CBRE Group Inc

Greetings and welcome to CBRE's Q4 2021 ONIX conference call. At this time, all participants are in listen-only mode. Our 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. As a reminder, this conference is being recorded. I'd now like to turn over the conference to your host, Christine Firemont, Senior Vice President of Investor Relations and Strategic Finance, CBRE. Ma'am, please go ahead.

Good morning, everyone, and welcome to CBRE's fourth 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. Before we kick off today's call, 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 our 2022 qualitative outlook, and multiyear growth framework, operations, market share, capital deployment strategy, and share repurchases, M&A and investment activity, the performance of existing investments, financial performance, including cash flow, profitability, expenses, margins, adjusted EPS, core adjusted EPS, and the effects of the COVID-19 pandemic. the integration and performance of acquisitions and other transactions 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 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 Core Adjusted EPS, 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. Our agenda for this morning's call will be as follows. First, I'll provide an overview of our new financial metrics. Next, Bob Cilentic, our President and CEO, will discuss initiatives that support our four-dimension diversification strategy. Then Emma Giammartino, our Chief Financial and Investment Officer, will discuss the quarter in detail, our capital deployment strategy, our initial qualitative 2022 outlook, and our updated multi-year growth framework. Then we'll open up the call for questions. As you can see on slide five, the fourth quarter completed a strong and transformative year for CBRE. We made strategic investments in Turner & Townsend and Industrious, and saw significant gains from strategic non-core investments made through our SPAC and in venture capital funds. Due to our controlling interest that results from our 60% ownership stake in Turner & Townsend, we fully consolidate Turner & Townsend's financials, including their balance sheet. We will focus our commentary on consolidated performance inclusive of non-controlling interest, and we will use consolidated adjusted EBITDA for our net leverage calculations. To give more transparency to our investors, we are introducing a new earnings metric called Core Adjusted EPS this quarter. Core Adjusted EPS excludes the impact of strategic non-core, non-controlling investments that are not attributable to a business segment. These had an immaterial impact prior to 2021. These investments are a small part of our portfolio, but there is likely to be considerable volatility in their fair values, particularly for Altus Power. the largest of our investments, now trading on the New York Stock Exchange. We believe this new metric will help investors better assess the underlying performance of our core business. Starting in Q1, we will also present strategic non-core investments and corporate overhead separately, which today are combined. We believe this incremental transparency will help investors assess the level of corporate overhead and the performance of these non-core investments. We've also enhanced our presentation today to help provide greater insight into our performance. As a result, the slides accompanying our remarks are different from previous quarters and focus on the most significant drivers to our consolidated results for revenue, adjusted EBITDA, and earnings. The segment-specific slides we've presented in previous quarters are included in an appendix as are some slides from our research team detailing the long-term historical relationship between real estate and inflation that we believe investors will find topical. With that, please turn to slide seven as Bob provides insight into our strategy. Bob?

Thank you, Kristen, and good morning, everyone. As you've seen, we had a strong finish to 2021, significantly outperforming both Q4 2020 and the pre-pandemic peak in Q4 2019. This capped an outstanding year for CBRE with all key financial benchmarks reaching new all-time highs for the company. We certainly benefited from a supportive macro environment in 2021. Beyond that, our strong financial performance is the product of our longstanding work to strengthen our balance sheet and improve the resiliency of our income statement as well as our successful efforts over the past several years to diversify our business across four dimensions, asset types, lines of business, clients, and geographies. We have described our diversification efforts in detail in recent quarters, highlighting how it has positioned CBRE to benefit significantly from secular tailwinds. Prime examples of this are our investments in Turner & Townsend, a project manager that enhances our green energy and infrastructure capabilities, and Industrious, a leading asset-light player in the growing flex space market. In our real estate investment segment, we are now executing a strategy to realize positive synergies between our development and investment management businesses with support from our strong balance sheet. So far, this effort has focused on industrial and logistics assets which are benefiting from long-term secular trends. Our research team projects that global e-commerce sales will rise to approximately $3.9 trillion by 2025, requiring an additional 1.5 billion square feet of distribution space. Specifically, we are placing development projects into investment programs run by CBRE Investment Management, essentially converting portions of our more than $18 billion in-process development portfolio into investment management AUM. This strategy also capitalizes on our industrial investment sales and property management expertise. At the same time, we are further building AUM in our industrial and logistics strategy by supporting CBRE Investment Management's acquisition of large portfolios of operating assets. The most recent example is the agreement to acquire a $4.9 billion portfolio of U.S. and European logistics assets from Hillwood. Our balance sheet provided a backstop for portions of this portfolio which enabled our team to move quickly to secure a highly desirable set of assets. We plan to replicate this model for other secularly favored asset types, including multifamily and life sciences, and expect our integrated investor-operator-developer model will generate material incremental recurring revenues and earnings for years to come. Reflecting our strong 2021 performance and the substantial opportunities we see in front of us, we are increasing our multi-year aspirational growth framework. For the period from 2020 to 2025, we now expect our average annual core adjusted EPS growth to exceed 20%, barring an economic disruption from geopolitical or other events which we are watching closely. This is up from the low double-digit growth expectation we set a year ago. The average annual growth rate is expected to be in the low double digits for the prospective period from 2021 to 2025. We believe there is potential upside to our expected growth rates for both periods through incremental capital deployment. Emma will walk you through this in detail after she reviews the quarter. Emma?