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CBRE Group, Inc.
CEO : Mr. Robert E. Sulentic

Quarterly earnings growth(YoY,%)

Period	Revenue	Operating Income	EPS	Release Date
2023 Q4	-4.2% YoY	-54.9%	-87.9%	2023-02-23

Emma Giamartino says,

Advisory Segment Results

• Advisory net revenue and SOPs declined by 21% and 33% respectively, driven by a slightly more pronounced decline in our higher margin transactional businesses than originally expected.
• Leasing revenue was down 7% both globally and in the Americas, a slightly bigger decline than expected with a notable slowdown in office activity in New York, Boston, San Francisco, and Seattle.
• Mid single digit revenue decline expected in advisory segment in 2023 driven by growth in more resilient lines of business offset by a mid to high single digit decline in leasing and mid-teens decline in property sales. SOP expected to decline by high single digits to low double digits.

GWS Segment Results

• GWS net revenue grew by 13%, with half of that increase coming from organic revenue growth.
• Turner & Townsend continued to grow impressively, exceeding original underwriting. 94% of 2022 client contracts coming up for renewal were renewed, often with increased scope of our client relationships.
• Low double-digit new revenue and SOP growth expected in GWS segment in 2023, with margins increasing slightly as cost savings more than offset inflation and incremental investment to support growth.

REI Segment Results

• REI SOP declined to just $17 million in Q4 against an unusually strong prior year comparison. Lower SOP in U.S. development reflects the timing of asset dispositions, which were heavily weighted to this year’s first half, consistent with our expectations going into the year.
• Within our TCC development business, we expect SOP of just over 1% of our nearly $17 billion in-process portfolio.
• Mid $300 million range expected for SOP in REI segment in 2023, with roughly equal contributions from development and investment management.

2023 Outlook

• Macroeconomic assumptions for 2023 include a short, moderate recession in the U.S., unemployment increasing to near 5%, inflation ending the year above the Fed’s 2% target but clearly trending down, and 10-year U.S. treasury yields ending the year under 3.5%.
• Core EBITDA and EPS expected to decline by high single digits and low to mid double digits respectively versus 2022.
• $400 million cost containment program embedded in guidance, with expected cost benefit of approximately $300 million in 2023 and the remainder in 2024.

Capital Allocation and 2025 Financial Guidance

• Modest use of capital anticipated, but strong appetite for M&A and share repurchase.
• Target for core EPS growth between $8 and $9 by year-end 2025 likely to slip by 12 to 18 months due to real estate transaction downturn.
• 2025 targets established on the basis that there would not be a recession following the COVID recovery.

Bob Sulentic says,

Q4 2022 Earnings Report Highlights

• Reported core EPS of $1.33 for Q4 2022.
• Full-year core EPS grew 7% to $5.69 despite the challenging macro environment.
• Cyclically resilient and secularly favored businesses grew revenue more than expected.
• Transactional revenue declined more than expected.
• Made share repurchases, infill M&A, and strategic investments totaling approximately $2.1 billion during the year.

Macro Environment and Industry Outlook

• Cap rates are up 100 to 150 basis points, which are expected to expand another 25 basis points or so before peaking, likely in Q2.
• Asset re-pricing is beginning to occur, helped along by the narrowing of spreads.
• Expect multi-family and industrial fundamentals to remain strong, albeit with occupancy declining slightly from peak levels.
• Office will remain the most challenged property type as occupancy is not expected to come close to pre-pandemic levels in the short term.
• Significant sales and leasing weakness expected in the first half before adverse conditions begin to ease later in 2023.
• Europe and Asia Pacific expected to outperform the Americas in 2023.
• Expect core EPS to decline by low to mid double digits in 2023, but still be the third-highest in CBRE’s history.
• 2023 will be a transition year, and strong core EPS growth is expected in 2024, exceeding the 2022 peak and reaching a record level in just the first year after a recession.

Q & A sessions,

Capital Allocation

• The company is evaluating whether buybacks or M&A would drive a greater long-term return for the company.
• The company repurchased almost $2 billion worth of shares in 2022, and they will continue to evaluate whether to continue buybacks or do a larger transformational acquisition.
• The company is willing to go up to two times leverage for a transformational deal.
• The company wants to end the year net leverage neutral but is willing to go above that for buybacks.

Fire Safety Act

• The U.K. has put in a fire safety act requiring home builders who have built a building over a certain size over the past 30 years to bring those buildings up to the current fire safety standard.
• The company and all other homebuilders in the U.K. are having to go through a process of determining the cost of remediation across all of their buildings over the next five to ten years.
• The company took a non-cash reserve of about $140 million in Q4 to estimate the cost of remediation.

Operations Impacted by External Environment

• The company has evaluated all of its projects and impaired a number of assets, resulting in a $43 million loss in Q4 and just shy of $50 million for the full year.
• The company believes that it is at an inflection point going forward and expects growth under new leadership and with the tailwinds behind U.K. build-to-rent.

Sales Activity

• Good assets, even in some cases office assets, are seeing activity in sales if they are Class A buildings and fully leased.
• The company is seeing several bidders and aggressive bidding for better quality multi-family and industrial assets.
• The company is seeing strong fundamentals in industrial leasing and renewal activity around office buildings and retail.