Q4 2024 CBRE Group Inc Earnings Call

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Greetings and welcome to the fourth quarter 2024 C. B R. E earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Chattanooga: 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 Chattanooga. Thank you you may begin.

Chattanooga: Good morning, everyone and welcome to Cbre's fourth 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 exercise that is pending additional supplemental materials.

Chattanooga: Today's presentation contains forward looking statements, including without limitation statements concerning our business outlook, our business plans and capital allocation strategy and our earnings and cash flow 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.

Chattanooga: Different materially from those projected.

Chattanooga: For a 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.

Chattanooga: 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.

Chattanooga: Also in the press release, we have provided historical non-GAAP financial information for the New segment, which we will begin reporting with Q1 2025 result.

Chattanooga: We will provide more details, including historical quarterly financial information by lines of business based on the new segment prior to releasing our Q1 results.

Speaker Change: I'm joined on today's call by bumps Atlantic, our chairman and CEO and M O J O Martino, our chief financial officer throughout their remarks, when Bob and them on site financial performance relative to expectations. They are reporting to actual results against the outlook we provided.

Speaker Change: You see 2024 earnings call in October unless otherwise noted also as a reminder, our resilient businesses into facilities management project management property management. So the same valuation and regarding investment management fees on transactional businesses comprise property sales and leasing.

Speaker Change: Mortgage origination carried interest and incentive fees in the investment management business and development lease finally, unless otherwise noted they never besides growth rates, we are referring to the percentage change versus the 2023 fourth quarter in U S dollars with that I turn the call over to Bob.

Bob: Thank you Johnny and good morning, everyone.

Bob: Q4 of 2024 with Cbre's best quarter ever.

Bob: For core earnings and free cash flow with broad strength across our business.

Bob: We also made significant progress in executing our strategy positioning the company to continue to deliver double digit earnings growth on an enduring basis first.

Bob: We acquired industrious the premium flex workplace provider.

Bob: This advances our ability to meet office occupier and landlord demand for flexibility.

Bob: And an elevated experience.

Bob: The industrious transaction also became the catalyst for us to consolidate all our building management businesses into one segment called building operations and experience.

Bob: This move allows us to build expertise and scale advantage across many areas that are common to the operation of buildings.

Speaker Change: Jamie had dory industrious as CEO, who has exceptional strategic operational and entrepreneurial skills.

Speaker Change: He is leading this segment as its CEO.

Speaker Change: We also completed the combination of CBRE project management with Turner and Townsend dish.

Speaker Change: This creates a large uniquely positioned program and project management business with multiple avenues for resilient revenue growth in areas like infrastructure.

Speaker Change: G and.

Speaker Change: In data centers.

Speaker Change: Finally, we took two additional steps to upgrade our senior leadership team first we gave our C. O O victory Kohli who's capabilities are evident in the major impact he had on our business in 2024 additional responsibility as CEO of our advisory business.

Second we named Adam Dallas, still who will join CBRE in April and Andy Glanzman as co Ceos of our investment management business.

Speaker Change: As leader of GIC as Americas business, Adam Forge, an exceptional track record and prominent industry profile, while Andy has proven to be a strong operational leader, who is overseeing CBRE investment management's strategic evolution.

Speaker Change: With all these moves in mind, we have reorganized the company into four business segments.

Speaker Change: Two of the segments building operations and experience and project management are entirely comprised of resilient businesses.

Speaker Change: Together, they generated $1 $4 billion of S. O P. In 2024, and they are growing organically.

Speaker Change: At a double digit rate.

Speaker Change: In both segments, we have tremendous opportunities to scale, our position in huge fragmented and underpenetrated markets.

Speaker Change: Our advisory segment, which includes the leasing capital markets valuations and loan servicing is a cornerstone of our business.

Speaker Change: It is responsible for producing large profits high margins strong cash flow conversion and abundant data and market intelligence that is valuable across our company.

Speaker Change: Our real estate investments segment, which includes our investment management and development businesses.

Speaker Change: Is underappreciated.

Speaker Change: This segment has significant embedded profits and we expect it to become one of the leading contributors to our long term growth.

Speaker Change: Additionally, it is an ongoing source of compelling investment opportunities for CBRE.

Speaker Change: Our confidence in <unk> future has never been higher as evidenced by our considerable share repurchases since the end of the third quarter.

Speaker Change: Despite the strong appreciation of our shares over the last year. We believe the market is undervaluing, our business relative to both its growth profile and dramatically enhanced resiliency.

Speaker Change: Now Emma will discuss the quarter's highlights and our outlook for 2025. Thank.

Emma: Thank you Bob.

Emma: We exceeded expectations with a record quarter across almost every metric our resilient businesses, which are facilities management property management project management loan servicing valuation and recurring investment management fees grew net revenues, 16% in the quarter and 14% for the year, while delivering operating.

Rating leverage.

Emma: Resilient businesses contributed nearly 60% of our total S O P for the year essentially matching 2023.

Emma: This relative contribution by our resilient businesses is notable in a year when our transaction revenue grew considerably yeah capital markets activity is still well below peak levels.

And our advisory segment results were driven by record leasing revenue and a continued rebound in capital markets globally leasing revenue grew 15% with notable strength in APAC and the Americas.

Emma: U S office leasing delivered 28% revenue growth office occupiers are increasingly comfortable making long term decisions given improved per ton to office momentum and a healthy economic outlook.

Emma: The durability of office leasing growth with a prominent question as recently as October when we last reported earnings.

Emma: New York led most of the office leasing recovery in 2024 other markets accelerated substantially in the fourth quarter.

Emma: Whey markets comprised of New York, San Francisco, Los Angeles, Chicago, Washington, D C and Boston grew approximately 30% in aggregate.

Emma: Other large markets like Dallas, Atlanta, and Seattle grew even faster and certain smaller Midwest markets, including Cleveland, Pittsburgh, and Minneapolis picked up considerably.

Emma: This gives us confidence that office leasing will continue to increase as activity has spread broadly.

Emma: Retail leasing also exhibited solid growth, while industrial leasing was essentially flat.

Emma: Turning to global property sales revenue growth accelerated to 35%.

Emma: Growth was strong across all asset classes globally with a notable increase in office sales in the U S and EMEA.

Emma: Be it off a low base of activity.

Emma: Our mortgage origination business was up 37% led by a 76% increase in origination fees, partly offset by lower escrow income.

Emma: We saw a strong pickup in loan origination volume across financing sources, most notably from the champions and thanks.

Emma: Well acquisition financing is increasing refinancings continue to lead the recovery, making up almost 60% of total volume for the quarter.

Emma: Overall advisory S O P rose, 34% with improved margin on that revenue.

And the Gws segment net revenue grew 18%.

Emma: Facilities management net revenue increased 24% with broad based strength in both the enterprise and local businesses.

Emma: We're seeing a good balance of new clients and expansion across enterprise sectors, especially in technology industrial data centers and health care.

Emma: Local revenue growth was led by the U K in the Americas.

Emma: The Americas has emerged as a local businesses second largest region up from the fourth largest in 2023.

Emma: This is a direct result of executing our strategy to increase share in the U S. A market that is still barely penetrated.

Emma: Our project management business saw solid net revenue increased with particular strength in North America, and the U K led by real estate and infrastructure for the full year of 2020 for project management net revenue grew 10% with operating leverage driving faster S. O P growth.

Emma: This growth was dominated by Turner, and Townsend, which achieved 19% revenue growth for the year supporting our view that the aggregate project management business will achieve accelerated growth when combined.

Emma: The Gws SRP margin improved for the full year, reflecting our cost efforts and focused on contract profitability.

Emma: And our Rei segment after being increased to $150 million in Q4 led by our development doesn't it.

Emma: As expected, we had significant monetization in the quarter, including several data center development sites.

Emma: This is one of our development business is strongest quarters and reflects our distinct capabilities as a land acquirer and developer.

Emma: Well as our proactive decision to invest in areas benefiting from secular Cowen when others are on the sidelines.

Emma: Within our investment management business Q4, operating profit declined partly driven by a ramp up of costs in anticipation of increased capital raising.

Emma: We raised over $10 billion in 2024 with half of it coming in the fourth quarter.

Emma: AUM ended 2024, and 146 billion essentially flat for the year.

Emma: Market sentiment continues to improve with many investors positioning their portfolios to capture opportunities in the latter half of 2025.

Emma: Before turning to our outlook I'll comment on cash flow and capital allocation.

Emma: Free cash flow exceeded expectations, increasing to more than $1 $5 billion for the year and free cash flow conversion reached almost 100%, surpassing our 75% to 85% target range we.

Emma: We deployed approximately $2 billion of capital in 2024 across M&A real estate co investment and share repurchases. This is in line with our strategy to invest in resilient businesses that augment cbre's growth profile expand our total addressable market and generate high risk adjusted returns.

Emma: Besides several notable M&A transactions, we capitalized 29 development projects for the year, including 12 in Q4.

Emma: Our significant efforts to build the pipeline over the past few years, while many investors were on the sidelines.

Emma: <unk>, our development business to break ground on more than 50 projects in 2025, almost double the number in 2024.

Emma: We estimate that we have more than $900 million of embedded net profits and our development in process portfolio and pipeline as we capitalize a second large portfolio development assets in the fourth quarter. This time focused on industrial assets.

Emma: Our in process and pipeline portfolio currently stands at more than $32 billion without standing balance sheet equity co investment of approximately $800 million.

Emma: And as Bob mentioned, we also continue to see a significant unrecognized value and CBRE Sharon This led us to repurchase more than $800 million worth of shares since the end of the third quarter.

Emma: We have high conviction in our growth prospects and believe our ability to consistently generate double digit organic earnings growth justifies the premiums to recycle multiple.

Emma: Looking ahead, we expect another year of strong free cash flow generation approximating last year's total of $1 $5 billion, we anticipate free cash flow conversion within our 75% to 85% target range. This year as the benefit from bonus timing, we saw in 2024 reverses.

Emma: Absent material M&A, we expect to end the year with net leverage below one turn but are willing to lever up to two times for the right M&A opportunities.

Emma: Turning to our outlook, we expect to easily set a new peak in 2025 with core EPS projected to be in the range of $5 80 to $6 10 of them.

Emma: This would represent more than 16% growth at the middle of the range supported by mid teens S&P growth across our resilient lines of business momentum in leasing and a continued rebound in capital market.

Emma: It is notable that we're expecting this level of earnings when transaction activity is more muted than in other cyclical recovery.

Emma: We're again guiding to a wide range this year because of uncertainties around the level of currency headwinds and the trajectory of interest rates, we've embedded a currency translation headwind of 1% to 2% and our consolidated outlook absent. This headwind expected core EPS growth would be in the high teens.

Emma: Turning to our segment, we are providing guidance under our new and the old segment structure is shown on slide eight to help investors transition their coverage note that all percentage growth rate estimates for the segments are in local currency.

Emma: And our advisory segment, we expect low to mid teens S&P growth driven by solid leasing revenue growth and a steady capital market's recovery, both of which will underpin and margin expansion.

Emma: And our building operations and experienced segment, we expect above trend mid teens revenue growth supported by locals further expansion in the U S and a full year contribution from industrial.

Emma: We anticipate continued operating leverage resulting from 2020 for cost initiatives, which will drive high teens S. O P growth.

Emma: And project management, we foresee significant opportunities in the U S and UK across infrastructure and traditional real estate.

Emma: Combining the Turner and Townsend and CBRE project management businesses requires a complex integration as such in the first year, we are anticipating strong, but slightly below trend S op growth in the low to mid teens.

Emma: Finally in real estate investments, we expect to improve on 2024 S. O P investment management operating profit will likely be flat with 2024, which benefited from a large incentive fee that will not repeat.

Emma: In the development business, we see continued elevated datacenter activity and has positioned the portfolio to benefit from the secular tailwind with data center site monetization expected to contribute more than half of this year the development profit.

Emma: And so the seasonal distribution of earnings Q1 will once again be our smallest quarter in the air.

Emma: However, the quarter should see core EBITDA increased at a high teens rate and it should contribute a low double digit percentage of our full year core EPS.

Emma: We also expect another strong fourth quarter in 2025, which should account for a similar portion of our full year core EPS as a debt in 2024.

Emma: In addition, we note that our restructuring efforts are largely behind us and we are seeing the benefit of margin expansion across the company as.

Emma: As a reminder, we announced a major efficiency program and Gws in early 2024 to rapidly bring costs in line with revenue. This highly successful initiatives resulted in an increase in one time cash adjustments in 2024 that will not recur in 2025.

Emma: M&A related amortization and integration costs will continue but we are highly focused on minimizing other cash adjustment therefore going into 2025, we expect to meaningfully narrow the delta between our GAAP and core earnings.

Emma: With an improved market backdrop, we are poised to benefit from all the work we've done to create a resilient growth oriented enterprise capable of sustaining double digit growth in 2025 and beyond.

Bob: Now I'll hand, it back to Bob for closing remarks.

Bob: Thank you Emma I'll conclude with some thoughts on our participation in the data center sector for two reasons first we are receiving many questions on this topic given the amount of activity in the sector.

Bob: And second our work with data centers clearly demonstrates how our strategy plays out in practice.

Bob: A foundational element of that strategy is to focus financial and operational resources in areas benefiting from secular tailwind.

Bob: And we have brought this focus to the data center sector growing its contribution to core EBITDA from 3% three years ago to almost 10% in 2024.

Over that time, our total data center profit has increased over two five times.

Bob: Emma commented that our development business is capitalizing on its competency and acquiring improving and monetizing land sites to take advantage of the data center opportunity as a reference point, we did this with industrial land to great effect coming out of the pandemic.

Bob: CBRE participate meaningfully in the data center sector across multiple other lines of business as well, including project management facilities management brokerage and to a lesser degree investment management.

Speaker Change: Turner and Townsend has more than 150 data center projects underway and has completed over 500 of these projects in the last decade.

Speaker Change: Data center revenue for Turner, and Townsend has increased 50% annually in each of the last three years.

Speaker Change: Our facilities management group manages over 700 data centers.

Speaker Change: Within this business, we fortified our technical services capabilities with last year's acquisition of direct line Globe, which serves a large base of hyperscale clients.

Speaker Change: In our advisory business, we arranged $9 billion of sales lease and financing transactions for North American data centers last year.

Speaker Change: While total data center inventory and the market has nearly doubled in the past four years, our data center profit growth has outpaced this market expansion and is poised for continued strong growth.

Speaker Change: With that operator, we'll open the line for questions.

Speaker Change: Thank you we will now be conducting a question and answer session.

Speaker Change: We would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Confirmation tone will indicate your line is in the question queue. You May press Star two is remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.

Speaker Change: One moment, please while we poll for questions.

Operator: Our first question comes from the line of Anthony Powell, along with Jpmorgan. Please proceed with your question.

Anthony Powell: Thank you and good morning.

Anthony Powell: First question relates to capital markets can you talk about just.

Anthony Powell: Your guidance around a more muted sort of recovery there versus kind of what youre seeing right now today trying to understand like if this volatility in rates over the last couple of months is actually.

Anthony Powell: Paused things or if you're just being prudent kind of with the more muted rebound.

Anthony Powell: So.

Tony: Tony Thanks for the question.

Tony: To step back and say when we look at our transaction activity for the year just like we did in 2024, we look at leasing and capital markets combined because we can get to our outlook.

Tony: Across a broad range of scenarios in a broad range.

Tony: A great outlook.

Tony: And then the other comment I want to make on rates specifically in capital market is that this is a much smaller portion of our business.

Tony: What would be implied by the number of questions. We get asked about about this business so moving to capital market specifically, what we saw in Q4 as transaction activity picked up across the board, but were still far below peak levels for 40% of them.

Tony: 2021, and we're not back at 2019 levels.

Tony: We expect to continue to pick up in 2025, we're very early in the year, but in the first six weeks of the year, we're seeing 20% growth in U S sales activity, but.

Tony: But we are being cautious because we don't know that the trajectory of rates will be through the remainder of the year.

Tony: On the financing side, we saw very strong growth in the fourth quarter, we're expecting that to continue and one of the important components of financing is that there's still a tremendous amount of refinancing kind of maturities in 2025, we'll be at the same level of 2024, so that will that will drive our loan origination.

Tony: Among our sales revenue.

Tony: But to tie it all together you've got to think about our leasing and capital markets revenue in combination.

Tony: And as long as the economy remains healthy and it's growing our leasing revenue is going to grow there is upside to our numbers if rates come down more than everyone's expecting at the moment.

Tony: Okay. Thank you. Thanks for that and then if I on that node zoom out a bit for my follow up to just the advisory segment more broadly.

Tony: How much of the growth in S&P that you expect there is from like say revenue versus some margin expansion I'm just trying to understand that.

How much come from Egypt.

Tony: So on the top line.

Tony: We're expecting.

Tony: Low double digit revenue growth and then we're expecting margin expansion on top of that.

Speaker Change: Okay, Yeah, thanks for the color.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Michael Griffin with Citi. Please proceed with your question.

Michael Griffin: Great. Thanks, I appreciate all the color you guys have given on the project management business and the growth opportunity. There, obviously I know theres going to be some integration aspect of the Turner and Townsend part of that business in 2025, but as you as you look ahead to maybe 26 and beyond.

Michael Griffin: Turner and Townsend growth run rate of 20% makes sense for that business because I mean, it seems like there's a pretty large tam there. So maybe how should we think about kind of long term organic growth potential with the integration of that business.

Michael Griffin: Hey, Michael.

Bob: This is Bob.

Speaker Change: We don't expect that business to grow 20% on an enduring basis, but we do expect it to grow in the mid teens.

Speaker Change: Turner and Townsend portfolio of projects and the capabilities that they bring to the table.

Speaker Change: Is in areas that grow faster than what our legacy business gross so they are obviously based on our opening comments very big in data centers are very big in infrastructure.

Speaker Change: Very big in Green energy and in.

Speaker Change: Traditional energy.

Speaker Change: They're very big in manufacturing.

Speaker Change: Except for the areas that have lots of tailwind.

Speaker Change: What our legacy business did was much more focused on.

Speaker Change: Tenant finish projects for.

Speaker Change: Our occupier clients that would be attended to the campuses they have and so forth. We also did some data center work and we also did assume more complex work with Turner and towns is tilted heavily in the <unk>.

Speaker Change: In the areas that are growing more rapidly. So we expect that business combined to grow in the mid teens, the Turner and Townsend piece was growing at closer to 20%, but when you combine the two and turnaround times that leads it we see it as a mid teens grower and we're confident in its ability to do that we also think there'll be some M&A opportunities.

Speaker Change: Come out of that business.

Speaker Change: Yeah.

Speaker Change: Thanks, Bob I appreciate the color there and then I was just kind of want to go back to your comments around your development opportunities. It seems like you're pretty optimistic about the industrial portion of that but.

Speaker Change: If it seems like industrial leasing at least this past quarter was flat sequentially should we take this as youre getting ahead of an expected recovery and should we do you expect an inflection point in fundamentals maybe towards the back half of this year.

Speaker Change: Michael I'm going to take that one.

Speaker Change: Whats happened forever in the development business.

Speaker Change: Is that when the very best time comes around to acquire sites for future development opportunities.

Speaker Change: Uh huh.

Speaker Change: Because there is not going to be big deliveries, because rental rates youre going to recover over the next several years. Many many of the participants in the market go to the sidelines capital sources.

Speaker Change: We're afraid to invest in developers can't.

Speaker Change: Acquire sites and start projects because they can't raise capital I was just at a conference Offsite. This week and there was a lot of talk about that.

Speaker Change: We have a business that because of its track record.

Speaker Change: Can do a good job of raising capital right now, but we also lubricate the raising of third party capital by putting more of our own capital.

Speaker Change: And to those projects at this juncture. So last year, we talked we've talked about it quite a bit.

Speaker Change: On balance sheet capitalized two big portfolios, one office portfolio and one industrial pool portfolio.

Speaker Change: Excuse me one one multifamily portfolio on one industrial portfolio. We think those projects are going to harvest at a time when there is very little new product coming on when rental rates will have been recovered when vacancies are down we believe those projects will create great profit opportunity.

Speaker Change: The stores there are smaller.

Speaker Change: Investments we've made in other projects that we think will have the same dynamics when they harvest, we're going to start 50 projects and Trammell Crow company. This year, we think theyre going to harvest at a great time.

Speaker Change: And Thats really the strategy in that business, we have very seasoned developers theyre very very good at land acquisition, they're very good at land development, which allows us to get land lifts on things like industrial at the right time and data centers at the right time, but we believe that business is positioned to do.

Speaker Change: Very very good things for CBRE as evidenced by Emma's comments that we see $900 million of.

Speaker Change: Embedded profit and what we have underway in the business now.

Speaker Change: Great. That's it for me thanks for the time.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Julian Rubin with Goldman Sachs. Please proceed with your question.

Julian Rubin: Alright, Thank you for taking my question.

Speaker Change: You know there was mention of.

Speaker Change: The investment management division being sort of one of the more underappreciated.

Speaker Change: Parts of the business and where there is maybe the most opportunity I'd love to dig in a little bit on that and also when we sort of think about the guidance for 2025 being flat.

Speaker Change: I guess, just trying to understand what the drivers of that or is it more on the.

Speaker Change: The cost side affecting yes O P growth is it top line is FX, having a meaningful impact just sort of trying to unpick that.

Speaker Change: Julian.

Speaker Change: We think the entire real estate investment segment of our business is underappreciated. It includes Trammell Crow company, our development business I just commented on that.

Speaker Change: Why do we think that our investment management business is underappreciated.

Speaker Change: It's a big business it's.

Speaker Change: <unk>.

Speaker Change: Generated tremendous returns for our clients over the last decade, we have a number of funds that are very high performing funds. The logistics fund here in the U S. A core funded in the U S core fund in Europe.

Speaker Change: You add funds in the U S and Asia.

Speaker Change: Our secondaries fund and the U K all of which has performed have performed extremely well.

Speaker Change: There were other funds that we would like to start that we have not been in a position to start because we didn't feel that we had the experience in our leadership to do that.

Speaker Change: With the changes we've made to our leadership team, bringing Adam Gallo still in to be our chief investment officer, and elevating Andy <unk>, who has been on a rapid rise in his career in that business.

Speaker Change: And with our balance sheet strength that we now have we believe we will be able to do additional funds to fill out holes that we have in our offering right now and we believe we'll be able to scale. The funds that we have in place again by using co investments to attract other capital. We don't think that's fully appreciated in the market and we expect to.

Speaker Change: See a lot of growth come out of that business and our development business over the next several years.

Speaker Change: And I want to just comment on your question around flat year over year.

Speaker Change: Two two components one is.

Speaker Change: Remember that in 2024, we had a large incentive fee and our highly successful.

Speaker Change: U S logistics fund if you remove that incentive fee for 2024, we would be at high teens growth in 2025, which is a great outcome. This early in the recovery.

Speaker Change: The other thing is this is a huge year for we expect us to be a huge year for capital raising and in Rds and.

Speaker Change: In January.

Speaker Change: We expect to raise a near record amount of capital for our investment management business, which will position us very well.

To deliver really strong returns and strong growth in 2026 and beyond.

Speaker Change: That's extremely helpful.

Speaker Change: I guess, maybe turning to share repurchase activity.

Speaker Change: It's been really encouraging the update since the end of the third quarter I guess, just zooming out how how do you think about share repurchase activity fitting into your strategy.

Speaker Change: 25, and how do you see that sort of balancing against the acquisition outlook.

Speaker Change: And sort of opportunities you see out in the market right now.

Speaker Change: Yeah.

Speaker Change: So as you alluded to on our last call.

Speaker Change: We've declared that we believe our shares are significantly undervalued, we still think thats. The case, given the growth trajectory of our business over the near and long term. So we took advantage of that over the past.

Speaker Change: Four five months.

Speaker Change: Moving into 2025 as we've always said, we're going to continue to prioritize M&A.

Speaker Change: We have a strong pipeline, it's very challenging to time M&A.

Speaker Change: Is all about.

Speaker Change: I may have conversion and finding really great businesses that are going to help accelerate our strategy as it will contain a prioritize M&A if we get towards the latter half of the year.

Speaker Change: A number of those don't come to fruition, we'll fill in with buybacks.

Speaker Change: Okay, great. Thank you.

Speaker Change: Yes.

Speaker Change: Thank you Eric.

Speaker Change: Our next question comes from the line of Ronald Camden with Morgan Stanley. Please proceed with your question.

Ronald Camden: Hey, Congrats on a great 2024, just two quick ones if.

Speaker Change: If I look at the.

Speaker Change: Global workplace solutions, so the facilities management and project management.

Speaker Change: It looks like 2024 margin was sort of well above what you guys expect it so I guess I'm curious as you're thinking about forward would love an update on what the pipeline is looking at at this point of the year and what what more opportunities for margin expansion there may be there.

Speaker Change: So.

Speaker Change: There's two components of your question I'll start with the margin piece. So in 2024 and the beginning of the year, you'll recall that we talked about our initiative to rapidly bring our costs in line with revenue in that business and we were highly successful in getting those costs out in 2024 and resulted in <unk>.

Speaker Change: Solid margin expansion for the full year.

Speaker Change: The benefit of those impacts is not has not entirely been realized in 2024. So we'll see continued margin expansion.

Speaker Change: Gws and now the new segment.

Speaker Change: In 2025.

Speaker Change: From a pipeline perspective, our pipeline is very strong.

Speaker Change: Enterprise as I mentioned in my in my remarks that the cross sector technology Health care.

Speaker Change: We're seeing.

Speaker Change: You know a bunch of renewals and then financial services.

Speaker Change: And so we're very optimistic about the organic growth within our enterprise business and then in local we have a really strong pipeline and a lot of growth to come in in the U S market, which as I as we've mentioned a number of times really barely penetrating the U S market and so we expect to continue to see a ton of growth there.

Speaker Change: Great and then my second question, just staying on the building ops and experience.

Speaker Change: Sort of segment and so forth.

Speaker Change: I sort of think about the combination of those businesses just love a little bit more color on.

Speaker Change: Just the competitive dynamics in that business and sort of what CBRE is sort of leg up is as you as you sort of go forward. Thanks.

Speaker Change: Yeah, well, let me start by describing how we think about the opportunity to operate buildings around the world and then talk specifically about what we're doing here and why we combine those businesses first of all we think the opportunity is.

Speaker Change: As defined by the basis commercial real estate buildings that exists around the world now, obviously theres a whole lot less penetration in places like China than there is in places like the U K, but it is an enormous space of buildings and it includes all kinds of asset classes industrial office multifamily hospitals.

Speaker Change: Our houses.

Speaker Change: Manufacturing facilities.

Speaker Change: When you look across that base of assets the management of that base of assets is very very fragmented, even though we manage 7 billion square feet. That's just a small small piece of that portfolio.

Speaker Change: When you manage all those different classes of assets. There is some very common things that go on procurement.

Speaker Change: Building engineering.

Speaker Change: Maybe maintaining records on the maintenance of the building and then responding to the what you find in those records about preventative maintenance accounting for the operations of the building. There is all kinds of commonality, whether you're managing a hospital or a complex warehouse.

Speaker Change: We think by bringing these businesses together that will generate some strong synergies and strong learning.

Speaker Change: Cross for that kind of horizontal element to that portfolio of buildings.

Speaker Change: And we're building on top of that very specific capabilities as as we mentioned in our opening comments. We managed 700 warehouses, we manage a huge number of complex distribution centers around the world a huge amount of office space, We're very very big manager of hospitals, and we have specific expertise.

Speaker Change: On a N a.

Speaker Change: Vertical sense in each of those types of buildings, we think we'll do by bringing this all together is grow our knowledge grow the <unk>.

Speaker Change: Synergies across them be able to scale, our capabilities and by the way AD experience to the mix with industrial and Jamie had dory and really grow that business faster than it has been growing already and it's already been growing well in to the double digits. We also think will end up with a capability that's.

Speaker Change: It's different than has been seen in the market before I would say, it's one of the areas of our <unk>.

Speaker Change: Future for CBRE that were most ambitious about.

Speaker Change: Thanks, so much that's it for me.

Speaker Change: Thank you our.

Speaker Change: Our next question comes from the line of Stephen Sheldon with William Blair. Please proceed with your question.

Speaker Change: Okay.

Stephen Sheldon: Hey, Thanks, I just wanted to follow up on industrial leasing I think you mentioned flat industrial revenue in the fourth quarter and I think that would maybe reflect some stabilization versus prior quarters.

Stephen Sheldon: So specifically I guess, how are you thinking about the outlook for industrial leasing in 2025 and are you seeing early signs of things there.

Stephen Sheldon: Maybe starting to pick up.

Stephen Sheldon: We are expecting to see some pick up this year in industrial leasing not huge there is still some sublease space or underutilized space with the big with the big users of industrial that needs to be worked through out there if that didn't exist. It would the leasing would grow faster, but we are we.

Stephen Sheldon: To see industrial grow in the low single digits. This year, and we expect vacancies to be down by the end of the year.

Stephen Sheldon: New deliveries to be down by the end of the year and so as you get beyond 2025, we expect to see.

Stephen Sheldon: Leasing pick up and by the way the opportunity for delivering new space in the market through our development business to be really strong.

Speaker Change: Got it that's helpful and then on the just as we think about talent within advisory services I guess, how are you kind of managing head count.

Speaker Change: In this environment you know where you are you have you been able to grow capacity grow producer head count you know how much competition is out there for talent at this point of that getting.

Speaker Change: No more elevated or just curious what you're seeing from a top perspective, and how that's playing into your the capacity you have things.

Speaker Change: Things recover.

Speaker Change: There is always competition for talent.

Speaker Change: It's a talent business.

Speaker Change: And there's always competition for talent.

Speaker Change: That discussion comes and goes over the years and you think Oh, my gosh is more competitive than it's ever been before I would say, it's about like it's been before we compete very effectively because particularly given what's happened in the last couple of years.

Speaker Change: Performance of CBRE, the stability of our whole business the prominence of our brand our ability to invest in the business the leadership.

Speaker Change: New advisory CEO Vikram coli brings to the table and his.

Speaker Change: Savi around the technology that supports that business has been helpful to us in attracting people so I would say.

Speaker Change: We've got capacity in that business, we can grow our revenues without adding head count we are likely to add some head count and do some recruiting.

Speaker Change: And you should expect.

Speaker Change: Dynamic surround that recruiting the economics around that recruiting to be about what they've been maybe a little better some of our competitors aren't in a position to be as aggressive as they've been in the past on recruiting so.

Speaker Change: That situation is sorting out pretty nicely for us right now.

Speaker Change: Okay.

Speaker Change: Got it that's helpful Great results.

Speaker Change: Thank you. Our next question comes from the line of.

Steve: Steve sorry.

Speaker Change: Evercore ISI. Please proceed with your question.

Speaker Change: Great. Thanks, and then I guess just in terms of the guidance of the 582 the 610.

Speaker Change: How much of that incorporates sort of the potential $2 billion of of sort of capital deployment that you did in 24, you know if you were to deploy that same amount of 25, meaning our are all incremental buybacks I guess incremental to that earnings or have you factored in some benefits from M&A and or buybacks.

Speaker Change: So the short answer and I want to provide a longer answer. The short answer is there is no incremental buybacks or M&A in that guidance. So anything that we do above what we've already.

Speaker Change: Part of it on will be incremental to our EPS this year.

Speaker Change: Want to talk more broadly about our outlook again it is a wide range, we provided last year.

Speaker Change: I want to provide more context around it so at the midpoint and you look at this outlook. We believe it is very strong.

Speaker Change: If you take out the FX headwind, we're at a high teens EPS growth rate, which is a really strong outcome in a year. When we're early in a recovery, but we're not expecting the acceleration even interest rates dropped to near zero are resilient lines of business in aggregate, we're expecting to grow around 15%.

Speaker Change: <unk>, which is a really fantastic outcome and then there is upside to them.

Speaker Change: Q, what we're expecting so to get towards the higher end of the range.

Speaker Change: More development monetization you can drive that increased sales activity and we're also doing a lot of work around our interest expense. So we're doing a bunch of balance sheet hedging, which I expect should positively impact our EPS in the latter half of the year. The downside would be around the slowdown in the economy, which would drive leasing growth a little bit lower than we're expecting no one.

Speaker Change: Expect that to be the case and so if you step back and you look at our entire outlet we have more confidence that we'll be at the upside the higher end of our range.

Speaker Change: On the downside.

Speaker Change: Oh, great. Thanks for that extra color I guess, I don't know Bob or I am just I was curious on the comments you made about office leasing in the self pay.

Speaker Change: Page, 28% gain in the U S. I guess my question was just more around the volume of improvement versus say doing a short term renewal P. C. B one rate, but a 10 year deal what are the company's got confidence pays you guys a lot more so what's the upside more driven by more volume or just less.

Speaker Change: Of lease or both.

Speaker Change: Well, we saw volume increase Steve across many markets I think.

Speaker Change: I would argue there was a pretty profound shifts in what was going on in office leasing.

Speaker Change: Towards the back half of last year. So it had been a let's call. It a park Avenue phenomenon.

Speaker Change: That was really driving this thing leases in New York Theres Big fees around leases in New York well, what we saw in the back half of the year was pretty strong growth in all of the gateway markets.

Speaker Change: And upward rental pressure in the park Avenue type locations, except for really Boston and San Francisco, We saw strong growth in other markets like Dallas, and Atlanta, and Seattle, and even beyond that in the next tier of cities.

Speaker Change: Minneapolis and Pittsburgh.

Speaker Change: So we saw something different happened, we spent a lot of time with our clients and what our clients. It is their view of their use of office space have kind of stabilized and it wasn't down as far as we thought they were down about 8% per employee we thought it might be settling lower than that and the ones that were certain.

Speaker Change: About how much office space they were going to use suggested it was more likely they would use more rather than less and.

Speaker Change: So I do think.

Speaker Change: We're seeing a little bit of a return to the main post Covid I don't think we're going to go all the way back to where we were in 2019.

Speaker Change: But it also appears based on empirical evidence that we're gonna go further back than we thought we were before.

Speaker Change: So thats really what youre seeing come through our numbers and that's what is causing us to.

Speaker Change: 2025, we do in terms of the growth of the business and that you might want to add to that.

Speaker Change: Specifically to your question around term versus volume.

Speaker Change: It was a mix of all of that rent was like Bob said relatively flat year over year.

Speaker Change: Some increases in New York and other markets.

Speaker Change: From a rent perspective.

Speaker Change: But we saw the big drivers of our average square footage per lease. Thank Gil not increased significantly in the near term, obviously increase as well. So it was a good mix.

Speaker Change: Great. Thanks, that's it for me.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Alex Kramm with UBS. Please proceed with your question.

Alex Kramm: Hey, good morning, everyone. Just I think this was mostly gws or BOE related but can you just remind us about your exposure to the U S. Government I know you thought that the J&J acquisition last year to scale up that business. So with all this talk about dose et cetera, just wondering how you think about any sort of.

Speaker Change: Risk or maybe even near term opportunities as are.

Alex Kramm: All of that that is reviewed.

Alex Kramm: Yeah Alex.

Alex Kramm: Alex we don't have a lot of government exposure.

Alex Kramm: <unk> was a.

Alex Kramm: Important.

Alex Kramm: Acquisition that did give us government exposure, but think about where the exposure was.

Alex Kramm: Hospitals and defense, it's in areas that.

Alex Kramm: We wouldn't expect a lot of downward pressure and more importantly, it's just a little teeny piece of our business that gives us exposure to expand no matter how big the government is very very huge compared to what we're doing with them now so we expect that to be an expansion opportunity. The other the other thing that.

Alex Kramm: It comes to mind quickly in our business.

Alex Kramm: Whenever the government slows down we've got a big business in Washington D. C on the advisory side.

Alex Kramm: We don't own space in Washington D. C. We're doing we're not doing office development in Washington D. C. But we do do a lot of leasing in Washington D. C and so if there's churn in that market because of downsizing or exiting spaces to go into smaller spaces. We think the churn probably will help our busy.

Alex Kramm: Now, it's not going to be big enough that it's going to be a needle mover for our whole company, but that's one of the good sized markets we have in <unk>.

Alex Kramm: We expect some churn there that might be helpful to our business. We just had our all of our <unk>.

Alex Kramm: Advisory local market leaders from around the country in Dallas for a meeting this week and I met with the woman that runs our DC business and she was.

Alex Kramm: She was feeling like the churn might be a good thing for them. So.

Alex Kramm: A lot of uncertainty about what's going to go on there, but we're not concerned that there's going to be any meaningful downward impact on our business anymore.

Alex Kramm: Okay fair enough. Thank you for that.

Speaker Change: And then I understand that capital markets are becoming a smaller and smaller piece of your of your revenue and earnings base, but maybe given that it's the beginning of the year.

Speaker Change: How do you think about the ultimate potential for that business I heard you talk about slightly below 2019, and obviously you're much below 2021, but obviously the economy in your footprint has grown so how what's your latest thought about.

Speaker Change: The ultimate I guess Tam win when we get into a much bigger environment and what's the latest thoughts on how that flows through the bottom line.

Speaker Change: So.

Speaker Change: If you step back and you think about prior recoveries.

Speaker Change: You are talking to what the growth rate should be over the next couple of years because of the recovery.

Speaker Change: We saw strong growth last year like I said, we're seeing on the sales side, 20% growth in the early part of this year.

Speaker Change: That should continue through the first half of this year, but then you get into the second half and you're up against challenging comps and again, we have to remind everyone. We're not seeing a lot of activity like you would see when the economy challenged in rates dropped significantly and none of us expect that to happen this year.

Speaker Change: Could you could see this steady growth continues through this year and next year and we will get it will take a few years to get back to prior peak levels coming out of prior downturns, even when we've had.

Speaker Change: Interest rates dropped significantly its take its taken five years plus to get back to peak levels of <unk>.

Speaker Change: Capital markets activity.

Speaker Change: So once we get back there the steady state growth in that business is around a mid mid to high single digit mid single digit range.

But we have a long way to get we have a good amount of growth until we get back to that that level of growth.

Speaker Change: Good thank you.

Speaker Change: Thank you.

Speaker Change: And our next question comes from the line of Jade Rahmani with K B W.

Speaker Change: Proceed with your question.

Jade Rahmani: Thank you very much I was wondering if you could comment on a few discrete earnings items, including integration cost reduction.

Jade Rahmani: Charges tax rate and share count on the costs and add back side I think those items were around $350 million half of which came in <unk>. So just wondering if that's an ongoing.

Jade Rahmani: Item, if there'll be some increase due to re segmentation second would be tax rates, which came in at 18% and I noticed some tax and audit charges. If there's anything that you would like to mention and finally share repurchase you said 800 million since <unk>, which I think implies.

Jade Rahmani: Most of that was actually so so far in 2025, I estimated around 2 million shares repurchased in <unk>.

Jade Rahmani: If you could comment on those three items. Please thank you.

Jade Rahmani: So starting with the adjustment Jade I provided a good amount of color in my opening remarks.

Jade Rahmani: We announced.

Jade Rahmani: Announced as your as you recall in early 2024 that we were.

Jade Rahmani: Going through a cost reduction initiative within our gws segment to rapidly bring those costs in line with our revenue.

Jade Rahmani: That program was highly successful.

Jade Rahmani: But it is now complete and so going into 2025, so as restructuring costs that you see in our adjustments should largely go away.

Jade Rahmani: M&A integration costs and amortization will of course continue as we continue to do M&A.

Jade Rahmani: But we are very focused on bringing in a one time restructuring costs down to near zero in 2025.

Jade Rahmani: On the tax front, you'll recall that in Q1 2024, we had a large tax benefit.

Jade Rahmani: And for the full year that drove our tax rate below what we typically see 218% in 2025, we expect our tax rate to return to normalized levels of 22%.

Jade Rahmani: On the share repurchase front, we did a $500 million worth of share repurchases in the fourth quarter and the remainder within in January and February.

Jade Rahmani: Okay.

Jade Rahmani: Thanks very much.

Jade Rahmani: Okay.

Jade Rahmani: Yeah.

Jade Rahmani: Thank you we have reached the end of our question and answer session.

Call back over to CEO, Bob slanted with closing remarks.

Jade Rahmani: Thank you everybody and we'll talk to you again when we.

Jade Rahmani: We report first quarter results.

Jade Rahmani: Okay.

Jade Rahmani: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Jade Rahmani: [music].

Jade Rahmani: Yes.

Jade Rahmani: [music].

Jade Rahmani: Okay.

Jade Rahmani: [music].

Jade Rahmani: Yeah.

Jade Rahmani: [music].

Jade Rahmani: Yeah.

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Jade Rahmani: Yeah.

Jade Rahmani: [music].