COMPANY PROFILE

Real estate provides a natural inflation hedge when held over a long period of time. CBRE is the world’s largest commercial real estate services and investment company, with the #1 global market position in leasing, property sales, outsourcing, property management and valuation. CBRE is also the largest commercial property developer in the United States, and has over $141.9 billion of Assets Under Management within our Investment Management business. Our more than 100,000 employees serve clients in over 100 countries, including over 90% of the Fortune 100. Real estate and this business has historically acted as a wonderful inflation hedge making it particularly intriguing in 2022 as structural inflation takes a likely sustainable leg-up over the long-term range of 2%.

Style Factor Benefits

From a factor scoring perspective versus the other 199 brands in the brands index, here’s where CBRE scores well as of 2/22/2022:

• 81% high FCF Yield - a key valuation metric

• 81% strong price momentum trends 9 months

• 78% high FCF growth

• 88% attractive low price to sales

• 82% high and growing 5 year ROIC growth

• 88% attractive changes in EPS revision trends

Current Opinion - 2/10/22

Inflation is here for a while. Regardless of what the government tells us, we have always known inflation was running hotter than the reported data shows. Roughly 70 items in the inflation inputs have been updated in January 2022. Can you imagine what the real inflation would be without those adjustments? The government continues to move the goal posts on how they report inflation and what they include. Why? They don’t want people to know its higher than we expect and likely going higher. Why? Well, the markets wouldn’t like that and consumers wouldn’t like that but the reality is: the world has so much debt that it can never hope to be re-paid. The only way out is to grow your way out and inflate your way out. Governments NEED to debase the currency slowly to inflate away some of the obnoxious amount of debt. We can’t fight it, we just have to expect and invest for it. A key way to do this is to own companies with strong pricing power and high demand for the products and services as well as by owning hard assets like real estate. That’s where CBRE comes in. CBRE is the largest commercial real estate company in the world and scale matters alot in this business. CBRE has tons of natural hedges embedded into much of their business units. They are large enough and dominant enough that, like Blackstone and KKR and BAM Asset Management, they are often the primary beneficiary of slowdowns. The stocks get hurt in the beginning and they recover because these companies take advantage of the economic weakness by being more aggressive with prices that are lower so the recovery phase offers a rubber-band snap-back as their aggressive activity with attractive prices pays dividends during the recovery phase.

CBRE benefitted during the Covid period and comps are certainly high YOY but the long-term trends in CRE are stable and positive and they continuously innovate according to whatever is happening in the economy. Example: the current downside pressure on the office market creates opportunities in creating flex-space as companies have employees work from home part of the time.

CBRE has about $13B in dry powder and expects to see low double digit revenue growth and margin expansion with good pricing power. That’s a pretty impressive profile for a stock that’s trading about 1.5x sales and has $26B in revenue with a $35B market cap. They will continue to buyback stock when they see opportunities and the leverage is still low and can be expanded greatly when they see opportunities. Covid is still impacting the overall business but they have so many levers to pull plus playing in an industry with strong inflation protection. There is a real opportunity as workers come back to the office even with a flex schedule. Collaboration is really important so it’s only a matter of time before office trends improve, even if it looks different than it used to. And remember, there’s so much demand for global real estate and leasing trends should continue to trend positively so any weakness in the stock offers strong addition opportunities with long term trends being so strong.

Quick 2/24/22 earnings summary:

• CBRE well positioned for future growth opportunities in secular themes like industrial warehouse space, multi-family, logistics, flex office space, green energy investments

• Generated $1.1B FCF in the quarter and $2.2B in total FCF, a record for the business

• $8.55B in total revenue +23% YOY and +20% over 2019 peak levels

• Full year 2021 revenue: $27.726 billion +16.5% YOY and +16% from 2019 peak levels.

• Repurchased $370m in stock - intend to continue repurchases through 2022

• Strong FCF generation is a key focus and management is being judged on the FCF generation success

• Key to their strong business trends = multi-year diversification across business segments to benefit from multiple secular mega trends

• Expect e-commerce sales to be >$3.9T by 2025 driving the need for additional 1.5B of warehouse/distribution space needed to service this e-commerce growth.

• Additional focus on expansion of multi-family investments, life sciences, industrials. Sounds alot like what we heard from Blackstone & KKR doesn’t it?

The below image is exactly what you want to see: reduced share count, operating margins expansing, free cash flow per share expanding, revenues expanding, EPS expanding and stock based comp not out of control. CBRE is executing very well right now, the market leaders always take market share through difficult times and this time was no different.