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Aug 2, 2018

CBRE

CBRE Group, Inc. reports double-digit second-quarter 2018 revenue and earnings growth and increases full-year outlook

CBRE Group, Inc. (NYSE:CBRE) today reported strong financial results for the second quarter ended June 30, 2018.

“We were pleased to have produced another strong quarter of double-digit growth in revenue, fee revenue and adjusted earnings per share,” said Bob Sulentic, CBRE’s president and chief executive officer. “We benefited significantly from the diversity and strength of our business mix – as leasing, occupier outsourcing and development services drove revenue growth in the quarter – and from our people’s focus on delivering differentiated outcomes for our clients – the key pillar of our strategy. 

“We begin the second half of the year with positive momentum across our business,” he continued.  “The macro environment remains favorable with solid economic growth.  While we are mindful of potential risks on the horizon, particularly from heightened trade tensions, we have thus far seen no discernible impact on our business.”

CBRE has raised its guidance for full-year 2018 adjusted earnings per share to a range of $3.10 to $3.20, up from $3.00 to $3.15. This implies growth of 15% for the full year at the mid-point of the guidance range, which would be CBRE’s 9th consecutive year of double-digit adjusted earnings per share growth.

Second-Quarter 2018 Results1

  • Revenue for the second quarter totaled $5.1 billion, an increase of 15% (13% local currency2). Fee revenue3 also rose 15% (12% local currency) to $2.5 
  • billion. Organic fee revenue3 growth was 13% (10% local currency).
  •  
  • On a GAAP basis, net income increased 13% to $228.7 million, while earnings per diluted share increased 14% to $0.67 per share. Adjusted net income4 for the second quarter of 2018 rose 11% to $252.6 million, while adjusted earnings per diluted share improved 10% to $0.74 per share.
  • The adjustments to GAAP net income for the second quarter of 2018 included $29.4 million (pre-tax) of non-cash acquisition-related depreciation and amortization and $1.5 million (pre-tax) of net carried interest incentive compensation expense to align with the timing of associated revenue. These costs were partially offset by a net tax benefit of $7.1 million associated with the aforementioned pre-tax adjustments.
  • EBITDA5 increased 8% (6% local currency) to $437.8 million and adjusted EBITDA increased 5% (3% local currency) to $439.3 million. Adjusted EBITDA margin on fee revenue was 17.3% for the three months ended June 30, 2018.
  •  

Second-Quarter 2018 Segment and Business Line Review

The following tables present highlights of CBRE segment performance during the second quarter of 2018 (dollars in thousands):

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

 

 

 

 

% Change from Q2 2017

 

 

 

 

 

 

% Change from Q2 2017

 

 

 

 

 

 

% Change from Q2 2017

 

 

Q2 2018

 

 

USD

 

 

LC

 

 

Q2 2018

 

 

USD

 

 

LC

 

 

Q2 2018

 

 

USD

 

 

LC

 

Revenue

$

3,140,427

 

 

11%

 

 

11%

 

 

$

1,315,452

 

 

29%

 

 

20%

 

 

$

538,200

 

 

11%

 

 

8%

 

Fee revenue

 

1,432,833

 

 

13%

 

 

13%

 

 

 

684,620

 

 

24%

 

 

15%

 

 

 

300,792

 

 

10%

 

 

7%

 

EBITDA

 

258,353

 

 

14%

 

 

14%

 

 

 

66,519

 

 

6%

 

 

-1%

 

 

 

42,861

 

 

-3%

 

 

-5%

 

Adjusted EBITDA

 

258,353

 

 

11%

 

 

10%

 

 

 

66,519

 

 

-5%

 

 

-12%

 

 

 

42,861

 

 

-4%

 

 

-6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Investment Management

 

 

Development Services (6)

 

 

 

 

 

 

 

 

 

% Change from Q2 2017

 

 

 

 

 

 

% Change from Q2 2017

 

 

 

 

 

 

 

 

 

Q2 2018

 

 

USD

 

 

LC

 

 

Q2 2018

 

 

USD

 

 

LC

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

98,947

 

 

7%

 

 

2%

 

 

$

18,408

 

 

8%

 

 

8%

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

14,375

 

 

-46%

 

 

-50%

 

 

 

55,673

 

 

20%

 

 

20%

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

15,901

 

 

-33%

 

 

-37%

 

 

 

55,673

 

 

20%

 

 

20%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CBRE experienced particularly strong revenue growth in its combined regional services business in the second quarter. For 2018, as indicated at the beginning of the year, the company is making incremental investments to support future growth, streamline operations, and share some of the benefits of tax reform with its employees. These investments, coupled with strong revenue growth in global occupier outsourcing and a decline in high-margin property sales in EMEA and APAC from an exceptionally strong prior-year quarter, weighed on EBITDA margins in the second quarter. The company does not expect to increase the current level of run-rate investment for the foreseeable future, and therefore does not expect these incremental investments to put negative pressure on operating leverage in its combined regional services business in 2019. 

In EMEA, revenue rose 29% (20% local currency), driven by France, Italy, the Netherlands and the United Kingdom. Americas revenue was up 11% (same local currency), supported by strong gains in Brazil, Canada and the United States. APAC (Asia Pacific) revenue increased 11% (8% local currency), fueled by Greater China and India.

Among global business lines, leasing revenue growth was particularly strong, rising 20% (18% local currency). The Americas paced this performance with a 19% (same local currency) revenue gain, driven primarily by the United States. EMEA achieved 21% (12% local currency) growth, with especially strong contributions from France, Germany and the United Kingdom. APAC leasing revenue rose 23% (20% local currency), led by Australia, Greater China and Japan.

Global occupier outsourcing once again produced strong growth, as the combination of the on-going secular outsourcing trend and CBRE’s advancing capabilities continue to catalyze revenue gains. Revenue increased 18% (15% local currency) and fee revenue rose 24% (20% local currency). Growth was strong around the world, particularly in EMEA and APAC. Acquisitions contributed 2% (same local currency) to the revenue growth rate and 5% (same local currency) to the fee revenue growth rate in the second quarter of 2018.

Combined revenue from CBRE’s capital markets businesses – property sales and commercial mortgage origination – was up 3% (2% local currency). This was driven by commercial mortgage origination revenue growth of 15% (same local currency), reflecting solid activity with banks and government agencies.

Global property sales revenue was up 1% (down 2% local currency).  Americas sales revenue was up 3% (same local currency), with double-digit growth in Brazil, Canada and Mexico. APAC sales revenue declined 12% (14% local currency) while EMEA sales revenue edged up 4% (down 3% local currency). This performance reflects very difficult comparisons with the second quarter of 2017, when EMEA and APAC both had exceptional growth of more than 40% (local currency).

Recurring revenue from the loan servicing portfolio increased 10% (same local currency).

Property management services produced revenue and fee revenue growth of 9% (6% local currency) and 13% (9% local currency), respectively, supported by growth in the fund administration business.

Valuation revenue rose 7% (4% local currency), paced by EMEA.

Adjusted EBITDA for CBRE’s real estate investment services businesses (CBRE Global Investors and Development Services) rose 2% (1% local currency) on a combined basis. Growth was driven by several large asset sales in Development Services (which were reported in equity income from unconsolidated subsidiaries and gain on disposition of real estate), where adjusted EBITDA grew by 20% (same local currency).

  • The in-process Development Services portfolio increased to a record $8.0 billion, up $0.3 billion from first quarter 2018, reflecting the continued conversion of pipeline activity. The pipeline decreased by $0.2 billion during the second quarter.
  • Global Investment Management assets under management (AUM) totaled $101.7 billion, down from $104.2 billion in the first quarter of 2018. AUM increased by approximately $0.7 billion during the quarter absent the negative currency movement due to the strengthening dollar.

CBRE made three acquisitions in the second quarter, highlighted by FacilitySource, a leader in technology-based procurement and facility management solutions in the United States.

Six-Month 2018 Results1

  • Revenue for the six months ended June 30, 2018 totaled $9.8 billion, an increase of 15% (12% local currency). Fee revenue rose 16% (13% local currency) to $4.8 billion. Organic fee revenue growth was 14% (10% local currency).
  • On a GAAP basis, net income increased 12% to $379.0 million, while earnings per diluted share increased 10% to $1.10 per share. Adjusted net income for the first six months of 2018 rose 16% to $438.8 million, while adjusted earnings per diluted share improved 15% to $1.28 per share.
  • The adjustments to GAAP net income for the first six months of 2018 included $58.4 million (pre-tax) of non-cash acquisition-related depreciation and amortization and $28.0 million (pre-tax) write-off of financing costs related to the redemption in March 2018 of $800 million principal amount of the company’s 5% bonds due in 2023. These costs were partially offset by an $8.5 million (pre-tax) reversal of net carried interest incentive compensation to align with the timing of associated revenue and a net tax benefit of $18.6 million associated with the aforementioned pre-tax adjustments. The adjustments also include a $0.5 million net charge7 attributable to an update to the provisional estimated tax impact of the 2017 Tax Cuts and Jobs Act, which was initially recorded in the fourth quarter of 2017.
  • EBITDA increased 10% (8% local currency) to $795.6 million and adjusted EBITDA rose 8% (5% local currency) to $787.1 million. Adjusted EBITDA margin on fee revenue was 16.4% for the six months ended June 30, 2018.

Conference Call Details

The company’s second quarter earnings conference call will be held today (Thursday, August 2, 2018) at 8:30 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 1:00 p.m. Eastern Time on August 2, 2018, and will be available for one week following the event. 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 13681165. A transcript of the call will be available on the company’s Investor Relations website at www.cbre.com/investorrelations.