7:55 A.M. Monday session at Citi's 2023 Global Property CEO Conference. I'm Michael Griffin with Citi Research, and we're pleased to have with us JLL and CEO Christian Ulbrich. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and on the AD desk. For those in the room or in the webcast, you can sign on to liveqa.com and enter code Citi 2023 to submit any questions if you do not want to raise your hand. Christian, I'll turn it over to you to introduce JLL and members of management that are with you today, provide opening remarks, and then we'll get into Q&A. Morning, everybody. It's great to be here. Not a very exciting conference room, but I hope we have a good discussion. I'm Christian Ulbrich. I'm the CEO of JLL, for almost 7 years now. I'm originally from Germany, but been working with JLL now for almost 18 years. I have Karen Brennan with me, our CFO, Brian and Scott from our investor relations team and finance team. Wonderful. We're starting off each of these roundtable sessions with the same question. Christian, what are the top 3 reasons that investors should buy your stock? First and foremost, we are a consolidator in a rapidly consolidating industry, and that's one of the reasons why we are able to grow our top line about three times global GDP. We are also on a multi-year journey to enhance our margin profile. We did a lot of restructuring in our organization, which allows us now to constantly increase margin, and that is obviously very compelling. Lastly, our industry will be driven by a lot of technology changes over the next couple of years, and we believe that we are at the forefront of taking advantage of that. Maybe let's just start with your earnings that was just released a little under a week ago, and the expectation for 2023. You know, it seems like that for at least the first half of the year, particularly on more of the Capital Markets side of the business, expectations are for more muted activity with recovery in the second half. Can you expand on this a bit and maybe where you see the various business lines performing sort of throughout the year? I guess starting with, you know, Markets Advisory, then Capital Markets, Work Dynamics and so on. Yeah. The way we have put it together, Markets Advisory within JLL is predominantly our leasing and tenant representation business and then our Property Management business. On the leasing and tenant representation side, as you can imagine, that is more impacted by the general economic development, so it's correlating quite heavily with GDP. That business is having a strong transactional element to it, but as you know, when a lease becomes due, corporates have to do something. They can kick the can down the road and just try to extend that existing lease for two years, three years, or they can make a bigger move. There is quite a significant piece of consistency in that revenue stream. This will be continued to be muted for the next couple of quarters. There has been a lot of kicking the can down the road already over the last couple of years due to COVID. The pressure for corporates to take a decision on their footprint going forward is rising. We expect that recovery to come in the not too distant future. On the Property Management side, this is actually an area of business which will show strong growth going forward. There are several reasons for it. It's slightly related to that whole debate of return to office. Companies do need to provide a consistent experience to their employees. That now leads for property owners to the situation that they are handing their portfolios towards one provider so that that provider can make sure that there is a consistent quality of service within the building all across. We see more and more portfolios coming to us. We're pretty optimistic for the outlook and the growth perspective of that Property Management business. We then move into our Capital Markets business, which is predominantly investment sales, arranging debt and arranging equity, that business is obviously correlating quite heavily with the interest rate environment and the expectations for what interest rates will do. You saw that we were coming from record transaction volumes in the first and the Q2 of next year, and then it rapidly declined towards a really, really challenging Q1. We expect that to continue for some time. As you already noted, we believe there will be a recovery coming towards the second half of this year. The reasons for that is that the dry powder, which is still available, is still at record levels. Fund managers and investment managers and whoever has money to invest into real estate, they're sitting on a really large sums of cash. Q3 was already a very weak quarter. The Q1 was a super weak quarter. We expect two more muted quarters this year. That will be four quarters in a row where they are not doing what they are being paid for, investing the money of their clients. For all the conversations we have with them, they are all absolutely focused on getting back into the market. We see already first signs there in some specific asset classes where the activity is rising. We're pretty optimistic that this market is returning. The debt side is obviously interesting at the moment, and we have a lot of work to do to find debt for our clients. It's not as easy as it was before. That is good and bad because it also drives more market share to companies like us, because when it's really difficult, you wanna go with a potential best provider for that service. The 3rd largest business line is what we call Work Dynamics, which includes facility management and Project and Development Services. This business is on a long growth pattern, irrespective of short-term economic hiccups. The notion of outsourcing the corporate real estate from large corporates to companies like us is a multiyear trend, will continue to do so. You saw the numbers last year. We expect further growth this year. We expect further margin expansion. Again, the reason is pretty much to one degree the same I mentioned on the Property Management side. Consistency of experience for employees is a very important reason. The other one is also obviously cost efficiency, but with that, technology. At the end of the day, your real estate is a source of data. You can learn so much about how your employees are operating, where they spend their time, but you can only take advantage of that information if you have that data at hand. In order to get to, you need to have technology, and you need to implement that technology all across your portfolio. There aren't very many providers who are able to do so, and that's why the very large providers of that service, and we are obviously one of the very large of that service, are benefiting and are taking more and more market share. We have our LaSalle business, the LaSalle Investment Management business. As I said, most of our other clients are sitting on record levels of dry powder. The same is true of LaSalle. They're equally interested to place that money into the market. We have seen last year a very nice growth of the annuity income of LaSalle. Obviously, what is fluctuating there are the incentive fees and the equity earnings, but when you look through that, you have seen an 8% growth in the annuity income. We expect that trend to continue, so that's a very stable source of income in our P&L. Kind of a slight outlier that we have, what our competitors don't have, we show a P&L for our technology business, third-party technology business, where we are selling software as a service to clients, where we are selling technology solution to clients, and where we are reseller of technology of companies we invest in within our venture capital fund. That is still minimal on a revenue line, and it's obviously still delivering a loss. You have seen the trend last year. If you cut out the equity earnings, they are not only on a strong growth trajectory on the top line, but they are also moving now relatively quickly to profitability ex equity earnings. Again, we believe that trend will continue, and we think that this business is the key differentiator, one of the key differentiators we have against our competitors. Outstanding. Well, appreciate that thorough kind of overview to start us off here. Just diving right into it, you know. It seems like despite some of the near-term headwinds you might have alluded to, the longer term fundamentals for commercial real estate services, including the continued trend for owner-occupiers to outsource their real estate needs, remains intact. You know, given the fact that the industry is pretty fragmented, can you highlight ways that JLL can capitalize on this fragmentation, you know, leveraging scale or presence in markets to ultimately enhance margins? Yeah. I almost answered that question before. You know, we are servicing the large corporates around the world who tend to have a real estate footprint in multiple countries around the world, in multiple markets. First and foremost, they all want consistency of service. Secondly, they wanna take advantage of the data which is coming out of their real estate footprint, they also like to have kind of best value for money. In order to do so, you need to have scale as a provider that you can deliver that service, and that is what we are having. You see now over multi years a trend that the two leaders in that industry are taking more market share than all the others. I believe that trend will continue. It's one of those business lines from a leadership perspective which is very attractive because the barriers to entry are incredibly high. It's impossible that somebody just kind of comes around the corner and opens up a shop and says, "I'm offering that Work Dynamics service to large corporates." Whereas as you know, if you're a super smart leasing broker, super smart Capital Markets broker, you can still run a small store. So here in that area, barriers to entry are super high and the leaders in that industry are advancing their competitive position, not least by investing heavily into technology which is so differentiating and which smaller shops cannot offer. How important is cross-selling, in order to win clients onto your platform, either leveraging technology or scale to kind of effectively work as the one-stop shop for their CRE services needs? Yeah, that's critically important. We kind of summarize that under the One JLL approach, so we are constantly encouraging our people when they have a relationship with a client, that they are starting to enhance the numbers of services we are selling to that client. Obviously, that makes a relationship much more sticky if you have four, five, six services you're selling to them. Equally, it is obviously much easier to win a client in that sense that you sell more services to the same clients than winning a client which you have never worked for before. Sorry. This is, probably 2/3 of our growth is coming from selling more services to the same clients, and only about 1/3 of the growth is coming from completely new clients. Gotcha. That's helpful. Maybe just starting off with Capital Markets. You know, I know a lot of our investor base, you know, obviously respects and looks deeply at your views in the transaction market, and particularly as it relates to bid-ask spreads, buyer versus seller expectations. I mean, I know you talked on the call last week about the gap still there being pretty wide, but do the expectations are there should be a narrowing of that at some point this year, and is that really differentiated by asset class? You talked more favorably about industrial. Conversely, office seems to be lagging. Maybe we just start there from a Capital Markets perspective. Yeah. I mean, first of all, we do start to see narrowing, but we do see it in those asset classes which have been favored before, so industrial and multifamily, where we see more bidders now coming into transactions and the spread between the original asking price and what the bidders are offering in their first bid is closing in now, which is a good sign. If you go on the complete other side, kind of, B office buildings not meeting ESG standards, these office buildings which we see when we walk down, New York or Chicago, which are just all looking about the same, they are struggling, and they will continue to struggle. Interestingly enough, any super prime office building hitting all the ESG standards, new developments, there is still good demand for those buildings, not only on the leasing side, where we, as you have seen last year, still had hitting new record highs all across the world on the rental level, but also on the investment sales side, there's good demand. Prices have come in, clearly because interest rates are higher, but there's still very strong demand for those buildings. Unfortunately, there aren't that many coming to market. Yeah, maybe just continuing on the office, expectations, maybe as it relates to Markets Advisory and the leasing component of that. I mean, are you still noticing occupiers delaying leasing decisions, you know, until there's more clarity around the macro environment? Karen, I think you might have touched on this on the call, but correct me if I'm wrong, I think about 50% of your fee revenue from leasing comes from the office sector. Yeah, that's about correct. First of all, the world is not flat on that end. As I said on the call, in Asia, people are all back in the office, and the office demand has returned, and especially if you strip out China from our numbers, all the other markets, India is flying and Australia is doing well. That is all good, and now this year, China will come back. If we move to the other side of the world, to the US, we still have a situation where depending on which location you are in, people are reluctant to get back into the office. That is obviously giving a pause to some companies to decide what kind of office footprint do we really need and which location do we need that office footprint. That's why this is a still slightly more muted environment. What we should be aware of that we are playing predominantly in the A space, and eventually what will happen is that the less good buildings will stay vacant or will become vacant, and at the end of the day, many of them will become obsolete and need to be repurposed. Tenants who have been in B buildings will upgrade into A buildings, first of all, because the rental levels will come down, and it is more affordable to come into an A building. Secondly, because it's more attractive for their employees to come back into the office if you offer a better office environment. This is a period for us that medium term, we will continue to see our office leasing business to show further growth in revenue and top-line revenue as it will on the margin side. Maybe just to add Property Management kind of into that equation too. I mean, it seems like this is a much more resilient kind of business line, I guess, how do you marry the resiliency of this business line with the fact that there are some of these headwinds that you just described in the office sector? Is it that focus on the Class A property that JLL is really working toward? Yeah. As I said in that more longer response earlier, we see at the moment a lot of property owners trying to consolidate their Property Management to one provider, where they before went market by market, sometimes building by building, shopping for the cheapest provider. They have completely changed their perspective that it's not about the lowest cost on it, but the best experience for the tenants in the building. Because the additional price they have to pay to us to get our service versus the much higher satisfaction in the building, the higher rental levels they can achieve, pays clearly for the higher fees we would charge for our service. We see a lot of portfolios coming into market where that consolidation is being demonstrated. As I said earlier, you will see consistent top-line growth in our Property Management going forward. The biggest challenge on that end is to get qualified people who can deliver that service. If we were able to find more people, we can grow that business even faster. Great. That's, that's helpful. Just maybe switching over to the Work Dynamics business for a second. I know you touched on it in your prepared remarks, but, you know, clearly the expectation for these businesses is at least more favorable relative to the more volatile business lines. Can we just start with the facilities management component, maybe a business some of our traditional REIT investor base might not understand as well? You know, why is this a differentiator for JLL? Despite the lower margin, you know, why will this remain a steady state business line going forward? Yeah. Again, there are only very few providers who can deliver that service on a global scale. If you think about all your large S&P 500 companies who have a global footprint, if they wanna deliver to their employees a similar experience, if they wanna have consistent reporting on their real estate, they have only very few choices to go to. I mean, that is the reason why we have people in more than 100 countries, because U.S. corporates and European corporates have facilities in so many different countries. That is a plus and a minus for us. It's expensive to have that huge geographic footprint. On the other hand, once you have that huge geographic footprint, you are getting a consistent increase in market share in that business. The outsourcing trend will continue to be, kind of the prevailing trend that corporates who are still self-performing will eventually move to a professional provider of that service. This business will show consistent growth on the top line, and we will see consistent margin expansion for all the reasons I described already earlier. Can we just talk about the geographic footprint for a second? I mean, it seems like trends in Asia or EMEA might be more favorable compared to the Americas as it relates to particularly office demand. You know, where are you seeing the greatest opportunity set within your portfolio? Is it a certain geography? Is it a business line within a geography? Anything you can opine on there would be helpful. Yeah. In relative terms, you wouldn't be surprised to hear that the biggest growth opportunity are in some Asian countries, notably India. We had a very strong growth last year in India. We expect continuous strong growth in India this year. The Middle East is growing very strongly. Saudi business is growing incredibly strong. Putting that all to the side, in absolute terms, it's all about North America. It's all about North America. Margins are highest in North America and the opportunity to grow in North America is the highest. We do enjoy that growth in other parts of the world, but the priority sits to grow our market share in the U.S., and Canada, and Mexico. We had a question come in here from the live QA feed, so thanks for making my job easier. How big of an opportunity is Property Management consolidation in this platform? You know, would think that given a lot of sophisticated or larger property owners out there, they generally might have one Property Management company throughout their portfolio. I mean, you see our baseline. I would hope that we can consistently drive in the low double digit growth rates. As I said, the limitation is not the opportunity, the limitation is qualified people. We have to train them to bring them on these accounts and that is our limitation. It will be a consistent growth driver about, as I said, in the low teens, high single digit, somewhere around that area. I think we've got a question from the investor base here. Yeah. What about your ability to gain scale with this cycle? Maybe talk to us about M&A opportunities versus internal growth opportunities. Where are you gonna deploy the capital? Yeah. On the M&A side, in our traditional services, we have the footprint we need to have. There is no need to do any M&A. That wouldn't contradict if there is an opportunity for any kind of tuck-in, but we are not out there consistently to look for those type of M&A opportunities. What we have noticed that considering the complexity of integration, especially on the technology side, because now every company is coming with some technology which may not be our technology, we feel that price levels are still very, very high. So we are focused predominantly on organic growth, and we see that on the M&A side, if we compare that to the opportunity of share repurchases, it's hard to find good targets. That's very helpful. one other question. What are the key drivers of equity earnings? Seems like that's a big delta this year. What are the main investments that drive that? Yeah. We have two areas of equity earnings. Traditionally, the number one area was our LaSalle business, where we co-invest into funds. On those core investments, we make equity earnings. The more newer area is our venture capital business on the JLL front, what we call the Spark Venture Capital Funds, where we invest our own balance sheet money, and that creates equity earnings. As you know, the issue with that, it creates a lot of noise in our P&L. As much as we like those equity earnings when they're coming in, we have to limit them to a certain level that they are not becoming too noisy in our P&L. We have very little influence when it's happening. We kind of plan for it as much as we can. If the capital event for one of our venture capital companies is not coming, then it's not coming. There is no equity earning in that year. Vice versa. It can also go to the other side. Maybe just a question on ESG real quick. I know that's one of big importance to JLL. Can you just talk about or highlight an important ESG effort that JLL is undertaking? Sure. I mean, as you know, we are servicing the largest corporates of the world. A finger in the air, about 80% have given themselves an ESG target in some form or fashion. It's for all of them a tough call to get to there. What is slightly easier in most cases is to make advances on their real estate footprint because there is an opportunity to massively reduce the carbon footprint of your real estate space. That's what we are doing. We're advising our clients how they can have a lower carbon footprint, a better ESG overall result on their corporate real estate, and it's a very fast-growing business for us. It obviously ties you in, going back to your notion of selling more than one services to clients. Once you do a very good job on that one, they also ask you to work on other services to them. It's a great way of winning new business into our organization. Maybe just adding on to that, what do you think the implications, I think of like in New York with Local Law 97, these environmental laws and the impact that it could have on property owners? Well, obviously it will be a massive value driver. If new tenants, if the most successful corporates will only sign up new leases in ESG buildings, that will drive rents in those buildings, and it will drive their value up. Vice versa in those other buildings, it will be much harder to find tenants. Rents will come down, and values will come down. It will be a massive value differentiator. Frankly, it's almost ironic that New York has this super strict regulation. You wouldn't have expect that from New York. We have similar strict regulations in other parts of the world, Singapore and in some European countries. I think the acknowledgement how important that is as a value driver for real estate still needs to grow a little bit in the US. Why do you think that it is that the Americas, particularly the U.S., is lagging so far behind Europe and EMEA when it comes to return to office or going back to office? Is it societal? Is it cultural? You know, I'd be curious to get your thoughts on that. You know, I'm not an expert on that, I think at the end of the day, it's price. Energy has been super cheap in the U.S. I mean, just here in Florida, how much solar panels are you seeing on the rooftops here? Literally none. You see a big nuclear power plant which is providing super cheap energy. It's more expensive to put solar on your roof than to buy your energy from that nuclear power plant here in Florida. That is very different in other parts of the world, where renewable energy becomes now a cheaper source of energy than traditional forms of energy. I think at the end of the day, price will make its way and if regulation will drive price, as you can see in New York. Maybe we can just talk on the project management business line for a second. You know, where are the growth opportunities within this? Is there a worry, should there be less transaction or development activity, that there could be knock-on effects for your project management business? In theory, yes. At the moment, the prevailing trend is the employee's experience. Clients are very, very keen to enhance the employee experience in the buildings. That means there's a tremendous amount of refurbishing going on and creating new types of workspaces. Then again, whole ESG topic. There's a massive need to upgrade buildings from an ESG perspective. These two trends are much stronger than the trend that there's less going on and therefore less work for our project management business. That is outpaced by the other two trends. I know you highlighted it a little earlier, if we could just expand on the JLL Technologies and the initiatives there. As you said, it's definitely differentiated from some of your more traditional product offerings. I guess, what's the opportunity set like there? Can you highlight some of the benefits, you know, maybe from your Spark venture arm or anything there? Yeah. Our JLL Technologies business has literally 2, 3 arms. 2 you see and 1 you don't see directly, but that is the most important 1. Their number 1 task is to bring the best technology to our core services to make our core services superior, more productive, and enhance the client experience. We are constantly bringing new technology into our Capital Markets business, into our Markets Advisory business to differentiate those type of services, Work Dynamics business. The second task is 1 you see, which is what you see in the revenue pillar. In the revenue pillar, we have bought a couple of software companies over the last seven, eight years, and we are selling those software as a service to our clients, and we are enhancing those software tools with additional applications coming from some of our Spark Venture investments so that they become a platform for the client where they can tie in into various different tools. The other piece of that revenue pillar is we have a consulting team which helps clients to implement third-party software into their services. IBM software, whatever type of software our clients need to run their real estate, we are helping them to implement that. That is our Technology Solutions business, which is part of that P&L. In that P&L, you also see the reselling of tools from those venture capital companies where we are an important reseller and provide them access to our clients. The last piece, what you talked about, is the Spark Venture Capital Fund. That's a classic venture capital fund. At the moment, we haven't opened it up for third party, so it's only our own balance sheet. The main driver why we started that business was not the return on the venture capital. The main driver was we wanted to see what is going on in the world, what kind of new technology is coming up, which would change the way our clients will have to operate, which will change the way we have to operate. We are getting from all over the world, including China, India, the U.S., we get the best ideas coming to us because we have developed a really strong brand in that space, and we analyze what's going on. Then, in very, very few companies, we invest in directly ourselves. So far, we were able to achieve superior returns with that. Once again, the return aspect is a side aspect. The number one aspect is to identify the best technology and bring that technology first to our clients to enhance their experience. Maybe just one more quick one, and then I'll finish up here with my rapid fire. You talked about, you know, areas for margin enhancement opportunity in your portfolio. I think you talked about North America being a high margin driver, you know. Where could we see the greatest opportunity within the business to grow or expand margin? Well, in relative terms, you will see the expansion of our margin, which means that it's currently still the negative margin in our JLL revenue pillar. The most consistent enhancement of margin, which is material for our overall P&L, you will see in our Work Dynamics business. You know, it will not be every year exactly the same, but over the next 5 to 10 years, this business will trend every year on average up a notable amount in the bottom line margin. That is very important for us because you know our margin profile for 2025, we said we will be between 16% and 19%. Our Work Dynamics business is still significantly lower. As much as that grows, they have to enhance their margin so that they are not becoming too dilutive in their growth story to our other businesses. Fantastic. I have my three rapid fires to end the session. Christian, what asset type are you seeing the most demand for across your business lines? Industrial and multifamily. What geography, Americas, EMEA or APAC, are you seeing the most opportunity in? Biggest opportunity in relative terms is Asia, for us, it's all about the U.S. and Canada. Lastly, more, fewer or same public CRE services firms a year from now? A year from now is a very short period of time, but fewer. The trend will be fewer and fewer. All right. Well, thank you so much. Really appreciate it. Thank you.