CBRE : Webcast Transcript (opens in new window)

Corrected Transcript

Total Pages: 43

CORPORATE PARTICIPANTS

Brad Burke	Michael J. Lafitte
Head-Investor Relations, CBRE Group, Inc.	Global Chief Executive Officer-Advisory Services, CBRE Group, Inc.
Robert E. Sulentic	Lynn Williams
President, Chief Executive Officer & Director, CBRE Group, Inc.	Vice Chairman-Advisory & Transaction Services, CBRE Group, Inc.
James R. Groch	William F. Concannon
Chief Financial Officer & Global Director of Corporate Development,	Global Group President & Chief Executive Officer-Global Workplace
CBRE Group, Inc.	Solutions, CBRE Group, Inc.
Chandra Dhandapani	Darcy Mackay
Chief Digital & Technology Officer, CBRE Group, Inc.	Global Director of Human Resources, CBRE Group, Inc.
Danny Queenan	Jack Durburg
Global Chief Executive Officer-Real Estate Investments, CBRE Group,	Global Chief Operating Officer, CBRE Group, Inc.
Inc.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

David E. Ridley-Lane

Analyst, Bank of America Merrill Lynch

Mitch Germain

Analyst, JMP Securities LLC

Anthony Paolone

Analyst, JPMorgan Securities LLC

Stephen Sheldon

Analyst, William Blair & Co. LLC

Ryan Tomasello

Analyst, Keefe, Bruyette & Woods, Inc.

MANAGEMENT DISCUSSION SECTION

Unverified Participant

Ladies and gentlemen, please welcome to the stage CBRE, Head of Investor Relations, Brad Burke.

......................................................................................................................................................................................................................................................

Brad Burke

Head-Investor Relations, CBRE Group, Inc.

All right. Good morning, everyone. Thank you. Thank you for coming out. Welcome to CBRE's 2019 Investor Day. I would like to begin the same way we begin this every single year which is a look at our forward-looking statements, legal disclosure. I'm not going to read this to you. That does not mean that it's not important. It is on our website, and if you would like to, you're welcome to go to our website and read it for yourself later today.

Next up is our agenda. Just a couple of things on the agenda, we're going to save plenty of time for Q&A at the end of today's session. I'd ask that you save all of your questions until the end. And the second, we're going to have some breakout sessions with some of our executives after we end our formal presentations. After we end Q&A, I will give you some instructions on how those are going to work.

I would expect that we're going to end the Q&A and start our breakout sessions in about three hours. Over the next few hours, we have a lot of content to go through. I think that this group will find it to be very informative and I know that we, as a management team, are very excited to give you an update on CBRE.

So to start us off, I'd like to welcome our President and CEO, Bob Sulentic, up to the stage.

......................................................................................................................................................................................................................................................

Robert E. Sulentic

President, Chief Executive Officer & Director, CBRE Group, Inc.

Thank you, Brad. Good morning everyone. I am not going to make a joke about the fact that we have a column in the room again this year because Brad told me not to. But depending on how good we do this year, Brad said that next year we're actually going to move the column all the way to the back of the room. So maybe better.

Big day for us at CBRE. It's our first chance to talk to all of you since we reorganized the company. We announced the reorganization last August and came effective January 1. We think it's a really important step for the company. It's going to give you all some of the things you wanted about transparency into our business, and we'll talk a lot about that here today.

In my comments at the start here, I'm going to give you a little bit on our sector, some of which you've heard me talk about before, but a couple of things that are new that I think we ought to focus on to put CBRE and our opportunity in perspective. I'll give you a bit on what I think makes our position within the sector compelling and then some comments on the reorganization, why we did it. I know you know part of the reason we did it was for transparency that you wanted, but there were some other things going on there, and what we think we'll get out of it.

So the sector we compete in, commercial real estate, we've talked a lot about the first three things I'm going to comment on. Occupier outsourcing being a secular long term growth driver; occupiers continue to outsourceservices to companies like CBRE, especially CBRE that they used to do themselves. This trend is going to continue for a long time. Bill Concannon will talk to you about that.

Secondly, institutional capital continues to flow into commercial real estate. It's a much more accepted asset class, and it used to be the base of assets that's growing around the world. I'm going to comment on one specific element of that asset class. And that's good news for us because when institutions own commercial real estate, they ask us to do work for them. And that trend is also continuing.

Third, the industry is consolidating. The companies in the industry are consolidating or participating in [indiscernible] (03:28) M&A program. But the talent in the industry is also consolidating, trying to find the best platform, the best brands to be part of. You'll hear Lynn Williams talk to you today. She was part of that coming to CBRE.

The other thing that's consolidating is the clients. They want fewer companies to do more work for them. It's not just that we have an outsourcing trend; it's not just that we have a trend with capital moving-institutional capital moving into commercial real estate, both of those groups of clients want to work with fewer providers. That's really good news for us, and I'm going to talk a little bit more about that.

There's two other things going on that we really haven't shined the bright lights on before that I think are really important as you think about our company. Number one, the secular changes going on around the use and office space, I'm going to hit that in a little more detail. And number two, the secular changes that have been going on with single-family home occupants moving into multi-family for lease space. Both of those things are a big deal for our sector, and both of those things are a really big deal for our company and I'll tell you why.

So, let's talk about the evolution in the use of office space. There's a couple of things going on there. Number one, this whole experience dynamic that we're hearing so much about, this is the notion of office occupier, mostly corporations, but others as well using office space in the war for talent, to attract talent, to retain talent, make talent more productive, and make talent happier. All those things that are going on, we're doing it ourselves all over the world. We're changing our use of office space to attract millennials and others to make them more productive. We're seeing things happening as a result of that and we're playing to that circumstance quite well.

The second big dynamic in the use of office space, and you're all familiar with this one is the whole agile, flexible space circumstance going on that underpins co-working, that underpins rework and convene where we are today and others in the space. Both of those things together, the office space experience, circumstance that this becomes so prominent and this flexible space, agile space dynamic which we believe today accounts for about 1% to 2% of the base of multi-tenant office space around the world. And we think it's going to grow to 5% to 10%, those two things combined, the experience and the agile circumstance, are really having a profound impact on the office building business around the world. That is having a profound impact on leasing. We had a great fourth quarter. We had a great 2018. We had a great run at leasing. Part of that is us doing a really good job but part of that is a market circumstance that we haven't seen before that's driving our business, and that's really good news for us.

We manage office space today around the world with 9 million people on it, 9 million people on it. So read the latest numbers on WeWork, that's 15 to 20 times as many people as they have in their space. We are doing a lot to address this office experience circumstance. You're going to hear about that when Mike Lafitte talks about our host offering in office buildings for both occupiers and landlords. We have an Advisory & Transaction Services business that we've embedded with a lot of capability to help office clients in this area.

Lynn Williams is going to talk about some of the things we're doing in that area, and then you know we now have entrant into the flexible space arena and Danny Queenan when he hits our real estate investment business, we'll talk to you about that. So a bunch going on in the office space arena that is really helping our business and is going to continue to help our business.

Now, let's talk about the multifamily product type. There has been a move, a very well-known move from single family homes to multifamily homes and it's been big and it's been going on for many years now, the last seven or eight years since the financial crisis. This is really good news for CBRE and I'll tell you why. We don't play in the single family market. It is not what we do but we are a big developer in the multifamily market. Trammell Crow Company is the biggest commercial developer in the U.S. today in development of multifamily properties, is a commercial real estate enterprise and that is 25% to 30% of our development business today. You've seen our numbers in development. Multifamily is having a big impact on that.

We're the industry-leading financer and seller of multifamily properties. We have a really big business in that area.

A lot of times we'd get asked what's going on with your sales number, why are they so good, why do they disconnect from RCA, et cetera. Well, a big part of that is our multifamily business. That's been a spectacular driver for us. We think this is a secular trend. We think it's enduring. And we think it's going to move beyond the United States and it's really going to help our company on a long-term basis. So, we have this outsourcing trend, this trend with capital moving into commercial real estate, the consolidation going on in our industry, but we have a space use change in both office space and multifamily that is really helping our company.

So what CBRE's position with all this going on? How do you characterize us? Well, I think and we've talked about this a lot, I think our scale, our brand, and our ability to invest plays well to all those trends, particularly the consolidation, particularly to the move with occupiers to account-based business and investors to account-based business. Really big deal, our scale, our brand and our ability to invest.

There's something else about our company that we're trying to get the investors in this space to understand.

We're trying to get the analysts that follow us to understand. We have invested in a management team like nobody else in the sector has ever invested, professional managers and leaders, line of business managers, geographic managers and leaders, functional leaders like digital and technology. You'll see Chandra up here today. We've invested heavily in that. We work hard to develop that team. We have separated from the pack as it relates to that team, and you'll see them on display here today so you say, wow, that's a big investment. Isn't that costly? Isn't that expensive? Well, I would argue it's not expensive. The fact of the matter is you can't extract economies of scale without professional managers, without professional leaders. The fact that we're overinvesting in that part of our business allows us to extract economies of scale. It allows us to manage our costs effectively, run our business efficiently. It allows us to recruit and retain.

Everybody in the industry knows brokers don't recruit brokers. Everybody in the industry knows that brokers that are mainly brokers and working part time as player coaches can't run efficient operations. We don't do that. This is a really important part of our business. You can't run an M&A program around the world without professional leaders, professional managers. And that's helped us do 100 of M&A deals. It's changed our business over the last decade.

So this is something I want you to understand about our business. This goes beyond our scale and our brand and our ability to invest in the talented market-facing professionals we have. It's this leadership team we built. And with that in mind, I'm going to comment on the reorganization we did. The reorganization was meant to do a number of things. But more than anything else, it was meant to take further advantage of this leadership team we've built.

Corrected Transcript

Total Pages: 43

CORPORATE PARTICIPANTS

Brad Burke	Michael J. Lafitte
Head-Investor Relations, CBRE Group, Inc.	Global Chief Executive Officer-Advisory Services, CBRE Group, Inc.
Robert E. Sulentic	Lynn Williams
President, Chief Executive Officer & Director, CBRE Group, Inc.	Vice Chairman-Advisory & Transaction Services, CBRE Group, Inc.
James R. Groch	William F. Concannon
Chief Financial Officer & Global Director of Corporate Development,	Global Group President & Chief Executive Officer-Global Workplace
CBRE Group, Inc.	Solutions, CBRE Group, Inc.
Chandra Dhandapani	Darcy Mackay
Chief Digital & Technology Officer, CBRE Group, Inc.	Global Director of Human Resources, CBRE Group, Inc.
Danny Queenan	Jack Durburg
Global Chief Executive Officer-Real Estate Investments, CBRE Group,	Global Chief Operating Officer, CBRE Group, Inc.
Inc.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

David E. Ridley-Lane

Analyst, Bank of America Merrill Lynch

Mitch Germain

Analyst, JMP Securities LLC

Anthony Paolone

Analyst, JPMorgan Securities LLC

Stephen Sheldon

Analyst, William Blair & Co. LLC

Ryan Tomasello

Analyst, Keefe, Bruyette & Woods, Inc.

MANAGEMENT DISCUSSION SECTION

Unverified Participant

Ladies and gentlemen, please welcome to the stage CBRE, Head of Investor Relations, Brad Burke.

......................................................................................................................................................................................................................................................

Brad Burke

Head-Investor Relations, CBRE Group, Inc.

All right. Good morning, everyone. Thank you. Thank you for coming out. Welcome to CBRE's 2019 Investor Day. I would like to begin the same way we begin this every single year which is a look at our forward-looking statements, legal disclosure. I'm not going to read this to you. That does not mean that it's not important. It is on our website, and if you would like to, you're welcome to go to our website and read it for yourself later today.

Next up is our agenda. Just a couple of things on the agenda, we're going to save plenty of time for Q&A at the end of today's session. I'd ask that you save all of your questions until the end. And the second, we're going to have some breakout sessions with some of our executives after we end our formal presentations. After we end Q&A, I will give you some instructions on how those are going to work.

I would expect that we're going to end the Q&A and start our breakout sessions in about three hours. Over the next few hours, we have a lot of content to go through. I think that this group will find it to be very informative and I know that we, as a management team, are very excited to give you an update on CBRE.

So to start us off, I'd like to welcome our President and CEO, Bob Sulentic, up to the stage.

......................................................................................................................................................................................................................................................

Robert E. Sulentic

President, Chief Executive Officer & Director, CBRE Group, Inc.

Thank you, Brad. Good morning everyone. I am not going to make a joke about the fact that we have a column in the room again this year because Brad told me not to. But depending on how good we do this year, Brad said that next year we're actually going to move the column all the way to the back of the room. So maybe better.

Big day for us at CBRE. It's our first chance to talk to all of you since we reorganized the company. We announced the reorganization last August and came effective January 1. We think it's a really important step for the company. It's going to give you all some of the things you wanted about transparency into our business, and we'll talk a lot about that here today.

In my comments at the start here, I'm going to give you a little bit on our sector, some of which you've heard me talk about before, but a couple of things that are new that I think we ought to focus on to put CBRE and our opportunity in perspective. I'll give you a bit on what I think makes our position within the sector compelling and then some comments on the reorganization, why we did it. I know you know part of the reason we did it was for transparency that you wanted, but there were some other things going on there, and what we think we'll get out of it.

So the sector we compete in, commercial real estate, we've talked a lot about the first three things I'm going to comment on. Occupier outsourcing being a secular long term growth driver; occupiers continue to outsourceservices to companies like CBRE, especially CBRE that they used to do themselves. This trend is going to continue for a long time. Bill Concannon will talk to you about that.

Secondly, institutional capital continues to flow into commercial real estate. It's a much more accepted asset class, and it used to be the base of assets that's growing around the world. I'm going to comment on one specific element of that asset class. And that's good news for us because when institutions own commercial real estate, they ask us to do work for them. And that trend is also continuing.

Third, the industry is consolidating. The companies in the industry are consolidating or participating in [indiscernible] (03:28) M&A program. But the talent in the industry is also consolidating, trying to find the best platform, the best brands to be part of. You'll hear Lynn Williams talk to you today. She was part of that coming to CBRE.

The other thing that's consolidating is the clients. They want fewer companies to do more work for them. It's not just that we have an outsourcing trend; it's not just that we have a trend with capital moving-institutional capital moving into commercial real estate, both of those groups of clients want to work with fewer providers. That's really good news for us, and I'm going to talk a little bit more about that.

There's two other things going on that we really haven't shined the bright lights on before that I think are really important as you think about our company. Number one, the secular changes going on around the use and office space, I'm going to hit that in a little more detail. And number two, the secular changes that have been going on with single-family home occupants moving into multi-family for lease space. Both of those things are a big deal for our sector, and both of those things are a really big deal for our company and I'll tell you why.

So, let's talk about the evolution in the use of office space. There's a couple of things going on there. Number one, this whole experience dynamic that we're hearing so much about, this is the notion of office occupier, mostly corporations, but others as well using office space in the war for talent, to attract talent, to retain talent, make talent more productive, and make talent happier. All those things that are going on, we're doing it ourselves all over the world. We're changing our use of office space to attract millennials and others to make them more productive. We're seeing things happening as a result of that and we're playing to that circumstance quite well.

The second big dynamic in the use of office space, and you're all familiar with this one is the whole agile, flexible space circumstance going on that underpins co-working, that underpins rework and convene where we are today and others in the space. Both of those things together, the office space experience, circumstance that this becomes so prominent and this flexible space, agile space dynamic which we believe today accounts for about 1% to 2% of the base of multi-tenant office space around the world. And we think it's going to grow to 5% to 10%, those two things combined, the experience and the agile circumstance, are really having a profound impact on the office building business around the world. That is having a profound impact on leasing. We had a great fourth quarter. We had a great 2018. We had a great run at leasing. Part of that is us doing a really good job but part of that is a market circumstance that we haven't seen before that's driving our business, and that's really good news for us.

We manage office space today around the world with 9 million people on it, 9 million people on it. So read the latest numbers on WeWork, that's 15 to 20 times as many people as they have in their space. We are doing a lot to address this office experience circumstance. You're going to hear about that when Mike Lafitte talks about our host offering in office buildings for both occupiers and landlords. We have an Advisory & Transaction Services business that we've embedded with a lot of capability to help office clients in this area.

Lynn Williams is going to talk about some of the things we're doing in that area, and then you know we now have entrant into the flexible space arena and Danny Queenan when he hits our real estate investment business, we'll talk to you about that. So a bunch going on in the office space arena that is really helping our business and is going to continue to help our business.

Now, let's talk about the multifamily product type. There has been a move, a very well-known move from single family homes to multifamily homes and it's been big and it's been going on for many years now, the last seven or eight years since the financial crisis. This is really good news for CBRE and I'll tell you why. We don't play in the single family market. It is not what we do but we are a big developer in the multifamily market. Trammell Crow Company is the biggest commercial developer in the U.S. today in development of multifamily properties, is a commercial real estate enterprise and that is 25% to 30% of our development business today. You've seen our numbers in development. Multifamily is having a big impact on that.

We're the industry-leading financer and seller of multifamily properties. We have a really big business in that area.

A lot of times we'd get asked what's going on with your sales number, why are they so good, why do they disconnect from RCA, et cetera. Well, a big part of that is our multifamily business. That's been a spectacular driver for us. We think this is a secular trend. We think it's enduring. And we think it's going to move beyond the United States and it's really going to help our company on a long-term basis. So, we have this outsourcing trend, this trend with capital moving into commercial real estate, the consolidation going on in our industry, but we have a space use change in both office space and multifamily that is really helping our company.

So what CBRE's position with all this going on? How do you characterize us? Well, I think and we've talked about this a lot, I think our scale, our brand, and our ability to invest plays well to all those trends, particularly the consolidation, particularly to the move with occupiers to account-based business and investors to account-based business. Really big deal, our scale, our brand and our ability to invest.

There's something else about our company that we're trying to get the investors in this space to understand.

We're trying to get the analysts that follow us to understand. We have invested in a management team like nobody else in the sector has ever invested, professional managers and leaders, line of business managers, geographic managers and leaders, functional leaders like digital and technology. You'll see Chandra up here today. We've invested heavily in that. We work hard to develop that team. We have separated from the pack as it relates to that team, and you'll see them on display here today so you say, wow, that's a big investment. Isn't that costly? Isn't that expensive? Well, I would argue it's not expensive. The fact of the matter is you can't extract economies of scale without professional managers, without professional leaders. The fact that we're overinvesting in that part of our business allows us to extract economies of scale. It allows us to manage our costs effectively, run our business efficiently. It allows us to recruit and retain.

Everybody in the industry knows brokers don't recruit brokers. Everybody in the industry knows that brokers that are mainly brokers and working part time as player coaches can't run efficient operations. We don't do that. This is a really important part of our business. You can't run an M&A program around the world without professional leaders, professional managers. And that's helped us do 100 of M&A deals. It's changed our business over the last decade.

So this is something I want you to understand about our business. This goes beyond our scale and our brand and our ability to invest in the talented market-facing professionals we have. It's this leadership team we built. And with that in mind, I'm going to comment on the reorganization we did. The reorganization was meant to do a number of things. But more than anything else, it was meant to take further advantage of this leadership team we've built.