CBRE Group, Inc. (NYSE:CBG) today reported financial results for the year and fourth quarter ended December 31, 2011.
Full-Year 2011 Results
Revenue for the full-year 2011 increased 15% to $5.9 billion, compared with $5.1 billion for 2010.
Excluding selected charges1, net income2 for 2011 totaled $334.5 million, or $1.03 per diluted share, an improvement of 39% and 37%, respectively, from $239.8 million, or $0.75 per diluted share, for 2010. Full-year 2011 results were lowered by selected charges of $95.3 million, net of income taxes, which primarily related to the acquisition of the ING REIM businesses and cost containment actions.
On a U.S. GAAP basis, net income rose 19% to $239.2 million, or $0.74 per diluted share, for 2011, compared with $200.3 million, or $0.63 per diluted share, for 2010.
Excluding selected charges, Earnings Before Interest Taxes Depreciation and Amortization (EBITDA)3 totaled $802.6 million in 2011 — up 18% from $681.3 million in 2010. EBITDA3 (including selected charges) for 2011 rose 7% to $693.3 million, compared with $647.5 million for 2010. Full-year 2011 EBITDA was lowered by selected charges of $109.4 million, which primarily related to the acquisition of the ING REIM businesses and cost containment actions.
Fourth-Quarter 2011 Results
Revenue for the quarter totaled $1.8 billion, an increase of 7% from $1.7 billion in the fourth quarter of 2010.
Excluding selected charges, net income totaled $149.3 million, or $0.46 per diluted share, for the current-year quarter, up 29% and 28%, respectively, from $115.4 million, or $0.36 per diluted share, in the fourth quarter of 2010. Fourth-quarter 2011 results were lowered by selected charges of $69.5 million, net of income taxes, which primarily related to the acquisition of the ING REIM businesses and cost containment actions.
On a U.S. GAAP basis, net income totaled $79.8 million, or $0.25 per diluted share, for the fourth quarter of 2011 compared with $95.1 million, or $0.30 per diluted share, for the fourth quarter of 2010.
Excluding selected charges, EBITDA increased 24% to $314.9 million in the current period from $253.1 million in the fourth quarter of 2010. EBITDA (including selected charges) totaled $235.1 million for the fourth quarter of 2011, compared with $241.0 million a year earlier. Fourth-quarter 2011 EBITDA was lowered by selected charges of $79.8 million, which primarily related to the acquisition of the ING REIM businesses and cost containment actions.
Management Commentary
“2011 was a year of unexpectedly tough operating conditions in many parts of the world, particularly in the back-half of the year. Nevertheless, we recorded our second-best year ever for both revenues and normalized EBITDA, enhanced our platform with the ING REIM acquisitions and strategic recruiting, and made other investments that will further position CBRE for leadership across market cycles,” said Brett White, chief executive officer of CBRE.
“Our highly diversified platform was the key to our fourth quarter results,” Mr. White continued. “The macro-environment during this period was marked by intensified concerns about sovereign debt issues, particularly in Europe, and tepid economic growth. This challenge, however, was offset by out-sized gains from our development portfolio, strong growth in outsourcing globally, resilience in our capital markets businesses, as well as actions taken to more carefully manage expenses. As a result, quarterly EBITDA margins reached their highest levels since the second quarter of 2007.”
Double-digit growth in all regions fueled a 14% rise in outsourcing revenue globally. This was the business line’s 5th consecutive quarter of double-digit growth – in part, due to the Company’s ability to take advantage of outsourcing’s growing acceptance in both international markets and new economic sectors. For example, during the fourth quarter of 2011, CBRE was awarded multi-year contracts to provide services for Unilever in Asia Pacific, the Middle East and Eastern Europe; and Newell-Rubbermaid in Asia Pacific. In Europe, the Company was retained by the United Kingdom Commonwealth Office, an example of its growing portfolio of public sector outsourcing clients.
The Company also continued to add significant global mandates, and recently broke new ground with the outsourcing industry’s first global real estate integrator contract. Microsoft Corporation has selected CBRE to serve as global integrator of services for the company’s 34 million square foot global portfolio. Under this contract, Microsoft has retained CBRE to perform real estate strategy and portfolio planning, property management and lease administration; to engage and manage multiple other service partners in the delivery of transaction, construction and facilities management services; and to partner with Microsoft to build an industry-leading commercial real estate IT platform.
Overall, CBRE signed 33 total outsourcing contracts in the fourth quarter, increasing the number of contracts for the year to 173 – a new single-year record for the Company.
Global property sales revenue rose 10%, paced by solid growth in both the Americas and Asia Pacific, while EMEA was relatively flat. In 2011, CBRE once again achieved the #1 market share in investment sales activity in both the U.S. and the U.K. In addition, the Mortgage Brokerage business, mainly centered in the U.S., saw revenue improve by 25% during the quarter.
Global property leasing revenue fell moderately, as double-digit growth in EMEA – despite soft economies across much of Europe — was offset by a decline in the Americas. The Americas decline was in part due to a tough comparison with the fourth quarter of 2010, when leasing revenue was 45% higher than in the fourth quarter of 2009. Asia Pacific’s leasing revenue for the fourth quarter of 2011 was relatively flat.
Fourth quarter results were enhanced by significant contributions from the Development Services business. The sale of two high-quality assets in the Houston and Dallas markets drove a sizable EBITDA improvement for this segment during the quarter.
Global Investment Management revenue improved 31% during the fourth quarter. This included revenue from the ING REIM businesses in Europe and Asia that were acquired this quarter, and the ING global listed real estate securities business that was acquired on July 1, 2011.
Fourth-Quarter 2011 Segment Results
Americas Region (U.S., Canada and Latin America)
Revenue rose 3% to $1.1 billion, compared with $1.0 billion for the fourth quarter of 2010.
EBITDA before selected charges totaled $158.2 million, up 18% from $133.5 million in last year’s fourth quarter. Including these charges, EBITDA increased 12% to $142.5 million.
Operating income rose 11% to $119.1 million from $107.4 million for the prior-year fourth quarter. Current-period operating income was impacted by $15.6 million of cost containment expenses.
EMEA Region (primarily Europe)
Revenue rose 9% to $334.6 million from $307.3 million for the fourth quarter of 2010. The increase was driven by growth in northern continental Europe and the United Kingdom.
EBITDA before selected charges totaled $53.1 million, an increase of 12% compared with $47.6 million in last year’s fourth quarter. Including these charges, EBITDA totaled $42.1 million in the fourth quarter of 2011.
Operating income was $39.0 million, compared with $45.4 million for the same period in 2010. Current-period operating income was impacted by $11.1 million of cost containment expenses.
Asia Pacific Region (Asia, Australia and New Zealand)
Revenue rose 11% to $231.7 million from $209.4 million for the fourth quarter of 2010. The increase reflects improved performance in several countries, particularly Australia, India and Japan.
EBITDA before selected charges totaled $35.0 million compared with $36.1 million for last year’s fourth quarter. Including these charges, EBITDA totaled $30.5 million in the fourth quarter of 2011.
Operating income was $27.3 million, compared with $33.5 million for the fourth quarter of 2010. Current-period operating income was impacted by $4.4 million of cost containment expenses.
Global Investment Management Business (investment management operations in the U.S., Europe and Asia)
Revenue increased 31% to $104.8 million from $79.8 million in the fourth quarter of 2010. The fourth quarter of 2011 benefited from approximately $60.0 million of revenue from the ING REIM businesses. No carried interest revenue was recognized, while last year’s fourth quarter included $19.9 million of carried interest revenue from a fund liquidation. The current-year period also produced lower acquisition fees and rental revenues (due to property dispositions) than a year ago.
EBITDA before selected charges totaled $16.5 million compared with $27.3 million in the prior-year fourth quarter. Including these charges, EBITDA reflected a loss of $29.4 million in the fourth quarter of 2011.
Operating loss totaled $41.4 million, compared with operating income of $13.4 million for the fourth quarter of 2010. Current-period operating loss was affected by $45.0 million of expenses related to the acquisition of ING REIM.
Current-period EBITDA, excluding and including selected charges, and operating results were affected by a net carried interest incentive compensation accrual of $10.5 million. In the prior-year’s fourth quarter, the carried interest incentive compensation accrual totaled $19.8 million. Positive contributions from ING REIM in the fourth quarter of 2011 were offset by higher equity earnings and the reversal of a doubtful-account provision in the prior-year fourth quarter.
Assets under management totaled $94.1 billion, representing a 150% increase from year-end 2010, mainly due to the ING REIM acquisitions.
Development Services (real estate development and investment activities primarily in the U.S.)
Revenue rose 21% to $21.1 million compared with $17.4 million for the fourth quarter of 2010.
Operating loss totaled $27.3 million as compared with an operating loss of $26.8 million for the same period in 2010.
EBITDA improved sharply to $49.4 million from $5.4 million in the prior-year period. The increase was driven by gains on the sale of properties, the majority of which was reported as equity income from unconsolidated subsidiaries and income from discontinued operations this quarter. These gains were partially offset by non-controlling interests activity. Equity income from unconsolidated subsidiaries, income from discontinued operations and activity associated with non-controlling interests are all included in the calculation of EBITDA, but not in revenue or operating income.
Selected charges in the fourth quarters of both 2011 and 2010 were not significant.
Development projects in process totaled $4.9 billion and the inventory of pipeline deals totaled $1.2 billion, both unchanged from year-end 2010.
2012 Outlook
“The global real estate market remains in recovery as we enter 2012. The pace of recovery, however, remains slow and inconsistent, restrained by sub-par economic growth and job creation in much of the world as well as Europe’s sovereign debt issues,” Mr. White said. “Despite these challenges, we expect that our premier people, brand, global platform, and vigilance around cost control will help us drive both improved financial performance for our shareholders and superior results for our clients in 2012.”
The Company has set its expectations for 2012 based on the above-mentioned factors as well as anticipated increases in interest, depreciation and amortization expense, mostly resulting from the ING REIM acquisition. In light of this, CBRE expects that earnings per share, as adjusted, will be in the range of $1.20 to $1.25 in 2012.
Conference Call Details
The Company’s fourth-quarter earnings conference call will be held on Tuesday, February 7, 2012 at 5:00 p.m. Eastern Time. A webcast will be accessible through the Investor Relations section of the Company’s Web site at www.cbre.com/investorrelations.
The direct dial-in number for the conference call is 800-230-1059 for U.S. callers and 612-234-9959 for international callers. A replay of the call will be available starting at 10 p.m. Eastern Time on February 7, 2012, and ending at midnight Eastern Time on February 13, 2012. The dial-in number for the replay is 800-475-6701 for U.S. callers and 320-365-3844 for international callers. The access code for the replay is 231836. A transcript of the call will be available on the Company’s Investor Relations Web site at www.cbre.com/investorrelations.