CBRE Group Inc

Greetings and welcome to CBRE's first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Brad Burke, Senior Vice President of Investor Relations and Strategic Finance. Thank you, Brad. You may begin.

Good morning, everyone, and welcome to CBRE's first quarter 2023 earnings conference call. Earlier today, we posted a presentation deck on our website that you can use to follow along with our prepared remarks in an Excel file that contains additional supplemental materials. Before we kick off today's call, I'll remind you that today's presentation contains forward-looking statements, including, without limitation, statements concerning our earnings outlook, Forward-looking statements are predictions, projections, or other statements about future events. These statements involve risks and uncertainties that may cause actual results and trends to differ materially from those projected. 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 SEC filings. We have provided reconciliations of the non-GAAP financial measures discussed on our call to the most directly comparable GAAP measures together with explanations of these measures in our presentation deck appendix. I'm joined on today's call by Bob Selentik, our president and CEO, and Emma Giammartino, our chief financial officer. Now, please turn to slide five as I turn the call over to Bob.

Thank you, Brad, and good morning, everyone. Our first quarter results were slightly better than we expected going into the year, but still down significantly from last year's strong first quarter. Our performance relative to our expectations was led by the cyclically resilient elements of our business and our cost management efforts, which more than offset a greater than expected decline in property sales. The elements of our business that are cyclically resilient include our entire GWS business, loan servicing, property management, valuations, and asset management fees from our investment management business. Combined, these businesses saw revenue increase nearly 10% during the first quarter and are expected to count for more than 50% of our business segment operating profit for the year, a record high. With this increased diversification, our business is more resilient, but current conditions are difficult for capital markets and getting more difficult for leasing. There are three major reasons for these difficulties. First, inflation, elevated interest rates, and the likelihood of a recession. Second, banking system stress, and third, issues specific to the return to office and office utilization. I'll address each of these. We are aligned with the consensus view that the economy will tip into a recession later this year. We believe it will be a moderate recession and that an eventual easing of the Fed's monetary policy will spur a rebound in economic activity in 2024. The comments Emma and I make today and our responses to questions will be shaped by that view. The high-profile regional bank failures last month have further constrained lending. However, we are not in another global financial crisis when all debt capital sources contracted simultaneously. Regional banks are still lending to commercial real estate, but on a much more selective basis. We expect the regional bank pullback to be partly offset by other capital sources, including the GSEs, debt funds, and private capital sources. Looking at the office market, we estimate it will take this asset class twice as long to recover the lost value as it did in the aftermath of the global financial crisis. This reflects the formidable challenges facing office assets, driven by both the slow progress in employees returning to the office and the shedding of jobs in tech and other sectors. Ultimately, we believe that office portfolios will shrink meaningfully from where they were prior to the pandemic, making offices smaller but still very large commercial real estate asset class. Even with these legitimate concerns in mind, we believe sentiment has deteriorated more than the fundamentals that underpin our business. This pattern is typical with commercial real estate investors and occupiers, becoming overly bearish in anticipation of and during early stages of a down cycle. It is our view that debt costs and cap rates are likely near their peak and should gradually improve starting later this year, driving a turnaround that will significantly impact 2024 performance. To expand on my earlier remarks regarding the growing resilience in our business, our global workplace solutions segment, which generated more than $900 million of segment operating profit over the past 12 months, is expected to grow by double digits this year. In total, our cyclically resilient business lines, including GWS, produced approximately $1.5 billion of segment operating profit over the past 12 months, and we expect them to grow in aggregate by high single digits this year. It's also important to note that we have become much less dependent on office properties, which accounted for just 14% of US property sales revenue in 2022. Other asset classes where we have large businesses will be more resilient. For instance, we expect valuations for industrial and multifamily to fully recover in two to three years, less than half the time it took coming out of the global financial crisis. Although we anticipate pressure on our transactional businesses to intensify further this year, we are maintaining our earnings outlook for full year 2023. Emma will discuss this in detail during her remarks. Emma?