CBRE Group, Inc. (CBG)

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CBRE Group, Inc. (CBG)

Annual Business Review Day Conference Transcript

December 6, 2012 9:00 AM ET

Executives

Bob Sulentic - Chief Executive Officer

Gil Borok - Chief Financial Officer

Ray Torto - Chief Economist

Asieh Mansour - Head, Americas Research

Cal Frese - Chief Executive Officer, Americas Business

Mike Strong - President and CEO, EMEA

Rob Blain - President, Asia-Pacific

Matt Khourie - CBRE Global Investors

Bill Concannon - Chief Executive Officer, Global Outsourcing Business

Jack Durburg - President, Brokerage

Mary Ann Tighe - Chief Executive Officer, New York Tri- State Region

Jim Groch - Chief Investment Officer and Head, Strategy

Mike Lafitte - President, Services Business Global

Chris Ludeman - Head, Capital Markets Global

Analysts

Presentation

Bob Sulentic

We will wait a couple of seconds for. Is this, John, is this on. Can you hear me all right out there? Okay. We’ve got plenty of seats upfront. So, everybody, if anybody else wants to sit down soon.

Okay. Good morning, everyone. And welcome to CBRE’s Annual Business Review Day. Looking around the room, I know, most of you have been here before, so you are familiar with our format. We’ll start with the comprehensive review of the business presented by senior management members from each area of the business, geographic and functional area of the business.

I’m Bob Sulentic, the company’s new CEO. I’ve been with the company for six years and I know many of you from the year when I was the company’s CFO several years ago. I was actually foolish enough to be the CFO in 2009 and Gil took over after that and it’s been uphill from there.

I’ll start with an introduction of our speakers. Gil Borok, the company’s CFO, you want to standup Gil. Ray Torto, our Chief Economist back here. Asieh Mansour, the Head of Americas Research, he is right there, okay. Cal Frese, who runs our Americas Business, our biggest business; Mike Strong runs EMEA for us. Rob Blain, runs Asia-Pacific; Matt Khourie run CBRE Global Investors, over here the left. Bill Concannon is the Chief Executive Officer of our Global Outsourcing Business. Jack Durburg, President of Brokerage for us globally, over here; Mary Ann Tighe, is Mary Ann here, she is the Chief Executive Officer of the New York Tri- State Region and one of the top practitioners in the industry globally.

In addition to that group, we have three other executives here who won’t formerly present but they will be available for Q&A. Jim Groch, our Chief Investment Officer and Head of Strategy; Mike Lafitte, the President of our Services Business globally, which is about 90% of our revenues, 90 plus percent; and Chris Ludeman, who heads up Capital Markets for us globally. Where is Chris? Okay. Thanks.

Okay. With that I’ll dig in and I think the place I had to start given that, I’ve transition this role from Brett, who ran the business for eight years, is to talk to you a little bit about the vision and strategy for the business and where I see that relative to where it’s been.

First of all, we want to have a simple vision and we want to have a simple strategy, so our people and our customers understand it, and we can execute on it with clarity. I very much believe in the vision that we have had for this company. The vision that existed for 20 years, I've been part of that for the last six, as I said, but I observed as a competitor of the companies for the whole 20 years. So I know what’s been happening and I’m very much believe, and I’m going to comment on what it was in a minute.

We need to evolve our vision and our strategy, but we are largely going to stay with it, and by the way, we would need evolve our vision and strategy whether Brett remain here or whether somebody else come in in his place, we always do this to address both the market and our customer needs.

What is our vision; is to be the global leader, integrated across product lines in commercial real estate, services and investment. What defines leader? Very simply for us its three things, quality and value of the service we provide to our customers, to our clients and we test and study that, we don't just talk about it. We test it and study it. We deeply understand where we stand in terms of providing that quality.

Scale, important to us in terms of industry leadership because of the advantages it brings, advantages in terms of geographic and product coverage, advantages in terms of the ability to invest in the business and cost advantages. So scale is a critical part of being industry leader.

And importantly, consistently -- consistent with what we've always done, long-term growth for our shareholders, for our employees, for our customers. We believe growth is important part of industry leadership.

So where is the evolution in this vision? We are going to have considerably more focus on integration across product lines and geographies than we have had historically. And why is that is because that's what our customers want. If you watch this industry over the last 20, 25 years, when I came into the business in the mid-1980s, it was a one-off deal. You did whether you were in real estate services or development or investment. It was largely a one-off business.

Today, the wonders in the business have to integrate for their customers. We work for customers around the world. We work across product lines. We work within a single product line, doing business over and over on an account basis, whether the one-off basis, so we have to integrate. We have to collaborate better than we did before.

Secondly, and very importantly, as an addition to our vision, is that we want to be the leader in real estate investment, as well as services with the acquisition a year plus ago now, four pieces of ING’s investment management business, we’re now the global leader on commercial real estate investment, as well as services. So that's obviously a key element to the new partner -- to our updated version.

Our strategy for getting there historically has included the following, providing clients with the industry's top talent. Secondly, growth through aggressive M&A, identifying great targets, making great deals and doing a great job in integrating those targets, once we bought them, and cost efficiency and margin leadership.

How will this strategy evolve and change? First of all, all three of those elements of our strategy will remain. There is simply nothing more important in filling the top talent in the industry, we’ll never move away from that.

Secondly, M&A will remain a core competency for us, as I read about the transition from Brett to myself. I talk to people sometimes as this question, were we abundant, M&A is a core element of our strategy. The answer is no. There is an enormous opportunity to do in-fill M&A and we have examples of that since we’ve done the ING acquisition. We’ve done in-fill M&A in all three regions of the world.

Secondly, from time-to-time there will still be an opportunity to do large strategic acquisitions and the thing I’d point to you in that regard as an example. If you were to go back six months before we started working on the ING acquisition and Jim Groch led that effort for us.

If you were to go back six months before that, I don't think there was a member of our management team, a member of our Board, a member of our competitive set or a member of the analyst community that follow this would have said [GE], there is an opportunity for CBRE to do this large acquisition of ING’s investment management business.

What we were hearing then was the M&A opportunity played out the strategic opportunity to move the business forward to M&A and play it out. All the big acquisitions have been done. While we did $1 billion acquisition of investment management business and now that we’ve done that acquisition, we’ve positioned ourselves to do other things.

In Europe, after we did the acquisition of ING, they have a big, big pool of investments in malls and retail properties. We’ve acquired two in-fill asset services or property management businesses to help service that portfolio. In Asia-Pacific, we really didn't have a significant investment management business before the acquisition of ING.

Now, that we have that management infrastructure in place in Asia-Pacific, we’ll have other opportunities to do acquisitions, if we chose to in Asia-Pacific on the backs of that management team.

So that’s a very, very important thing to think about, when you think about as such, nothing about our M&A capability or commitment that’s changed and the other thing, I wanted to tell -- talk to you about specifically, now we got Jim Groch, who is right here, our Chief Investment Officer runs that for us.

He’s actually built up our capability in the last year to do that around the world. Jim Groch and Cal Frese, where is Cal. They were the two key guys on either of the Trammell Crow acquisitions. Jim headed up the ING acquisition. We’ve got a team in place. So count on us to continue that part of our strategy.

Cost efficiency and margin leadership, will that remain part of our strategy? Absolutely. There are very, very many things that are good about that but let me talk to you about two most important. Number one, it provides the financial resources that we need to continue to invest in our business. And number two, it allows us to more effectively navigate the cycles that we will inevitably have in this business, financial resources and navigating cycles.

So we will continue to be riveted on our margin and cost efficiency in the business. Where is the evolution in our strategy, we will invest more in the platform that supports our business and operational excellence. It’s a huge opportunity for us given our scale, information systems and technology, research capabilities around talent acquisition and development, we will invest in those things to better serve our clients to better grow our business.

And secondly, we’ll invest more on organic growth than we have historically. We think we have a tremendous opportunity and tremendous upside in the area of organic growth. I’ll give you a couple of examples. No part of our business when you look at, a kind of an aggregated basis has greater than 10% to 15% market share right now globally.

There is a lot of upside in our business in terms of the market share we have versus where we can grow. Asset services, we’re the biggest manager of buildings in the world. We manage three billion square feet of buildings and we manage a lot of office buildings.

If you took all the office buildings we manage everywhere in the world and put them in the New York metropolitan area like here in this market would have a 75% market share in New York. These are rough numbers obviously. We would have a 75% market share in New York. We wouldn’t manage a single square foot of space anywhere else in the world, nowhere else in the U.S., Europe, Asia, 75% market share in Europe, nothing else manage in the world.

There is a lot of upside for growth, a lot of upside for growth. And by some measures, our outsourcing business, which is the industry leader, the biggest in the industry and the bigger than we thought it would get to, there is no more than a 5% to 10% penetration by us and our competitors in that business.

There are a lot of corporations, a lot of hospital systems, a lot of government entities that have yet to outsource their facilities, and that’s a huge opportunity for us. So we think of ourselves as being particularly well positioned to continue to grow this business both organically and through M&A.

So with that, I’m going to turn over to Gil Borok, our Chief Financial Officer.

Gil Borok

Thank you, and good morning. As you know, just a word on logistics, we’ll take -- have a Q&A session, combined Q&A session at the end, most of you know that. The other thing I’ll get right out of the way is, I’m not going to -- the first thing on my map isn’t going to be an update to guidance.

So with that said, let me go through the presentation. And I’m going to go through in a fairly quick order. In part, as many of you know this. I just want to make sure that everybody is at least in the same page with the latest information on our basics and I do know you want to get to all the other speakers that you mostly don’t tend to see as much as you do to me.

So we’ll try and go through this with some speed. We start as we’re familiar to most of you but just a point or two on each one. This is our basic revenue chart and we talk a lot about revenue diversification on this chart. It’s obvious to you that with the largest in the Americas followed by EMEA, followed by Asia-Pacific and then the principle businesses, the EBITDA distribution isn't necessarily the same. It trends the same way.

But when you look at the Americas, we often get the question, [GE] what about expansion globally and so forth. Lot of factors go into consideration but suffice to say and again many of you know that it’s our most mature market, the most mature real estate services market is the U.S. or is the Americas, the U.S. being the biggest piece of it.

And so we are fairly well aligned in terms of where the business is vis-à-vis where our revenues are and obviously that is subject to change over time, should those dynamic shift. These are service dynamic. We’ve done a trailing 12 months. You usually see this on a quarterly basis. At the end of the year, you see it on a full-year basis. So we’ve done a TTM through 9/30. The big thing that jumps out at you obviously is the property and facilities management business being 35% of the total pie. That’s stable recurring revenue.

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