CBRE Group Inc

Greetings. Welcome to CBRE's Q1 2021 earnings 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 zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Kristen Saramand. Ms. Saramand, you may begin.

Good morning, everyone, and welcome to CBRE's first quarter 2021 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 quarterly results and updated 2021 qualitative outlook. 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 CVRE's future growth prospects, including 2021 qualitative outlook and multiyear growth framework, operations, market share, capital deployment strategy and share repurchases, M&A and investment activity, financial performance, including profitability, expenses, margins, adjusted EPS, and the effects of both cost savings initiatives and the COVID-19 pandemic, 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 a 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, net 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. Before we discuss the quarter, I'll briefly outline a few changes to our financial reporting, which are summarized in our earnings release as well. First, we now report all project management revenue in our GWS segment. Previously, a portion of our project management revenue was reported in the advisory segment. Next, all sales and leasing revenue is now reported in the advisory segment. We will no longer report sales and leasing revenue from GWS clients in the GWS segment. Including all sales and leasing revenue in the advisory segment paints a more complete picture of transactional trends in our business. We have also established a fourth business segment where we will report corporate overhead expense and other financial impacts that are not specific to one of our three existing operational segments. This will provide greater transparency into our cost structure. Due to this change, we will be utilizing segment operating profits to evaluate the profitability of our operating segments, which excludes the impact of corporate overhead. Additionally, we will replace our fee revenue metric with net revenue to account for the impact of pass-through reimbursement revenue. Net revenue will only exclude reimbursement revenue that does not generate a margin for CBRE. We believe this will provide a clear view of our profitability profile, particularly in our TWS business. For this quarter, we have provided a bridge for our legacy and revised financial metrics and our quarterly supplemental posted to the investor relations section of our website. Going forward, we will only be reporting these updated financial metrics. Now, please turn to slide four, which highlights our first quarter 2021 results. Total revenue grew about 1% to a new first quarter record of over $5.9 billion, while net revenue fell 2%, reflecting continued constrained transaction activity in advisory services. The quarter saw tangible benefit from both last year's transformation initiative, which has improved our cost structure and operational agility, and higher OMSR gains. In total, our adjusted EBITDA margin expanded about 200 basis points, rising to 14.6% in line with our first quarter 2019 margin. Overall, adjusted EPS grew 15% to 86 cents, while GAAP EPS rose 55% to 78 cents. Importantly, GAAP DPS in the prior year first quarter included a $0.17 headwind from an asset impairment, which was in part related to the onset of the pandemic. The impairment was not included in adjusted DPS last year. Additionally, this quarter includes an $0.11 benefit from venture fund investment gains and an accounting methodology change within our investment management business. Excluding unusual items in both periods, EPS was roughly flat with first quarter 2020 on an adjusted and gap basis. Now for deeper insights, please turn to slide six as I turn the call over to Bob.

Thanks, Kristen, and good morning, everyone. CBRE is off to a strong start in 2021. Our performance is being propelled by our longstanding efforts to diversify our business across four key dimensions. property types, lines of business, geographic markets, and client types. Last quarter, we described in detail how this diversification has enhanced the resiliency of our business. This played out in several ways during the first quarter. Geographically, while activity in some markets, notably the Americas, remained muted, we saw solid growth in the United Kingdom, parts of continental Europe, Australia, Southeast Asia, and Greater China. Among business lines, mortgage origination and loan servicing, valuations, investment management, and facilities management flog solid growth, offsetting a continued tepid sales and leasing environment. Industrial and data centers remain preferred property types. Our work in both property types grew robustly in the quarter, fueled by booming demand for e-commerce and cloud-based services. Growth in these resilient property types helped to compensate for continued pressure on other property types, particularly office. Our client base is well diversified across the economy. In a quarter when activity with clients in some industries was down from a year ago, we saw particular strength and our work for life sciences and industrial and logistics companies, among others. The broad diversification of our business, coupled with decisive actions in 2020 to reset our cost structure, underpinned our earnings growth for the quarter, and we expect to see continued benefits in the quarters and years ahead. For four-year 2021, We now expect adjusted earnings per share to meaningfully surpass 2019's peak level, with potential upside from discretionary capital deployment. Notably, our outlook for 2021 and beyond envisions strong growth, even with continued pressure on the office market. Clearly, that pressure remains very acute right now, particularly in densely populated gateway cities, and will remain challenging for some time to come. However, we strongly believe the pressures on office will recede from today's extreme levels as vaccine rollouts continue and companies settle into new normal work regimes. We expect our growth to be enhanced by capital deployment that is focused on sectors and business lines that are positioned to benefit significantly from secular growth trends. You saw evidence of this with our investment in Industrious in the first quarter, which positions us to participate in the rising demand for flexible space solutions. And you can expect to see more evidence of it in future partnerships, sponsorships, and M&A activity. Now Leah will tell you more about the quarter, our outlook, and our capital deployment strategy. Leah?