CBRE Group Inc

Greetings and welcome to CBRE's Q4 2020 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kristen Faramand, Vice President of Investor Relations and Corporate Finance. Please go ahead.

Good morning, everyone, and welcome to CBRE's fourth quarter 2020 earnings conference call. Earlier today, we issued a press release announcing our financial results, which 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 Cilentic, our President and CEO, and Leah Stearns, our CFO, will discuss our fourth quarter results and expectations for the future. After their comments, we'll open up the call for 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 prospects, including 2021 outlook and multi-year growth framework, operations, market share, capital deployment, financial performance, including profitability, margins, and the effects of both cost savings initiatives and COVID-19 and the integration and performance of acquisitions and any other statements regarding matters that are not historical facts. 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 and 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 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, fee revenue, certain other non-GAAP financial measures included in our remarks to the most directly comparable GAAP measures, together with explanation of these measures in the appendix of the presentation slide deck. Now, please turn to slide four, which highlights our fourth quarter 2020 and full-year financial results. During the fourth quarter, total revenue and fee revenue fell about 3% and 7%, respectively, driven by constrained transaction activity and advisory services. Lower revenue was more than offset by prudent cost management and the continued benefit of transformation initiatives that improved both our cost structure and operational agility. Overall, adjusted EPS grew nearly 10% to 145. GAAP EPS of 93 cents includes around 28 cents of transformation initiative costs. Importantly, GAAP EPS in the prior year fourth quarter included a 67-cent tax benefit, primarily from legal entity restructuring. Excluding these unusual items in both periods, GAAP EPS would have been up slightly compared with the fourth quarter of 2019. Now for insights on results in our longer-term strategy, please turn to slide six as I turn the call over to Bob.

Thanks, Kristen, and good morning, everyone. As you've seen, we ended 2020 on a high note with adjusted EPS for the quarter reaching an all-time high and adjusted EBITDA growing 9%. This capped a year of significant challenges stemming from COVID, but also one that brought to the forefront CBRE's competitive advantages, our ability to capture often overlooked industry opportunities, and the resiliency we've built into the business over the past decade. This resilience has allowed us to offset the steep decline in sales and lease transactions and the pandemic's unique effects on the office market. Today, CBRE is more diversified than ever before across four key dimensions. Property types, lines of business, geographic markets, and clients. A few examples will bring definition to this. While office remains an important property type for us, its negative effects have been tempered by our large and growing presence in industrial data centers and multifamily. Leasing is a key line of business for us that has been under pressure. However, other lines of business such as GSE financing, investment management, and facilities management have all continued to grow. Geographically, New York, London, and San Francisco are key markets for us, but our presence in Asia is robust and growing, and our significant activity in Europe and second tier U.S. markets has held up relatively well. We serve many clients that have been negatively impacted by COVID, but do a huge amount of business with technology, life science, and other clients that have thrived over the past year. Reflecting how large companies increasingly rely on CBRE, nearly 90% of our 100 largest clients purchased four or more services in 2020, up from less than a quarter a decade ago. Our broad diversification across these four key dimensions has served us well compared with prior downturns. Adjusted EPS fell 12% in 2020. We expect earnings to rise to near peak profitability this year, the second year of the downturn and continue up from there. By comparison, during the great financial crisis, we suffered a more than 80% peak to trough decline and adjusted earnings per share did not return to the prior peak for eight years. We're exiting the worst of the COVID crisis in great shape. Our strengths include a leaner operating structure, significant financial capacity, and a strategy squarely aimed at the many opportunities unfolding in our industry, including those with secular tailwinds. We've built our long-term plan on the assumption that office demand remains under pressure due to a lasting increase in remote working and occupiers' need for greater flexibility in space obligations. This is reflected in our base case forecast, which nevertheless expects us to achieve a minimum of low double-digit average annual adjusted EPS growth through at least 2025, absent a recession. This forecast is driven by organic growth and deploying capital, notably in M&A and real estate investments, with meaningful upside potential from additional capital deployment. We expect to achieve this strong growth while continuing to evolve our business as we reduce contributions from lower secular growth business lines and increase our focus on areas that have higher secular growth profiles. One growth area we are particularly high on is flexible office space. We identified this sector as an opportunity three years ago and have been building our HANA business expressly to meet rapidly rising demand from occupiers and investors. Our investment in Industrious now aligns us with an exceptional operator and outstanding leadership team that is executing a great strategy. With more than 100 units in 50 markets, Industrious enables us to participate in the flex space opportunity at scale and contribute meaningfully to Industrious' expansion. Now, Leah will discuss the quarter and our outlook for 2021. Thanks, Bob.