This summary is based on the first quarter fiscal 2008 earnings call conducted by CB Richard Ellis Group Inc. (CBG) on April 30, 2008.
Management:
-
President and CEO: Brett White
-
Senior EVP and CFO: Kenneth Kay
-
Vice Chairman, Global Corporate Services: William Concannon
-
Sr. VP, IR: Nick Kormeluk
Key Investors Issues
- Revenue was $1.2 billion up $17 million or 1% from the year-ago quarter.
- Net income was $20.5 million or 10 cents a share, up 70.8%.
- The firm was recently added to the Fortune 500.
First Quarter Highlights
Revenue was $1.2 billion up $17 million or 1% from the year-ago quarter, as a result of higher global outsourcing and leasing revenue, partially offset by weakness in the Capital Markets businesses in the Americas and the EMEA.
- As a percentage of revenue, cost of services rose to 57%, due to business and geographic mix with higher outsourcing reimbursable worldwide and increased competition expense in EMEA and Asia Pacific, due to acquisitions and investment.
- Operating expense of $432.3 million, was up 5% from the year ago quarter, driven mainly by increased costs attributable to investment in growth of the business, including the impact of infill acquisitions.
- The firm posted an equity loss from unconsolidated subsidiaries versus equity income in the year-ago quarter due to $10.6 million write-downs of the investment in CBRE reality finance attributable to its decline in market valuation.
Net income was $20.5 million or 10 cents a share, up 70.8% from 12 million or 5 cents a share in the prior year due to significant growth in its outsourcing business activities.
- Property and facilities management increased by 34% year-over-year, driven by the additional of new outsourcing accounts and the expansion of services to existing clients from cross selling initiatives.
- Sales revenue was down 33% from the prior year in the Americas and EMEA, as a result of ongoing challenges in the credit market.
- The appraisal and valuation business grew by 9% due to higher fee revenue and EMEA and Asia Pacific.
- The firm is seeing a pick up in demand for appraisals related to loan workouts, as well as nontraditional advisory and consulting assignments, which offset lower activity from CMBS financing originations.
The commercial mortgage business was down 46% year-over-year, due to lower fees in the US resulting from a decrease in the number of loan originations as expected in light of the continuing credit crunch.
- Loan volume totaled $2.5 billion, down from $6.2 billion in 2007, when the investment market was at its high point.
- EBITDA margin declined due to business mix shifting from investment sales to outsourcing, which has a higher reimbursable element.
- Total net debt was approximately $2.1 billion, with the majority of these real estate loans recoursed to the development projects, but non-recoursed to the company.
- The outstanding balance of real estate loans was approximately $520 million, of which only $7 million was recoursed to the company.
In March, the firm exercised the accordion provision in the existing credit agreement to syndicate a $300 million term A-1 loan, proceeds of which were used to reduce the outstanding revolver borrowing.
- This new facility will expand flexibility to continue infill acquisition in co-investment programs and other strategic corporate initiatives.
- Both Moody\''s Investor Service and Standard & Poor\''s have reaffirmed the senior debt ratings with a stable outlook and referenced to the new term loan.
- The amount outstanding on the revolver at quarter end was $311.2 million.
- Due to the limited capital expenditure and working capital needs, the internal cash flow tends to be highly correlated with net income.
Operational Overview:
- While the firm projected a steep decline in the global investment property sales business and the US mortgage brokerage business, the decline in the US and European property sales were marginally steeper than forecast.
- The anticipated downturn in US and EMEA pleasing volumes did not occur and this downturn has simply taken longer to manifest itself, and now could likely impact quarters two through four.
- The firm was recently added to the Fortune 500 this year, and the BusinessWeek ranked it number 11 among the 50 best in class companies.
Additionally, CB Richard Ellis is once again ranked the number one investment sales firm by RCA in the first quarter of 2008, with a market share of 14.2%, which is nearly double the number two firm.
- The firm is continuing its aggressive approach to infill acquisitions in 2008, and has been very active in the first quarter, completing eight transactions for an aggregate purchase price of almost $125 million.
- Most notable is also the entrees into Romania and Denmark through the acquisitions at Eurisko and Cedar Homes respectively.
- Forecast vacancy rates for 2008, for both office and industrial property in the US have deteriorated as a direct result of the lowered forecast absorption in office and industrial properties.
Segment Highlights:
-
Americas] revenue for region, including the U.S., Canada and Latin America, was $783.5 million, compared with $791.9 million in 2007.
- The continued growth of the outsourcing business as well as stronger leasing performance compared to the prior year almost entirely mitigated the impact of lower sales and commercial mortgage brokerage activity.
- Operating income totaled $62.4 million, compared with $21.6 million in 2007 largely due to the inclusion of higher Trammell Crow Company merger and acquisition related expenses in the prior year.
- The company recorded an equity loss from unconsolidated subsidiaries of $10.6 million due to a write-down of its investment in CBRE Realty Finance attributable to a declined market valuation.
