CBRE's Earnings a Penny Short

Zacks

CBRE Group Inc. (CBG) reported first-quarter 2013 adjusted earnings of 16 cents per share, which missed the Zacks Consensus Estimate by a penny. However, this compared favorably with the prior year quarter earnings of 14 cents per share. The year-over-year increase is attributable to strong top-line growth across all operating regions, especially Europe.

On a GAAP basis, this leading commercial real estate investment trust (:REIT) reported earnings of 11 cents per share, up from 8 cents in prior-year quarter.

Inside the Headlines

Revenues for the quarter were $1,475 million, beating the Zacks Consensus Estimate of $1,458 million. Additionally, revenues surpassed the prior year quarter figure of $1,350 million by 9%.

Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) came in at $161.3 million, reflecting a year-over-year increase of 7% from $150.5 million in the prior year quarter.

Leasing revenue increased 3% globally during the first quarter, despite a dip in performance in the Asia Pacific region mainly due to weaker yen. Notably, sturdy gains in EMEA (up 6%) and the Americas (up 5%) acted as major boosters.

Also, Global Corporate Services (outsourcing business for occupier clients) revenues rose 12% globally and this was aided by revenue growth in all global regions – especially the Americas (15%). CBRE inked 46 contracts during the quarter in Global Corporate Services. 

Segment Details

Americas Region (U.S., Canada and Latin America): Backed by strong outsourcing gains, the region generated a year-over-year revenue increase of 10% to $926.0 million from $845.3 million. Moreover, adjusted EBITDA rose 5% to $106.4 million from $101.2 million in prior year quarter.

EMEA Region (primarily Europe): Geographically, the region remained the best performer, with year-over-year revenue increase of 16% to $228.6 million from $197.4 million. The result was due to improved performance in France, Germany and the U.K. Furthermore, adjusted EBITDA loss narrowed to $0.5 million from $7.1 million in prior year quarter.

Asia Pacific Region (Asia, Australia and New Zealand): Benefiting from enhanced overall performance, particularly in Greater China and Singapore, the region generated revenues of $181.4 million – a year-over-year increase of 9% from $167.2 million. Adjusted EBITDA also rose substantially to $5.8 million from $2.3 million in the first quarter of 2012.

Global Investment Management Business (investment management operations in the U.S., Europe and Asia): Revenues rose by 1% year over year to $126.6 million from $125.2 million in prior year quarter. However, adjusted EBITDA dipped 6% to $41.9 million from $44.6 million in the prior-year quarter.

Development Services (real estate development and investment activities primarily in the U.S.): Revenues fell 17% to $12.4 million from $14.9 million in the first quarter of 2012. Adjusted EBITDA also plummeted 18% to $7.8 million from $9.5 million in the prior-year period. The development projects in process totaled $4.3 billion, up 2% from year-end 2012.

Liquidity

As of Mar 31, 2013, CBRE had cash and cash equivalents of $518.7 million, compared with $1.1 billion in at year-end 2012.

2013 Outlook

Impressed with its quarterly progress, CBRE reaffirmed its adjusted earnings per share guidance and expects it in the range of $1.40–$1.45 for full-year 2013.

Our Viewpoint

In spite of a weaker yen acting as a dampener, CBRE posted a decent first quarter result on the back of strong performance across its segments. However, the company’s strong and flexible capital structure along with its flourishing outsourcing business strengthens its market position. Considering these factors, we are optimistic about CBRE’s growth going forward at a steady pace.

Earlier this week, another REIT– Prologis Inc. (PLD) – reported first-quarter 2013 core FFO per share of 40 cents which was in line with the Zacks Consensus Estimate as well as the prior-year quarter figure. Results reflected decent revenues in the reported quarter, and completion of the Japan-REIT IPO as well as the European joint venture. Moreover, its strategic measures also helped it to lower its overall debt level.

CBRE currently holds a Zacks Rank #2 (Buy). Other well performing REITs include Regency Centers Corp. (REG) and Simon Property Group Inc. (SPG), both carrying a Zacks Rank #2 (Buy).

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