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CBRE Q3 Earnings Miss Estimates, Revs In Line

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CBRE Group Inc.’s third-quarter 2013 adjusted earnings came in at 30 cents per share, missing the Zacks Consensus Estimate by 3 cents. However, it was 15% higher than 26 cents earned in the prior-year quarter. Though the company experienced a rise in revenues, higher expenses acted as the dampener.

Property sales remained the leading growing service line, while leasing growth accelerated and occupier outsourcing posted double-digit growth. Enhanced contributions from the investment management business was a positive.

Yet, commercial mortgage brokerage revenue declined 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, this commercial real estate investment trust (REIT) reported earnings of 28 cents per share, up from 12 cents in the prior-year quarter.

Revenues came in at $1.7 billion, in line with the Zacks Consensus Estimate and up 11% year over year. Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) came in at $225.2 million, reflecting a year-over-year increase of 15% from the prior-year quarter.

Behind the Headlines

During the quarter, CBRE signed a total of 54 Global Corporate Services (GCS) contracts, including 20 with new customers such as Heinz, Tesla Motors Inc. (TSLA - Free Report) and EMG, a Japan-based petroleum and petrochemical company.

Moreover, during the reported quarter, CBRE accomplished two buyouts for complementing its service offering -- Fameco, a retail real estate service provider in Pennsylvania, New Jersey and Delaware; and the purchase of a majority stake in Basale Sverige AB, a property management company in Sweden.

Earlier this month, CBRE also penned one of its largest ever outsourcing deal with JPMorgan Chase & Co. (JPM - Free Report) for offering the bank with management and brokerage services facilities in the U.S., Canada and Latin America and project management services in the U.S. and Asia Pacific.
Segment Details

Americas Region (U.S., Canada and Latin America): This segment, which is the company’s largest business segment, experienced an 11% year over year increase in revenue to $1.1 billion. This was driven by decent performance in property sales and occupier outsourcing as well as improved leasing business.

EMEA Region (primarily Europe): Buoyed by enhanced performance across major business lines, revenues increased 25% year over year to $285.5 million. Particularly, France, Germany, Spain and the U.K. were strong.

Asia Pacific Region (Asia, Australia and New Zealand): Revenues were up 1% year over year to $202.7 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 11% year over year to $127.3 million as a result of the outsized carried-interest revenue, reflecting incremental revenue that CBRE earned when assets in the investment portfolio are disposed at values that surpass return thresholds.

Assets under management (AUM) totaled $87.6 billion at the end of the third quarter, reflecting a decline of 5% from year-end 2012, due to gains in the direct investment portfolio so as to capitalize on the favorable sales environment. Property dispositions reduced AUM by $7.4 billion that was partly mitigated by $3.0 billion of acquisitions.

Development Services (real estate development and investment activities primarily in the U.S.): Revenues declined 29% year over year to $12.6 million, due to low rental revenues following the property sales. The development projects in process aggregated $5.2 billion, up 24% from year-end 2012 while the inventory of pipeline deals totaled $1.6 billion, depicting a decline of 22% from year-end 2012.


As of Sep 30, 2013, CBRE had cash and cash equivalents of $502.6 million, compared with $485.5 million at the end of the prior quarter and $1.1 billion at year-end 2012.

2013 Outlook

CBRE reaffirmed its adjusted earnings per share guidance in the range of $1.40–$1.45 for full-year 2013.

Our Viewpoint

Although commercial mortgage brokerage revenue headwinds and currency fluctuations remain the concerns, we believe that CBRE’s solid and flexible capital structure as well as its growing outsourcing, leasing and investment management business strengthen its position. Hence, backed by its solid operating model, we expect the company to tide over the current stressed market environment.

CBRE currently carries a Zacks Rank #3 (Hold).Another stock that is performing better and worth a look is E-House (China) Holdings Ltd with a Zacks Rank #1 (Strong Buy).

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