CBRE Group Inc - Class A (CBRE) — Q1 2017 Earnings Call Transcript

Thank you, and welcome to CBRE's first quarter 2017 earnings conference call. Earlier today, we issued a press release announcing our financial results and it is posted on the homepage of our website, cbre.com. This call is being webcast through the Investor Relations page of our website. This page you can find a presentation slide deck that you can use to follow along with our prepared remarks. An audio archive of the webcast will be posted to the website later today and a transcript of our call will be posted tomorrow. Now, please turn to the slide labeled forward-looking statements. This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements regarding CBRE's future growth momentum, operations, market share, business outlook and financial performance expectations. These statements should be considered estimates only and actual results may ultimately differ from these estimates. Except to the extent required by securities laws, we undertake no obligation to update or publicly revise any forward-looking statements we may make today. For a full discussion of the risks and other factors that may impact any forward-looking statements, please refer to our first quarter 2017 earnings release furnished on Form 8-K and our most recent Annual Report on Form 10-K. These reports are filed with the SEC and are available at sec.gov. During this presentation, we may refer to certain non-GAAP financial measures, as defined by SEC regulations. Where required by these regulations, we have provided reconciliations to what we believe are the most directly comparable GAAP measures. These reconciliations, together with explanations of these measures, can be found within the appendix of the presentation. Please turn to Slide 3. Participants on the call this morning are Bob Sulentic, our President and Chief Executive Officer; Jim Groch, our Chief Financial Officer; and Gil Borok, our Deputy Chief Financial Officer and Chief Accounting Officer. Before I turn the call over to Bob, I want to note that as we announced two weeks ago, Brad Burke will join us from Goldman Sachs in early June as Head of Investor Relations. Brad is well known to most of you and he will make an excellent addition to our team. I will be working with Brad to hand over my primary IR duties to him over time and following a transition period will focus more fully on the Company's Corporate Communications. Until Brad is on board, I will remain your primary IR contact. Now please turn to Slide 4, as Bob discusses our first quarter performance.

Thank you, Steve, and good morning, everyone. Our financial performance in the first quarter continues to reflect strong operating momentum and the growing advantages we hold in the marketplace. Those of you who have been following CBRE closely know that we've been focused for some time on a strategy to make CBRE a more balanced and capable enterprise that produces highly differentiated outcomes for our clients. In support of this strategy, we have made targeted organic investments and acquisitions aimed at bolstering our talent base, service offerings, and operating platform. These investments have allowed us to significantly improve our ability to provide integrated solutions for our clients around the world, as well as improve our digital and consultative capabilities. All of this has positioned us to better satisfy our clients and take market share. This was clearly evident in our first quarter results with excellent top and bottom line organic growth across our regional services businesses globally. This growth came against the backdrop of lower sales market volumes in many parts of the world. Our earnings were further enhanced by the steps we took in late 2015 and in 2016 to calibrate our costs while also investing in our strategy. While we are always mindful not to read too much into the first quarter performance, CBRE is in a strong competitive position and we are intent on further pressing our advantages for the benefit of our clients, shareholders, and employees. Now, Jim will take you through our first quarter results in detail.

Thank you, Bob. Please turn to Slide 5. As Bob indicated, CBRE had a very strong quarter. Let me start with three highlights. First, Q1 growth was almost entirely organic, and this is being achieved in an overall market where global sales transaction volumes were down. Second, we increased our margin to 15.8% in Q1 2017 and grew adjusted EPS by 19% with high quality earnings. Third, we continue to be highly disciplined in our approach to both recruiting and M&A. Since late 2015, we have repeatedly noted that M&A and recruiting had become pricey and less disciplined just as the industry was beginning to experience lower market transaction volumes. The market had moved away from our long stated five to six times EBITDA multiple for infill M&A. During this period, we shifted our focus to small, highly strategic, non-traditional acquisitions. This allowed us to strengthen our platform to support organic growth, create balance sheet capacity for future M&A, and maintain a high teens return on invested capital. Continuing this trend year to date, we have acquired three modest in size, but highly strategic enterprises. Two are leading SaaS software platforms and the third is the technology enabled national financing platform. All three provide operating leverage and enhance our clients' offerings. I should note that we are now beginning to see early hopeful signs of greater discipline around M&A in the market. With regard to recruiting and retention, our disciplined approach is working. Top professionals are continuing to elect to join CBRE and remain with us because our operating platform, scale, brand, and ability to deliver integrated solutions enabled them to do more for their clients. Please turn to Slide 6. All growth rate percentages cited throughout this presentation are in local currency unless stated otherwise. Our results for the quarter were strong. Gross revenue and fee revenue both rose 7% to $3 billion and $1.9 billion respectively. Virtually all of our growth was organic, providing continued clear evidence of gains in market share. EBITDA increased 21% to $307 million, and adjusted EBITDA increased 7% to $303 million, both in U.S. dollars. This growth was particularly impressive considering EBITDA contributions from our Development Services business were down sharply as expected due to timing of gains and incentives. Adjusted EBITDA margin of 15.8% on fee revenue improved 40 basis points from Q1 2016. Adjusted earnings per share in U.S. dollars increased 19% to $0.43 for the quarter driven by strong performance in the Regional Services businesses. The benefit of a lower tax rate was more than offset by the reduced gains from our Development Services segment. Please turn to Slide 7 regarding the results for our three Regional Services businesses which exhibited broad strength in Q1. Combined, they achieved 7% growth in fee revenue and 19% growth in adjusted EBITDA. Adjusted EBITDA margin on fee revenue for our Regional Services segments was 15.2%, up 180 basis points from Q1 2016. Note that the impact of cost savings is particularly pronounced in our latest quarter. In addition, Q1 2016 also included approximately $9 million of expense in cost of goods sold that did not recur in Q1 2017. The Americas, our largest business segment, posted fee revenue growth of 5%, while EMEA and Asia Pacific posted fee revenue growth of 10% and 8% respectively. Virtually all the growth was organic. In Asia Pacific, growth was particularly strong in Greater China, India, and Singapore, while Germany, Spain, and Switzerland set the pace for CBRE in EMEA. In the United Kingdom, overall fee revenue rose 9% with solid growth across virtually all business lines. Growth of 9% in leasing and 5% in sales reflect a continued improvement in market sentiment following the Brexit vote and our market share gains. Strong organic growth coupled with our proactive cost elimination program, which ended in Q3 2016, once again led to significant operating leverage in each of the three Regional Services businesses. In U.S. dollars, adjusted EBITDA increased 18% in the Americas, 22% in EMEA, and 58% in Asia Pacific. After removing the effect of all foreign currency movements including prior year hedging on a year-to-year comparison, the adjusted EBITDA growth rates were 18% in the Americas, 39% in EMEA, and 10% in Asia Pacific. Please turn to Slide 8 for a review of our major global lines of business in Q1. As already noted, all figures are in local currency unless stated otherwise. Occupier outsourcing produced fee revenue growth of 9%. Emblematic of the strong gains this business is making internationally, we achieved notable growth in Canada, India, Spain, and the United Kingdom, among other countries. Our capital markets property sales and commercial mortgage services continue to perform very well, producing 8% revenue growth on a combined basis. Commercial mortgage services grew at a double-digit clip, with revenue up 14% for the quarter. Our loan volume growth in Q1 was driven by increased originations with life insurance companies. Our loan servicing portfolio ended Q1 at approximately $150 billion, up about $18 billion or 14% from the year earlier quarter. Property sales revenue increased 6%, despite, as Bob mentioned, a notable slowdown in global market volumes, especially in the United States. EMEA sales revenue increased 16%, aided by robust growth in France, Spain, and Switzerland. Asia-Pac revenues dipped 4%; improved performance in Greater China and Singapore was offset by a decline in Japan, which had an exceptionally strong Q1 of 2016 when sales rose by 67%. The Americas saw sales revenue rise by 6%, posted by significant gains in Canada. Revenue growth of 2% in the U.S. stood in stark contrast with a 13% market volume decline as reported by real capital analytics. CBRE ticked up a 130 basis points of market share according to RCA. It is also important to note that we completed more than 1,900 sales transactions in the U.S. in Q1. Of these, less than half are captured in RCA statistics as the remaining fall outside of their parameters for deal size, property type, and user versus investor sales. This reflects the broad base with our service offering around property sales. Leasing revenue rose 4% globally in Q1. It is important to note that our growth of 1% in the U.S. was on top of a very strong growth of 20% in the U.S. in Q1 2016. Leasing for both Asia-Pac and EMEA recorded double-digit growth. We continue to have good momentum in our leasing business. Property management and valuation achieved solid growth for the quarter, fueled by double-digit increases in both business lines in EMEA and Asia-Pacific. Please turn to Slide 9 regarding our Occupier Outsourcing business, which is reported within the three regional services segments. Fee revenue increased 9% in the quarter for our Occupier Outsourcing business. We achieved solid organic growth in all three regions as our value proposition has been materially strengthened by the Global Workplace Solutions acquisition. Notably, with the integration largely complete, we are now fully focused on the delivery of great client outcomes and the growth that naturally follows from high client satisfaction. This business maintained an active new business pipeline in Q1, highlighted by 52 contract expansions. Overseas, contract activity was brisk with 17 total contracts in EMEA and 12 in Asia-Pacific. 16 total contracts were signed in the global healthcare sector, most of them reflecting expanded service scope for hospital systems in our client portfolio. International markets and the healthcare sector remain fertile growth opportunities that are particularly well-suited to CBRE's scale, broad capabilities, and collaborative culture. Please turn to Slide 10 regarding our Global Investment Management segment. Again, all percentage increases are in local currency unless stated otherwise. Adjusted EBITDA rose to $26 million for Q1 2017, up 19% in local currency or 13% after removing all effects in both the years of foreign currency. Revenue was up 3%. Carried interest totaled $3.3 million, compared with less than $2 million in the year-ago quarter, as management fees were relatively flat. It should be noted that currency translation continues to have a pronounced impact on the results for this business, as approximately 60% of the assets under management, excluding securities, is denominated in euro and British pound sterling. The weakness of the sterling continued to constrain growth of AUM when measured in U.S. dollars. AUM totaled $86.5 billion, up $900 million in local currency from Q1 2016. However, when measured in U.S. dollars, AUM decreased by $3.2 billion. The capital raising environment remains healthy, and our business continues to attract significant capital from investors due to the strong performance of its investment programs. Equity commitments for the trailing 12-month ended in Q1 2017 rose to $8.4 billion. Please turn to Slide 11 regarding our Development Services segment. As we had anticipated, EBITDA contributions from this business declined dramatically from $31.9 million in Q1 of 2016 to $2.8 million. The reduced contributions are a matter of timing of asset sales. Development Services has a continued strong flow of assets being brought to the market, and we expect to realize significant gains in the back half of the year. Projects in process total $5.9 billion, down $1.2 billion from Q1 2016, while our pipeline increased by $2 billion to $5.1 billion. More than half of the pipeline is for fee-only projects, which typically do not include co-investment or promote interests. Please turn to Slide 12. Before I turn the call back to Bob, I'd like to emphasize two points regarding our performance in Q1. First, our Regional Services businesses had another outstanding quarter with 7% growth in fee revenue and 19% growth in adjusted EBITDA, both in local currency. Second, growth in the last two quarters was almost exclusively organic. This reflects the success of our integration of Global Workplace Solutions and our ability to drive market share gains in our transaction businesses. Now please turn to Slide 13 for Bob's closing remarks.

Thanks, Jim. We are pleased with the excellent performance our people produced in the first quarter. As we look ahead, we're increasingly energized about our market position and prospects. We operate in a sector with attractive underlying growth dynamics. The global economy continues to grow at a modest clip, and commercial real estate market fundamentals remain sound. This is a generally favorable macro environment for CBRE. Our business has positive momentum and our people, supported by our increasingly robust operating platform, are well-positioned to capitalize on this environment. At the same time, it is important to remember that the first quarter is typically our seasonally lightest quarter for revenue and earnings, and the impact of our cost savings actions is particularly pronounced this quarter. As always, we caution against extrapolating first quarter performance to the full year, and we are not updating the guidance only three months into the year. With that, operator, we will open the lines for questions.

Thanks, good morning and nice quarter. My first question is on the OpEx, which was down year-over-year, and I think you mentioned that you had a magnified impact from cost savings? Can you talk more specifically about how to think about that number over the rest of the year? Is it something that should still be down year-over-year in the coming quarters, or was the first quarter just skewed?

Hi, Tony, it's Jim. I don't think the OpEx was actually down, but the growth - but it was not very much and what we're saying is we will continue to see the benefit from our cost savings effort that they were all eventually just with such a small quarter, Q1 being the smallest quarter of the year at the same dollar amount, having a bigger impact in Q1 than in Q2.

So I guess if I'm looking at the income statement, $606 million against last year, maybe last year had some items, and I guess you make the adjustments to the $606 to get your adjusted EPS, but it seems still pretty flat or at the very least, even if I make those adjustments. I know there's some variable costs in that so that will move as the year progresses, but is the general idea of being even flat year-over-year the way to think about it?

No, the adjusted is about $10 million, but I don't think you can necessarily assume that OpEx won't be up in the next few quarters, especially just dealing with larger quarters.

Okay. And then on the outsourcing business, I know there's a bit of a drag from FX in EMEA. In the past you've talked about that being a basically a double-digit business; seems like it's been trending more in local currency in the high single-digit business. Is that just mix or just the ebb and flow of it, or should we think of that as kind of being down a little bit from where you had been trending the last couple years?

Yes. Tony, this is Bob. What we said for this year was that we expected that business to grow, give or take, 10%, but that we expected the growth to be skewed toward the back half of the year. The reason being is that we came out of a very intense integration over the last 15 months, and the focus was on integration, getting those accounts and those customer relationships where we wanted them to be, less on typically focused on growth. Obviously, that integration, as Jim commented in his remarks, is largely behind us now and the focus has returned to more normal things, including growth, so we expect - the day you shift that focus, the growth doesn't show up. So we expected our growth to be more backend loaded this year. We were really quite happy with the first quarter growth of 9%.

Okay, I understand. Can you give us an outlook or any updated views on how you're seeing things progress on the leasing side, particularly in the U.S.?

Yes. I mean leasing isn't growing the way it was in some prior years, but as it relates specifically to our first quarter, one thing we keep in mind is that last year we grew 20% in the first quarter, so that was a pretty tough compare and we grew a little bit this year. In general though, we haven't changed our view as to what we think will happen with leasing for the full year and I think we said mid single-digit growth, and we still think of it the same way.

Okay. And then just last question, it seems like two of the three acquisitions you noted were technology oriented and it seems like over the last year or two that's been a focus. Are those - do you think about those and the capital deployed into those kinds of investments being like historically what you would do, or do you see these more technology-oriented investments as strategic or not really earnings or are these profitable companies? How to think about those things?

Yes. Tony, Jim is going to answer that, but before he does, I want to correct what I just said. We didn't say mid-to-high single-digit leasing growth; we said mid single-digit leasing growth. So I just want to make sure that I’ve corrected that. Jim, you want to hit that?

Sure. And Tony, also on the, just coming back to your first question on OpEx. OpEx for our three Regional Services businesses was up about 2%. When you look at it on a consolidated basis, the material impact is the Development business is down so much, and the comp expense that goes with that brought down OpEx on a consolidated basis. As far as your question on the M&A, even technology deals can look radically different one from one to another. Some are profitable operating businesses with certain growth rates; others are in a really steep ramp up where there are still unprofitable. So we look at those businesses one by one. And we are really looking at this kind of cash flow over a range of assumptions to underwrite the value of the business.

Okay. Thanks. I'll get back in the queue.

Thanks, Tony.

Good morning, guys. Bob, I think you mentioned the JCI integration was basically complete and I guess kind of looking back over the past year plus how did that integration go relative to the timeline that you guys internally established in terms of your expectations?

The integration moved through the timeline roughly as we had expected. Mitch, it was harder work than we thought. We always tend to underestimate those things. This integration had 16,000 people in 50 countries and lots of clients, so it was hard. But it was very successful and it was successful on the timeline that we had expected it to be. And one of the really nice things we're seeing now is - we are seeing visibly, and we measure this. It's really important to know we measure this. We are seeing visibly improving scores with our clients that we acquired in that transaction from where those clients were when we acquired the business, which is what enables us to continue to be confident that the growth in that business will sustain and pick up as the year moves on. And we often get questions about cross-selling. And you know we've been reticent to talk at all about cross-selling into those clients while we were going through that integration because it was all about doing great work for them on what they've hired us to do to date. We're starting to see some of that opportunity become available to us. So we're feeling pretty darn good about it.

Great, that's very helpful. With regards to your attitude toward hiring, I know that we've spoken in the past that some of your competitors benefit aggressively with regards to what the pay packages and commission structures they're offering and I'm curious if you have seen that mitigate at all and maybe just in general what your attitude is toward hiring across the board for your platform?

So we have been through a period both in terms of hiring and acquisitions where Jim's commented on this pretty regularly, where we thought things got a little frothy for lack of a better term. We decided to remain disciplined during that period, and we're really glad we did; by the way, I think it's clearly showing up in our numbers. But we still, on the hiring side, Mitch, hired 100 brokers net of departures last year. If you look at our departures relative to the headcount we have, particularly among our senior brokerage ranks, they're very, very low compared to our turnover in almost any other part of the business and frankly compared to turnover in almost any part of any major business. And there's a reason for that, and the reason for that is that we have a business that includes our operating platform, our brand, our clients, our global network that allows the brokers to come here or stay here and generate considerably more volume than they can generate elsewhere. So through all of what was made the headlines, particularly last year, we had a great year for recruiting. We had a great year for retention, and that has continued into this year. Our net recruiting numbers through the first quarter of this year are a lot like they were last year, which are strong relative to long-term historic metrics, but down from 2014 and 2015.

Great, that's helpful. And then last question for me. I think more looking at the investment sales markets and I know RCA data had implied a pretty slow start to the year with an acceleration in March and I'm curious if that was consistent with what you saw from your customers and then how you feel about the pipeline as they sit today?

Well, we haven't changed our outlook for the year on what we think will happen with investment sales. We saw a different result than the market saw in that business during the first quarter. And I think that was a result of taking market share, but I think the general trends you described over the course of the quarter were a reasonable reflection and we expect to continue to take market share throughout this year and end up the year with good solid performance in that business. It is worth noting that while the capital markets in investment sales in general are down from where they were, particularly in 2015 and before, 2016 and so far this year by historical measures are still pretty good, and there is a massive amount of capital that wants to be in commercial real estate for a bunch of reasons, notably you do get cash flow, fundamentals are strong, rents are in good shape, vacancies are in good shape, and there's pressure to grow in many markets. As you've heard from us and our competitors, it's not a loose market for construction loans, which means there's not going to be a lot of new product coming on and there's not a lot of new product in the pipeline, which means that you should see fundamentals remain strong. By the way, that's really good news for our development business. So we think it's going to be a solid year for investment sales, but it's not going to be crazy growth like we saw in some prior years.

Great. That's helpful. Thanks a lot, guys.

Hi, good morning. Thanks for taking my question. In the investment management business, I know AUM was up in local currency, but I'm curious how you describe the capital raising environment and what your investors are thinking about at this stage of the cycle?

Yes, capital raising has been very, very strong for us and I would say continues to be on a fairly consistent basis. We are seeing maybe some investors being careful and thinking about where they're investing and aware of the fact that we've been in a slow but longer economic recovery than prior cycles that this cycle feels a bit different, but the flows of capital into our investment management business have continued quite strong. I think we’ve mentioned we've raised $8.4 billion of equity in the last trailing 12 months, which is pretty consistent with what we've been doing on average for the last few years.

That's helpful. In the Commercial Mortgage Services business, can you characterize what you see as driving the growth in your origination volumes there? Is it the sort of retreat of banks and general depositories in that market?

Well, life companies are strong in the GSCs where we have a big market share, and they are very active. And while the sale of multi-family is off in the first quarter, refinancing is strong in our business. So those things have played well for our mortgage origination business because we're very active in those markets.

Okay. In just one more for me also on the commercial mortgage business, can you tell us the approximate split between big gains from MSR and just the gain on sale volume that you saw there?

Yes, so just specifically, EBITDA from MSR gains increased $3.7 million for the quarter. That was a little more than offset by incremental related amortization of $5 million. So that the net impact for us on the quarter in pretax income was $1.3 million.

Okay. Thank you very much.

Thank you very much. On the investment sales business, the market share gains, are you taking market share from a certain strata of competitor? Is it coming in from the top five players, or is it really just from smaller, say, the bottom 20 players, smaller firms where either you're hiring folks out of those smaller regional or local firms, or they're just not able to compete in an environment where execution certainty is at a premium?

Good, Jade. We did a nice job in the first quarter across our investment sales business, and it's really important to note, and Jim in his comment made the point on the lot of volume of transactions we do. There's a significant number of those captured in that RCA data, but over half of them aren't. So we have an active business; we believe we grew market share across the spectrum of what we do. I wouldn't want to say it's at the expense of any one group of competitors, because we don't have great insight into other than what's published for everybody to see on RCA; we don't have great insight into what individual competitors do. And we also don't read too much into one quarter, but I would say the efforts that we're making across our capital markets business, both on the loan origination side and the investment sale side, across the full spectrum of investment sales performed quite well around the world in the first quarter and probably in most places we took market share.

And in terms of the RCA data, is there a predominant category of your deals that are not showing up? Is it because of the size of the deals or the nature of the projects?

There's a variety of categories; the largest category is that RCA doesn't track sales by users as opposed to investors. So we do, with our large corporate business, a lot of work for companies that are buying real estate for their own use. So those don't show up. There are some that don't show up for size. There are some that don't show up for products. For example, they don't track land sales and we've got a large land sales business. So it's kind of a number of different categories.

And what percentage of sales historically have been from users as opposed to investors?

I don't think we've broken that down. It's less than half. We noted RCA's volume caught about less than half of our total transactions. They've captured more, on a value basis, of the transactions because they're capturing obviously more of the larger institutional deals, although that's somewhat offset by the fact that smaller deals tend to have larger commissions. So from a revenue standpoint, they're missing a decent chunk of that revenue that comes to us from that business.

On the investment management business, what drove the reversal of the carried interest comp and can you say in what quarter that was previously booked?

So we've just were carried into - GAAP requires that we recognized comp expense associated with an incentive that we expect to get. So we'll assess the fund that maybe we'll run through the numbers on a fund and assess that we've get in carried interest two years from now that we think is going to be a certain amount. The GAAP requires us to book the comp expense, which is significant at the time that we're making that estimate. We adjust all of our adjustments in that area that you're asking about is to try to align the comp expense with the timing of when we realize this incentive gains. So when we're reversing an expense like we did in this quarter, it can be from a number of different quarters. If you look back over the last few years, we made adjustments in the other direction. So that's all it is, it's just to simply match the comp expense with the timing that we actually realize the income from carried interest.

Does it reflect any reduction in the amount of carried interest or the gain that you expect to generate?

Anytime we're making an adjustment up or down it's because we're reassessing a carried interest out into the future as compared to the time that we last made that judgment call, so yes.

I just wanted to ask about the retail sector and if you view it as an opportunity or a risk in terms of transaction volumes. For example, are you seeing an increase in deal flow or dispositions from large retailers or are you seeing space repositioning deals? And then in management consulting, is there an opportunity to either bolster capabilities or develop potential productivity-targeted initiatives toward helping advise retailers on improving their business?

Jade, first of all, I want to put retail in perspective. It is a very important business to us and we have a substantial network across the country, but it is less than 10% of our Americas revenues. Change is a good thing for us in general when people are growing and adding space, that's good; when people are exiting spaces and looking for others to offload into that's good. So retail is a good business for us, it has been a good business, continues to be a good business, it's not dominant in our numbers. What we're seeing is a couple trends. Number one, anything that has to do with experience, retail food, and beverage-oriented stuff is, in fact, quite active. Secondly, anything that tends to be in and around these live, play type areas in major cities, the more urban areas is really active and doing well. So we expect that to continue throughout the year. We expect change to continue. Obviously, e-commerce is having a big impact on that. We do have the opportunity to be consultants to the retailers that we work for, and we get called on to do that fairly regularly, and that's part of what we do as well. But that's a good solid business for us, and we expect that to continue.

And finally, just what do you think is the reason behind the expected acceleration in occupier outsourcing growth in the second half of the year?

Well, the market - we believe broadly speaking, the market opportunity is the same in the first half and the second half. What happened with us and what we talked about was, we spent the last 15 to 18 months integrating probably the most complex acquisition in the history of our sector, certainly the largest by headcount and certainly the largest by the number of different countries that were involved. And so when you're in that mode, you're filling your pipeline less than you normally would because you're focused on executing existing business is being integrated. So what you're seeing early this year is still the result of us being focused on that integration. As we get later into the year, you're seeing a reflection of us having turned more and more late last year and early this year towards growing the business and that's what's being reflected. There’s not a change in the market.

Thanks very much for taking the questions.

Thank you.

Thanks. Jim, maybe one for you to start. As you think about the balance of the year in the mortgage brokerage business, both the agency and non-agency business, anything that we should be aware of either relative to the pace of last year's volumes or change in mix, those kinds of things that we need to remember as we think about Q2, Q3, and Q4 modeling-wise or just what the OpEx growth looks like out of that business?

Sure. Thanks, Brandon. I guess I would start with some on the agency side. Both agencies have caps that are roughly similar to what they had last year. Our expectation is both will meet their caps. There is a little more room in the caps around some item, some types of loans that aren't subject to the caps or housing green projects. But all in all, our expectation is it will be another strong year. Our loan volume was down modestly with the GSCs from last year, but I think that's just a matter of timing between quarters. Our volume with Freddie was down a little bit. Our volume with Fannie was up a bit. So the real strength for us in Q1 was driven by the life insurance companies. The numbers quarter-to-quarter can move around a bit with the agencies in particular, but overall we expect it to be another solid year.

Okay. And then think a little bit about some of the OpEx questions and dynamics at the outset of the call. How is the JCI or GWS integration played into some of those dynamics? I recognize there are some kind of discrete cost management programs, but is there still some benefit to come from the integration and how that's reduced the cost structure, or does it really just depend on what you guys do from kind of discrete perspective?

Yes, I think we're largely through the benefit of the synergies from within that deal and as we noted, we're done with our integration and normalization of any remaining cost to be done next quarter. So I think most of that benefit is really flow through now.

Okay. In the UK, as you look at both investment sales as well as leasing in the quarter, but I guess also more important to the pipeline, how do we think about the mix of the various property types that you see transacting or what the pipeline looks like relative to what it looked like last year, especially kind of pre and post Brexit? Or do you see any notable differences, particularly in office or maybe even retail in the UK for how people are - owners and occupiers are dealing with stuff?

Well, industrial is strong, Brandon, and in general, the UK is making a nice comeback. I mean, we are seeing good activity there. I think we had a recent survey of clients that showed that London once again was the favored destination for international capital among all major markets around the world. So I would say positive trends and nothing about what's going on with the Brexit situation is giving us major concerns now. And if I were to spike out a property type, it would be industrial for particularly good news.

Okay. And then follow-on for me on producer headcount, I guess both EMEA and the U.S. Given the M&A environment seems to be a little bit easier. Has that impacted how you guys think about what the right level of kind of outgoing churn or attrition within the producer ranks should be? Or has it changed what that attrition looks like in any other notable direction in the past couple of quarters?

Hey, Brandon. I want to make sure we're understanding your question. Are you saying that because we think the opportunity to do infill M&A may be getting better again, i.e. the discipline in the market is such that we would be interested in deals given current pricing more than we were last year, that we would correspondingly reduce our efforts to recruit?

But I guess I was also referring to maybe the idea that the M&A environment is getting easier; do you see your producers having an easier time looking outside of CBRE going elsewhere?

No. I think the M&A environment doesn't impact our producers much one way or another. Really the number one overwhelming thing that impacts the producers' decision, particularly producers' decision to stay, is whether or not they think the opportunity here long-term is better than it is elsewhere. Yes, the signing bonuses have an impact, but when you look at the total number of producers we have and when you look at the top ranks of producers, the headlines don't match up with reality. The huge overwhelming number of our people look at the circumstance and say over time, where can I do better? Where can I serve my clients better? Where can I do more business and where do I feel comfortable with the culture and the colleagues in all of those things? And the M&A environment doesn't change that much. Yes, the recruiting environment out there does change a little, but that's on the margin. On the whole, if you look at the numbers, it's all about what we have to offer our producers, and that's going quite well.

Okay. Great. Thanks a lot.

Thanks. Just in terms of income statement geography, the integration costs adjustment and the carried interest adjustments, where would we make those adjustments? Are they on cost services or OpEx?

Yes, they're mostly going to go through OpEx.

Both of them go through OpEx.

Yes.

Okay. And then I think the tax rate in the quarter was around 29%. I think you guided to say 32% for the year; is that still how it's going to go?

Yes, we're not updating guidance. But we'll take another look at that in Q2. But the numbers you quoted were the numbers that we guided too. We are continuing to follow in our GWS acquisition. We continue to rationalize entities. Sometimes we can get certain benefits released, tax benefits released as we rationalize entities. So we're doing continued work in that area, but no update yet on that.

Okay. And then last question, did you buy back any stock in the first quarter, and how are you thinking about that right now?

We did not buy back any stock in the first quarter and we spec ultimately execute on the authorization given by the board, but we've not set any buybacks yet.

Okay. Thank you.

Thanks, Tony.

Good morning. I have a question about the capital markets business; have you noticed any widening spreads or any hesitation from buyers?

We haven't seen much impact on pricing, David, maybe just a bit on the timing impact on cap rates and prices. We have seen some slowdown in the velocity related to getting deals done. And that's really where we're seeing the impact. Any time there's uncertainty about where the markets headed, you get that. But again, you saw our numbers; our first quarter this year was more active than our first quarter last year, and well mid-year is the equal of 2015: a lot of volume; both years we did 1,900 deals in the first quarter.

Understood. And then on sort of a similar question on leasing, particularly around EMEA. Is that any sort of incremental hesitancy on the part of occupiers to find leases, particularly in the UK maybe?

No, I don't think there's incremental hesitancy. I think you look businesses around, we're in a slow growth environment, but we're in a growth environment. So businesses don't feel that need to secure space to make sure it's there to accommodate lots of future growth, but they do rational levels of leasing to keep pace with their modest growth. That's exactly what we're seeing in the marketplace. We're seeing a lot of financial rigor by companies; that's why everybody has good balance sheets. That's one of the reasons we think the expansion has a chance to run for a while. And we're pretty happy with that dynamic, and it's playing out nicely for us, and it's playing out nicely in our numbers without being radical.

Okay. Thank you very much.

Thank you.

Thanks for being with us everyone, and we'll talk to you at the end of the second quarter.