CBRE reports 19% Increase In Adjusted Net Income On 11% Revenue Growth For The Third Quarter

CBRE reported strong growth in revenue and earnings for the third quarter ended September 30, 2013.

Third-Quarter 2013 Results

Revenue for the quarter totaled $1.73 billion, an increase of 11% from $1.56 billion in the third quarter of 2012.
Excluding selected charges1, net income2 increased 19% to $99.7 million from $83.6 million in the third quarter of 2012, and earnings per diluted share increased to $0.30 from $0.26 in the prior-year period. For the third quarter, selected charges (net of income taxes) totaled $5.3 million versus $43.9 million for the same period in 2012.
On a U.S. GAAP basis, net income totaled $94.4 million, compared with $39.7 million for the third quarter of 2012. GAAP earnings per diluted share totaled $0.28, compared with $0.12 in last year’s third quarter.
Excluding selected charges, Earnings Before Interest Taxes Depreciation and Amortization (EBITDA)3 increased 15% to $225.2 million from $195.3 million in the third quarter of 2012. EBITDA3 (including selected charges) rose 37% to $224.4 million for the third quarter of 2013, from $163.6 million for the same period a year earlier.

Management Commentary

“During the third quarter, CBRE benefited significantly from our well-balanced business and leading position across markets and service lines around the world,” said Bob Sulentic, president and chief executive officer of CBRE. “We once again delivered strong growth on the top- and bottom-lines, while continuing to make measured, but very important strategic investments in our people and technology that are strengthening our company and positioning us for continued success.

“While property sales continued to be our fastest-growing service line – reflecting CBRE’s leading position in key investment markets worldwide – we were also pleased to see a quicker pace of growth in our leasing business and continued double-digit increases in occupier outsourcing. Our performance was also bolstered by higher contributions from our investment management business, where we are capitalizing on the favorable sales environment to harvest gains in the property portfolio on behalf of our investor clients.”

Global revenue growth of 11% was paced by CBRE’s Europe, Middle East and Africa (EMEA) operations. Revenue in this region surged 25% with all major service lines producing strong, double-digit growth. The Americas, CBRE’s largest business segment, posted double-digit revenue growth (11%) for the fourth consecutive quarter, with notable strength in property sales and occupier outsourcing as well as improved leasing performance. Revenue growth in Asia Pacific was strong in local currencies but this strength was diminished when translated into U.S. dollars. In local currency, Asia Pacific revenue rose by a healthy 13%, but only 1% in U.S. dollars.

Among global business lines, property sales again set the pace for growth with a revenue increase of 29%. Sales revenue was up strongly across all regions, led by a 50% increase in EMEA. At the country level, sales revenue was particularly strong in Germany, Japan, the U.K. and the U.S. During the third quarter, CBRE once again captured the highest market share for investment sales in both the U.S and the U.K.

Leasing revenue growth accelerated to 11% -- the strongest performance in that business line since the third quarter of 2011. Strong growth was evident in EMEA (up 20%) and the Americas (up 12%). In the largest lease transaction in the U.K. this year, CBRE advised QNB & Sellar Group in its 430,000 square foot lease with News UK, a subsidiary of News Corp, which will relocate its headquarters to The Place, a new office building under construction in central London.

CBRE’s occupier outsourcing business, Global Corporate Services (GCS), remained a stellar performer. This business, which comprises facilities management, project management, transaction management and strategic consulting, saw revenue grow briskly, rising 14% on a global basis and 18% in the Americas. Overall property, facilities and project management revenue rose 9%.

CBRE signed a total of 54 GCS contracts during the quarter, including 20 with new customers. Among these new customers are Heinz, Tesla Motors and EMG, a petroleum and petrochemical company based in Japan. In addition, earlier this month, CBRE signed one of its largest ever outsourcing engagements with JP Morgan Chase. CBRE will provide the bank with facilities management and brokerage services in the U.S., Canada and Latin America as well as project management services in the U.S. and Asia Pacific.

Revenue improved 11% in the Company’s Global Investment Management business, where CBRE manages real estate investment funds and other investment products for institutional investors. The higher revenue during the quarter resulted from outsized carried interest revenue, which reflects incremental revenue earned by CBRE when assets in the investment portfolio are sold at values that exceed return thresholds. The carried interest revenue also had an outsized bottom-line impact on this business, with normalized EBITDA rising 52% from a year ago.

Appraisal and valuation revenue rose 7%, led by EMEA. However, commercial mortgage brokerage revenue fell 10%. While CBRE’s overall loan origination remained highly active – with U.S. loan volume up 16% during the quarter – this business line was adversely affected by the U.S. Government-Sponsored Enterprises’ (GSEs) effort to scale back their lending activity, as mandated by their regulators. The mandated scale-back in these loans put significant pressure on revenue and profits for the commercial mortgage brokerage business.

During the third quarter, CBRE completed two acquisitions that complement its service offering: Fameco, a highly regarded retail specialist serving parts of Pennsylvania, New Jersey and Delaware; and an acquisition of a majority interest in Basale Sverige AB, a property management firm in Sweden.