CBRE Group, Inc. reports strong revenue and earnings growth for the second quarter of 2014
CBRE Group, Inc. reports strong revenue and earnings growth for the second quarter of 2014
29 July 2014
Los Angeles, 29 July 2014 — CBRE Group, Inc. (NYSE:CBG) today reported strong revenue and earnings growth for the second quarter ended June 30, 2014.
Second-Quarter 2014 Results
Revenue for the quarter totaled $2.1 billion, an increase of 22% from $1.7 billion in the second quarter of 2013.
Excluding selected charges1, net income2 rose 17% to $118.7 million from $101.8 million in the second quarter of 2013, while adjusted earnings per diluted share improved 16% to $0.36 from $0.31 in the prior-year period. For the second quarter, selected charges (net of income taxes) totaled $13.2 million versus $31.9 million for the same period in 2013.
On a U.S. GAAP basis, net income rose 51% to $105.5 million, compared with $69.9 million for the second quarter of 2013. GAAP earnings per diluted share rose 52% to $0.32, compared with $0.21 in last year’s second quarter.
Excluding selected charges, EBITDA3 increased 8% to $262.8 million from $243.1 million in the second quarter of 2013. EBITDA3 (including selected charges) also rose 8% to $260.2 million for the second quarter of 2014, from $240.5 million for the same period a year earlier. As expected, EBITDA was impacted by lower mortgage origination activity with Government Sponsored Enterprises (GSEs) and the timing of development sales.
“Our strong performance in 2014 continued in the second quarter,” said Bob Sulentic, president and chief executive officer of CBRE. “Our significant leasing growth was particularly notable, especially in the U.S., where the markets are improving and we are continuing to drive gains in market share. We are equally pleased with the exceptionally strong growth in our occupier outsourcing business, even before the benefit of the Norland acquisition. Our overall performance was in line with the anticipated trajectory of our business and reflects our success in driving meaningful growth while continuing to make investments that will enhance client service, support our professionals and sustain our long term performance.”
Europe, Middle East & Africa (EMEA) continued to show improved results in step with better macro conditions and sentiment. EMEA revenue rose 89% (82% in local currency), with significant increases in property sales and occupier outsourcing, coupled with strong contributions from U.K.-based Norland Managed Services Ltd, which CBRE acquired in late December 2013. Excluding the contributions from Norland, a leading provider of building technical engineering services, overall EMEA revenue rose 16% (9% in local currency).
In the Americas, CBRE’s largest business segment, revenue rose 11% for the quarter (12% in local currency), paced by 18% growth (19% in local currency) in both the leasing and occupier outsourcing businesses. Asia Pacific revenue increased 9% in local currency, with notable growth in Australia. However, foreign currency conversion trimmed this growth rate to 3% in U.S. dollars.
Among global business lines, property leasing revenue improved 14% (14% in local currency) – the fourth consecutive quarter of double-digit increases – paced by market share gains in the U.S. Asia Pacific also saw solid revenue growth in local currency.
CBRE’s occupier outsourcing business, Global Corporate Services (GCS), continued to show robust growth. Globally, GCS revenue increased 58%, reflecting 17% organic growth supplemented by strong contributions from the Norland acquisition. CBRE continues to capitalize on large occupier preferences for integrated, full service real estate solutions and signed 47 outsourcing contracts during the second quarter and 110 contracts during the first half of the year. Total contract signings were particularly strong in EMEA, Asia Pacific and the U.S. health care sector.
The Global Investment Management business also performed well. Revenue for the quarter rose 10% (7% in local currency). This increase was fueled by higher disposition and incentive fees, and carried interest, and is particularly notable following the sale of $10 billion of assets and the exiting of a private REIT in 2013. This segment’s investment track record is continuing to attract new investors with year-to-date capital raising running significantly ahead of the prior-year pace. Assets under Management rose to $92.8 billion – up $4.6 billion from the second quarter of 2013.
Global property sales revenue rose 5% (6% in local currency) during the quarter. EMEA led the way with an increase of 22% (14% in local currency), as investment activity improved across most markets and property types in continental Europe and Ireland. Asia Pacific property sales revenue was unchanged in U.S. dollars, but increased 6% in local currency paced by Australia. Americas property sales revenue increased 3% (4% in local currency). Within the Americas, the U.S. experienced an uneven first half with 38% growth during the first quarter and 2% growth in the second quarter. The second quarter in the U.S. was a particularly difficult comparison as property sales revenue in the second quarter of 2013 was up 37% from the second quarter of 2012.
The shift in the company’s business mix toward greater contractual revenue was evident in the quarter. With the addition of Norland, contractual revenue rose to 53% of total revenue – up from 47% in the second quarter of 2013. The increased contractual revenue – coupled with conservative financial management – led Standard & Poor’s to raise its rating on CBRE’s secured debt to Investment Grade during the quarter.
Second-Quarter 2014 Segment Results
Americas Region (U.S., Canada and Latin America)
Revenue rose 11% (12% in local currency) to $1.2 billion, compared with $1.1 billion for the second quarter of 2013. The improved revenue was driven by higher leasing and occupier outsourcing activity.
EBITDA increased 4% to $169.4 million compared with $163.3 million in last year’s second quarter.
Operating income totaled $127.7 million compared with $132.0 million for the prior-year second quarter partly due to higher depreciation and amortization expense in the current-year quarter.
For the second quarter, EBITDA and operating income were significantly impacted by reduced mortgage origination for the GSEs.
For the first six months of 2014, Americas revenue and EBITDA increased 11% and 9%, respectively, despite the drag from lower GSE originations. Had GSE activity been flat versus last year’s first half, the Americas business would have achieved significantly positive operating leverage.
EMEA Region (primarily Europe)
Revenue rose 89% (82% in local currency) to $511.0 million, compared with $270.3 million for the second quarter of 2013. Excluding the contributions from Norland, EMEA revenue increased 16% (9% in local currency) over the prior-year period. The increase was driven by higher sales and occupier outsourcing activity.
EBITDA increased 133% to $27.4 million compared with $11.7 million in the prior-year second quarter.
Operating income totaled $11.9 million, an increase of 43% from $8.3 million for the second quarter of 2013.
Asia Pacific Region (Asia, Australia and New Zealand)
Revenue was $241.2 million, an increase of 3% (9% in local currency) from $233.1 million for the second quarter of 2013. Performance improved in several countries, particularly Australia and India, but was tempered by negative foreign currency effects.
EBITDA totaled $23.8 million compared with $26.0 million in the prior-year second quarter.
Operating income totaled $20.4 million compared with $23.2 million in the second quarter of 2013.
Lower EBITDA and operating income were primarily due to a decline in high-margin property sales in Japan compared with a very strong second quarter of 2013.
Global Investment Management (investment management operations in the U.S., Europe and Asia)
Revenue was $126.3 million, an increase of 10% (7% local currency) from $115.1 million for the second quarter of 2013.
Excluding selected charges, EBITDA increased 17% to $40.7 million from $34.6 million in the prior-year second quarter. EBITDA (including selected charges) increased 19% to $38.1 million from $32.0 million in the second quarter of 2013.
Operating income rose to $46.9 million, compared with $23.1 million for the second quarter of 2013.
Approximately $3.2 billion of new equity capital was raised in the second quarter of 2014, bringing the total through mid-year to $4.4 billion – nearly matching the total for all of last year.
Development Services (real estate development and investment activities primarily in the U.S.)
Revenue rose 27% to $12.6 million, compared with $9.9 million for the second quarter of 2013.
EBITDA totaled $1.5 million compared with $7.4 million reported in the prior-year period. The decrease was largely driven by lower income from property sales (reflected in both gain on disposition of real estate and equity earnings) in the current-year second quarter.
Operating loss totaled $1.0 million compared with operating income of $1.0 million for the second quarter of 2013. Under U.S. GAAP, equity earnings, which includes some property sales, are not part of the calculation of operating income/loss.
Development projects in process totaled $4.8 billion, down 2%, or $100 million, from year-end 2013, and the inventory of pipeline deals totaled $1.9 billion, up 27%, or $400 million, from year-end 2013. The larger pipeline reflects increased demand for development services as the economy improves.
Revenue for the six months ended June 30, 2014 totaled $4.0 billion, an increase of 24% from $3.2 billion in the six months ended June 30, 2013.
Excluding selected charges, net income increased 31% to $201.1 million for the six months ended June 30, 2014 from $153.3 million in the six months ended June 30, 2013, and adjusted earnings per diluted share increased 30% to $0.60 compared with $0.46 for the prior-year period. Selected charges (net of income taxes) totaled $28.0 million for the six months ended June 30, 2014, and $45.9 million for the same period in 2013.
On a U.S. GAAP basis, net income rose 61% to $173.1 million for the six months ended June 30, 2014 from $107.4 million for the same period of 2013 and earnings per diluted share increased 63% to $0.52 compared with $0.32 for the prior-year period.
Excluding selected charges, EBITDA increased 14% to $461.5 million in the current six-month period from $404.4 million in the first six months of 2013. EBITDA (including selected charges) also rose 14% to $457.4 million for the first six months of 2014, from $400.2 million for the same period a year earlier.
“We are very pleased with our performance across the first half of 2014,” said Mr. Sulentic. “These results reflect the ability of our people to deliver premier, globally integrated services that create superior value and are increasingly required by clients. This is an enduring strength that provides a competitive advantage for CBRE.”
In light of CBRE’s strong performance in the first half of 2014, with adjusted earnings per share up 30% and an active transactional pipeline, the company now expects full-year earnings per share, as adjusted, to be in the range of $1.60 to $1.65, an increase of $0.05 per share from its initial guidance.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through approximately 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
Note: This release contains forward-looking statements within the meaning of the ''safe harbor'' provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our future growth momentum, operations, financial performance and business outlook. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results and performance in future periods to be materially different from any future results or performance suggested in forward-looking statements in this release. Any forward-looking statements speak only as of the date of this release and, except to the extent required by applicable securities laws, the Company expressly disclaims any obligation to update or revise any of them to reflect actual results, any changes in expectations or any change in events. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. Factors that could cause results to differ materially include, but are not limited to: disruptions in general economic and business conditions, particularly in geographies where our business may be concentrated; volatility and disruption of the securities, capital and credit markets; interest rate increases; the cost and availability of capital for investment in real estate; clients’ willingness to make real estate or long-term contractual commitments and other factors affecting the value of real estate assets, inside and outside the United States; our ability to control costs relative to revenue growth; our ability to retain and incentivize producers; our ability to identify, acquire and integrate synergistic and accretive businesses; costs and potential future capital requirements relating to businesses we may acquire; integration challenges arising out of companies we may acquire; continued high levels of, or increases in, unemployment and general slowdowns in commercial activity; variations in historically customary seasonal patterns that cause our business not to perform as expected; trends in pricing and risk assumption for commercial real estate services; our ability to diversify our revenue model to offset cyclical economic trends in the commercial real estate industry; foreign currency fluctuations; our ability to attract new user and investor clients; our ability to retain major clients and renew related contracts; a reduction by companies in their reliance on outsourcing for their commercial real estate needs, which would affect our revenues and operating performance; client actions to restrain project spending and reduce outsourced staffing levels; changes in tax laws in the United States or in other jurisdictions in which our business may be concentrated that reduce or eliminate deductions or other tax benefits we receive; our ability to maintain our effective tax rate at or below current levels; our ability to compete globally, or in specific geographic markets or business segments that are material to us; our ability to leverage our global services platform to maximize and sustain long-term cash flow; our ability to maintain EBITDA margins that enable us to continue investing in our platform and client service offerings; our exposure to liabilities in connection with real estate advisory and property management activities and our ability to procure sufficient insurance coverage on acceptable terms; declines in lending activity of Government Sponsored Enterprises, regulatory oversight of such activity and our mortgage servicing revenue from the U.S. commercial real estate mortgage market; our ability to manage fluctuations in net earnings and cash flow, which could result from poor performance in our investment programs, including our participation as a principal in real estate investments; the ability of our Global Investment Management business to maintain and grow assets under management and achieve desired investment returns for our investors, and any potential related litigation, liabilities or reputational harm possible if we fail to do so; our ability to comply with laws and regulations related to our global operations, including real estate licensure, labor and employment laws and regulations, as well as the anti-corruption laws of the U.S. and other countries; our leverage and our ability to perform under our credit facilities; liabilities under guarantees, or for construction defects, that we incur in our Development Services business; the ability of CBRE Capital Markets to periodically amend, or replace, on satisfactory terms, the agreements for its warehouse lines of credit; the effect of significant movements in average cap rates across different property types; and the effect of implementation of new accounting rules and standards.
Additional information concerning factors that may influence the Company's financial information is discussed under “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Quantitative and Qualitative Disclosures About Market Risk” and “Cautionary Note on Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2013, and under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Quantitative and Qualitative Disclosures About Market Risk” and “Forward-Looking Statements” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, as well as in the Company’s press releases and other periodic filings with the Securities and Exchange Commission. Such filings are available publicly and may be obtained on the Company’s website at www.cbre.com or upon written request from the CBRE Investor Relations Department at firstname.lastname@example.org.
1 Selected charges included the write-off of financing costs, amortization expense related to certain intangible assets attributable to acquisitions, certain carried interest incentive compensation expense and integration and other costs related to acquisitions. For the impact of selected charges on specific periods, see the “Non-GAAP Financial Measures” section of this press release.
2 A reconciliation of net income attributable to CBRE Group, Inc. to net income attributable to CBRE Group, Inc., as adjusted for selected charges, is provided in the section of this press release entitled “Non-GAAP Financial Measures.”
3 EBITDA represents earnings before net interest expense, write-off of financing costs, income taxes, depreciation and amortization, while amounts shown for EBITDA, as adjusted (or normalized EBITDA), remove the impact of certain cash and non-cash charges related to acquisitions and certain carried interest incentive compensation expense. Our management believes that both of these measures are useful in evaluating our operating performance compared to that of other companies in our industry because the calculations of EBITDA and EBITDA, as adjusted, generally eliminate the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions. Such items may vary for different companies for reasons unrelated to overall operating performance. As a result, our management uses these measures to evaluate operating performance and for other discretionary purposes, including as a significant component when measuring our operating performance under our employee incentive programs. Additionally, we believe EBITDA and EBITDA, as adjusted, are useful to investors to assist them in getting a more complete picture of our results from operations.
However, EBITDA and EBITDA, as adjusted, are not recognized measurements under U.S. generally accepted accounting principles, or GAAP, and when analyzing our operating performance, readers should use EBITDA and EBITDA, as adjusted, in addition to, and not as an alternative for, net income as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA and EBITDA, as adjusted, may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA and EBITDA, as adjusted, are not intended to be measures of free cash flow for our management’s discretionary use, as they do not consider certain cash requirements such as tax and debt service payments. The amounts shown for EBITDA and EBITDA, as adjusted, also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance with financial covenants and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.
For a reconciliation of EBITDA and EBITDA, as adjusted, to net income attributable to CBRE Group, Inc., the most comparable financial measure calculated and presented in accordance with GAAP, see the section of this press release titled “Non-GAAP Financial Measures.”