CBRE 2Q16 Earnings Call Notes

Bob Sulentic

Global property sales volumes have pulled back

“CBRE posted another quarter of strong growth on the top and bottom lines, with a 24% increase in adjusted EPS. This growth came amid an uncertain macro environment, and notably, a time when global property sales volumes market wide have pulled back from a robust 2015. The diversity of CBRE’s service offering is especially important in the current market environment. ”

Hesitancy in UK may only be temporary

“CBRE expects continued near-term hesitancy among occupiers about space decisions in the UK, particularly London. We expect a modest increase in property yields reflecting the higher perceived risk of holding UK property. However, this increase may be temporary, especially for top-tier assets, due to the inherent attractiveness of the UK market. In addition, the decline in the value of sterling against the U.S. dollar should provide some incremental support for foreign investment into the UK over time. We also anticipate a delay in some office development activity, which should provide longer term support for property prices as well as rents, particularly in central London, where availability stands at just 3%. We are monitoring Brexit-related developments closely. There is a long road ahead, but the swift resolution of the political leadership in Britain is an encouraging sign.”

Fundamentals in CRE remain in good shape but lowering our guidance

” It is important to note that market fundamentals in commercial real estate remain in good shape, with the impact of Brexit largely limited to property transactions activity in the UK and we anticipate solid earnings growth for the year. Looking ahead, we are adjusting our outlook for the remainder of the year. This is due principally to the impact of Brexit on UK property transaction volumes and less visibility around the timing of the realization of certain incentives in our Global Investment Management business and Development Services business. These factors have caused us to reduce our earnings guidance by 3% at the top end of our range and by 5% at the bottom end. ”

The one place that we are seeing things meaningfully different is in the UK

“We expect to end up the year in the ranges that we gave at the beginning of the year. And the one place that we are seeing things meaningfully different is no big shocker. It’s the UK, which is a sizable market with London. But we’ve worked hard to get a handle on what our people around the world are working on, and we have done that again recently and feel pretty good about the ranges that we gave at the beginning of the year. So we are not changing anything in that regard.

Europe had been clawing back momentum after Brexit but then everyone went on vacation

“I talked to Martin Samworth, the CEO of EMEA for our business, two days ago, and I asked him that question. And he said that in fact, there was a distinct clawing back of the momentum that had been lost due to Brexit up until about a week ago when, as he put it, everybody in Europe started going on vacation. And he thinks that legitimately, that there has been a turnaround, but the whole vacation season there is causing that turnaround to slow for a while. But he’s encouraged that when September comes around that we’ll see things, the momentum reemerge.”

Jim Groch

M&A pipeline active but pulled back as pricing increased

Mitch, that’s a good question. Our M&A pipeline is quite active. But we did start to pull back on infill last year when we saw pricing in the marketplace increasing. So we’re, as always, we’re very active in the market. We are looking for great companies, a great cultural fit, companies that are going to truly add capabilities to what we offer. But we will, pricing matters. It does. And we will pull back from time to time and get back in when we see things be more in line with where we think they should be.”