CBRE Group Inc.’s (CBG) fourth-quarter 2013 adjusted earnings came in at 67 cents per share, a penny ahead of the Zacks Consensus Estimate and up 22% year over year.
Quarterly results were driven by strong contribution from the global investment management and property sales, improved leasing momentum and occupier outsourcing business. Yet, commercial mortgage brokerage revenue continued to decline owing to the negative impact from the U.S. Government-Sponsored Enterprises’ (GSEs) initiatives to scale back their lending activity, as commanded by their regulators.
On a GAAP basis, CBRE reported earnings of 34 cents per share, down from 53 cents in the prior-year quarter. The downturn reflected $74.3 million (22 cents per share) charge related to non-cash intangible asset impairment in the Global Investment Management segment in continental Europe.
Revenues came in at $2.23 billion, marginally above the Zacks Consensus Estimate of $2.17 billion and up 11% year over year. Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) came in at $392.7 million, reflecting a year-over-year increase of 12% from the prior-year quarter.
For full-year 2013, CBRE reported adjusted earnings of $1.43 per share on revenues of $7.2 billion. Results show an improvement from the prior year when the company had earned $1.22 per share on revenues of $6.5 billion.
Quarter in Detail
Notably, CBRE signed 32 outsourcing contracts with new customers during the fourth quarter. The company created a record by penning 96 outsourcing contracts with new customers for 2013.
CBRE Group has been actively engaged in deals for expanding business in the U.S. and U.K. During the quarter, CBRE disclosed the completion of the acquisition of U.K.-based commercial building technical engineering services provider – Norland Managed Services Ltd. The move is expected to substantially drive the company’s Global Corporate Services (GCS) business in EMEA.
Furthermore, a total of 5 acquisitions were made in the fourth quarter and 10 in full-year 2013. This included Whitestone Research Corporation, Alan Selby & Partners, CAC Group, CB Richard Ellis Carmody and KLMK Group.
Segment Details
Americas Region (U.S., Canada and Latin America): This segment, which is the company’s largest business segment, experienced a 9% year-over-year increase in revenue to $1.4 billion. Even amid a tepid macro environment, the company’s leasing business continued to recover.
EMEA Region (primarily Europe): Buoyed by enhanced performance across major business lines and led by property sales, revenues increased 21% year over year to $432.7 million. Particularly, the U.K. as well as in the Netherlands and Spain were strong.
Asia Pacific Region (Asia, Australia and New Zealand): Revenues were up 3% year over year to $255.6 million. While performance in a number of countries like Australia, India and Japan improved, it was mostly dwarfed by the negative impact of foreign currency movement.
Global Investment Management Business (investment management operations in the U.S., Europe and Asia): Revenues climbed 36% year over year to $168.0 million as a result of the carried-interest revenue, reflecting incremental revenue that CBRE earned when assets in the investment portfolio are disposed at values that surpass the target return thresholds. Assets under management (AUM) totaled $89.1 billion at the end of the fourth quarter, reflecting a sequential uptick of 2% and a year-over-year drop of 3%.
Development Services (real estate development and investment activities primarily in the U.S.): Revenues declined 35% year over year to $18.4 million, due to low rental revenues following the property sales as well as lower incentive development fees. The development projects in process aggregated $4.9 billion, up 17% from year-end 2012 while the inventory of pipeline deals totaled $1.5 billion, depicting a decline of 29% from year-end 2012.
Liquidity
CBRE exited the year with cash and cash equivalents of $491.9 million, compared with $1.1 billion at year-end 2012.
2014 Outlook
CBRE expects its adjusted earnings per share guidance to come in the range of $1.55–$1.60 for full-year 2014. This entails 10% growth rate considering the mid-point of the range. The company expects double-digit revenue escalations in both global property sales and occupier outsourcing in addition to continued growth in leasing revenue.
Our Viewpoint
With market conditions continuing to improve, we believe that opportunistic acquisitions would serve as growth drivers, supplementing the company’s organic growth. Improving outsourcing, leasing and investment management business also augur well going forward.
Yet currently, we believe that the regulatory limits on GSEs lending would continue to pressurize revenue and profits for the commercial mortgage brokerage business of this Zacks Rank #4 (Sell) stock.
However, other players in the real estate operations industry, which look attractive at current levels, include NorthStar Realty Finance Corp. (NRF), Jones Lang LaSalle Incorporated (JLL), and RE/MAX Holdings, Inc. (RMAX). All these stocks carry a Zacks Rank #2 (Buy).
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