Emma E. Giamartino
Global Group President, Global Group President, CFO & Chief Information Officer at CBRE Group
. Thanks, Bob. It's a pleasure to be speaking with you all today, and I look forward to regularly engaging with you in my new capacity as CFO. With that, please turn to Slide 8. Advisory Services net revenue and segment operating profit set new second quarter records rising 47% and 130% versus Q2 2020. Notably, they surpassed our previous Q2 2019 peaks by 3% and 18%, respectively. While leasing revenue climbed 33% compared to the prior year, it was about 18% below Q2 2019 levels, mostly due to subdued America's office leasing. Overall leasing revenue rose year-over-year by 26% in the Americas, 61% in EMEA and 40% in APAC. Americas performance was about 28% below Q2 2019, while EMEA and APAC were about 21% and 14% above. We are encouraged to see recent improvements in America's leasing with July thus far up significantly compared to both 2020 and 2019. As expected, property sales improved markedly with revenue growing 152% from the prior year period. Americas, EMEA and APAC property sales revenue serves 158%, 132% and 151%, respectively. All regions eclipsed our Q2 2019 level with total property sales revenue about 27% above Q2 2019. The macroeconomic backdrop is part of the real estate investment and global capital migration continues to steadily improve. Rising property sales also helped to catalyze strong growth in commercial mortgage originations, which climbed to 61%. We saw particularly strong demand for acquisition and construction financing and recapitalization. Our loan servicing portfolio grew 20% versus prior year and 3% sequentially to over $294 billion, partially driven by strong retention of loans brokered and originated. This led to loan servicing revenue growth of over 15% compared to Q2 2020. Valuation revenue accelerated over 37% as transaction-related work picked up. Activity is particularly strong in the U.S., the valuation revenue increased nearly 47%. Finally, Property Management net revenue increased over 6%. EMEA and APAC grew strongly, while Americas lagged due to previous decision to exit some low-margin contracts. Moving to Slide 9. Global Workplace Solutions continued its long record of resilient growth with net revenue rising 11%. This reflected strong growth in project management, up 15% and Facilities Management up 10%, driven by elevated local facilities management and data center assignments as well as the benefit of favorable foreign currency translation. Segment operating profit rose over 33%, reflecting solid top line growth, disciplined cost management, the benefit of a mix shift to higher-margin work and the impact of last year's transformation initiative, which more than offset increased medical expense. Even accounting for about $17 million of transitory COVID-related expenses in last year's Q2, segment operating profit growth was up 18%. Importantly, our new business pipeline continues to be strong and well diversified with a high concentration of life sciences, logistics and technology companies, along with new data center activity. Turning to Slide 10. Our Real Estate Investments segment generated over $153 million of segment operating profit, surpassing its previous quarterly high by $38 million. Impressive development operating profit of nearly $120 million was fueled by large office property sales that commanded strong valuations due to the high quality of the assets and tenancy. Importantly, our pipeline and in-process portfolios both set new highs this quarter, rising to $9.6 billion and $15.2 billion, respectively. This growth was largely driven by fee-based office and industrial work for blue-chip occupier clients. Investment Management revenue grew 35% to $139 million fueled by a 29% increase in asset management fees, higher acquisition and disposition fees, carried interest and favorable FX translation. Assets under management rose 18% versus the prior year to a new record of more than $129 billion. Stepping up the growth of this business has been a strategic focus, and we're pleased with our progress. The strong top line growth, coupled with careful expense management, drove operating profit growth of 38%. Lastly, Hana's operating loss narrowed sequentially to $9 million. We expect a further narrowing of this loss going forward as all Hana sites are now operated by Industrious, and all Hana sites except for four legacy units are now owned by Industrious. The future financial impact of our Industrious estate, which will be mark-to-market as the value changes will be reflected in Advisory. On Slide 11, we'll look at our new qualitative outlook for the year. We now expect full year Advisory sales and leasing revenue on a combined basis will likely approach 2019 levels with sales likely to moderately exceed prior peak and leasing likely to be roughly 15% or so shy of peak. We anticipate year-over-year sales and leasing revenue growth rates will likely moderate as we move further into the second half of the year when year-over-year comparisons will be tougher than in Q2 when activity last year was at a virtual standstill. As noted previously, Q3 leasing is off to a strong start, and we continue to monitor the potential Delta variant impact on transaction volume. We've learned over the past 15 months that office leasing is highly correlated with companies return into the office. Given this, as we started to see some U.S.-based companies modestly delayed return to office states, we believe there is a potential for this to impact the strong recovery we've seen quarter to date. Across the rest of our Advisory business, we expect revenue to rise in the low double-digit range versus the high single-digit growth we anticipated previously. We also expect our more robust Advisory revenue projections will flow through into incremental margin expansion relative to our previous expectations. Moving to GWS. We are modestly raising our expectations for segment operating profit while maintaining our revenue forecast in the high single-digit range. Net revenue is expected to slightly exceed this range. We're benefiting from a shift in service mix and exemplary cost discipline. As a result, we now expect GWS segment operating profit to grow at around the high teens rate this year, a slight improvement from our previous expectations. Our updated GWS expectations include some incremental operating expense investments in the second half and do not include any benefit from our announced Turner and Townsend transaction. Looking at REI, we expect this this segment nearly doubled 2020's record higher profitability. In Investment Management, we expect revenue to surpass $500 million and profit to rise at least at a high teens rate from the $140 million achieved in 2020. We project development operating profit to more double versus 2020 and to roughly triple its 2019 contribution of $122 million. We are developing products in strong markets and sectors with supportive fundamentals, we have a solid pipeline for asset monetization. This is expected to translate into Q3 operating profits that are likely to be at least as high as Q2. Given the robust pipeline and in-process activity, we are optimistic about the long-term trajectory of this business and expect it to be a meaningful contributor to our long-term growth. Consolidated adjusted EBITDA margin on net revenue should significantly exceed the level achieved in 2019, even though we expect a modest uptick in corporate expenses as compared to that year. The return of high-margin sales revenue, the effects of last year's transformation initiatives and strong development gains are drivers of the improved outlook. Overall, we now project our 2021 adjusted EPS to surpass our 2019 pre-pandemic peak of $3.71 by a wider margin than we expected at the end of the first quarter. As usual, we will realize more than half of our earnings in the second half. But given our year-to-date performance, those earnings will be slightly more weighted to the first half than they have been in most years. Flipping to Slide 12. Over the last year, we've allocated about $2 billion in total, including about $1.9 billion for capital expenditures, investments in sponsorships and partnerships and M&A inclusive of our pending Turner & Townsend transaction while returning cash to shareholders by buying back approximately $88 million of shares. Still, net leverage remains modest at just 0.2 times pro forma for the expected closing payment of the Turner & Townsend transaction. We have significant capacity to invest in growth and diversification using our four-pronged investment approach consisting of sponsorships, partnerships, acquisitions and building our own resources and capabilities. Our strong balance sheet, coupled with the strategic moves we've made over the last year and market leading mission give us great confidence that we can deliver compelling and scalable growth for years to come. Looking ahead, we believe we are firmly on track to achieve the growth aspirations we outlined in February, at least low double-digit average annual earnings growth through at least 2025 absent and downturn with a meaningful upside from incremental capital allocation. With that, operator, please open the line for questions.
