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Feb 8, 2018

CBRE

CBRE Group, Inc. reports strong financial results for full-year and fourth-quarter 2017

CBRE Group, Inc. (NYSE:CBG) today reported strong financial results for the year and fourth quarter ended December 31, 2017.

“Our fourth-quarter results capped another excellent year for CBRE,” said Bob Sulentic, the company’s president and chief executive officer. “Fee revenue was up 9% in local currency and adjusted earnings per share rose 6%. Our performance significantly exceeded the expectations we discussed on our third quarter earnings call, and was led by occupier outsourcing and leasing fee revenue growth of 17% and 11% respectively, in local currency.”

2017 Full Year Highlights

GAAP EPS of $2.03, up 20%

Adjusted EPS of $2.71, up 18%

8th Consecutive Year of Double-Digit Adjusted EPS Growth

Revenue and Fee Revenue up 9% and 8%, respectively

“Revenue and earnings for 2017 reached all-time highs, and we made important strategic gains across the company,” he added. 2017 marked the 8th consecutive year of double-digit adjusted earnings per share growth for CBRE.

Looking ahead to 2018, Mr. Sulentic said: “We regard the macro environment as a supportive backdrop for our business, and we continue to operate within an industry poised for long-term growth. This is due to the growing acceptance of outsourced commercial real estate services, the increasing capital allocation to commercial real estate as an institutional asset class, and the continuing consolidation of activity within our industry to the highest-quality, globally diversified market leaders.”

For full year 2018, CBRE expects to achieve adjusted earnings per share in the range of $3.00 to $3.15. This represents an increase of 13% at the midpoint of the range with 8% attributable to EBITDA growth and 5% attributable to the combined net effect of a lower expected tax rate due to U.S. corporate tax reform, interest savings and higher depreciation & amortization.

Full-Year 2017 Results

  • Revenue for full-year 2017 totaled $14.2 billion, an increase of 9% (same local currency1). Fee revenue2 increased 8% (same local currency) to $9.4 billion.
  • On a GAAP basis, net income increased 21% and earnings per diluted share increased 20% to $691.5 million and $2.03 per share, respectively. Adjusted net income3 rose 19% to $924.5 million, while adjusted earnings per share3 improved 18% to $2.71 per share.
  • Full-year 2017 adjustments to GAAP net income included a $143.4 million4, or $0.42 per share, net charge, attributable to the tax impact of the 2017 Tax Cuts and Jobs Act (the Tax Act).  This net charge is primarily comprised of a transition tax on accumulated foreign earnings, net of a tax benefit from the remeasurement of certain deferred tax assets and liabilities using the lower U.S. corporate income tax rate. Absent the non-recurring impact of the tax law changes, GAAP earnings per diluted share would have risen 45% for full-year 2017. Adjustments also included $112.9 million (pre-tax) of non-cash acquisition-related amortization and $27.4 million (pre-tax) of integration and other costs related to acquisitions. These costs were partially offset by $8.5 million (pre-tax) reversal of net carried interest incentive compensation and a net tax benefit of $42.1 million associated with the aforementioned pre-tax adjustments.
  • EBITDA5 increased 23% (same local currency) to $1.7 billion and adjusted EBITDA5 increased 10% (9% local currency) to $1.7 billion. Adjusted EBITDA margin on fee revenue increased 32 basis points to 18.2%.

Fourth-Quarter 2017 Results

  • Revenue for the fourth quarter totaled $4.3 billion, an increase of 13% (11% local currency). Fee revenue increased 11% (9% local currency) to $3.0 billion.
  • On a GAAP basis, net income decreased 36% and earnings per diluted share decreased 37% to $168.4 million and $0.49 per share, respectively. The declines in net income and earnings per diluted share were primarily attributable to the aforementioned impact of the Tax Act. Adjusted net income for the fourth quarter of 2017 rose 7% to $337.9 million, while adjusted earnings per share improved 6% to $0.99 per share.
  • The adjustments to GAAP net income for the fourth quarter of 2017 included a $143.4 million, or $0.42 per share, net charge attributable to the aforementioned impacts of The Tax Act. Absent the non-recurring impact of the tax law changes, GAAP earnings per diluted share would have risen 17% for the fourth quarter of 2017. Adjustments also included $30.4 million (pre-tax) of non-cash acquisition-related amortization and $4.4 million (pre-tax) of net carried interest incentive compensation expense. These costs were partially offset by a net tax benefit of $8.7 million associated with the aforementioned pre-tax adjustments.
  • EBITDA increased 10% (8% local currency) to $577.8 million and adjusted EBITDA increased 2% (1% local currency) to $582.2 million. Adjusted EBITDA margin on fee revenue decreased 170 basis points to 19.7%. The fourth quarter of 2016 represents a difficult comparison; note that the adjusted EBITDA margins on fee revenue for the fourth quarters of 2014, 2015, 2016, and 2017 were 17.2%, 16.3%, 19.9%, and 18.7%, respectively, in our regional services businesses. The fourth quarter of 2017 was also negatively impacted by the decline in adjusted EBITDA from Development Services.

Fourth-Quarter 2017 Segment Review

The following tables present highlights of CBRE segment performance during the fourth quarter of 2017 (dollars in thousands):

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

 

 

 

 

% Change from Q4 2016

 

 

 

 

 

 

% Change from Q4 2016

 

 

 

 

 

 

% Change from Q4 2016

 

 

Q4 2017

 

 

USD

 

 

LC

 

 

Q4 2017

 

 

USD

 

 

LC

 

 

Q4 2017

 

 

USD

 

 

LC

 

Revenue

$

2,341,276

 

 

11%

 

 

12%

 

 

$

1,332,825

 

 

17%

 

 

9%

 

 

$

526,603

 

 

13%

 

 

11%

 

Fee revenue

 

1,688,991

 

 

9%

 

 

9%

 

 

 

780,705

 

 

16%

 

 

8%

 

 

 

349,445

 

 

8%

 

 

7%

 

EBITDA

 

324,796

 

 

13%

 

 

13%

 

 

 

132,133

 

 

36%

 

 

25%

 

 

 

69,338

 

 

2%

 

 

2%

 

Adjusted EBITDA

 

324,796

 

 

4%

 

 

4%

 

 

 

132,133

 

 

8%

 

 

-1%

 

 

 

69,338

 

 

 

 

-1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Investment Management

 

 

Development Services (6)

 

 

 

 

 

 

 

 

 

% Change from Q4 2016

 

 

 

 

 

 

% Change from Q4 2016

 

 

 

 

 

 

 

 

 

Q4 2017

 

 

USD

 

 

LC

 

 

Q4 2017

 

 

USD

 

 

LC

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

103,193

 

 

12%

 

 

7%

 

 

$

32,315

 

 

60%

 

 

60%

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

17,038

 

 

-29%

 

 

-34%

 

 

 

34,534

 

 

-28%

 

 

-28%

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

21,402

 

 

44%

 

 

36%

 

 

 

34,534

 

 

-28%

 

 

-28%

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding the impact of all currency movement including hedging activity, adjusted EBITDA growth rates for the fourth quarter of 2017 were: 5% in the Americas, -1% in EMEA, -4% in APAC and 46% in Global Investment Management.

CBRE produced solid revenue growth in all three of its global regions in the fourth quarter of 2017.

  • APAC saw a 13% (11% local currency) revenue increase, supported by solid growth across the region, most notably in Australia, India, Japan and Singapore.
  • In the Americas, revenue increased 11% (12% local currency), with strong growth in Canada, Mexico and the United States.
  • EMEA revenue rose 17% (9% local currency), driven by Spain and the United Kingdom.

Revenue growth across CBRE’s global business lines was largely organic.

  • Global occupier outsourcing achieved growth of 19% (17% local currency) in revenue and 20% (17% local currency) in fee revenue. Acquisitions contributed 1% to the revenue growth rate and 2% to the fee revenue growth rate in the quarter.
    • Growth was broad-based across the three global regions, led by India, the United Kingdom and the United States.
  • Leasing revenue rose by double digits, increasing 13% (11% local currency).
    • APAC produced 17% (same local currency) leasing revenue growth, paced by Australia, Greater China and Japan.
    • Americas leasing revenue rose 12% (same local currency), with strong performance in Brazil, Canada and the United States.
    • EMEA leasing revenue rose 12% (3% local currency), led by France.
  • Revenue edged up 1% (down 1% local currency) for the capital markets businesses – property sales and commercial mortgage origination – on a combined basis.
  • Among the capital markets businesses, global property sales revenue was flat (down 2% local currency), consistent with the decline in market volumes globally.
    • EMEA remained robust with sales revenue up 29% (20% local currency). Several countries drove this outcome, including Germany, Italy, Netherlands, Spain and the United Kingdom.
    • APAC sales revenue fell 7% (down 8% local currency) compared with a very strong fourth quarter of 2016, when sales surged 42% (35% in local currency).
    • Americas sales revenue declined 8% (same local currency), as strong gains in Canada and Mexico were offset by lower activity in the United States, which saw revenue decrease in line with the decline in market volumes.
    • For the full year, CBRE’s U.S. investment sales market share rose 80 basis points to 17.0%, almost double the nearest competitor, according to Real Capital Analytics.
  • The other capital markets business, commercial mortgage origination, saw revenue increase 5% (same local currency). This is on top of the 36% growth achieved in the fourth quarter of 2016. Loan volume growth remained healthy, particularly with conduit lenders due to higher CMBS activity.
  • Recurring revenue from CBRE’s growing loan servicing portfolio increased 31% (30% local currency). At the end of the fourth quarter, the loan servicing portfolio totaled approximately $174 billion, up 20% from year-end 2016.
  • Property management services produced growth of 14% (12% local currency) for revenue and 16% (14% local currency) for fee revenue. Growth was strong worldwide, most notably in APAC.
  • Valuation revenue rose 3% (flat local currency).
  • CBRE’s Global Investment Management business produced adjusted EBITDA growth of 44% (36% local currency) in the fourth quarter.
    • In the Global Investment Management segment, assets under management (AUM) totaled $103.2 billion, up $4.9 billion from the third quarter of 2017. Favorable currency movement added approximately $600 million to AUM during the quarter.
  • As expected, adjusted EBITDA in the Development Services business declined 28% (same local currency) from the year-earlier fourth quarter due to the timing of asset sales, which were significantly higher in the fourth quarter of 2016.
    • In the Development Services segment, projects in process totaled $6.8 billion at year-end 2017, up almost $1.0 billion from the third quarter of 2017. The pipeline decreased $1.6 billion during the quarter, reflecting a higher-than-normal conversion of pipeline deals to in process activity.

CBRE also announced plans to call its $800 million of 5% bonds due in 2023 in March 2018, which will be funded with cash on hand and borrowings under its credit facility.