CBRE Group Revenue, Earnings Zoom - Analyst Blog

CBRE Group Inc. (CBG), the world's largest commercial real estate services firm in terms of 2011 revenue, reported second quarter 2012 revenues of $1.6 billion compared with $1.4 billion in the year-earlier quarter, reflecting a year-over-year increase of 13%.

The company reported a net income of $75.9 million or 23 cents per share during the quarter, compared with $61.2 million or 19 cents in the year-ago period. While earnings increased 24% compared to the prior year, EPS surged by 21% in the reported quarter.

Excluding non-recurring items, CBRE Group reported a net income of $88.0 million or 27 cents per share during the quarter, compared with $67.0 million or 21 cents in the year-earlier quarter. Recurring earnings spiked 31% year over year, while recurring EPS rose by 29% compared to the second quarter of 2011. Second quarter 2012 recurring earnings marginally surpassed the Zacks Consensus Estimate by a penny.

Second quarter 2012 EBITDA (earnings before interest, tax, depreciation and amortization) excluding selected charges increased 28% to $220.9 million, compared to $172.4 million in the year-ago quarter. The double-digit growth in revenues and earnings, despite a challenging macroeconomic environment, were primarily due to an improved performance in the U.S., strong growth in the Asia-Pacific region, and incremental contributions from the global investment management operations.

Revenue increased in all the business lines as CBRE Group witnessed robust global property sales and leasing activities during the quarter, buoyed by its leading market position in the world's major business centers. Global property sales revenue surged by double digits for the 11th consecutive quarter during second quarter 2012, as credit availability became easier and broad investor sentiment improved.

The company signed 54 long-term real estate outsourcing contracts during the quarter out of which 24 were new clients - a record of sorts for the company in any quarter. Global property leasing revenue increased marginally owing to relatively soft market conditions in most parts of the world.

Despite the headwinds, CBRE Group was able to expand its operations in the EMEA region (Europe, Middle East and Africa) during the quarter with the acquisition of its affiliate company in Turkey for an undisclosed amount.

The acquiree offers valuation, leasing, investment, research and consultancy services in Turkey, and has a huge client base of local and international property companies that has been developed over a period of more than 20 years.

With the acquisition, CBRE Group anticipates to meet the increasing demands of clients who are targeting new commercial real estate opportunities in Turkey backed by its strong economic and political stability, and its strategic location offering a vital link between Europe, the Middle East and Asia.

Geographically, revenue in the Americas (U.S., Canada and Latin America) increased 13% in second quarter 2012 to $1.0 billion. In the Asia-Pacific region, revenue rose 7% due to strong performance in India, Australia and Japan. Revenues for the EMEA region declined to $248.2 million during the reported quarter, compared with $261.1 million in the second quarter of 2011 due to the continued weak economic growth in Europe.

The Global Investment Management segment, comprising investment management operations in the U.S., Europe and Asia, reported revenues of $119.7 million during the reported quarter compared with $57.6 million in the year-earlier quarter.

The strong revenue growth was attributable to the ING Real Estate Investment Management business that was acquired by CBRE Group in the second half of 2011, and was fully integrated with its existing investment management business by the first quarter 2012. Assets under management totaled $91.2 billion at quarter-end, down 3% from year-end 2011.

During the reported quarter, the Development Services segment which includes real estate development and investment activities primarily in the U.S., reported revenues of $17.8 million compared with $17.2 million in the year-ago quarter. The development pipeline of the company totaled $4.7 billion at quarter-end.

The gradual revival of the overall economy, albeit at a tepid and inconsistent pace, has enabled the company to drive its growth engine. Management further expects to continue the growth momentum in 2012 with a diverse operating platform, premier brand and global footprint.

We also remain encouraged by indications of stabilization and recovery of market conditions. At quarter-end, CBRE Group had cash and cash equivalents of $731.2 million compared to $1.1 billion at year-end 2011.

For full year 2012, the company reiterated its earlier recurring earnings guidance in the range of $1.20 to $1.25 per share. We maintain our Neutral recommendation for the stock. We also have a Neutral recommendation and a Zacks #3 Rank (short-term Hold rating) for Jones Lang LaSalle Inc. (JLL), one of the competitors of CBRE Group.

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