance in our Property Sales Transaction Act.
Bob Swan: Property sales of weakness and cost pressure.
Bob Swan: Leasing outperformed expectations driven by office leasing growth globally that reflects a resilient economy.
Bob Swan: And companies, making progress on bringing their employees back to the office.
Bob Swan: At the same time persistent inflation kept interest rates higher than expected.
Bob Swan: Which led to underperformance in our property sales transaction activity.
Bob Swan: Our global workplace solutions segment again delivered double digit net revenue growth.
Robert E. Sulentic: Our Global Workplace Solutions segment again delivered double-digit net revenue growth even as margins fell short of expectations. Our costs in GWS have increased at an unacceptable rate, and we have initiated actions to bring them quickly back into line with revenue projections. These actions include consolidating the management of advisory services and GWS under our Chief Operating Officer, Vikram Kohli, with an explicit focus on rapidly wringing out unnecessary costs and Better Integrating the Solutions We Deliver for Occupy Our Clients.
Bob Swan: Even as margins fell short of expectations.
Bob Swan: Our costs in Gws have increased at an unacceptable rate and we have initiated actions to bring them quickly back into line with revenue trajectory.
Bob Swan: These actions include consolidating the management of advisory and Gws under our Chief operating officer, Vikram, calling with an explicit focus on rapidly ringing out unnecessary cost.
Bob Swan: And better integrating the solutions, we deliver for occupier clients.
Robert E. Sulentic: Significant progress has already been made on these efforts. We expect GWS's cost challenges to be mostly mitigated by year end with the majority of our actions being initiated in the second quarter. As a result, this segment remains poised to achieve mid-teens SOP growth for the full year. Looking across the whole business, we remain confident that we will generate core earnings per share in the range of $4.25 to $4.65. Our confidence is underpinned by our resilient businesses' continued strong performance, our rapid actions on cost, and the fact that advisory services remains on track to achieve its growth target for the year despite a More Uncertain Economic Outlook. Emma will discuss the specifics of our outlook in greater detail after reviewing our first quarter performance. Emma
Bob Swan: Significant progress has.
Bob Swan: <unk> has already been made on these efforts.
Bob Swan: We expect gws as cost challenges to be mostly mitigated by year end with the majority of our actions being initiated in the second quarter.
Bob Swan: As a result this segment remains poised to achieve mid teens S O P growth.
Bob Swan: For the full year.
Bob Swan: Looking across the whole business, we remain confident that we will generate core earnings per share in the range of $4.25.
Bob Swan: The $4.65.
Bob Swan: Our confidence is underpinned by a resilient businesses continued strong performance.
Bob Swan: Our rapid actions on costs and the fact that advisory services remains on track to achieve its growth targets for the year. Despite.
Bob Swan: A more uncertain economic outlook.
Bob Swan: And what we will discuss the specifics of our outlook in greater detail.
Bob Swan: After reviewing our first quarter performance Emma.
Emma: Thanks, Bob.
Emma E. Giamartino: At a consolidated level, core EBITDA was in line with our expectations as slight outperformance in REI and lower-than-expected corporate costs offset margin underperformance in GWS. Advisory SOP performed as anticipated, and core EPS exceeded expectations due to a one-time tax benefit. Please turn to slide 6 for a review of the advisory segment.
Emma: At a consolidated level core EBITDA was in line with our expectation of slight outperformance and Rei on lower than expected corporate costs offset margin underperforming and GW at <unk>.
Emma: Advisory S. O P performed as anticipated core EPS exceeded expectations due to a onetime tax benefit.
Speaker Change: Please turn to slide six for a review of the advisory segment.
Emma E. Giamartino: Despite an interest rate outlook that steadily worsened throughout the quarter, advisory net revenue rose 3%, consistent with expectations bolstered by its first quarter of transactional revenue growth in six quarters and growth from every line of business except property sales. Leasing revenue rose in every region, and global growth exceeded our expectations. Office leasing grew by double digits globally as a resilient economy and progress on return to office plans emboldened tenants to make occupancy decisions.
Speaker Change: Despite an interest rate outlook, that's steadily worsened throughout the quarter advisory net revenue rose, 3% consistent with expectations bolstered by its first quarter as transactional revenue growth in six quarters and growth from every line of business except properties out.
Speaker Change: Leasing revenue rose in every region and global growth exceeded our expectations office leasing grew by double digits globally as a resilient economy and progress on return to office plan, having bolden tenants to make occupancy decision.
Emma E. Giamartino: We continued to see strong momentum in U.S. leasing in April. Financial services companies are leading the recovery with active demand up more than 20% year over year across U.S. gateway markets, reflecting their considerable progress in bringing employees back to the office. Tech companies continue to lag, with demand 50% below pre-COVID levels.
Speaker Change: We have continued to see strong momentum in U S leasing in April.
Speaker Change: Financial services companies are leading the recovery with active demand more than 20% year over year across the U S gateway market, reflecting their considerable progress in bringing employees back to the office.
Speaker Change: Tech companies continue to lag with demand, 50% below pre COVID-19 levels.
Emma E. Giamartino: Globally, property sales revenue declined 11%, with weakness in the US and APEC. However, EMEA is showing early signs of recovery, with sales up 8% year over year, where growth was led by the UK, where property values have made more progress towards resetting, as well as Spain. We saw strong growth in our loan origination business despite continued weak property sales activity. Our growth is driven by loan origination activity and escrow income. Loan origination fees grew 16%, primarily driven by a heavier weighting of higher-margin loans sourced with debt funds.
Speaker Change: Globally property sales revenue declined 11% with weakness in the U S and APAC EMEA is showing early signs of recovery with sales up 8% year over year, where growth was led by the UK where property values have made marked progress towards pre setting as well as Spain.
Speaker Change: We saw strong growth in our loan origination business. Despite continued weak property sales activity.
Our growth was driven by loan origination activity and escrow income.
Speaker Change: Loan origination fees grew 16%, primarily driven by a heavier weighting of higher margin loans sourced with that side of it.
Emma E. Giamartino: Escrow income is de minimis in a low interest rate environment but acts as a hedge in the current economic environment. We saw this in Q1, when escrow income increased nearly threefold from Q1 2023. The remaining businesses within advisory, property management, loan servicing, and valuation together grew revenue by 5%, as expected. For the full year, we expect these businesses to deliver low double-digit revenue growth, led by property management, particularly as the Brookfield office assets are onboarded beginning in Q2.
Escrow income it's de Minimis in a low interest rate environment, but acts as a hedge and the current economic environment.
Speaker Change: We saw this in Q1, when escrow and kind of increased nearly threefold from Q1 2023.
Speaker Change: The remaining businesses within advisory property management loan servicing and valuation together grew revenue by 5% as expected for the full year. We expect these businesses to deliver low double digit revenue growth led by property management, particularly as the Brookfield office assets are on boarded beginning.
Speaker Change: In Q2.
Emma E. Giamartino: Moving to Advisory SOP, I'll call out two one-time impacts that weighed on margins in the quarter. First, we experienced elevated medical claims that should reverse later in the year. And second, we trued up interest income owed to a small number of clients. Absent these one-time costs and excluding OMSRs, margin would have improved 25 basis points versus the prior year Q1.
Speaker Change: Moving to advisory S O P I'll call. It two one time impact that weighed on margins in the quarter.
Speaker Change: First we experienced elevated medical claims that should reverse later in the year and second we true it up interest income owed to a small number of clients.
Speaker Change: Absent these one time costs and excluding on as far as margin would've improved 25 basis points versus the prior year Q1.
Speaker Change: Please turn to slide seven as I discussed the Gws segment.
Emma E. Giamartino: Please turn to slide 7 as I discuss the GWS segment; net revenue rose 10% in line with our expectations. Facilities Management and Project Management net revenue were up 11% and 7%, respectively. Project management faced a particularly difficult comparison as net revenue surged 18% in Q1, 2023.
Speaker Change: Net revenue rose, 10% in line with our expectations.
Speaker Change: Facilities management and project management, net revenue were up 11% and 7% respectively.
Speaker Change: Project management faced a particularly difficult comparison isn't that revenues surged, 18% in Q1 2023.
Speaker Change: Wait a second consecutive quarter, a very strong business win with a healthy balance between new clients and expansion.
Emma E. Giamartino: We had a second consecutive quarter of very strong business wins with a healthy balance between new clients and expansions. As of the end of Q1, we already have commitments for nearly $900 million of anticipated net revenue growth, representing a significant majority of our projected growth for the full year. Having already locked in this much of our expected growth gives us confidence in achieving our full-year revenue plan. SOP margin on net revenue declined by 90 basis points from the prior year Q1.
Speaker Change: As of the end of Q1, we already have commitments for nearly $900 million of anticipated in that revenue growth.
Speaker Change: Representing the significant majority of our projected growth for the full year.
Speaker Change: <unk> already locked in as much of our expected growth gives us confidence in achieving our full year revenue plan.
Speaker Change: S O P margin on net revenue declined by 90 basis points from the prior year Q1.
Emma E. Giamartino: More than half of the decline reflects a one-time impact on gross profit margin from the same unusually large medical claims we saw in advisory. The remainder is related to two areas of higher cost. First, we've made investments in certain initiatives that we are discontinuing. Second, our operating expenses have crept up over time as we've expanded into new sectors, entered new geographies, and added redundant costs related to recent M&A. In response, we are taking a fresh look at GWS's cost structure and are already executing substantial actions across the business. The benefit of these cost actions, as well as our elevated new business wins, will be apparent in Q3, and particularly Q4. Please turn to slide 8 for a discussion of the real estate investment segment.
Speaker Change: More than half of the decline reflects a one time impact to gross profit margin from the same unusually large medical claims with an advisory.
Speaker Change: The remainder is related to two areas of higher cost.
Speaker Change: First we've made investments and certain initiatives that we are just continuing.
Speaker Change: Second our operating expenses have crept up over time as it is.
Speaker Change: Expanded into new sectors, entering new geographies and added redundant costs related to recent M&A.
Speaker Change: In response, we are taking a fresh look at gws's cost structure and are already executing substantial actions across the business the.
Speaker Change: The benefit of these cost actions as well as our elevated new business win will be apparent in Q3, and particularly Q4.
Speaker Change: Please turn to slide eight for a discussion of the real estate investment segment.
Emma E. Giamartino: This segment's significantly lower earnings were slightly better than we had expected. As we previously discussed, last year's first quarter benefited from an unusually large gain on its development portfolio, while project sales activity remained subdued in the current higher cap rate environment. The value of our development in process portfolio increased by $3 billion to $19 billion in total due to the start of a particularly large fee development project. Investment management performance was in line with expectations and below the prior year, largely due to slightly lower AUM.
Speaker Change: This segment significantly lower earnings were slightly better than we had expected.
Speaker Change: As we've previously discussed last year's first quarter benefited from an unusually large gain on a development portfolio of project sales activity remained subdued in the current higher cap rate environment.
Speaker Change: The value of our development in process portfolio increased by $3 billion to $19 billion in total due to the start of a particularly large fee development projects.
Speaker Change: Investment management performance was in line with expectation and below the prior year largely due to slightly lower AUM.
Emma E. Giamartino: Fundraising activity was up 50% compared with Q1 2023. Investors are showing strong appetites for enhanced return and infrastructure strategies, although they expect fundraising to slow from the first quarter's robust levels. Recent fundraising is not yet reflected in AUM, which fell modestly in the quarter to $144 billion, driven by negative market and FX movements.
Speaker Change: Fundraising activity was up 50% compared with Q1 2023 investors are showing strong appetite for enhanced return and infrastructure strategies, Although we expect fundraising to flow for the first quarter was robust levels.
Speaker Change: Recent fund raising is not yet reflected in AUM, which fell modestly in the quarter to $144 billion driven by negative.
Speaker Change: Negative mark to market and FX movements.
Speaker Change: Before turning to our outlook I want to briefly touch on free cash flow.
Emma E. Giamartino: Before turning to our outlook, I want to briefly touch on free cash flow. Cash flow conversion has improved for the second consecutive quarter, and we are beginning to see the reversal of incentive compensation headwinds that we experienced last year, driven by record earnings in 2022. We expect to generate approximately $1 billion of free cash this year and end the year with around one turn of net leverage.
Speaker Change: Cash flow conversion has improved for the second consecutive quarter.
Speaker Change: We're beginning to see the reversal of incentive compensation headwinds that we experienced last year driven by record earnings in 2022.
Speaker Change: We expect to generate approximately $1 billion of free cash flow this year and end the year with around one turn of net leverage.
Emma E. Giamartino: Now please turn to our updated outlook on slide nine. Although interest rate expectations have changed significantly and the economic outlook is more uncertain, as Bob noted, we remain confident that we'll earn core EPS in the range of $4.25 to $4.65 this year. With an advisory, we continue to expect mid-teens SOP growth unless economic conditions take a sharp turn for the worse. The base case scenario assumes that the economy remains resilient and interest rate cuts are delayed.
Speaker Change: Now please turn to our updated outlook on slide nine.
Speaker Change: Although interest rate expectations have changed significantly and the economic outlook is more uncertain as Bob noted we remain confident that we'll earn core EPS in the range of $4.25 to $4 65 this year.
Speaker Change: With an advisory we continue to expect mid teens S. O P growth unless economic conditions take a sharp turn for the worse.
Our base case scenario envisions that the economy remains resilient and interest interest rate cut or delayed under these conditions faster leasing gross compensates for subdued sales activity.
Operator: Under these conditions, faster leasing growth compensates for subdued sales activity. As Bob mentioned, we also still anticipate mid-teens SOP growth for the GWS segment. SOP growth will be very heavily weighted to the second half as recent winds are on-boarded, and we see the impact of our cost-cutting efforts. In REI, we now expect a more pronounced SOP decline given continued higher interest rates. However, the range of outcomes is wider than normal, with the key variable being whether the market for development project sales improved late in the year.
Speaker Change: As Bob mentioned, we also still anticipate mid teens F O P growths for the Gws segment.
Speaker Change: So the growth will be very heavily weighted to the second half as recent wins are on boarded and we see the impact of our cost cutting effort.
Speaker Change: And our AI, we now expect a more pronounced decline given continued higher interest rate.
Speaker Change: However, the range of outcomes is wider than normal, but the key variable being rather the market for a development project sales improved late in the year.
Operator: While REI SOP is unusually depressed right now, we expect these businesses to lead our growth once market conditions inevitably improve. Additionally, as part of our broad-based efficiency efforts, our COO, Vikram Kohli, and I are taking a hard look at corporate costs and expect them to be lower for the year than initially anticipated. Assuming the midpoint of our outlook range, we expect to generate nearly 70% of full-year core EPS in the second half of the year.
Speaker Change: Well, our I S O P. As unusually depressed right now we expect these businesses to lead our growth once market conditions inevitably improve.
Speaker Change: Additionally, as part of our broad based efficiency efforts, our C. O L. Vikram colleague and I are taking a hard look at corporate costs and expect them to be lower for the year than initially anticipated.
Speaker Change: Assuming the midpoint of our outlook range, we expect to generate nearly 70% of full year core EPS in the second half of the year.
Operator: This heavier-than-normal weighting reflects the expected cadence of GWS revenue and cost reductions and a slight recovery of our property sales and development businesses later in the year. As a result, our expectations for profit growth in 2024 are now driven to a greater degree by the cost components of our business, which are within our control. As such, we remain confident in our ability to achieve our earnings outlook under a range of reasonable economic assumptions. With that, Operator, we'll open the line for questions.
Speaker Change: This heavier than normal weighting reflects the expected cadence of gws revenue and cost reductions and a slight recovery of our property sales and development businesses later in the year.
Speaker Change: Our expectations for profit growth in 2024 are now driven to a greater degree by the cost components of our business, which are within our control as such we remain confident in our ability to achieve our earnings outlook under a range of reasonable economic assumption.
Speaker Change: With that operator, we'll open the line for questions.
Speaker Change: Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time all confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up the handset before.
Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star 1 to register a question at this time. Today's first question is coming from Anthony Paolone of JPMorgan. Please go ahead.
Pressing the star Keys I cannot star one to register a question at this time. Today's first question is coming from Anthony Pallone of J P. Morgan. Please go ahead.
Anthony Paolone: Alright, great. Thanks. Good morning. His first question relates to just the guidance it at your midpoint in the comments here around 70% in the back half. So I guess, we didn't push it really means that <unk> goes down, notably and so I was wondering if you could just give a little bit more color on that whether you EBITDA also goes down some.
Emma E. Giamartino: Great, thanks, good morning. My first question relates to just the guidance at your midpoint in the comments here, around 70% in the back half. So I guess it implicitly means that 2Q goes down notably, and so I was wondering if you could give a little bit more color on that, whether EBITDA also goes down sequentially or if that's an EPS matter, anything there?
Anthony Paolone: Quench, we or if that's an EPS matter anything there.
Speaker Change: So Anthony I do want to walk through the components of our 2024 outlook again and the headline is that we are the midpoint of our outlook is unchanged, but I do want onto the components that were that a bill to that outcome. So the advisory line you saw our S O P growth.
Emma E. Giamartino: So, Anthony, I do want to walk through the components of our 2024 outlook again, and the headline is that we are, the midpoint of our outlook is unchanged, but I do want to walk through the components that were built to that outcome. So, the advisory line you saw is in line with what we talked about in February. However, the path to get there is slightly different because what we're seeing is that leasing is stronger than we had anticipated because of the health of the economy, and sales are weaker as rate cuts have been pushed out. On the GWS side, again, you see that our SOP target for the year is unchanged.
Speaker Change: The trajectory is in line with we talk what we talked about in February wherever the path to get there is slightly different because what we're seeing is that leasing is stronger than we had anticipated because of the health of the economy and sales is weak or as rate cuts have been pushed out on the gws side again, you see that our S. O P target for the year is on.
Speaker Change: <unk>, we have consistently talked about the fact that our revenue growth. This year in gws will be backend loaded as these large lumpy enterprise contracts to get on boarded in the second half of the year and what additionally, what you're saying is we're going to take out costs from GW glass and so we're gonna see margin expansion.
Emma E. Giamartino: We have consistently talked about the fact that our revenue growth this year in GWS will be backloaded as these large lumpy enterprise contracts get onboarded in the second half of the year. And additionally, what you're seeing is we're going to take out costs from GWS, and so we're going to see margin expansion in the second half of the year. On the REI front, we are expecting a slight decline versus last year.
Speaker Change: In the second half of the year and they are a I find them, we are expecting slight a slight decline versus last year and not talk about a 10% decline, but what's important to note about Rei is that there is a wide range of outcomes and right. Now we are anticipating a large number of monetization in Q4 within our development.
Emma E. Giamartino: And that's talk about a 10% decline. But what's important to note about REI is that there is a wide range of outcomes. And right now, we're anticipating a large number of monetizations in Q4 within our development business. And as you know, there is uncertainty around when those will hit and if they'll get pushed into 2025 or stay in 2024. And then, at the corporate segment level, those costs are coming in lower than we had initially anticipated.
Speaker Change: And as you know there is uncertainty around when those will hit and it will get pushed into 2020 five or stay in 2024.
Speaker Change: And then on the corporate segment level those clubs are coming in lower than we had initially anticipated. So if you put all of that together you would get to an EPS mid point that is higher than what we've indicated them, but as we said in February we do have some conservative conservatism.
Emma E. Giamartino: So, if you put all of that together, you would get to an EPS midpoint that is higher than what we've indicated. But, as we said in February, we do have some conservatism embedded in our outlook because of the wide range of outcomes, especially in advisory and in development. As for Q2, yes, you'll see a decline year over year. And that's simply because, both in GWS and in advisory, revenue growth and margin expansion are back and are heavily loaded in the second half.
Speaker Change: Embedded in our outlook because of the wide range of outcomes, especially in advisory and in development as for Q2, yes, you'll see a decline year over year and that's simply because both in gws and in advisory that revenue growth and margin expansion is back and is set.
Speaker Change: Gonna have loaded.
Emma E. Giamartino: So even sequentially though, like does Evida kind of move down sequentially from 1q to 2q? Because it just seems a little bit counter to the normal seasonality.
Alright, so even sequentially, though does EBITDA kind of moved down sequentially from <unk> to <unk>, because it just seems a little bit counter to the normal seasonality.
Emma E. Giamartino: No, EBITDA will not be declining; it will not be declining from Q1 to Q2.
Speaker Change: No EBITDA will not be shouldn't they will not be declining from Q1 to Q2.
Emma E. Giamartino: Okay, and should we think about just full year EBITDA margins still being up versus 23 at this point?
Okay and should we think about just full year EBITDA margins still are being up versus 23 at this point, yeah. So EBITDA margin should be up across both advisory and gws and at the consolidated level.
Emma E. Giamartino: Yes, so the EBITDA margin should be up across both advisory and GWS and at the consolidated level.
Robert E. Sulentic: Okay and then just last one you mentioned a large development project because saw the roughly three billion dollar bounce in developments underway but sounds like that's a fee deal so I just wonder if you can give us a little bit more detail because it's a big increase and always looked at that as being something that could drive promotes and and your share of gains but it sounds like maybe there's there's also like fee projects in there as well where you may not participate maybe some more details there
Okay, and then just last one you mentioned a large development projects because all those but roughly 3 billion dollar bounce and developments under way, but it sounds like that's a fee deals. So I'm. Just wondering if you can give us a little bit more detail because it's a big increase noise looked at that as being something that could drive promote.
Speaker Change: Notes and and your share of gains, but it sounds like maybe there's there's also like fee projects in there as well where you may not participate maybe its 40 hours there.
Robert E. Sulentic: The significant majority of that increase is related to an extremely large industrial deal in the Sun Belt. It's over 2 million square feet.
Speaker Change: The significant majority of that increase is related to an extremely large industrial deal in the sunbelt, it's over 2 million square feet.
Speaker Change: Okay.
Speaker Change: Okay. Thank you.
Operator: Okay, thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question is coming from Steve talk of Evercore ISI. Please go ahead.
Operator: Thank you. The next question is coming from Steve Sakwa of Evercore ISI. Please go ahead.
Emma E. Giamartino: Yeah, thanks. I just wanted to touch on capital allocation. Obviously, you had the J&J deal in the first quarter. But I noticed you didn't buy back any stock. I guess first, were you in much of a blackout period, which you didn't really, weren't allowed to buy back stock? Or was that more of a conscious decision, just based on where the stock was? And how should we be thinking about, I guess, stock repurchases going forward, as well as capital deployment in this kind of economic uncertain environment?
Steve: Yeah. Thanks, just wanted to touch on capital allocation, obviously, you had the J&J deal.
Steve: In the first quarter I noticed you didn't buyback any stock I guess first where were you in much of a blackout period, which you didn't really weren't allowed to buy back stock or was that more of a conscious decision just based on where the stock was and how should we be thinking about.
Steve: Stock repurchases going forward as well as capital deployment are in and the more kind of economic uncertain environment.
Emma E. Giamartino: Steve, what you saw in Q1 was related to J&J. We've always talked about balancing M&A and share repurchases, and our priority is to deploy capital towards M&A and strategic M&A, so in Q1, we pulled back on repurchases as we were executing that transaction. We started repurchasing shares in Q2 to a small extent, and for the balance of the year, you should expect that to continue. As we do more M&A, you'll see that come through.
Steve: Steve What you saw in Q1 was related to J&J is we've always talked about balancing M&A and share repurchases and our priority is to deploy capital towards towards M&A and strategic M&A and so in Q1, we pulled back on repurchases as we were executing that transaction we have.
Steve: Started repurchasing shares in Q2 two.
Steve: To a small extent.
Steve: Yeah.
Steve: And for the balance of the year, you should expect that to continue as we as we do more M&A and you'll see that come through but if we're not seeing a strong conversion of our M&A pipeline, you'll see us repurchase shares as long as our prices remaining attractive and our goal is on a consistent basis to deploy at least our free cash flow on an annual basis.
Emma E. Giamartino: But if we're not seeing a strong conversion of our M&A pipeline, you'll see us repurchase shares as long as our price is remaining attractive. And our goal is consistently to deploy at least our free cash flow on an annual basis.
Steve: Yeah.
Steve: Our free cash flow in total.
Emma E. Giamartino: Uh, free cash flow in total. Yeah. Okay, but I mean, the J&J deal was a large chunk of probably your free cash flow for the year, so that kind of puts limited buyback activities in totality. Is that a fair way to think about it? That is fair. Okay.
Steve: Yeah.
Speaker Change: Okay, but I mean, the J&J deal was with a large chunk of probably your free cash flow for the year. So that kind of puts limited buyback activities in totality is that a fair way to think about it that is fair.
Steve: Okay.
Robert E. Sulentic: And then, I guess, Bob, just, you know, on the transaction side, it's, you know, it's not the biggest line item, but it probably has more to do with the sentiment around the stock and how people think about the business, even though you've certainly diversified the company quite a bit and made it more resilient. I'm just curious, you know, what are you kind of hearing from the field in terms of transactions and just rates, and is it more about the actual Fed cut, or is it more about stability in the 10-year? I mean, I guess it is the level of the rate or is it more the direction of the rate? and uncertainty over that creates kind of a pause in the market. Yep.
Steve: And then I guess, Bob just you know on the transaction side that it's you know, it's it's not the biggest line item, but it it probably has more to do with this the sentiment around the stock and how people think about the business, even though you've certainly diversified the company quite a bit and made it more resilient.
Steve: I'm just curious you know what are you kind of hearing from the field in terms of the transactions and and just rates in it or is it more about.
Steve: The actual fed cut is it more about stability in the 10 year I mean, I guess it was at the level of rate or is it more of the direction of rate would.
Steve: And the uncertainty over that that creates a kind of a pause in the market.
Robert E. Sulentic: Steve, first of all, there are two areas of our business where that really comes through in our numbers. One is our sales business. And one is our development business, where we sell assets and generate profits from that. At the beginning of the year, the assumption of our teams was more bullish about the trajectory of interest rates than it is now, without a doubt. That shouldn't surprise anybody.
Steve: Steve first of all there's two areas of our business, where we're really comes through in our numbers one is our sales business.
One is our development business, where we sell assets and.
[noise] generate profits from that.
At the beginning of the year the assumption of our teams was more bullish about the trajectory of interest rates.
Steve: Then it is now without a doubt that shouldn't surprise anybody I'm sure that's true across the whole market.
Robert E. Sulentic: I'm sure that's true across the whole market, and it's also true of buyers and sellers of assets in general. And as a result, it's just slowed down activity on the sales side. And what we're thinking about as a seller of assets in Trammell Crow Company and our development business is exactly what others are thinking about. They've decided to stay on the sidelines longer. We have decided to stay on the sidelines longer, too. We've got a portfolio of great assets that we're going to sell at some point, but we're not going to sell them until... We think the environment is such that we can get the prices we want, and it's hard to get that price when interest rates are higher.
Steve: It's also true of of buyers and sellers of assets in general.
Steve: And as a result, its just slowed down activity on the sales side and what we're what we're.
Steve: Thinking about as a seller of assets.
Steve: And Trammell Crow company in our development business is exactly what others are thinking about they've decided to stay on the sidelines longer we've decided to stay on the sidelines longer we've got a portfolio of great assets that we're going to sell at some point, but we're not going to sell them.
Until.
We think the environment is such that we can get the pricing, we want and it's hard to get that pricing when interest rates are higher.
Robert E. Sulentic: And that's really what you're seeing. And the sentiment is, in fact, different now than it was at the beginning of the year. Of course, the flip side is that it's different because the economy is better. And we have this very big leasing business that's benefited from that.
Steve: And that's really what you're seeing in the sentiment is in fact different now than it was at the beginning of the year of course, the flip side is it's different because the economy is better and we have this very big leasing business that's benefited from that.
Speaker Change: Okay. Thanks, and then last just I just wanted to clarify. Thank you said, maybe I missed it that there was a tax benefit in the in the reported deep core EPS number this quarter, but I don't know if you sort of quantified it and I don't recall seeing a specific mention of that in the release. So could you just.
Emma E. Giamartino: Okay, thanks. And then last, I just wanted to clarify, I think you said, or I may have missed it, that there was a tax benefit in the reported core EPS number this quarter, but I don't know if you sort of quantified it, and I don't recall seeing a specific mention of that in the release, so. Clarify that, please. Right, it's about a $50 million tax.
Speaker Change: Clarify that please correct, it's about a $50 million tax benefit in the quarter that will not repeat.
Emma E. Giamartino: It's about a $50 million tax benefit in the quarter that will not repeat.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. The next question is coming from Jade Rahmani of K P. W. Please go ahead.
Operator: Thank you. The next question is coming from Jade Rahmani of KVW. Please go ahead.
Jade Joseph Rahmani: Thank you very much taking a step back.
Robert E. Sulentic: Thank you very much. Taking a step back, from my vantage point, the big growth opportunities would seem to be infrastructure, investment management, and commercial mortgages. Could you comment on whether you agree with that and where you see the most potential?
Jade Joseph Rahmani: From my Vantage point, the big growth opportunities would seem to be infrastructure investment management and commercial mortgage.
Jade Joseph Rahmani: Could you comment if you agree with that and where you see the most potential.
Jade Joseph Rahmani:
Robert E. Sulentic: Project management in general, Jade, is a big, big growth opportunity. Project and program management, not limited to infrastructure.
Speaker Change: Management in General Jade is a big big growth opportunity project and program management, not limited infrastructure corporate Youre doing a lot of work.
Robert E. Sulentic: Corporates are doing a lot of work. There's work in natural resources, That's why we see that as well into the double digits in During Grower, and it's now become a very big business for us. Our whole outsourcing business, our whole GWS business is benefiting from a long-term secular double-digit growth profile, and we expect that to continue. We expect that to continue for our, what we call our local GWS business, and for our enterprise business.
Jade Joseph Rahmani: There's work in natural resources.
Jade Joseph Rahmani: That's we see that as a.
Jade Joseph Rahmani: Well into the double digits enduring grower and it's now become a very big business for us.
Jade Joseph Rahmani: Our whole outsourcing business or a whole gws business is benefiting from a long term secular double digit growth profile and we expect that to continue we expect that to continue for our what we call our local gws business and for our enterprise business. So that's going to be a strong.
Robert E. Sulentic: So that's going to be a strong grower for us. We do think, you know, if you look at where we are with our development business and our investment management business, they should be, Emma commented on this in her remarks, they should lead growth over the next few years just because of where they are. Those businesses are really at a cyclical low point. And if you follow the, yes, we had a big add to our in-process development through a fee deal, which, by the way, that's a deal that Trammell Crow Company and Turner and Townsend are doing together. And before the Turner and Townsend arrangement, we would have been less well-positioned to do that. And you should see more of that.
Jade Joseph Rahmani: Grower for US we do thank you you know if you look at where we're at with our development business.
Jade Joseph Rahmani: Our investment management business, they should be Emma commented on this in her.
Jade Joseph Rahmani: Remarks, they should lead growth over the next few years, just because of where they're at that those businesses are really.
Jade Joseph Rahmani: At a cyclical low point and if you follow the yes, we had a big a big add to our in process development through a fee deal, which by the way that's a deal that Trammell Crow company and Turner and Townsend are doing together and before the Turner and Townsend arrangement, we would've been less well positioned to do that and you should see more of that but.
Robert E. Sulentic: But that big portfolio of in-process projects for Trammell Crow Company has a lot of pent-up profitability in it, so you should see a lot of profit growth coming out of that business. And yes, we think our mortgage business is positioned for a lot of growth. So we have confidence right across our business in our ability to grow it. And I can tell you we're going through a deep dive with our strategy team and some outside help looking at our strategy.
Jade Joseph Rahmani: That big portfolio of in process projects for Trammell Crow company has a lot of pent up profitability in it. So you should see a lot of profit growth coming out of that business.
Jade Joseph Rahmani: And yes, we think our mortgage business is positioned for a lot of growth. So we have confidence right across our business and our ability to grow it in and I can tell you were going through a deep dive.
With our strategy team and some outside help looking at our strategy. We've got nine lines of business that we're in.
Robert E. Sulentic: We've got nine lines of business that we're in, and we're the global leader in six of them. We're the domestic U.S. leader in development, and we are bullish about growth in all of them, not equally so. I've spiked out the ones that we're more bullish about. But we think the growth profile for our business, the enduring growth profile is well into the double digits, certainly in the next several years, but longer term as well.
Jade Joseph Rahmani: We're the global leader in six of them were the domestic U S leader in development and we are bullish about growth in all of them not equally bullish and I spiked out the ones that were more bullish about what we think the growth profile for our business the enduring growth profile as well.
Well into the double digits certainly in the next several years, but longer term as well.
Speaker Change: Thank you very much switching to gws you know the comment around the pipeline that seems new so I think investors are trying to figure out how to interpret that could you give some color as to how much relates to J&J, which I believe was expected to add annual.
Emma E. Giamartino: Thank you very much. Switching to GWS, you know, the comment about the pipeline, that seems new. So, I think investors are trying to figure out how to interpret that. Could you give some color as to how much relates to J&J, which I believe was expected to add annual revenue of $825 million? And also, you know, just the regular double-digit growth that was expected. How much of the $900 million is new business that would be, you know, in addition to prior expectations? And then secondly, the medical claims and overall cost controls. If you could provide any color there, and why that surprise matters.
Speaker Change: Revenue of $825 million and also you know just the regular way double digit growth that was expected how much of the 900 million is new business that would be you know in addition to prior expectations and then secondly, the medical claims and overall cost controls if you could provide any color there.
Speaker Change: And why that surprised management.
Emma E. Giamartino: And Jade, on the pipeline comment, can you just give us more on what you're seeing or what you're hearing that's different from what we've said previously?
Speaker Change: And Jade on the on.
Speaker Change: On the pipeline comment can you just give us more on what you're seeing or what you're hearing that's different from what we've said previously.
Jade Joseph Rahmani: Well, the $900 million that was mentioned, we're trying to understand if that's... You know, accretive prior to our prior expectations. I think in our forecast, we have about $10.2 billion of net revenue, which is $1.25 billion above last year, and that includes some new revenue coming in from J&J, which probably would contribute $500 to 600 million for the year. So stripping that out, you know, trying to compare that to the 900 million and just see how much of that is really new information versus
Speaker Change: Well the 900 million that was mentioned we're trying to understand if that's.
Emma E. Giamartino: All right. Got it. Okay.
Speaker Change: No accretive prior to our.
Speaker Change: Prior expectation.
Jade Joseph Rahmani: You know I think in our forecast we have about $10 2 billion of net revenue, which is 1.25 billion above last year and that includes some new revenue coming in from J&J.
Jade Joseph Rahmani: Which probably would contribute 500 to 600 million for the year. So stripping that out you know I'm trying to compare that to the $900 million and just see.
Jade Joseph Rahmani: How much of that is really new information versus you.
Jade Joseph Rahmani: You know price.
Jade Joseph Rahmani: Okay. So that 900 million is not new information when we provided our outlook at the beginning of the year and for Dws. It was for that $900 million of added more net revenue growth and that was gonna come into dws in the back half of the year and that's why we've been talking about the growth accelerating above trend.
Emma E. Giamartino: So that $900 million is not new information. When we provided our outlook at the beginning of the year for GWS, it was for that $900 million and more of net revenue growth that was going to come into GWS in the back half of the year. And that's why we've been talking about the growth accelerating above trend on the revenue line in Q3 and Q4. That $900 million does not include J&J. J&J for the year is expected to contribute a little less than $450 million in net revenue.
Jade Joseph Rahmani: On the revenue line in Q3 and Q4, the $900 million does not include J&J J&J for the year is expected to contribute a little less than $450 million of net revenue.
Jade Joseph Rahmani: We closed that towards the end of Q1 and it is part of a very small impact and to Q1, given that we had only a month.
Emma E. Giamartino: We closed that towards the end of Q1, and it had a very small impact on Q1, given that we had only a month of revenue and profits from J&J. And so that $900 million is simply the conversion of our pipeline. We've talked about really strong conversion and strong pipelines throughout last year and in Q4 and in Q1. So this is our articulation of how much is locked in, which gives us confidence that we're going to achieve our revenue forecast for GWS for the year on the cost front.
The revenue and profits from J&J.
Jade Joseph Rahmani: And so that 900 million is simply the conversion of our pipeline, we've talked about really strong conversion and trunk pipelines and throughout last year, and then Q4 and in Q1.
Jade Joseph Rahmani: So this is our articulation of how much is locked in which gives us confidence that we're going to achieve our revenue forecast for GW got for the year.
Jade Joseph Rahmani: On the cost front.
Emma E. Giamartino: You're right that the majority of the cost impact has been at the gross profit line, and it is related to those employee medical claims coming in higher than we expected, but this is, we believe this is, a seasonality issue, or this is a cadence of those claims. I mean, it's a unique situation related to the fact that we changed healthcare providers for our company over a year ago. And over the first year, which typically happens is, as employees are looking for new healthcare providers, claims come down. And so we knew they were going to check up this year. We just didn't expect it to happen in Q1. And so that should reverse itself in the remainder of the year.
Jade Joseph Rahmani: You're right that the majority of the cost impact that at the gross profit line and it is related to those employee medical claims coming in higher than we expected. But this is we believe this is a seasonality issue or this is the cadence of those claims.
Jade Joseph Rahmani: And unique situation related to the fact that we changed health care providers for our company over a year ago and over the first year. What typically happens is as employers are looking for new health care providers. There are claims come down do we knew they were going to take off this year. We just didn't expect it to happen in Q1, and so that should reverse during the remainder of the year.
Speaker Change: That's great one last one would just be around gws in the office you know I often get the question as to when the rationalization in the office sector in terms of reduction in square footage would impact that business do you see that as a potential headwind. Realizing also that there's a lot of growth.
Robert E. Sulentic: That's great. One last one would just be around GWF and office. You know, I often get the question as to when the rationalization in the office sector in terms of reduction in square footage would impact that business. Do you see that as a potential headwind? Realizing also that there are a lot of growth opportunities, which you've commented on, but just office in particular, would that be a potential headwind?
Speaker Change: Opportunities, which you've commented on but just office in particular would that be a potential headwind.
Speaker Change: Yeah.
Robert E. Sulentic: Jade, it's not a headwind that we haven't contemplated in our comments about expected growth for that business, and I made the comment last quarter that we don't have a single client in GWS that I'm aware of, and we work with the biggest tech companies, the biggest financial companies, et cetera, that don't view their office space as a critical asset for the operations of their business. They're all trying to get their people together more.
Speaker Change: Jay.
Speaker Change: It's not a headwind that we haven't contemplated in our comments about expected growth for that business and I made a I.
Speaker Change: I made the comment last quarter that we don't have a single click.
Speaker Change: Client in Gws that I'm aware of it and we work with the biggest tech companies the biggest financial companies et cetera.
Speaker Change: It doesn't view their office space is a critical asset for the opportunity for the operations of their business, they're all trying to get their people together more theyre all trying to get people to spend more time in the office as much time at home and they're very focused on using those portfolios.
Robert E. Sulentic: They're all trying to get people to spend more time in the office and less time at home, and they're very focused on using those portfolios, those office portfolios to get that done. Yes, most of them are trying to figure out if they can operate with less office space. But to get from more to less office space, they're also thinking about reconfiguring their offices, upgrading their offices, and taking different office space.
Speaker Change: Those office portfolio is to get that done yes. Most of them are trying to figure out if they can operate with less office space, but to get from more of a less office space are also thinking about reconfiguring their offices and upgrading their offices and taking different office space. That's why you saw leasing go up.
Robert E. Sulentic: It's why you saw leasing go up. A lot of companies are trying to, particularly in the gateway markets and the better office buildings where we play aggressively, put their employees in more attractive space. So there's nothing going on there that would cause us to think that there's a downside dimension that we haven't contemplated already.
A lot of companies are trying to particularly in the in.
Speaker Change: In the gateway markets into better office buildings, where we play aggressively they're trying to put their employees a more attractive space. So there's nothing going on there.
Speaker Change: That would cause us to.
Speaker Change: To think that there is a downside dimension that we havent contemplated already.
Speaker Change: Yeah.
Speaker Change: Thank you very much.
Speaker Change: Thank you. The next question is coming from Stephen Sheldon with William Blair. Please go ahead.
Operator: Thank you very much. Thank you. The next question is coming from Stephen Sheldon of William Blair. Please go ahead.
Stephen Hardy Sheldon: Hey, Thanks for taking my questions and just one for me great to see the improvement in office leasing. So I just wanted to ask about the other major leasing sector industrial or are you seeing things there get any better or worse and what do you think you can pay for leasing activity to stabilize.
Stephen Hardy Sheldon: Hey, thanks for taking my questions and just
Stephen Hardy Sheldon: And in return to growth at some point.
Well, we expect it to grow slightly this year and likely more next year, there's some choppiness in certain coastal markets.
Robert E. Sulentic: Well, we expect it to grow slightly this year and likely grow more next year. However, there's some choppiness in certain coastal markets. But the fact of the matter is some big occupiers are coming back into the market aggressively, some well-known companies, and We aren't of the mind that leasing for the industrial asset class is going to decline this year or next year. We feel good about it. It's not going to have the explosive growth that it had in 2021, et cetera. But it's not gonna be a declining leasing business, in our view.
Stephen Hardy Sheldon: But the fact of matter is some big some big occupiers are coming back into the market aggressively some well known companies and we arent of the mind that leasing for the industrial asset class is going to decline this year or next year we.
Stephen Hardy Sheldon: We feel good about it's not gonna have the explosive growth that it had.
Stephen Hardy Sheldon: You know in 2021 et cetera, but it's a it's not going to be a declining leasing.
Stephen Hardy Sheldon: Is this in our view.
Stephen Hardy Sheldon: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. The next question is coming from Michael Christian of Citi. Please go ahead.
Operator: Thank you. The next question is coming from Michael Griffin of Citi. Please go ahead.
Michael Anderson Griffin: Great. Thanks, I wanted to go back to the commentary around office lease thing I think it definitely seemed positive relative to what maybe our expectations were but you know could you unpack that in terms of where you're seeing the lead can get done.
Michael Anderson Griffin: Great, thanks. I wanted to go back to the commentary around office leasing. I think it definitely seems positive relative to what maybe our expectations were. But, you know, could you unpack that in terms of where you're seeing the leasing get done? Is it mostly for trophy and Class A products? Or is it spread out, you know, between the higher quality stuff and then more commodity?
Michael Anderson Griffin: Mostly on the trophy class a products or is it spread out between the higher quality stuff and then more commodity space.
Robert E. Sulentic: A lot in the higher quality assets, Michael. I mean, we're seeing record rental rates in some of the bigger markets for the higher quality assets, New York, as an example. We're seeing financial institutions and business services companies, in particular, taking more space. Tech is way down, but you know, for us to have this leasing picture and tech be off the way it is, we view that as good news for us because there is nobody that pays attention to tech that thinks, in the long run, they won't A, get more of their people back in the office and B, grow as disproportionate growers relative to the rest of the economy.
Michael Anderson Griffin: A lot in the higher quality assets, Michael I mean, we're we're seeing record rental rates and in some of the bigger markets in the higher quality assets in New York as an example.
Michael Anderson Griffin:
Michael Anderson Griffin: We're seeing financial institutions and business services companies in particular, taking more space.
Michael Anderson Griffin: Teck is way down, but you know.
Michael Anderson Griffin: For us to have this leasing picture in tech be off the way. It is we view that as is good news for us because there is nobody that pays attention to attack that thinks long run they won't get more of their people back in the office and be.
Michael Anderson Griffin: ROE be disproportionate growers relative to the rest of the economy. So we expect that part of it to come back.
Robert E. Sulentic: So we expect that part of it to come back. And then there are some second-tier markets, you know. They may not be second-tier forever, but what's going on in Nashville is pretty well documented, and there are other places that have that flavor to them. So those are the things that are contributing to what we're seeing in office leasing.
Michael Anderson Griffin: And then there are some second tier markets.
Michael Anderson Griffin: Right.
Michael Anderson Griffin: It may not be second tier forever, but what's going on in Nashville is pretty well documented then there are other places that have that flavor to them. So those are the things that are contributing to what we're seeing in office leasing.
Speaker Change: Thanks for that Bob.
Emma E. Giamartino: Thanks for that, Bob. And Emma, you talked about the $50 million tax benefit in the quarter. You know, adjusting for this, I think it would be about $0.61 of earnings in the quarter. Is that the right run rate and cadence that we should think about to get to the midpoint of the full year guide? Or how should we think about that?
Bob Swan: I know you talked about I think the $50 million tax benefit in the quarter you know adjusting for this I think it would be about 61 of earnings in the quarter is that the right run rate and cadence that we should think about to get to the midpoint of the full year guide or how can we think about that.
Emma E. Giamartino: For the tax rates specifically for the year, it should be about, I think, a little over 19% excluding the tax benefit. It's around 22%.
Bob Swan: For the tax rate specifically for the year.
It should be about I think a little over 19%, excluding the tax benefit if it's around 22%.
Bob Swan: And.
Bob Swan: Yeah.
Emma E. Giamartino: Does that answer your question? Or are you specific about something? Yeah, yeah, yeah. No, that does it. And then just one last one: I noticed that you didn't provide...
Speaker Change: Does that answer your question you get a specific about yeah, no that doesn't that doesn't and then one last one I noticed.
Speaker Change: That you didn't provide.
Emma E. Giamartino: The 2025 outlook, I think, relative to the last quarter in your presentation, is the expectation still to return to peak earnings growth in 2025 or get close to it? Yes, and all of our discussion around the path to reaching peak earnings in 2025 is to provide a framework around how we're thinking about the trajectory of our business. But that path has remained unchanged, and we believe it's achievable where we sit today. And that's driven by continued low double-digit growth across our resilient lines of business at the SOP level. And then on the transactional side, the SOP does not need to get back to 2019 levels for us to achieve that record level of EPS next year.
Speaker Change: The 2025 outlook I think relative to last quarter in your presentation. The expectation built in return to peak earnings growth in 'twenty, five or close to it.
Speaker Change: Yes, and and our all of our discussion around the path to reaching peak earnings in 2000 2025 is to provide a framework around how we're thinking about the trajectory of our business, but that path does remain unchanged and we believe it's achievable, where we sit today and that's driven by continued.
Speaker Change: Low double digit growth in AR.
Speaker Change: Across all of our resilience and lines of business.
S O P level and then on the transactional side, yeah. So Pete does not need to get back to 2019 levels for us to achieve a record level of EPS next year.
Michael Anderson Griffin: Great, that's it for me. Thank you.
Speaker Change: Great. That's it from me thank.
Thank you.
Operator: Thank you. The next question is coming from Peter Abramowitz of Jeffries. Please go ahead.
Speaker Change: Thank you. The next question is coming from Peter Abramowitz of Jefferies. Please go ahead.
Peter Dylan Abramowitz: Yes, thank you. So most of my questions have been asked, but just one on the transaction markets here. Cushman mentioned on their call that it seemed to be a pretty kind of direct relationship in that investment sales for them, at least, were stronger to begin the first quarter when the rate outlook was much better, and it kind of slowed in March and April as rate expectations had gone up. So just trying to get a sense from what you see in your business in terms of the relationship between rate expectations near term and how things are happening on the ground. Just curious about your comments on kind of what you saw in the business as it directly relates from a rate perspective.
Peter Abramowitz: Yes. Thank you. So most of my questions have been asked but just one on the transaction markets. Your Cushman mentioned on their call it.
Peter Abramowitz: It seemed to be a pretty kind of a direct relationship and that our investment sales for them at least were stronger to begin in the first quarter. When the rate outlook was much better and it's kind of slowed in March and April.
Peter Abramowitz: As rate expectations have gone up so just trying to get a sense of.
Peter Abramowitz: From what you see in your business in terms of the relationship between you know rate.
Peter Abramowitz: Expectations near term and and how things are happening on the ground. Just curious your comments on kind of what you saw in the business.
Peter Abramowitz: As it directly relates from a rate perspective.
Emma E. Giamartino: So it varies across regions. In the U.S., that is what we saw. Later in the quarter, there was an uptick as rates increased, but in EMEA and APAC, we didn't see that trend just given that there are different dynamics going on there and EMEA is ahead of the curve in terms of its recovery in the sales market.
Peter Abramowitz: So it varies across regions in the U S that is that we saw and later in the quarter. There was there was an uptick is as rates increased but in EMEA and.
Peter Abramowitz: In APAC, we didn't see that trend just given that there is different dynamics going on there and EMEA is ahead of the curve in terms of they're recovering in the sales market.
Speaker Change: Got it and then one other on the transaction market could you just talk generally about kind of a rule of distress sales and the market have you seen that.
Emma E. Giamartino: Got it. And then one other on the transaction market. Can you just talk generally about the role of distressed sales in the market? Have you seen that kind of start to thaw at all, whether in the first quarter or going forward?
Speaker Change:
Speaker Change: Start to thaw it all weather in the first quarter or are growing forward.
Robert E. Sulentic: There's been some distressed debt activity, the selling of distressed debt. But there's also been some activity, I'd call it more pending activity, of selling debt portfolios that aren't distressed. Just because people are concerned about their debt portfolios, they may sell non-distressed portfolios at a slight discount. The assets that are really distressed are office buildings, you know, B and C office buildings, and there aren't a lot of buyers in the market for those assets right now. We do expect that there will be buyers for those assets in the market, but the price probably has to come down more than it has.
There's been some distress debt activity selling of distress that theres also been some activity I'd call it more pending activity of selling debt portfolios that arent distressed.
Speaker Change: Just because people's concern about their debt portfolios. They may sell non distressed portfolios at a slight discount.
Speaker Change:
Speaker Change: The assets are really distressed or office buildings, you know B and C office buildings and there aren't a lot of buyers in the market for those assets right. Now we do expect that there will be buyers for those assets in the market, but the pricing probably has to come down more than it has.
Peter Dylan Abramowitz: All right, that's helpful. Thank you. Thank you. The next question is from Patrick O'Shaughnessy of Framon James. Please go ahead.
Speaker Change: Alright, that's helpful. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you. The next question is from Patrick Oshaughnessy of Freedom and James. Please go ahead.
Operator: Hey, good morning.
Patrick Oshaughnessy: Hey, Good morning, just one question from me in your prepared remarks, you spoke to invest.
Patrick Oshaughnessy: Investments and certain initiatives that you are discontinuing can you provide some color on what those are and to the extent that they were strategically important to you or not.
Patrick Oshaughnessy: [laughter], Yeah, Patrick pay they werent strategically important that we may have at one time thought they were more strategically important than we do now in fact, that's almost inevitable given that we were spending money on them and we've stopped but what happens in a business that's growing and even though.
Robert E. Sulentic: Yeah, Patrick, they weren't strategically important. We may have at one time thought they were more strategically important than we do now. In fact, that's almost inevitable given that we were spending money on them, and we've stopped. But what happens in a business that's growing, and even though our sector and our company have slowed down considerably in the last couple of years, our GWS business has. That business has been growing, and when you have a growing business, you tend to look for opportunities to add initiatives to address the growth opportunity.
Patrick Oshaughnessy: Our sector and our company have slowed down considerably in the last couple of years, our gws business has.
Patrick Oshaughnessy: That business has been growing and when you have a growing business.
Patrick Oshaughnessy: <unk> tend to look for opportunities to.
Patrick Oshaughnessy: To add initiatives to regret to address the growth opportunity. You also tend to because you have a lot of growth opportunity.
Robert E. Sulentic: You also tend to, because you have a lot of growth opportunities, take your eye off them a little bit when they don't work. And we built up some of that across GWS. The fact of the matter is, though, if you look at that business for the quarter, that was a $5.8 billion revenue business. The cost problem that we had net of this medical issue that Emma described is in the $15-$20 million dollar range spread across a, you know, five-and-a-half-plus-billion-dollar business. So it was lots of little things here and there.
Patrick Oshaughnessy: Take your eye off I'm, a little bit when they don't work.
Patrick Oshaughnessy: And we have we built up some of that across Gws. The fact, the matter is though if you look at that business for the quarter. The that was a NIM of $5 8 billion dollar revenue business.
Patrick Oshaughnessy: Cost problem that we had net of this medical issue that Emma described is in the $15 million to $20 million range spread across it.
Patrick Oshaughnessy: You know five and a half plus billion dollar business. So there's lots of little things here and there none of our strategically important efforts in that business have changed in any significant way we have it.
Robert E. Sulentic: None of our strategically important efforts in that business have changed in any significant way. We have it, as I mentioned earlier in my comments, we have a big strategy effort underway with our strategy team now looking at the parts of the business where we think there's real growth opportunities and where we intend to invest in a big way. And our view of the growth opportunity with enterprise FM customers, with project management for corporates, with project management for green energy and for infrastructure, with our local FM business, none of our broad-based growth aspirations or growth initiatives have been altered as a result of the cost issues that we're after now and what we've been talking about.
Operator: Thank you. The next question is coming from Anthony Paolone of J.P. Morgan. Please go ahead.
Mentioned earlier in my comments, we have a big strategy effort underway with our strategy team now looking at the parts of the business, where we think there's there was real growth opportunity and where we intend to invest in a big way.
Patrick Oshaughnessy: And our view of the growth opportunity with enterprise F M customers with project management for corporates with project management for Green energy and core infrastructure.
Patrick Oshaughnessy: With our local FM business, none of our broad based growth.
Patrick Oshaughnessy: Aspirations or growth initiatives have been altered as a result of the cost issues that we're after now and what we've been talking about.
Speaker Change: Terrific. Thank you very much.
Speaker Change: Thank you. The next question is coming from Anthony Pallone of J P. Morgan. Please go ahead.
Anthony Paolone: Thanks, I think you may have just answered this Bob, I was just gonna ask about that sort of the other half of the costs outside of medical that crept up on you in GWS, like if you know kind of what happened there and just how it changed so quickly in, like, I guess the last few months, so I don't know if you had anything else to add on that front. Yeah, Anthony, I'll add.
Speaker Change: Yeah.
Anthony Paolone: So thank you you may have just answered this Bob I was just going to ask about that sort of the other half of the cost outside of medical that crept up on you in gws like if you you know kind of what happened there and just you know how it changed so quickly in like I guess the last few months. So I don't know if you had anything else to add on that front.
Robert E. Sulentic: Yeah, Anthony, I'll add, first of all, I really think to put it in perspective, you've got to pay attention to the size of that number relative to the size of that business. Again, it's $15 to $20 million of cost that hits the bottom line in a negative way relative to what we had expected, if you ignore the medical thing, roughly. Okay.
Bob Swan: Yeah, Anthony I'll add first of all I I really think to put it in perspective, you got to pay attention to the size of that number relative to the size of that business.
Bob Swan: And again, it's it's $15 million to $20 million of costs that hit the bottom line.
Bob Swan: Negative way relative to what we had expected if you ignore the medical thing.
Bob Swan: Roughly is that right, okay, and and and again that was a five and a half plus billion dollar business, it's a little bit of cost here and there.
Robert E. Sulentic: And again, that was a $5.5 billion business. There is a little bit of cost here and there, but it's something we stay on very closely. We've taken aggressive action in that business to already address it. We think most of what will need to be done to correct the problems that we saw in that business will be done this quarter. And we've also done some rationalization across our whole services business, which resulted in those businesses reporting to our Chief Operating Officer, Vikram Kohli, and, you know, elimination of a leadership layer at the CEO level of those businesses, and there'll be other actions consistent with that down through the businesses.
Bob Swan: But it's something we stay on very closely we've taken aggressive action in that business to already address it. We think most of what we'll need to be done to correct. The problems that we saw in that business will be done this quarter.
Bob Swan: And we've also done some rationalization across a whole services business, which resulted in those businesses reporting to our chief operating officer, Vikram coli and elimination of leadership layer.
Bob Swan: The CEO level of those businesses and there'll be other actions consistent with that down through the businesses.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you at this time I would like to turn the floor back over to tops Olympic Chairman and CEO for closing comments.
Robert E. Sulentic: Thank you. At this time, I would like to turn the floor back over to Bob Sulentic, Chairman and CEO, for closing comments.
Robert E. Sulentic: Thank you everyone for being with us, and we look forward to discussing our second quarter with you in about 90 days.
Speaker Change: Thanks, everyone for being with Us and we look forward to discussing our second quarter with you in about 90 days.
Operator: Ladies and gentlemen, thank you for your participation and interest in CBRE. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Speaker Change: Ladies and gentlemen, thank you for your participation and interest in CPRE. This concludes today's event you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
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