The operator introduces the Q1 2024 CBRE earnings conference call and reminds participants that the call is being recorded. Brad Burke, Head of Investor Relations and Treasurer, welcomes everyone and provides instructions for accessing the presentation and supplemental materials. He also mentions that the presentation contains forward-looking statements and provides a disclaimer about the risks involved. Bob Sulentic, Chair and CEO, and Emma Giamartino, CFO, are also present on the call. Bob begins by acknowledging the importance of referencing performance relative to expectations during the call.

The company's performance in the first quarter of 2024 exceeded expectations, driven by strong leasing and growth in the Global Workplace Solutions segment. However, property sales were weaker than expected due to higher interest rates. The company is taking action to address cost pressures in the GWS segment and expects them to be mostly mitigated by the end of the year. Overall, the company is confident in achieving core earnings per share in the range of $4.25 to $4.65.

The confidence in the company's performance is due to their strong businesses, cost management, and the fact that advisory services is on track to meet its growth target. The first quarter performance was in line with expectations, with core EBITDA and EPS exceeding expectations. Despite a worsening interest rate outlook, advisory net revenue increased by 3%, with growth in every line of business except property sales. Leasing revenue grew globally, with financial services companies leading the recovery. Property sales revenue declined, but there are signs of recovery in EMEA. The loan origination business saw strong growth despite weak property sales activity.

The company's growth was driven by loan origination fees and escrow income. The remaining businesses also saw growth, with property management expected to lead the way in the future. The GWS segment also saw a 10% increase in net revenue, with strong business wins and commitments for future growth. However, SOP margin on net revenue declined in the quarter due to one-time impacts.

The decline in gross profit margin is due to one-time medical claims and higher costs from investments and expansion. The company is taking action to reduce costs and expects to see improvements in the next quarter. The real estate investment segment's earnings were slightly better than expected due to a large development project. Investment management performance was in line with expectations, but AUM fell slightly. The company expects fundraising to slow down.

The company has seen improved cash flow conversion and expects to generate $1 billion of free cash this year. They are confident in their core EPS range for the year and expect mid-teens SOP growth in their advisory and GWS segments. However, they anticipate a decline in SOP for their REI segment due to higher interest rates. The company is also focusing on cost-cutting measures and expects to generate most of their core EPS in the second half of the year.

The paragraph discusses the 2024 outlook for the company, stating that the midpoint of their expected revenue remains unchanged. However, the path to achieving this revenue has shifted due to stronger leasing and weaker sales. The company remains confident in their ability to meet their earnings outlook and expects a recovery in their property sales and development businesses later in the year. The focus for profit growth in 2024 is now on cost control, and the company believes they can achieve their goals under various economic conditions.

The company expects revenue growth for GWS to be back loaded due to large enterprise contracts being onboarded in the second half of the year. They also anticipate cost reduction in GWS, resulting in margin expansion in the second half. For REI, there may be a slight decline due to uncertainty around monetizations in the development business. However, the corporate segment costs are lower than expected, leading to a higher EPS midpoint. In the second quarter, there may be a decline year-over-year, but EBITDA will not decline from the first quarter. Overall, EBITDA margins are expected to increase for both advisory and GWS, as well as at the consolidated level.

The company's capital allocation strategy includes balancing M&A and share repurchases, with a priority on strategic M&A. In the first quarter, there were no share repurchases due to the J&J deal, but they have since resumed. The company plans to continue repurchasing shares as long as prices remain attractive and they will use their free cash flow annually for deployment.

In this paragraph, Steve Sakwa asks Emma Giamartino about the free cash flow for the year, which was largely affected by the J&J deal. They discuss the limited buyback activities and how this is a fair way to think about it. Bob Sulentic then talks about the transactions side of the business and how the assumption at the beginning of the year was more bullish about interest rates, but now there is uncertainty and it has slowed down activity in their sales and development business. They are waiting for a better environment to sell their assets at the desired pricing.

The speaker discusses the current state of the company's pricing and sentiment, noting that it has changed due to higher interest rates and a stronger economy. They also mention a tax benefit of $50 million in the quarter. When asked about growth opportunities, the speaker highlights project management, outsourcing, and their development and investment management businesses as potential areas for growth.

Emma stated that the company is expecting significant growth in the next few years due to their strong position in the market and recent partnerships. They are confident in their ability to grow in all nine lines of business, with a focus on six global and one domestic leader. They anticipate double-digit growth in the long term. Regarding GWS, the company has a new pipeline, with a portion expected to come from a partnership with J&J. The company is also expecting double-digit growth in regular business. There was a surprise in medical claims and cost controls, and management is unsure of the reason for this.

Jade Rahmani asks for clarification on the $900 million mentioned in regards to the pipeline, wondering if it is in line with previous expectations. Emma Giamartino explains that the $900 million is not new information, but rather the expected growth in net revenue for GWS in the back half of the year. This does not include the expected contribution from J&J, which is estimated to be around $450 million for the year. The $900 million is simply the conversion of the strong pipeline and gives confidence in achieving the revenue forecast for DWS for the year.

The majority of the cost impact has been at the gross profit line due to higher than expected employee medical claims, which the company believes is a temporary issue related to changing healthcare providers. The potential reduction in square footage in the office sector is not seen as a major headwind for the company's growth, as their clients view office space as a critical asset for their operations.

The speaker explains that many companies are considering downsizing their office spaces, but are also upgrading and reconfiguring their offices. This has led to an increase in leasing, particularly in high-end office buildings. The speaker does not believe there will be a significant decline in office leasing, and expects it to grow slightly this year and more next year. In terms of industrial leasing, there may be some choppiness in certain markets, but overall the speaker believes it will not decline and may even see growth in the coming years.

Bob Sulentic, CEO of a real estate company, discusses the leasing trends in the office market. He mentions that there is a focus on higher quality assets and record rental rates in major markets like New York. He also notes that while the tech industry is currently down, it is expected to bounce back and contribute to office leasing. The company's CFO, Emma Giamartino, discusses a $50 million tax benefit in the quarter and clarifies the expected tax rate for the year. She also confirms that the company will not be providing a 2025 outlook, but expects to return to peak earnings growth in that year.

The company is discussing their path to reaching peak earnings in 2025, which they believe is achievable due to continued growth in their lines of business. They also mention that the relationship between rate expectations and transaction markets varies across regions, with an uptick in the US but not in EMEA and APAC. They have seen some activity in distressed debt sales, but it is not a major factor in the market.

The speaker discusses the company's recent activity of selling non-distressed debt portfolios at a slight discount due to concerns about the market. They also mention discontinuing certain initiatives that were not strategically important and were taking attention away from their growing business. The cost problem associated with these initiatives is minimal compared to the overall revenue of the business.

The company's strategy for growth in their business has not changed significantly, despite some recent cost issues. They are currently working on a strategy with their team and have identified areas for potential growth. The cost issues, which primarily relate to medical costs, have affected the bottom line by approximately $15-20 million in a $5.5 billion business. The company is taking aggressive action to address these issues and expects to see improvements in the current quarter.

CBRE has made changes to its services business, resulting in the reporting of those businesses to the Chief Operating Officer and the elimination of a leadership layer at the CEO level. Further actions consistent with this may occur in the future. Chairman and CEO Bob Sulentic thanks participants and concludes the event.

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