CBRE GROUP, INC. REPORTS SOLID FINANCIAL RESULTS FOR THIRD-QUARTER 2016
Revenue of $ 3.2 billion, up 18% (20% local currency)
Fee Revenue of $ 2.1 billion, up 9% (11% local currency)
GAAP EPS of $ 0.31; Adjusted EPS of $ 0.50
Third-Quarter 2016 Results*
• Revenue for the third quarter totaled $ 3.2 billion, an increase of 18% (20% local currency1). Fee revenue2 increased 9% (11% local currency) to $ 2.1 billion. The third quarter of 2016 included approximately $ 429 million of additional revenue from the Global Workplace Solutions business, which CBRE acquired on September 1, 2015, with a full quarter of activity reflected in the current quarter versus only one month of activity in the third quarter of 2015. Excluding the acquired Global Workplace Solutions business, revenue was up 2% (5% local currency) and fee revenue was essentially unchanged in U.S. dollars, but up 2% in local currency.
• On a GAAP basis, net income and earnings per diluted share decreased to $ 104.2 million and $ 0.31 per share, respectively. GAAP net income for the third quarter of 2016 was reduced by
$ 38.9 million (pre-tax) incurred in the previously announced cost-elimination program, which is now complete; $ 30.3 million (pre-tax) of acquisition-related non-cash amortization; and $ 28.6
million (pre-tax) of integration costs associated with the Global Workplace Solutions acquisition.
These costs were partially offset by an associated tax benefit of $ 31.3 million.
• Adjusted net income3 and adjusted earnings per share3 both decreased 2% to $ 168.0 million and $ 0.50 per share, respectively. The decrease reflects lower property sales revenue and the yearover-year impact of foreign currency movement.
• Foreign currency movement, primarily the impact of currency translation and the marking-tomarket of currency hedges, reduced current-quarter earnings per share by approximately $ 0.01, and increased earnings per share by approximately $ 0.01 for the third quarter of 2015. Due torounding the year-over-year negative impact was $ 0.03 per share when comparing the third quarter of 2016 to the third quarter of 2015. In the absence of this impact, adjusted earnings per share would have been up approximately 4%.
• EBITDA4 decreased 13% to $ 284.6 million and adjusted EBITDA4 increased 1% to $ 349.4 million. In the third quarter of 2016, EBITDA and adjusted EBITDA were negatively impacted by $ 7.2 million of currency movement, primarily related to the sharp decline in the value of the British pound sterling, and in the third quarter of 2015, were positively impacted by $ 5.7 million of currency movement, primarily the marking-to-market of currency hedges, for a total yearover- year negative impact of $ 12.9 million.
• Adjusted EBITDA margin on fee revenue was 16.5%.
Management Commentary
“Our results for the third quarter were solid and largely in line with our – as well as the market’s -- expectations,” said Bob Sulentic, CBRE’s president and chief executive officer. “Our performance is notable when viewed against the exceptionally strong growth we posted in last year’s third quarter – when adjusted earnings per share increased 28% -- and a backdrop of lower property sales volumes in most markets. In this environment, CBRE’s premier position in commercial real estate – with a deep, diverse, market-leading service offering – continues to serve our company and our clients particularly well.”
The Americas, the company’s largest business segment, saw revenue increase 14% (same in local currency). In EMEA (Europe, the Middle East & Africa), revenue rose by 30% (39% local currency), and in Asia Pacific (APAC) revenue increased 26% (23% local currency). Without the contributions from the acquired Global Workplace Solutions business, revenue increased 4% (5% local currency) in the Americas and 9% (6% local currency) in APAC. In EMEA, revenue without this acquisition increased 10% in local currency, but slipped 1% when converted to US dollars.
In the UK, overall revenue grew by 20% in local currency, or 8% excluding the acquired Global
Workplace Solutions business. This growth occurred despite the slowdown in the UK transaction
market in the wake of Brexit.
Among the company’s business lines, occupier outsourcing exhibited very strong growth. Global
revenue rose 50% (55% local currency), or 10% (16% local currency) without the contributions from the acquired Global Workplace Solutions accounts. Occupier outsourcing fee revenue rose 57% (63% local currency), or 11% (19% local currency) without the contributions from this acquisition. In local currency, double-digit growth in revenue and fee revenue was achieved in all three regions, before the contributions of the Global Workplace Solutions acquisition. CBRE signed 113 total outsourcing contracts (including facilities management, project management and transaction management) in the third quarter of 2016, including 52 expansions of existing client relationships – a record for the company.
Property sales activity was healthy by historical standards, but global sales revenue declined 7%
compared with a very strong third quarter of 2015, when the company’s global property sales revenue rose by 19% on a local currency basis. EMEA saw strong growth in France, the Netherlands and Switzerland, which offset continued weakness in property sales in the UK in the wake of Brexit.
Commercial mortgage services revenue rose 23% (24% local currency) in the third quarter, driven by gains from mortgage servicing rights and increased loan originations for the Government Sponsored Enterprises to provide financing for multi-family assets.
Leasing revenue grew 1% (2% local currency) when compared with a very strong third quarter of 2015, which saw global leasing revenue increase 12% year over year. In the Americas, robust growth in Brazil, Canada and Mexico offset flat performance in the U.S. In APAC, leasing revenue increased 7% (4% local currency), led by Greater China, Japan and Singapore. EMEA leasing revenue rose 3% in local currency – a turn-around from a decline in the second quarter of 2016 – but fell 5% in U.S. dollars.
A number of countries showed strength, notably France, Ireland, Poland and Switzerland.
Revenue from property management services rose by 3% (5% local currency), while fee revenue
increased 1% (2% local currency). Valuation revenue slipped 3% (1% local currency) for the third quarter.
Development services once again performed well, contributing nearly $ 16 million of adjusted EBITDA for the third quarter of 2016. Global investment management’s $ 19 million of adjusted EBITDA for the quarter was down from the third quarter of 2015, reflecting robust carried-interest generated in the prioryear period that did not recur in the current quarter. Global assets under management (AUM) totaled $ 87.9 billion at the end of the third quarter of 2016, up $ 5.0 billion in local currency from the third quarter of 2015. Foreign currency movement over the past year limited the increase in U.S. dollars to $ 1.9 billion, reflecting the fact that approximately 60% of AUM, excluding securities, is in Europe and is generally denominated in Euro and pound sterling. Development projects in process totaled $ 7.1 billion, up $ 400 million from the third quarter of 2015.
CBRE’s overall business mix continued to shift toward greater contractual fee revenue5. For the company as a whole, contractual fee revenue was 42% of fee revenue, up from 37% in third-quarter of 2015 and 20% in the third quarter of 2006.
Third-quarter 2016 results were adjusted for select items including acquisition-related integration expenses and charges associated with a cost elimination program that is now complete. The company does not adjust for foreign currency movements, including currency translation and gains or losses from currency hedging. Accordingly, EBITDA and adjusted EBITDA were both impacted by foreign currency movements. The current quarter segment impact of foreign currency movements, including currency translation and the marking-to-market of currency hedges, was as follows (dollars in thousands):
Nine-Month Results
• Revenue for the nine months ended September 30, 2016 totaled $ 9.2 billion, an increase of 29% (32% local currency). Fee revenue increased 17% (19% local currency) to $ 6.1 billion. The first nine months of 2016 included approximately $ 2.0 billion of revenue from the acquired Global Workplace Solutions business as compared to $ 236.6 million in the prior-year period, when CBRE owned this business for only one month. Excluding the acquired Global Workplace Solutions business, revenue was up 5% (7% local currency) and fee revenue was up 3% (5% local currency).
• On a GAAP basis, net income and earnings per diluted share decreased to $ 308.0 million and $ 0.91 per share, respectively. GAAP net income for the first nine months of 2016 was reduced by $ 81.8 million (pre-tax) of acquisition-related non-cash amortization; $ 78.5 million (pre-tax) incurred in the cost-elimination program; and $ 73.5 million (pre-tax) of integration costs associated with the Global Workplace Solutions acquisition. These costs were partially offset by an associated tax benefit of $ 71.4 million.
• Adjusted net income rose 11% to $ 463.8 million, while adjusted earnings per share improved 10% to $ 1.37.
• Foreign currency movement, primarily the impact of currency translation and the marking- to market of currency hedges, caused a net decrease of $ 0.03 per share in the first nine months of 2016 compared with the same prior-year period. This reflected a reduction of earnings per share for the 2016 period by approximately $ 0.02 per share, and an increase to earnings per share of approximately $ 0.01 for the 2015 period. In the absence of this impact, adjusted earnings per
share would have been up approximately 13%.
• EBITDA decreased 3% to $ 847.1 million while adjusted EBITDA increased 11% to $ 992.5 million.
• Adjusted EBITDA margin on fee revenue was 16.4%.
Foreign currency movement, including currency translation and the effect of hedging, negatively impacted EBITDA and adjusted EBITDA by $ 10.4 million for the 2016 nine-month period and positively impacted them by $ 6.5 million for the 2015 nine-month period for a total year- over-year negative impact of $ 16.9 million.
Business Outlook
“CBRE has continued to produce strong results for our shareholders, as we invest in our people and platform, including digital initiatives, to drive long-term growth and create superior outcomes for our clients,” Mr. Sulentic said. “Commercial real estate fundamentals remain healthy in most parts of the world and the global economy continues to grow at a modest pace. CBRE – as the clear market leader – is well positioned to achieve strong long-term financial performance and widen our competitive advantage in the marketplace.”
The company continues to expect adjusted EPS for the full year of $ 2.15 to $ 2.30 – which represents solid growth of approximately 9% at the midpoint of the range.
Conference Call Details
The company’s third-quarter earnings conference call will be held today (Thursday, October 27, 2016) 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
October 27, 2016, and ending at midnight Eastern Time on November 3, 2016. 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 13645729. A transcript of the call will be available on the company’s Investor
Relations website at www.cbre.com/investorrelations .