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Impressive 4Q at CBRE Group

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CBRE Group Inc. came up with an impressive result in the fourth quarter 2012, after a disappointing performance in the prior quarter. The company’s adjusted earnings of 55 cents per share surpassed the Zacks Consensus Estimate by 6 cents. Also, earnings substantially exceeded the last quarter and prior year quarter figure of 26 cents and 46 cents, respectively.

Helped by strong top-line growth in all operating regions, this leading commercial real estate services firm bounced back to growth track in the reported quarter. For 2012, the company recorded the highest total revenue in its history with highest earnings and normalized EBITDA since 2007.

For full year 2012, CBRE reported adjusted earnings of $1.22 per share higher than the Zacks Consensus Estimate by a penny and outpaced the prior-year earnings of $1.03 per share by 18%.

For fourth quarter 2012, on a GAAP basis, CBRE reported earnings of 53 cents per share, up significantly from 25 cents in the prior-year quarter. For full year 2012, earnings came in at 97 cents per share, increasing 31% from 74 cents in 2011.

Inside the Headlines

Revenues for the fourth quarter were $2.01 billion, substantially higher than the Zacks Consensus Estimate of $1.87 billion. Also revenues surpassed the last quarter and prior year quarter figure by 29% and 14%, respectively. Full year 2012 revenues were $6.51 billion, ahead of the Zacks Consensus Estimate of $6.47 billion and improved 10% from the prior year.

Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) came in at $351.7 million, reflecting a year-over-year increase of 12%. For 2012, adjusted EBITDA came in at $918.4 million, up 14% from 2011.

Leasing revenue hiked 5% globally during the fourth quarter, despite uneven market conditions, mainly driven by strong performance in the Americas and Asia Pacific regions.

Also, Outsourcing revenues rose 13% globally and this was helped by double-digit revenue growth in all three global regions – Americas, EMEA and Asia-pacific. Macerich inked 61 long-term contracts during the quarter in Global Corporate Services.  Of the 61 contracts, 21 were expansion contracts inked during the quarter– this represented a new company record. It continued to experience robust growth in services for existing clients.

Segment Details

Americas Region (U.S., Canada and Latin America): Geographically, the region remained the best performer, with year-over-year revenue increase of 16% to $1.2 billion. Also, adjusted EBITDA augmented 26% to $199.3 million.

EMEA Region (primarily Europe): Backed by strong outsourcing gains and improved performance in UK, the region’s revenues hiked 7% year over year to $357.5 million. However, adjusted EBITDA inched up 1% to $53.8 million.

Asia Pacific Region (Asia, Australia and New Zealand): Benefitting from strong valuation and leasing business lines growth, particularly in Australia and Singapore, the region generated revenues of $248.8 million – a year-over-year increase of 7%. Also, adjusted EBITDA rose 10% to $38.6 million.

Global Investment Management Business (investment management operations in the U.S., Europe and Asia): Revenues escalated 18% year over year to $123.4 million, primarily driven by higher asset management and incentive fees as well as contribution from integration of the ING REIM businesses, acquired in 2011. Adjusted, EBITDA surged 48% to $24.4 million.

Development Services (real estate development and investment activities primarily in the U.S.): Revenues soared 35% year over year to $28.4 million. However, adjusted EBITDA plummeted 32% to $35.6 million. The development projects in process totaled $4.2 billion, down $0.4 billion sequentially and $0.7 billion from the end of 2011.


At year-end, CBRE Group had cash and cash equivalents of $1.09 billion, almost in line with 2011 level.

2013 Outlook

CBRE expects adjusted earnings in the range of $1.40– $1.45 for full-year 2013.

Management remains encouraged by U.S. economic conditions, and thus expects the Americas to remain the biggest growth driver going forward. Also, it expects CBRE to benefit from the recent strengthening of China’s economic condition and the easing of credit-market tensions in Europe. Considering all these, management looks forward to witness solid revenue and earnings growth in 2013.

Our Viewpoint

We are impressed with CBRE’s transformation compared to the last quarter. The company managed to come back with a bang in the fourth quarter, with decent improvements in the revenue and EPS figure. Also, the buyout of commercial real estate services businesses of Atlanta-based Resource Real Estate Partners LLC (RREP) and TPA Realty Services LLC, during the quarter, will help improve ongoing client service offerings, especially in the southeast.

Moreover, the acquisition of EA Shaw in central London, during the quarter, enhanced its portfolio and strengthened its presence in the EMEA region. Thus, we believe such strategic moves will well-position the company for growth and provide upside potential for the company.

Last week, another REIT – Jones Lang LaSalle Inc. (JLL - Free Report) – reported modest results in the fourth quarter of 2012 with adjusted earnings of $2.60 per share, missing the Zacks Consensus Estimate by a penny.

CBRE currently holds a Zacks Rank #3 (Hold). However, other REITs that are performing better than CBRE include Ventas Inc. (VTR - Free Report) and Simon Property Group Inc. (SPG - Free Report) , both carrying a Zacks Rank #2 (Buy).

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