First-Quarter 2014 Results
- Revenue for the quarter totaled $1.9 billion, an increase of 26% (27% in local currency) from $1.5 billion in the first quarter of 2013.
- Excluding selected charges1, net income2 rose 60% to $82.4 million from $51.5 million in the first quarter of 2013, while earnings per diluted share improved 56% to $0.25 from $0.16 in the prior-year period. For the first quarter, selected charges (net of income taxes) totaled $14.7 million versus $14.0 million for the same period in 2013.
- On a U.S. GAAP basis, net income rose 80% to $67.7 million, compared with $37.5 million for the first quarter of 2013. GAAP earnings per diluted share rose 82% to $0.20, compared with $0.11 in last year’s first quarter.
- Excluding selected charges, EBITDA3 increased 23% to $198.8 million from $161.3 million in the first quarter of 2013. EBITDA3 (including selected charges) also rose 23% to $197.2 million for the first quarter of 2014, from $159.8 million for the same period a year earlier.
Management Commentary
“We are very pleased with our strong start to 2014,” said Bob Sulentic, president and chief executive officer of CBRE. “We drove very strong revenue and earnings growth across our global regions and in nearly all business lines. Our performance in the period reflects the ongoing investments we have made in professional talent and resources, and the success of our people in creating value for our clients. All of this allowed us to capture additional market share.
CBRE posted strong revenue growth in its three global regions. EMEA set a brisk pace with a 127% revenue increase (122% in local currency), fueled by contributions from the acquisition of building technical engineering services provider, Norland Managed Services Ltd, in late December 2013 as well as double-digit organic growth across all major business lines. Excluding Norland contributions, EMEA revenue surged 32% (27% in local currency), as market activity continued to revive in step with improved economic activity and investor sentiment across Europe.
In the Americas, CBRE’s largest business segment, revenue also increased by double digits, rising 10% for the quarter. The catalysts behind this growth were property sales (up 38% in the U.S. and 17% across the region) and leasing (up 10%) as well as the occupier outsourcing business (up 13%).
Asia Pacific posted solid revenue growth, led by a continued strong rebound in property sales. However, foreign currency conversion continued to understate CBRE’s growth in the region. Asia Pacific revenue rose 18% in local currency and 8% when translated into U.S. dollars.
Reflecting a highly active global investment market and CBRE’s central role in facilitating cross- border capital flows, global property sales revenue rose 27% for the quarter. Growth in Europe, the Middle East and Africa (EMEA) was particularly robust, as sales revenue increased 61%. CBRE benefited from recovering activity in continental European markets that had been affected by the economic downturn as well as continued strength in Germany and the U.K.
The Company’s occupier outsourcing business, Global Corporate Services (GCS), continued to grow strongly. Revenue for GCS increased 61%, reflecting 12% organic growth supplemented by strong contributions from the recent acquisition of Norland. “The Norland team has done a great job of integrating with our overall GCS offering in Europe,” Mr. Sulentic said. “We are benefiting significantly from the continued organic expansion of Norland’s business base as well as our success in introducing its technical capabilities to CBRE’s existing occupier clients. We are pleased with the enhanced growth prospects Norland affords us.”
The first quarter was also one of GCS’s best periods for new business. The company signed contracts with 25 new occupier customers and expanded its service offering with 24 existing clients. EMEA and Asia Pacific were notably active, as international companies increasingly embrace outsourcing. During the quarter, CBRE signed outsourcing contracts with international occupiers such as Alibaba Group, Société Générale and Wipro.
Global leasing revenue rose by 10%, marking the third consecutive quarter of double-digit growth. EMEA leasing revenue rose 16% driven by increased activity in the U.K. Commercial mortgage brokerage revenue rose 13%, even though, as expected, lending activity declined with the U.S. Government-Sponsored Enterprises. This decline was more than offset by increased U.S. loan originations with other capital sources and sharply higher loan sales activity.
First-Quarter 2014 Segment Results
Americas Region (U.S., Canada and Latin America)
- Revenue rose 10% (11% in local currency) to $1.0 billion, compared with $926.0 million for the first quarter of 2013. The improved revenue was driven by higher U.S. sales, leasing and occupier outsourcing activity.
- EBITDA increased 18% to $125.8 million compared with $106.4 million in last year’s first quarter.
- Operating income rose 16% to $86.6 million, compared with $74.6 million for the prior-year first quarter.
EMEA Region (primarily Europe)
- Revenue rose 127% (122% in local currency) to $518.7 million, compared with $228.6 million for the first quarter of 2013. The increase was broad based, as every major business line showed double-digit growth. Performance improved in several countries, most notably in the U.K. Excluding contributions from Norland, EMEA revenue increased 32% (27% in local currency) over the prior-year period.
- EBITDA increased to $23.4 million compared with an EBITDA loss of $0.5 million in the prior-year first quarter.
- Operating income totaled $5.1 million compared with an operating loss of $6.2 million for the same period in 2013.
Asia Pacific Region (Asia, Australia and New Zealand)
- Revenue was $195.6 million, an increase of 8% (18% in local currency) from $181.4 million for the first quarter of 2013. Performance improved in several countries, particularly Australia, China and Japan, but was tempered by negative foreign currency effects.
- EBITDA increased 41% to $8.2 million compared with $5.8 million for the prior-year first quarter.
- Operating income totaled $5.2 million, an increase of 77% from $2.9 million for the first quarter of 2013.
Global Investment Management (investment management operations in the U.S., Europe and Asia)
- Revenue totaled $112.5 million compared with $126.6 million in the first quarter of 2013.
- Excluding selected charges, EBITDA decreased to $29.8 million from $41.9 million in the prior-year first quarter. EBITDA (including selected charges) decreased to $28.3 million compared with $40.3 million in the first quarter of 2013.
- Operating income totaled $18.1 million, compared with $30.1 million for the first quarter of 2013.
- This business is transitioning from gain-harvesting in 2013 to capital-deployment in 2014, and has approximately $5.3 billion of equity to deploy following strong capital raising in 2013 and early 2014. The sale of nearly $10 billion of assets in 2013, the previously-announced decision to exit the management of a private REIT, and lower market fees in continental Europe led to lower revenue, operating income and EBITDA in the first quarter of 2014.
Development Services (real estate development and investment activities primarily in the U.S.)
- Revenue totaled $12.4 million for both the first quarter of 2014 and 2013.
- EBITDA increased 49% to $11.6 million compared with $7.8 million reported in the prior-year period. The increase was largely driven by higher income from property sales (reflected in equity earnings) in the current quarter.
- Operating loss totaled $2.5 million compared with a loss of $0.2 million for the same period in 2013. Under U.S. GAAP, equity earnings is not included in the calculation of operating loss.
- Development projects in process totaled $5.0 billion, up 2% from year-end 2013, and the inventory of pipeline deals totaled $1.8 billion, up 20% from year-end 2013. The larger pipeline reflects increased demand for development services as the economy improves.
Business Outlook
“We are encouraged by our strong first quarter performance,” Mr. Sulentic said. “Property sales were notably stronger than they normally are at the beginning of a year, and most of our other business lines performed better than the market. Investments in our people and platform further strengthen our ability to create value for our clients. This enables continued market share gains and supports strong, sustainable growth. Our excellent liquidity, cash flow and conservative balance sheet position us to continue expanding our global leadership position for the benefit of our clients, employees and shareholders.”