CBRE Group Inc

Greetings and welcome to the CBRE Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star or zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Brad Burke, Senior Vice President of Corporate Finance and Investor Relations. Mr. Burke, you may begin.

Thank you and welcome to CBRE's second quarter 2019 earnings conference call. Earlier today, we issued a press release announcing our financial results and it is posted on the investor relations page of our website, CBRE.com, along with a presentation slide deck that you can use to follow along with our prepared remarks, as well as an Excel file that contains additional supplemental materials. Our agenda for this morning's call will be as follows. First, I'll provide an overview of our financial results for the quarter. Next, Bob Slentik, our President and CEO, and Leah Cerns, our CFO, will discuss our second quarter results and 2019 outlook in more detail. After these comments, we'll open up the call for your questions. Before I begin, I'll remind you that this presentation contains forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include our expectations regarding CBRE's future growth momentum, operations, market share, business outlook, capital deployment, acquisition, integration, and financial performance, including our 2019 outlook, and any other statements regarding matters that are not historical fact. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained on this call to reflect subsequent events or circumstances. You should be aware that these statements should be considered estimates only, and certain factors may affect us in the future that could cause actual results to differ materially from those expressed in these forward-looking statements. For full discussion of the risks and other factors that may impact these forward-looking statements, please refer to this morning's earnings press release and our most recent annual and quarterly reports filed on Form 10-K and Form 10-Q, respectively. We have provided reconciliations of adjusted EPS, adjusted EBITDA, and fee revenue, and certain other non-GAAP financial measures included in our remarks to the most directly comparable GAAP measures, together with explanations of these measures in the appendix of the presentation slide deck. Now, please turn to slide four of our presentation, which highlights our financial results for the second quarter of 2019. Second quarter adjusted earnings per share increased 11% over the prior year, driven by our two services segments, advisory services and global workplace solutions, which together logged 12% fee revenue growth and 18% adjusted EBITDA growth. Revenue growth in the quarter was broad-based as every line of business within both of these segments increased over the prior year. In addition, adjusted EBITDA margins on fee revenue increased solidly in both our advisory and global workplace solution segments, expanding by 90 basis points on a combined basis. Meanwhile, adjusted EBITDA in our real estate investment segment declined as expected from the prior year due to the timing of development dispositions and, to a lesser extent, the costs associated with starting up HANA, our flexible space offering. Gains from our development business can vary due to the timing of a project disposition, and last year we harvested gains from several significant projects during the second quarter. Now, for an update on our business fundamentals, I will turn the call over to Bob.

Thank you, Brad, and good morning, everyone. As Brad just noted, we reported another quarter of strong growth for CBRE with double-digit revenue increases in our leasing, occupier outsourcing, and U.S. capital markets businesses. In addition, the impact of our reorganization, which we announced last year, is driving margin improvement in our advisory services and outsourcing businesses. Cost efficiency was one of the key objectives of this change. The continued strength in our leasing business is notable, as lease revenue growth has averaged 20% over the past five quarters. While we have benefited from a healthy leasing market, our strong performance also reflects our increasingly differentiated capabilities. This is demonstrated by our success in winning new account-based business because of our ability to integrate advisory and transaction solutions in a single offering and to execute at a high level across markets. During the quarter, U.S. account-based leasing revenue increased 31 percent from the prior year. Large and sophisticated occupiers are asking CBRE for consultation and workplace design deep expertise in industry sectors, and a full suite of digital capabilities. And they want us to bring it all together with the top brokerage talent in the market. No firm in our industry is able to match the scale and capabilities of CBRE's leasing business. As a result, when CBRE competes for new account-based leasing mandates, more often than not, we win that business. Now I'd like to welcome Leah Stearns to her first earnings call as our Chief Financial Officer. We're extremely excited about the deep financial and operational background she brings to CBRE. Leah has already had a positive impact, and we know she will be a valued contributor to our senior leadership team.