CBRE Group, Inc. reports strong financial results for the second quarter of 2015
CBRE Group, Inc. reports strong financial results for the second quarter of 2015
29 July 2015
Los Angeles, 29 July 2015 — CBRE Group, Inc. (NYSE:CBG) today reported strong revenue and earnings growth for the second quarter ended June 30, 2015.
Second-Quarter 2015 Results*
Revenue for the quarter totaled $2.4 billion, an increase of 12% (19% in local currency1). Fee revenue2 also increased 12% (19% in local currency) to $1.8 billion.
On a U.S. GAAP basis, net income rose 19% to $125.0 million. GAAP earnings per diluted share rose 16% to $0.37.
Adjusted net income3 rose 18% to $140.0 million, while adjusted earnings per share3 improved 17% to $0.42. For the second quarter of 2015, selected charges (net of income taxes) totaled $15.0 million.
Normalized EBITDA4 increased 16% to $303.8 million and EBITDA4 rose 14% to $296.9 million. Normalized EBITDA margin on fee revenue was 17.1%, a 60 basis point increase from the prior year second quarter.
These strong results were achieved despite negative foreign currency effects in the quarter. Foreign currency movement, including the marking of currency hedges to market, reduced EBITDA by approximately $27.3 million (or $0.05 per share, net of tax) as compared to the prior-year second quarter.
*All percentage changes versus prior-year periods are in U.S. dollars except where noted.
“We exhibited broad strength in our business during the second quarter, as our talented people, coupled with our high quality, integrated service offering, produced excellent outcomes for our clients and our shareholders,” said Bob Sulentic, CBRE’s president and chief executive officer. “We were especially pleased to achieve outstanding top-line growth, operating leverage and margin expansion in all three regions.”
In EMEA (Europe, the Middle East & Africa), revenue rose 15% (32% in local currency). Growth was vigorous in most EMEA countries and across all business lines. Revenue continued to increase strongly in the Americas, rising 16% (18% in local currency). All Americas business lines posted double-digit revenue growth for the fourth consecutive quarter. In Asia Pacific, revenue improved 9% (21% in local currency). In local currency, Australia and India were strong contributors to the region’s revenue growth.
CBRE continued to capitalize on strong capital flows into commercial real estate. Global property sales revenue surged 23% (32% in local currency) with growth in the vast majority of countries worldwide. Commercial mortgage services revenue growth exceeded 40% for the second consecutive quarter. Loan activity with the U.S. Government-Sponsored Enterprises continued to grow rapidly.
Global leasing revenue rose 9% (15% in local currency). The Americas recorded its eighth consecutive quarter of double-digit leasing revenue growth, led by Brazil, Mexico and the U.S. Australia, Germany, and the United Kingdom, among others, also generated significantly higher leasing revenue.
Global Corporate Services, CBRE’s occupier outsourcing business line, continued its long-term secular growth, despite negative foreign currency trends. Global Corporate Services revenue (excluding related transaction revenue, which is accounted for in sales and leasing revenue), improved 9% (17% in local currency). Fee revenue (excluding related transaction revenue) from this business line increased 6% (15% in local currency). CBRE had one of its best quarters for total outsourcing contracts – including 32 expansions of existing client relationships, a new high for the company.
The ongoing growth of Global Corporate Services is being fueled by large space occupiers’ increasing preference for purchasing integrated real estate and facilities services on an account basis. CBRE is extremely well positioned to benefit from this trend. Its service offering for occupiers will be further enhanced with the planned acquisition of the Global Workplace Solutions business of Johnson Controls, Inc., announced on March 31, 2015. The acquisition of Global Workplace Solutions, a leading provider of integrated facilities management services on a global basis, remains on course to be completed later in the third quarter or early in the fourth quarter of 2015, subject to, among other things, receipt of customary regulatory approvals.
The company’s Valuation and Asset Services business lines both achieved strong growth during the second quarter. Valuation revenue rose 23% (35% in local currency) with notable growth in the Americas and EMEA. Asset Services revenue jumped 21% (28% in local currency) while fee revenue from this business line increased 17% (24% in local currency).
Reflecting the company’s strong financial position, Standard & Poor’s raised CBRE’s investment grade credit rating to BBB from BBB- on July 28, 2015.
Second-Quarter 2015 Segment Results
Americas Region (U.S., Canada and Latin America)
Revenue rose 16% (18% in local currency) to $1.4 billion. Fee revenue rose 18% (19% in local currency) to $1.06 billion.
Normalized EBITDA increased 23% to $207.6 million and EBITDA increased 20% to $203.4 million.
Operating income rose 20% to $152.9 million.
EMEA Region (primarily Europe)
Revenue improved 15% (32% in local currency) to $585.7 million. Fee revenue rose 14% (33% in local currency) to $409.1 million. Revenue growth was broad-based across the region, led by Germany, Spain and the United Kingdom. Performance in these countries was strong even after the negative effects of currency movement.
EBITDA and Normalized EBITDA both totaled $47.8 million, an increase of 75%.
Operating income totaled $32.5 million, an increase of 173%.
Asia Pacific Region (Asia, Australia and New Zealand)
Revenue increased 9% (21% in local currency) to $261.8 million. Fee revenue rose 3% (17% in local currency) to $200.1 million. Performance improved in several countries, particularly Australia and India.
Normalized EBITDA increased 21% to $28.7 million and EBITDA increased 19% to $28.2 million.
Operating income totaled $24.3 million, an increase of 19%.
Global Investment Management (investment management operations in the U.S., Europe and Asia Pacific)
Revenue totaled $94.1 million, a decrease of 26% (18% in local currency).
Normalized EBITDA decreased to $18.4 million and EBITDA decreased to $16.3 million.
Operating income decreased to $12.7 million.
The decline in revenue and earnings was driven by minimal incentive fees and carried interest achieved in this year’s second quarter, the performance of the Real Estate Investment Trust market in second-quarter 2015 compared with second-quarter 2014, as well as negative foreign currency movement.
Assets Under Management (AUM) totaled $88.4 billion. Compared with the second quarter of 2014, AUM was up $2.1 billion in local currency, but down when converted into U.S. dollars.
Development Services (real estate development and investment activities primarily in the U.S.)
Revenue increased to $14.4 million.
EBITDA decreased to $1.2 million.
Operating income improved to $6.3 million.
Development projects in process totaled $6.0 billion, up $500 million over the first quarter of 2015. The pipeline inventory totaled $3.7 billion, up $100 million over the first quarter of 2015.
Revenue for the six months ended June 30, 2015 totaled $4.4 billion, an increase of 11% (18% in local currency). Fee revenue increased 11% (17% in local currency) to $3.2 billion.
On a U.S. GAAP basis, net income rose 26% to $218.0 million. GAAP earnings per diluted share rose 25% to $0.65.
Adjusted net income rose 22% to $246.0 million, while adjusted earnings per share improved 22% to $0.73. For the six months ended June 30, 2015 selected charges (net of income taxes) totaled $28.0 million.
Normalized EBITDA increased 19% to $550.5 million and EBITDA rose 19% to $543.1 million.
Foreign currency movement, including the marking of currency hedges to market, reduced EBITDA by approximately $14.3 million (or $0.03 per share, net of tax) as compared to the prior-year six month period.
“At the mid-point of 2015, CBRE is on course for another year of very strong financial performance,” Mr. Sulentic said. “Our business has positive underlying momentum and we are seeing great benefit from the steps we have taken to enhance our service delivery for clients and fortify our market position.”
CBRE believes its full-year 2015 performance is likely to be toward the upper end of its guidance range of $1.90 to $1.95 for adjusted earnings per share.
Conference Call Details
The Company’s second-quarter earnings conference call will be held today (Wednesday, July 29, 2015) at 8:00 a.m. Eastern Time. A webcast, along with an associated slide presentation, will be accessible through the Investor Relations section of the Company’s website at www.cbre.com/investorrelations.
The direct dial-in number for the conference call is 877-407-8037 for U.S. callers and 201-689-8037 for international callers. A replay of the call will be available starting at 1 p.m. Eastern Time on July 29, 2015, and ending at midnight Eastern Time on August 5, 2015. The dial-in number for the replay is 877-660-6853 for U.S. callers and 201-612-7415 for international callers. The access code for the replay is 13612139. A transcript of the call will be available on the Company’s Investor Relations website at www.cbre.com/investorrelations.
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 2014 revenue). The Company has more than 52,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 370 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 – CBRE has not reconciled the (non-GAAP) adjusted earnings per share guidance included in this release to the most directly comparable GAAP measure because this cannot be done without unreasonable effort.
The terms “fee revenue,” “adjusted net income,” “adjusted earnings per share” (or adjusted EPS), “EBITDA” and “Normalized EBITDA,” all of which CBRE uses in this press release, are non-GAAP financial measures under SEC guidelines, and you should refer to the footnotes below as well as the “Non-GAAP Financial Measures” section in this press release for a further explanation of these measures. We have also included in that section reconciliations of these measures in specific periods to their most directly comparable financial measure calculated and presented in accordance with U.S. GAAP for those periods.
1 Local currency percentage change is calculated by comparing current period results at prior period exchange rates versus prior period results.
2 Fee revenue excludes both client reimbursed costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients.
3 Adjusted net income and adjusted earnings per share (or adjusted EPS) exclude the effect of selected charges from U.S. GAAP net income and U.S. GAAP earnings per diluted share. Selected charges during the periods presented included the write-off of financing costs, amortization expense related to certain intangible assets attributable to acquisitions, integration and other costs related to acquisitions and certain carried-interest incentive compensation expense.
4 EBITDA represents earnings before net interest expense, write-off of financing costs, income taxes, depreciation and amortization. Amounts shown for Normalized EBITDA further remove (from EBITDA) the impact of certain cash and non-cash charges related to acquisitions and certain carried-interest incentive compensation expense.