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    CBRE
    Earnings call· Mar 2025(Q1 FY25)

    CBRE GROUP, INC. CBRE

    Apr 24, 2025 Source

    Executive summary

    CBRE Q1 FY25 — Strong Start Despite Tariff Uncertainty

    CBRE delivered a strong first quarter, with significant growth in both resilient and transactional businesses, exceeding initial expectations. However, the company is now navigating increased market uncertainty stemming from tariff discussions, which has led to a more cautious outlook for the remainder of the year, despite maintaining its full-year core EPS guidance. Management highlights the company's enhanced resilience and strong balance sheet as key advantages in a potentially challenging environment.

    Highlights

    5

    • Core EBITDA increased 27% year-over-year in local currency.

    • Core EPS grew 39% year-over-year in local currency, excluding a prior year one-time tax benefit.

    • Advisory Services net revenue grew 16%, driven by 19% global leasing growth and 13% global property sales growth.

    • BOE segment net revenue grew 22%, with 38% SOP growth and 100 bps net margin expansion.

    • Investment Management operating profit was up 43% year-over-year, with AUM reaching $149 billion.

    Concerns

    4

    • Outlook became less clear due to uncertainty created by the tariff situation.

    • Industrial leasing is expected to return to flattish 2024 levels after strong Q1, due to uncertainty.

    • Capital sources for investment management funds have slowed down slightly since Q1 end.

    • Some corporates are slowing down on bigger project management programs due to tariff uncertainty and potential recession risk.

    Guidance & targets

    3
    CategoryTargetConfidence
    Core EPS
    $5.80 to $6.10
    high materiality
    Medium
    Net leverage
    under 1 turn
    medium materiality
    High
    Net leverage capacity for acquisitions
    up to 2 turns
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Advisory Services
    Net revenue growth exceeded expectations, led by strong leasing and capital markets activity. Delivered strong operating leverage as SOP on net revenue margin increased by more than 200 basis points.
    Global leasing revenue growth: 19%U.S. leasing revenue growth: 24%U.S. office leasing revenue growth: 38%U.S. retail leasing growth: 34%Industrial leasing growth: 12%Global property sales revenue growth: 13%U.S. property sales gain: 26%Mortgage origination fees growth: 53%U.S. loan origination volume growth: 69%
    		—16%—31% SOP growth
    BOE (Building Operations & Experience)
    Net revenue grew with strength across facilities management, property management, and contributions from Industrious. Benefiting from enhanced operating leverage, primarily from last year's cost efficiency initiatives, contributing to 100 basis points of net margin expansion.
    Facilities management enterprise business: strong demandLocal business revenue growth: double digits
    		—22%—38% SOP growth
    Project Management
    Revenue grew in line with expectations after combining CBRE's legacy project management business under Turner & Townsend's leadership. SOP margin on net revenue continued to improve year-on-year, but does not yet reflect cost and operating synergies. Long-term margin expected to trend towards mid-to-high teens.
    Legacy Turner & Townsend growth: mid-double-digitCBRE legacy Project Management growth: mid-single-digit
    		—9%—14% SOP growth
    REI (Real Estate Investments)
    Investment management operating profit exceeded expectations, primarily driven by higher net promotes and recurring asset management fees. AUM growth was driven by net inflows, higher asset values, and favorable currency movement. Development operating profit was in line with expectations, with continued growth in the U.S. in-process portfolio.
    Investment Management AUM: $149 billionAUM increase since Q4: $3 billionDevelopment operating profit: in line with expectationsProjects started in Q1: 12Deals capitalized in Q1: 5
    		———43% operating profit growth

    Operational metrics

    13
    Core EBITDA
    27%YoY increase
    Q1 FY25

    in local currency

    Core EPS
    10%YoY increase
    Q1 FY25

    in local currency; 39% growth year-on-year excluding prior year's one-time tax benefit

    Currency headwind
    2% to 3%
    Q1 FY25

    approximately

    Resilient businesses net revenue growth
    17%
    Q1 FY25

    nearly matching transactional businesses

    Transactional businesses net revenue growth
    18%
    Q1 FY25
    Resilient SOP as % of total SOP
    60%
    TTM

    over 60% on a trailing 12-month basis

    Free cash flow conversion
    93%above targeted 75% to 85% range
    TTM
    Share repurchases
    $600 million
    since end of Q4

    nearly

    Total capital deployed year-to-date
    $1 billion
    YTD

    across M&A, share repurchases and co-investments

    Net leverage
    less than 1.5 turns
    Q1 FY25 end
    Investment Management capital raised
    $5 billion
    Q1 FY25

    almost

    Project Management professionals
    15,000
    current

    project management, program management and cost consultancy professionals

    Loan origination activity from refinancing
    55% or 60%
    current

    of the activity that we're seeing

    Industry KPIs

    9
    MetricValueDetails
    Leasing revenue growth19%%
    Free cash flow conversion93%%
    Property sales revenue growth13%%
    Development in process pipeline12 projects started, 5 deals capitalizedprojects/deals
    Segment operating profit growth31% (Advisory), 38% (BOE), 14% (Project Management), 43% (Investment Management within REI)%
    Mortgage origination loan servicing53%%
    Facilities management revenue growthdouble digits%
    Investment management AUM capital raised$149 billion (AUM), $5 billion (capital raised)USD
    Resilient vs transactional revenue split17% (resilient), 18% (transactional)%

    Orderbook & backlog

    2
    Development projects started12 projectsQ1 FY25

    compared with 26 in all of 2024

    Development deals capitalized5 dealsQ1 FY25

    Deals & partnerships

    1
    IndustriousAcquisition of flexible workspace provider

    Acquired at the beginning of this year, closed in mid-January. Performing as expected.

    Risks & headwinds

    5
    Uncertainty created by the tariff situationSince Q1 end, ongoing

    Outlook has become less clearer; industrial leasing expected to normalize; capital sources for investment management slowed; some corporates slowing project management programs.

    Mitigation: Maintaining 2025 core EPS guidance, strong balance sheet, increased resilience.

    Higher risk of recessionFuture

    Declines would be less than half of GFC's 85% peak to trough.

    Mitigation: 60% resilient SOP (vs 20% in 2011), strong balance sheet, ability to take advantage of downturn opportunities.

    Increased interest rate volatilityOngoing

    Causes investors to pause.

    Mitigation: Activity continues as long as rates are stable and 10-year below 5%.

    Slowing capital sources for investment managementSince Q1 end

    Expectations pulled back roughly consistent with going into the year.

    Corporate program slowdown in project managementSince Q1 end

    Some corporates slowing down on bigger programs.

    Mitigation: Combined business positioning, Turner & Townsend's capacity.

    What to watch in Q2 FY25

    5

    Industrial Leasing Performance

    Next quarter
    Current12% growth in Q1 FY25
    TargetFlattish to 2024 levels

    Why it matters

    Indicates the impact of tariff uncertainty🌐 on a key transactional business segment.

    We think industrial is going to come back kind of to where we thought it was going to be going into the year.

    Q&A highlights

    5

    Seeking more color on recent changes in pipelines, whether deals are canceled, and specific regions/business lines affected by tariff uncertainty.

    Bob Sulentic clarified that activity went from "really good to not as good," not "good to bad." Investment management capital raising has slowed from peak Q1 enthusiasm to pre-year expectations. Project management sees some corporates slowing larger programs. Industrial leasing is expected to normalize to flattish 2024 levels. Office leasing remains strong due to scarcity and demand for quality space. Development deals are still being capitalized due to less competition.

    “things didn't go from good to bad, things went from really good to not as good.”

    asked by Anthony Paolone · answered by Robert Sulentic

    2 min read7 chapters

    Detailed Narrative

    01

    Business Reconfiguration Success

    The newly reconfigured Project Management and Building Operations & Experience (BOE) segments demonstrated strong financial results in their first quarter of existence. This restructuring has yielded operational and strategic gains, including shared client access, insights for product development, and stronger positioning for M&A. The company also noted an enhanced ability to migrate strong leaders into more compelling positions, benefiting emerging talent and CBRE overall.

    02

    Resilient vs. Transactional Business Performance

    Both resilient and transactional businesses performed strongly in Q1 FY25, with net revenue growth of 17% and 18% respectively. Resilient businesses now account for over 60% of total SOP on a trailing 12-month basis, significantly increasing the company's resilience. This compares to approximately 20% resilient SOP in 2011, indicating a much stronger position to weather potential economic downturns.

    03

    Impact of Tariff Uncertainty

    While Q1 performance was robust and new business pipelines were strong, the outlook has become less clear due to increased market uncertainty🌐 stemming from the tariff situation. This has led to some capital sources slowing down for investment management funds, and some corporates pausing larger project management programs. Industrial leasing is also expected to normalize📎 to pre-Q1 expectations, returning to flattish 2024 levels.

    04

    Office Leasing Outperformance

    Office leasing showed unexpected strength, particularly in gateway and non-gateway markets, with U.S. office leasing revenue up 38%. This outperformance is attributed to a scarcity of new office space and companies recognizing the importance of office environments. Management noted that current economic choppiness is not significantly impacting the enthusiasm for leasing office space, with some large leases still progressing.

    05

    M&A Strategy and Downturn Preparedness

    CBRE has a refined M&A strategy, focusing on companies that value being part of its platform. The company believes that market choppiness builds momentum for its M&A efforts, as potential targets are more interested in being acquired. Management stated that CBRE is better positioned than ever to capitalize on opportunities during a market downturn due to its strong balance sheet and strategic M&A approach.

    06

    Construction Cost Mitigation in Development

    For its in-process development portfolio, CBRE has significant mitigation against potential construction cost increases from tariffs. Projects are largely complete or near completion, protected by GMP contracts, or covered by built-in contingencies in budgets. Furthermore, a large portion of project costs (land, engineering, site work, labor, domestic materials) are not tariff-sensitive, reducing overall exposure.

    07

    Capital Markets Activity and Interest Rates

    Capital markets activity, particularly loan originations, is expected to continue as long as interest rates remain stable and the 10-year Treasury stays below 5%. Refinancing activity constitutes 55-60% of current loan originations, providing a stable base. Volatility in rates, rather than the absolute level below 5%, is seen as the primary deterrent for investors, causing them to pause.

    AI-generated summary of the company’s earnings call. Not investment advice.