Greetings and welcome to the CBRE First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Chandni Luthra, Global Head of FP&A and Investor Relations. Thank you. You may begin.

Good morning everyone and welcome to CBRE's first quarter 2025 earnings conference call. Earlier today, we posted a presentation deck on our website that you can use to follow along with our prepared remarks and an Excel file that contains additional supplemental materials. Today's presentation contains forward-looking statements, including, without limitation, statements concerning the macro environment, our business outlook, our business plans and capital allocation strategy and our earnings and cash flow 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 the 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 Sulentic, our Chair and CEO; and Emma Giamartino, our Chief Financial Officer. Throughout our remarks, when we cite financial performance relative to expectations, we are referring to actual results against the outlook we provided on our fourth quarter 2024 earnings call in February, unless otherwise noted. Also, as a reminder, our resilient businesses include facilities management, project management, property management, loan servicing, valuations, other portfolio services and recurring investment management fee. Our transactional businesses comprise property sales, leasing, mortgage origination, carried interest and incentive fee in the investment management business and development fees. With that, I'll turn the call over to Bob.

Thank you, Chandni and good morning, everyone. CBRE had a strong start to 2025 across our lines of business and around the world. Notably, as the first quarter ended, most of our businesses were performing better than expected and our new business pipelines were strong. This was equally true for both our resilient and transactional businesses. Since then, driven by uncertainty created by the tariff situation, our outlook has become less clear. Even in light of this, our current activity levels and new business pipelines continue to be strong, just somewhat less than they were. Looking at our Q1 results, we were particularly pleased with the performance of our Project Management and Building Operations & Experience segments in their first quarter of existence. Both segments generated strong financial results and evidence the type of operational and strategic gains we were hoping for and expected when we reconfigured the business this way. The gains included shared client access, insights into opportunities for product development and stronger positioning to pursue certain types of M&A. Another notable example that has quickly emerged is the ability to migrate strong leaders into more compelling positions. This is great for our emerging talent and great for CBRE. CBRE's strategy is underpinned by broad and deep capabilities across the dimensions of commercial real estate, asset type, client type, service type and geography. We couple this with a strong balance sheet, strong cash flow and the experience and willingness to invest aggressively. This positioning allows us to drive resources into both steadily growing resilient businesses and high-margin transactional businesses. The current market uncertainty aside, we are encouraged by the prospects that our strategic positioning and resource set have created for sustained resilient growth. With that, I'll turn the call over to Emma, who will discuss the quarter and our outlook.

Thank you, Bob. First quarter core EBITDA increased 27% and core EPS by 10% compared with last year's first quarter. Recall that last year's Q1 included a large one-time tax benefit. Without that benefit, core EPS grew 39% year-on-year. These strong consolidated results include an approximately 2% to 3% currency headwind in the quarter. To better reflect operating performance, I will reference growth rates and margins in local currency throughout the remainder of my remarks, unless otherwise noted. As Bob noted, we saw strength across our platform as our resilient businesses generated net revenue growth of 17% for the quarter, nearly matching the 18% increase in our transactional businesses. On a trailing 12-month basis, resilient businesses accounted for over 60% of our total SOP. Turning to our segments. Advisory Services had a particularly strong start to the year. Net revenue growth of 16% exceeded expectations, led by strong leasing and capital markets activity. Global leasing revenue growth accelerated to 19% in Q1 from 15% in Q4 of 2024. The U.S. was particularly strong as overall leasing revenue increased 24%, driven by a 38% increase in office leasing revenue which reached its highest level for any first quarter. We saw continued strong activity across gateway markets, with each of the six markets delivering greater than 30% growth and over 55% growth in aggregate. At the same time, many non-gateway markets, including Atlanta, Dallas, Houston and Miami, delivered double-digit growth. U.S. retail leasing was also very strong, up 34% and industrial leasing saw 12% growth as third-party logistics companies drove higher demand. Outside the U.S., leasing trends were notably strong in Southeast Asia, especially office leasing in India as well as in certain countries in Europe. Capital markets activity was also strong. Global property sales revenue increased 13%, once again, led by a 26% gain in the U.S., which saw a significant uptick in multifamily and industrial asset sales. Outside the U.S., we saw notable strength in Continental Europe. Our mortgage origination business had another strong quarter with 53% growth in origination fees. U.S. loan origination volume rose 69% led by strong activity from banks and insurance companies on the back of continued outside growth in refinancing, as well as strong demand for acquisition financing. Overall, advisory SOP rose 31%, delivering strong operating leverage as SOP on net revenue margin increased by more than 200 basis points. In the BOE segment, net revenue grew 22% with strength across facilities management, property management and contributions from Industrious which we acquired at the beginning of this year. In facilities management, the enterprise business saw strong demand from clients in sectors such as technology, life sciences and health care. We also had a particularly strong quarter with hyperscale data center clients. In our local business, revenue grew by double digits, with continued outsized growth in the U.S. as we expand our market share as well as continued strength in the U.K. Strong property management net revenue growth slightly exceeded expectations. This segment is benefiting from enhanced operating leverage, primarily resulting from last year's cost efficiency initiatives. This contributed to 38% SOP growth and 100 basis points of net margin expansion. Turning to the Project Management segment. We have completed the first quarter after combining CBRE's legacy project management business under Turner & Townsend's leadership. Revenue grew 9%, in line with our expectations, with continued mid-double-digit growth from legacy Turner & Townsend and mid-single-digit growth from CBRE legacy Project Management. As we have outlined previously, we expect the integrated project management business to more closely resemble Turner & Townsend's growth and margin profile over time. In the legacy Turner & Townsend business, we had strong wins in infrastructure in the U.K. and Middle East as well as large new program mandates in real estate and the pipeline looks solid. Project management SOP margin on net revenue continued to improve year-on-year, driving SOP growth of 14% and it is noteworthy that this margin does not yet reflect the cost and operating synergies of bringing these two businesses together. In our REI segment, investment management operating profit was up 43% year-on-year, exceeding expectations, primarily driven by higher net promotes and recurring asset management fees. AUM ended Q1 at $149 billion, up about $3 billion since the end of Q4, driven by net inflows, higher asset values and favorable currency movement. Our development operating profit was in line with expectations. We continue to grow our U.S. in-process portfolio, starting 12 projects in the first quarter compared with 26 in all of 2024 and capitalizing an additional 5 deals. Now I'll discuss free cash flow, leverage and capital allocation. Trailing 12 months free cash flow was nearly $1.5 billion, reflecting 93% free cash flow conversion, above the high end of our targeted 75% to 85% range. We repurchased nearly $600 million worth of shares since the end of the fourth quarter, underscoring our commitment to return capital to our shareholders and the unrealized value we see in CBRE shares. In total, we deployed approximately $1 billion of capital year-to-date across M&A, share repurchases and co-investments and ended the quarter with net leverage of less than 1.5 turns. Our capital deployment strategy remains consistent with our historical practice. We prioritize M&A and principal investments into our REI business and we'll balance our spend with share repurchases as long as our share price remains attractive. Absent large-scale M&A or the onset of a recession, we continue to expect to end the year with under 1 turn of net leverage and we are willing to leverage up to 2 turns for the right acquisitions. Heading into Q2, our strong Q1 performance, strong pipelines and strong current activity would have prompted us to raise our full year guidance to the high end of the range we set in February. However, given the significant market uncertainty related to tariffs, absent increased interest rate volatility or a recession, we are maintaining our 2025 core EPS guidance range of $5.80 and $6.10. Given our success in increasing the resilient parts of our business and our strong balance sheet, we are better positioned than ever before to not only weather a recession but to take advantage of the opportunities created in a downturn.

Our first question comes from Anthony Paolone with JPMorgan.

I think, Bob, you mentioned the pipeline is still strong, just somewhat less than maybe what it was. Can you maybe give us a little bit more color or detail on kind of what's been changing over the last few weeks, whether it's a more wait and see, whether deals have been canceled, maybe whether there are certain regions that stand out as changing the most or business lines? Just any context around some of the more recent changes would be great.

You bet, Tony. I want to emphasize that the situation didn't shift from good to bad; it transitioned from really good to not as good. We finished the quarter with strong pipelines and have experienced significant activity through most of April. However, we are seeing some effects from the tariffs. For example, let's discuss capital raising in our investment management sector. We raised nearly $5 billion in the first quarter, which took us by surprise. We entered the quarter with high enthusiasm, but some international capital sources that invest in our funds have begun to slow down. Our expectations by the end of the first quarter had exceeded where we anticipated at the start of the year. Now, we've adjusted our expectations back to align more closely with our initial outlook. In project management, there has been considerable activity, especially in infrastructure and major global programs. Yet, some corporations are hesitating on larger projects due to uncertainty surrounding tariffs and potential recession. This shift has created some inconsistency in the market. Interestingly, in leasing, industrial properties performed exceptionally well, which wasn't unexpected given the strong market. Office spaces also performed well, but the outlook differs. Currently, there are two dynamics affecting offices: a scarcity of available space, not just on Park Avenue but across major gateway cities and secondary markets, and an increasing awareness among companies of the importance of office space. They recognize a trend towards normalcy, influencing their decisions both actively and passively. Despite recent uncertainties in the economy, enthusiasm for leasing office space remains relatively stable. However, there are some significant office leases where tenants are holding back. For the most part, we continue to see promising opportunities for development deals because current conditions are deterring other capital sources from entering the market. We've discussed in detail how such circumstances can provide a real competitive advantage. That's the landscape we're observing. Emma, do you have anything to add?

I think you captured all of it.

Okay, great. And then, I just have a follow-up on project management. Now that it's broken out and combined, I guess, as we look out, this has been an area where you've been pretty confident about the growth. And I guess you finish projects and then you have to replace them. And so I guess, like what can we look at as we start to look out the next few years that the replacements are going to be big enough to net to sort of the growth level that you've kind of talked about, like kind of in the double digits and stuff here? Like especially given, like you said, some of these things may pull back a bit. Like is it just the pipeline that you say you have? Or how do we kind of look at that?

It's essential to break down what's happening with our project management business. The market may experience a slowdown in certain areas for reasons previously mentioned. However, it's crucial to focus on the developments within CBRE and the combined CBRE Turner & Townsend business. We are engaging with many large corporations on complex projects that we weren't previously positioned to handle. The Trammell Crow Company helps source land and manage land development for these significant projects. Turner & Townsend, on the other hand, lacked the necessary talent and size in the U.S. market to take on certain opportunities. While the overall market trajectory and activity levels are important, the combination of our businesses provides a stronger foundation regardless of market conditions than we had before. Over the next couple of years, observers will likely be surprised at how different our project management business has become. We now have 15,000 professionals in project management, program management, and cost consultancy. This sector has a vast potential that we were previously underutilizing in the U.S. We'll face various market conditions influenced by factors such as tariffs and potential recessions, but the growth trajectory we've established through this merger will be quite different than what it would have been otherwise. This is a primary source of our excitement about the future growth of that business.

Our next question comes from the line of Julien Blouin with Goldman Sachs.

Yes. I think you mentioned in the release that you're maintaining guidance absent increased interest rate volatility or recession. I guess, can you give us a sense of what a recession would look like for your earnings? Just given how much higher the mix of resilient businesses are now versus in prior recessions, how much better would your earnings sort of hold up this time around?

Thank you, Julien. I want to discuss our guidance. We are keeping our guidance, but we believe there are more possible outcomes than we anticipated in February when we first shared our outlook for the year. While it's hard to provide specifics, we can outline our expectations for the year. First, if there were no tariff uncertainties, as Bob mentioned, we would likely have raised our guidance for the second quarter based on our strong Q1 performance and the momentum we're experiencing in Q2. If we simply account for our Q1 success, we would be at the high end of our range. The midpoint of our range would suggest that leasing and capital markets might slow down in the latter half of the year. In a downside scenario, we could see an even greater slowdown in transactional revenue, although we would likely avoid a recession. Regarding your question about a recession, it's challenging to define because its severity can differ greatly. However, we believe we are far more resilient now than we were a few years ago, particularly compared to our position after the global financial crisis. Currently, we have a 60% resilient Standard Operating Procedure, up from roughly 20% in 2011. This increase in resilience has led to profit growth at a double-digit rate. Therefore, if we were to face a recession similar to the global financial crisis, we would expect our declines to be significantly less severe. During the GFC, our declines reached 85% from peak to trough, but now we anticipate a drop of less than half that amount.

That's very helpful. And I guess turning to sort of capital markets activity. It sounds like things continue to progress well thus far in April; it's just maybe not quite as strong as they were. What are you seeing maybe in terms of your pipelines of future capital markets activity or broker opinions of value, what is that telling you about where we could trend in the second quarter?

So, I'll speak to what we saw through Q1 and then what we're seeing in the beginning of Q2. Through Q1, with strong capital markets activity, particularly in February, in March, it slowed down somewhat but not to a meaningful degree. And when you got into April, there was somewhat of a pause because of the significant amount of uncertainty but we're not yet seeing any of that impact our transaction activity. So in the first few weeks of April, our investment sales activity is very strong. It's actually accelerated. On the loan origination side, we saw a significant increase in rate locks when the 10-year fell below 4% for a short period of time. So activity is continuing and our pipelines remain very strong. And our belief is as long as rates on the capital market side, the 10-year I'm speaking to, doesn't go above 5%, activity is going to continue.

Our next question comes from the line of Ronald Kamdem with Morgan Stanley.

Just two quick ones. So one is just on the project management business, going back to that and I think the comments said the margins do not reflect the cost of operating synergies and so on and so forth. Just curious if you can give us some high-level thoughts on just the margin profile of that business and sort of in this environment, are there any other tools that you could use to protect margins?

So we believe the long-term margin for our entire project management segment should trend towards what the legacy Turner & Townsend project management margins have been which is have trended towards the mid- to high-teens range and our legacy project management business has had a margin that's slightly below that. So what you're seeing in our results is the blend of that margin. It's a little below 15%. We think simply through cost synergies and redundancies that you really haven't gone after back-office integration, we'll be able to improve that margin over the next couple of years.

Great. And then my second question is just capital allocation, obviously, the buyback in the quarter. Just curious how conversations are going on in the acquisition front in a market like this? Do they sort of die off? Do you become more opportunistic? Any color there would be helpful.

Ronald, I believe you are referring to M&A, correct?

Exactly.

Yes. So a couple of things. First of all, we have refined and refined our M&A strategy over the past few years. We did a lot of strategy work. We talked about it last year and we have a very clear view as to where we want to do M&A in the business now. And what we're finding is that as the markets remain choppy, the kind of companies that we're interested in, in part, we're interested in because they really like the idea of being part of our platform. And it's our observation in the various conversations we're taking part of now that choppiness builds momentum for us in the M&A work we're doing. And we would expect that to be the case, and we would expect the approach we take to M&A to play out nicely in a difficult market. I mean, I've been around now for multiple downturns. And we always talk about, oh, when things get tough, we'll take advantage of it. And we do to varying degrees. I don't think we've ever been as well positioned to take advantage of a downturn as we are now because of our balance sheet in part but also because of the success we've had with the kinds of companies that we're interested in acquiring and are interested in being acquired by us.

Our next question comes from the line of Stephen Sheldon with William Blair.

Maybe starting with Bob, I really appreciate the detailed commentary on Tony's prior question. I wanted to drill down a little more on the industrial leasing outlook. Great to hear about the outperformance there in the first quarter, but I would just think it would be tough for clients to make leasing decisions right now with industrial footprints, given all the moving pieces until there's more tariff clarity. So curious if you have any additional color on what you're seeing there, especially later in the quarter and so far in April?

Well, it is tough to give more clarity than we've given. But here's what we think. We think that kind of, as we called it, outperformance in industrial leasing that we saw through the first 90 days of the year is going to come back a little and it's going to come back to where we thought things were going to be. I will say that the uncertainty, we've talked about it at length here what we think is going to happen and how we think it's going to play out. And one of the ways we've concluded that you can look at it is a lot of momentum was with 3PLs. And the reason 3PLs is because the primary users of the space have decided the uncertainty is going to cause them to back off on commitments a little. So they instead lease from the 3PLs, it gives them more flexibility. And then in turn, the 3PLs have to do leases. The large leases, the 700,000 square foot and above, have slowed down below that. There's been good momentum, and we think we're going to continue to see that, but we're not going to see that to the degree that we saw it in the first quarter. And so to be a little redundant here, we're kind of assuming that industrial leasing is going to be back to where we thought it was going to be when we entered the year, which is kind of flattish to 2024.

Okay, got it. That's very helpful. And then maybe just a quick follow-up for Emma. If we do see macro trends deteriorate, become a bigger headwind, how would you think about managing the cost structure? You obviously had some efficiency initiatives in recent years. I think CBRE always seems to be operating pretty leanly? So there are levers you could pull to support profit trend, I guess, if top line trends do deteriorate.

Yes, absolutely. And it's something that we're always planning for and thinking about. And I think we've materially improved our ability to quickly react and take action when we need to around our cost structure and we've always talked about our cost structure being inherently variable. Our commissions move, our commission costs move with revenue or decline with revenue. Our bonuses and profit shares in mostly our transactional businesses flex with revenue. And the other levers we have are typical. Discretionary expenses, we can pull back when we need to; hiring we can pull back if we need to very quickly. We have a lever with recruiting if that's something we think makes sense. But the main point is that we have the ability to act and we've shown that in the past two recessions or downturns for real estate.

Got it, that's helpful. One last quick question about hiring: has CBRE changed its hiring plans for the year?

We've not.

Our next question comes from the line of Manus Ebbecke with Evercore ISI.

This is Manus on for Steve Sakwa. Just wanted to quickly ask about one item and that is currency headwinds. I know you quoted around 2% to 3% of headwinds in the first quarter. The dollar has obviously weakened a little bit since in April, so I wanted to check in and see if you have any thoughts around how currency headwinds potentially may impact the second quarter more than the first quarter? Or what your general outlook is and how that is fitting into kind of like the guidance range?

So, it's obviously very difficult to predict what will happen. But if you just take today's forward curve, those headwinds are pretty much entirely removed. So they would be reversed. They've become tailwinds in the second quarter. But I do want to emphasize that we all know that this is moving very quickly and it's pretty volatile. So it's just difficult to predict what will actually happen over the next 3 quarters.

Great. That definitely makes sense. I have a follow-up question regarding capital usage. You have previously conducted around $600 million in share buybacks. Has that situation changed? What are your thoughts on share repurchases as we approach the second quarter, especially considering the recent shifts in the macro environment?

So our capital deployment strategy has been unchanged for a few years now. We always prioritize M&A and REI co-investment, and we're actively looking at a number of deals in our pipeline across both of those pieces. And if those convert, that's what we'll prioritize with our capital. And if we're seeing that there's a slowdown in M&A or REI which we're not seeing right now, then we balance that out with share repurchases as long as we believe our price is attractive.

Our next question comes from the line of Peter Abramowitz with Jefferies.

I wanted to revisit one of Emma's comments. You mentioned that as long as the 10-year remains below 5%, that's a key level for maintaining your capital markets activity and that deals will continue to occur. I just want to clarify that interpretation. Do you believe that even if it reaches that 5% level, you can still achieve what you've outlined as a sort of slow and steady recovery in capital markets?

There are many factors that influence whether capital markets activity will persist, specifically regarding loan originations. We anticipate that activity will continue as long as interest rates remain stable and below 5%. A significant slowdown is expected if rates exceed 5%. It's important to note that approximately 55% to 60% of the activity we observe is related to refinancing, and these transactions need to keep occurring. We are confident that this activity will persist. While maintaining rates below a certain threshold is crucial, stability is also essential. The volatility in rates tends to make investors hesitant.

That's helpful. Okay, just to clarify, one of your other comments mentioned that activity slowed at the beginning of this month but has actually picked up since then. Were you referring only to loan origination or advisory sales as well?

In March, sales slowed a bit, but it's only one month, so it's difficult to identify a trend, and they picked back up in April.

Our next question comes from the line of Peter Abramowitz with Jefferies.

Well, it is tough to give more clarity than we've given. But here's what we think. We think that kind of, as we called it, outperformance in industrial leasing that we saw through the first 90 days of the year is going to come back a little and it's going to come back to where we thought things were going to be. I will say that the uncertainty, we've talked about it at length here what we think is going to happen and how we think it's going to play out. And one of the ways we've concluded that you can look at it is a lot of momentum was with 3PLs. And the reason 3PLs is because the primary users of the space have decided the uncertainty is going to cause them to back off on commitments a little. So they instead lease from the 3PLs, it gives them more flexibility. And then in turn, the 3PLs have to do leases. The large leases, the 700,000 square foot and above, have slowed down below that.

Ladies and gentlemen, that concludes our time for questions. I'll turn the floor back to Mr. Sulentic for any final comments.

Thanks everybody for joining us today and we'll talk to you again when we report our second quarter earnings.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.