The operator introduces the CBRE Group Inc. Q3 2023 Earnings Conference Call and introduces the host, Brad Burke. The host reminds listeners that the conference is being recorded and directs them to the presentation deck and supplemental materials. He also cautions listeners about forward-looking statements and provides reconciliations of non-GAAP financial measures. The CEO, Bob Sulentic, then begins his remarks by discussing the decline in commercial real estate capital markets and its impact on property sales and debt financing activity, leading to a decrease in core EPS.

The decline in the company's performance was worsened by delays in selling development assets due to unfavorable market conditions. However, their resilient businesses, particularly Global Workplace Solutions, saw solid growth. Interest rates have significantly increased, affecting the capital markets recovery and property prices. The company believes the market won't rebound until interest rates have peaked and credit is more readily available. Despite these challenges, the company has identified opportunities for investment and expects to continue deploying capital, especially in co-investments during the depressed market. Due to ongoing difficulties in the real estate capital markets, the company has lowered their expectations for core EPS in 2023. This decrease is mainly attributed to their interest rate sensitive businesses.

CBRE's Advisory Services segment experienced a decline in net revenue and SOP in the third quarter of the year. APAC showed the best performance, while EMEA and the Americas saw declines in revenue. Property sales were the most affected, with a decrease of 38%, especially in EMEA. Office sales had the least severe decline, while industrial and multifamily sales were limited to certain types of properties. Commercial mortgage origination revenue also decreased, but was offset by business with the GSEs. Leasing revenue declined by 16%.

The article discusses the revenue growth and performance of the advisory and GWS segments in several regions, including APAC, EMEA, and the Americas. While there was significant growth in APAC, economic uncertainty in other regions led to lower revenue. The GWS segment had a strong quarter, with growth in facilities management, project management, and several industry sectors. Investment in the U.S. local business and expansion of Turner & Townsend project management contributed to this growth. The GWS pipeline also reached a new record, with a significant portion coming from first-generation outsourcing clients.

The increase in first-generation pursuits reflects the company's focus on reducing occupancy costs in the current economic climate. The pipeline is filled with clients looking to expand their services with CBRE or switch to CBRE as their service provider. Margins improved in Q3 and are expected to continue to expand. The REI segment saw a decline in operating profit due to negative marks in the co-investment portfolio and lower incentive fees. AUM declined due to lower property valuations and negative currency effects, but the company has committed a record amount of co-investment capital to higher return strategies. Development results were below expectations due to deals being pushed back to 2024.

The company's operating costs have increased due to project fees, and they expect this trend to continue. Their development portfolio has remained flat, but they have refined their definition to include only projects that have started construction. The process of selling development projects has been slow due to cautious buyers, which may impact pricing in the future. However, this challenging environment also presents opportunities for the company to secure assets that will lead to future profits. They have invested over $150 million in development projects and are also evaluating potential M&A opportunities, but are being cautious and thorough due to the current economic climate.

The company has chosen not to pursue certain deals due to pricing gaps with sellers and has instead focused on share repurchases. They remain committed to maintaining a strong balance sheet and are implementing cost reductions to improve cash flow. They expect a decline in core EPS for the full year.

The company expects double-digit revenue and SOP growth in their GWS segment, but this will be offset by declines in the advisory and REI segments due to capital markets. They anticipate a recovery in transaction activity, but it will take longer than expected. The company believes this year will be the trough for earnings but expects meaningful growth next year. However, a return to record earnings may be delayed. The hesitancy in leasing decisions by occupiers has been happening for a while and is expected to continue into next year due to uncertainty around the cost of capital.

The speaker believes that leasing will recover in the second half of next year, as industrial users start to lease space again after burning through their excess inventory. They also mention that they are looking at potential M&A deals in resilient and cyclical areas, but pricing has become more challenging due to increasing interest rates.

The speaker discusses the need for seller prices to come down in order to execute deals and mentions that the company's resilient lines of business are expected to generate $1.6 billion in SOP and grow in the low double-digit range in the future. The speaker also confirms that GWS specifically is expected to grow in the mid-double-digit range and continue growing in the future. In regards to share buybacks, the company plans to stick with their previous estimate of $600 million for the back half of the year. The speaker also mentions that there is a focus on the sales environment and a potential second half recovery.

The uncertainty surrounding interest rates and the expectation of a 5-10% decline in asset values are the main factors driving people's hesitation to trade. However, the assets are real and there are buyers with a significant amount of capital waiting to make trades once these issues are resolved. The tax rate in the quarter was lower than expected due to a one-time tax planning benefit.

The company is expecting a tax rate of about 21% for the full year, with a rate of 20% in Q3 excluding a benefit. Leasing in the office, industrial, and retail sectors is uncertain, but the company believes that demand for premium office space will continue and industrial activity will pick up in the second half of next year. The company also believes that the cost-saving opportunities in GWS will help sustain double-digit growth, even in a slowing economy.

The speaker discusses the importance of cost-saving measures in the real estate facilities business and how it can offset any slowdown in capital expenditures. They also mention the growth potential of their project management business in improving office space for clients. They have taken into account current interest rates in their underwriting for future projects and asset sales.

The speaker discusses the factors that will drive the sale of assets, such as stabilization of interest rates and the belief that values have bottomed out. They predict that this will happen in the second half of next year and that prices may decrease by 10%. They then answer a question about revenue trends in office and industrial leasing, stating that office leasing is in line with expectations while industrial leasing is slightly below. They also mention that their investments in IM and development are increasing.

Bob Sulentic discusses the current real estate market and the opportunities it presents for investments. He explains that in times like this, development opportunities arise due to landholders being unable to develop their land. With their strong balance sheet and network of developers, the company is able to identify and secure these valuable land sites. They plan to focus on multifamily and industrial properties, while also looking at value add and opportunistic investments through their UK-based fund.

The company has three value-add businesses in different regions of the world that provide co-investment opportunities for their next fund. They have invested $370 million year-to-date and are well positioned to continue investing. In a higher interest rate environment, there is movement towards cash and secured debt, but there is still a lot of capital on the sidelines waiting to get into commercial real estate. There is also an increasing interest in longer-term and higher-risk investments, such as development and opportunistic investments.

In the paragraph, Emma Giamartino discusses the potential impact of an economic slowdown on leasing revenues in 2024. She states that while there may be some decline, it is not expected to be greater than what was seen in the current year. She also mentions that the company is confident in its GWS business delivering double-digit growth in the next few years, and even if there is a slight decline in leasing, they still have a path to growth. The next question from Alex Kramm asks for more specific outlooks by segment for the fourth quarter, to which Giamartino responds that they are unable to provide specific guidance, but the company remains confident in its growth potential.

The company expects to see low-double digit growth in GWS for the full year, while advisory is projected to decline by 30% and REI by over 50%. The reduced outlook for the year is attributed to factors such as capital markets and development. The company believes there is a reasonable path to reaching a record year by 2025, even if there is no sharp recovery in the near future. This is due to the resilience of their business lines, including GWS, property management, investment management fees, valuations, and loan servicing, which together make up $1.6 billion in SOP and are expected to grow at a low-double digit rate over the next 2 years.

The speaker discusses the company's transactional lines of business and how they only need to reach 2019 levels for record earnings. They also mention a large and growing pipeline for their GWS business, with about 50% new clients and 50% existing clients. They estimate that only 30% of the overall market is currently outsourced, leaving 70% as potential white space for the company.

CBRE's outlook for the commercial real estate market has shifted due to the longer timeline for interest rates to decrease and debt to become available for transactions. They now expect a slower recovery, with transactions not returning until the second half of next year. The advisory business in Japan has been a strong performer, likely due to their established presence in the market.

The company has become more recognized as an intermediary and has focused on expanding its presence in Japan. This has resulted in Japan becoming the second most profitable market for advisory business. The company's return to the office in Asia and the Pacific is ahead of other regions. On the topic of M&A, the company is focused on investment management and considers infrastructure as a potential new business line. The company's corporate development team works with leaders across the business to seek out opportunities for enhancing their client offering.

The company has recently announced a new addition to their capital markets business and has expressed interest in investment management, GWS, advisory, and development. However, they are being disciplined in their acquisitions due to slow movement in M&A pricing. They have a small but growing infrastructure investment management business and a significant infrastructure business through the Turner & Townsend acquisition, which is well positioned in various global geographies.

The company has a strong focus on sustainability and has a growing infrastructure profile. The CEO thanks everyone for participating and looks forward to the next earnings announcement.

This summary was generated with AI and may contain some inaccuracies.